-blitzkrieg-
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One country hasn't decided. Two countries have signed an agreement that all issues will be solved bilaterally. In exchange for this Pakistani PoWs were released.
First correction. there is no binding on a bilateral engagement as you can see the text right after the OR keyword in the text from the agreement points to an already mutually agreed platform like UN.
That the two countries are resolved to settle their differences by peaceful means through bilateral negotiations OR by any other peaceful means mutually agreed upon between them.
The other point from the same agreement
That the principles and purposes of the Charter of the United Nations shall govern the relations between the two countries.
So Simla actually reinforces the role of UN here, bilateral thing is just an option.
Secondly this was not all about PoW but also about the land India lost to Pakistan in battlefield and got back as part of the whole deal.