Legal uncertainty in India hampers investment despite push for arbitration

India’s mergers and acquisitions (M&A) sector had a strong year in 2025, with a total of approximately $36.8 billion in private equity and venture capital deals. However, despite this impressive performance, there is an underlying issue that could potentially stifle future investment in the country. The main concern revolves around the legal framework governing dispute resolution, particularly arbitration.

Arbitration has become increasingly popular among parties involved in complex M&A transactions due to its many advantages. These include confidentiality, specialized expertise, and faster resolution times compared to traditional court proceedings. The New York Convention also plays a crucial role in facilitating the enforcement of arbitral awards across borders, making it a preferred choice for international deals.

While India has taken steps to promote arbitration, recent court decisions have introduced uncertainty into the legal landscape. This inconsistency in judicial interpretations poses a significant risk to foreign investment, as sophisticated investors seek predictability and efficiency in dispute resolution mechanisms. The Supreme Court’s Vidya Drolia framework in 2021 aimed to clarify the arbitrability of M&A-related contractual disputes, but subsequent cases have highlighted potential complexities.

One such case, Anupam Mittal v. Westbridge Ventures II Investment Holdings in 2023, emphasized how the choice of arbitration seat can significantly impact the outcome of disputes. Parties opting for jurisdictions with robust and predictable arbitration frameworks, like Singapore, may choose to settle their disputes there instead of in India. This could deter foreign investment and hinder India’s goal of becoming a premier hub for M&A and arbitration.

The cost of legal ambiguity extends beyond just investment concerns. Reports indicate that India attracted a significant amount of Foreign Direct Investment (FDI) in 2025, but this growth is at risk if dispute resolution mechanisms are perceived as unreliable. High-risk premiums and lower deal valuations could divert capital to more predictable markets like Singapore, further impacting India’s appeal to international investors.

In order to solidify its position as a leading destination for M&A and international arbitration, India must prioritize judicial consistency and predictability in resolving disputes. Legislative reforms like the 2015 and 2019 amendments to the Arbitration Act aim to enhance party autonomy and reduce judicial intervention in arbitration proceedings. Embracing a presumption of arbitrability for M&A contractual disputes, with limited court intervention, could enhance investor confidence and attract greater foreign investment.

Without clarity and predictability in the legal framework surrounding arbitration, the “uncertainty premium” will continue to loom over India’s M&A sector, potentially limiting its growth potential despite its strong market fundamentals. It is crucial for India to address these challenges and create a stable and reliable environment for investors looking to engage in M&A activities in the country.