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are Elephant in Room in Investor-State Arbitration: Partner
In a pointed critique of the investor-state arbitration framework, Partner has drawn attention to what he calls the “ ”— . Speaking at a legal forum, Sethi argued that while private investors are often portrayed as the wronged party in disputes with states, the reality is far more complex. , he contended, are adept at managing the arbitral process to their advantage, a luxury that states and state-owned entities rarely enjoy. His remarks carry significant weight given the growing backlash against mechanisms and India’s own history of adverse .
The :
Sethi’s central thesis is that have been systematically under-discussed in arbitration circles. “Many are able to manage the process. Can a state or state-owned entity do that? Never,” he said. This asymmetry, according to Sethi, tilts the playing field in favor of sophisticated investors who can exploit procedural loopholes, fabricate evidence, or hide behind shell companies. He described as the “ ” during discussions on arbitration, implying that the global arbitration community has been reluctant to confront these uncomfortable truths.
Sethi also suggested that some of the adverse faced by India during the were a direct result of such conduct. While he did not name specific investors, cases, or awards, his reference aligns with a period when India faced several high-profile claims under , leading to multi-million dollar awards against it. Critics have long alleged that certain investors used questionable practices to secure favorable outcomes, but Sethi’s remarks bring a rare insider perspective from a partner at a leading Indian law firm.
States at a Disadvantage
The narrative that private investors are always the innocent victims in disputes with states is, according to Sethi, overly simplistic. “Discussions about disputes involving state-owned entities often assumed that the private investor was the wronged party,” he observed. “However, states could also suffer from failed projects, defaults by contractors, and investors who did not honour their obligations.” This perspective challenges the default assumption in investment arbitration that host states are inherently predatory.
Sethi’s point is underscored by the structural disadvantages states face. State-owned entities often lack the resources, agility, and legal expertise to match private investors’ sophisticated litigation strategies. Moreover, states must contend with political accountability, public scrutiny, and the risk of reputational damage—constraints that do not bind private investors. The ability of rogue investors to “manage the process” includes , strategic use of , and manipulating . States, by contrast, are bound by domestic laws and cannot easily replicate such tactics.
Implications for India’s Arbitration Landscape
India’s experience with investor-state arbitration has been tumultuous. Following the White Industries case, India faced a wave of claims, including those from Vodafone, Cairn Energy, and Deutsche Telekom. Many of these resulted in billions of dollars in claims and several adverse awards. Sethi’s suggestion that some of these outcomes were tainted by investor misconduct raises questions about the integrity of the arbitration process. It also reinforces the need for India to strengthen its domestic legal framework for handling investment disputes.
Legal professionals in India are increasingly advising clients on the risks of . The Indian government has responded by renegotiating older and introducing a model treaty that requires . Sethi’s comments add urgency to calls for transparency in arbitration proceedings, stronger anti-corruption safeguards, and mechanisms to sanction fraudulent behavior by investors.
The Need for Reform
Sethi’s critique resonates with broader global debates about reforming the ISDS system. Proposals range from creating a to imposing strict for . The has pushed for a permanent court system, while some developing countries have called for states to have greater control over the process. Sethi’s emphasis on aligns with the latter view, suggesting that states must be empowered to challenge investor misconduct.
For arbitration practitioners, the takeaway is clear: is no longer optional. Counsel must vet their clients’ claims rigorously, and tribunals must be willing to penalize . Sethi’s remarks also highlight the importance of preserving documentary evidence and ensuring that witness testimony is credible. In the Indian context, the , as amended, provides avenues for challenging awards on grounds of fraud, but enforcement remains inconsistent.
Conclusion
’s intervention serves as a wake-up call for the international arbitration community. By naming as the “ ,” he has opened a conversation that many have been reluctant to have. The notion that states are never wrongdoers is as flawed as the assumption that they always are. As India and other nations grapple with the consequences of ISDS, Sethi’s insights underscore the urgent need for a more balanced, transparent, and honest framework—one that holds all parties, including investors, accountable for their conduct.
