By Soundarya Vats

Investment arbitration is a mechanism for resolving conflicts between international investors and host governments (also called Investor-State Dispute Settlement or ISDS). The ability of a foreign investor to sue a host state ensures that, in any event of a disagreement, the foreign investor will have access to impartial and experienced arbitrators who will resolve the conflict and issue a binding judgment.

Importance It deals with disputes arising under a public treaty between two contracting States. Our investment and trade are getting more integrated as the globe becomes more integrated. The relevance of Investment Arbitration has risen dramatically as a result of recent changes in a variety of investment industries. Despite the fact that Investment Arbitration is still a relatively new field, the number of cases filed under it has increased dramatically in the last ten years. Investment Arbitration is gaining importance day by day, as there are many countries coming up that are in their developing stages, and they are particularly in need of foreign investments. It is a useful instrument for both nations seeking inbound investment and investor economies seeking to safeguard their interests from illegitimate governmental meddling.

For a foreign investor to be able to initiate an investment arbitration, a host State must have given consent to this:

The United Nations maintains a list of the overwhelming majority of instruments that allow a host state to accede to investment arbitration, which should be examined at the start of every prospective dispute to assess if investment arbitration is possible.

While consent is usually based on country, the applicable nationality can be that of a human or a legal organization, allowing for some flexibility in the treaty or treaties under which an investment arbitration can be started. The number of ICSID i.e., international Centre for Settlement of Investment Disputes (In 1966, this international arbitration organization was formed for the purpose of resolving legal disputes and conciliation between foreign investors and governments)- investment arbitrations grew considerably in the late 1990s, after starting at a relatively low level in the 1970s.

Arbitration is such that it is always founded on the parties' mutual agreement, cannot take place otherwise, the procedure calls for it. However, because ICSID arbitration must be conducted between a host State and a foreign investor, there are certain anomalies in the consent process. The most notable distinction is that consent agreements do not have to be based on a document signed by both parties. Rather, the host state may issue a generic offer to foreign investors, or to certain groups of foreign investors, to submit to arbitration. This offer might be found in law or a treaty to which the host country is a signatory. The investor must accept this offer in writing to complete a consent agreement.

Saudi Arabia v. Khadamat

In early 2018, an Indian investor, Khadamat Integrated Solutions Private Limited, filed an investment arbitration complaint against Saudi Arabia under the India-Saudi Arabia Bilateral Investment Treaty. Under the auspices of the Permanent Court of Arbitration, the tribunal was established in September 2019. The tribunal issued an award on February 7, 2020, rejecting jurisdiction. There are no details about the case in the public domain.


The most apparent benefit of investment protection for the host state is the strengthening of its investment climate. That environment is made up of a number of economic and political factors. One key aspect in shaping the investment climate is the legal framework for international investors. The resolution of conflicts between host nations and foreign investors is an important part of this legal system.

The safeguarding of investments necessitates impartial and effective conflict resolution. The ICSID Convention was inspired by the notion of investment arbitration as an incentive or at the very least a safety net for foreign investment. It was hoped that the added security thus obtained would translate into an increased investment which, in turn, would stimulate economic development.

Author: Soundarya Vats

Course: 3rd year(BA LLB).

Collage: Amity Law School, Noida

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