THIRD-PARTY FUNDING IN ARBITRATION: BOON OR BANE FOR ACCESS TO JUSTICE?

By Lovepreet Kaur (24080) 2nd Year BA LLB Student

Arbitration has long been projected as a flexible, party-driven and efficient mode of resolving commercial disputes. While TPF is already a recognised feature of global arbitration practice, India’s stance remains cautious. Courts have emphasized acceptance of funding arrangements, yet the statutory framework is silent. This regulatory uncertainty raises an important question: Does Third-Party Funding truly enhances access to justice, or does it introduce new vulnerabilities into the arbitral process?

1. Understanding Third-Party Funding

TPF involves a commercial entity funding a claimant’s arbitration costs on a non-recourse basis: meaning the funder is paid only upon the claimant’s success. If the claim fails, the funder absorbs the loss.[1] This distinguishes TPF from loans or contingency fee arrangements, as the claimant has no repayment obligation in case of defeat.

Indian courts have repeatedly held that TPF is not per se invalid. As per the Privy Council’s decision in Ram Coomar Coondoo[2], funding agreements were held enforceable unless the terms were extortionate or contrary to public policy. Recent jurisprudence further clarifies the funder’s legal position. In Tomorrow Sales Agency v. SBS Holdings[3], the Delhi High Court emphasised that a funder does not automatically become a party to the arbitration or incur liability for costs unless it expressly undertakes such obligations.

Funding arrangements take various forms, including pure funding where the funder covers all expenses, portfolio funding where a business or law firm bundles multiple claims for financing, partial or hybrid funding where costs are shared, and risk-sharing fee models that combine funding with conditional or success fees.

These models offer commercial flexibility while ensuring that funding fits the scale and strategy of the dispute.

2. Legal Position of TPF in India

Indian courts have taken a broadly permissive view of TPF. Apart from early jurisprudence upholding the legitimacy of funding, in subsequent judicial pronouncements like Ram Sarup v. Court of Wards[4] , Vatsavaya Venkata Jagapati v. Poosapati Venkatapati[5], Shankarappa Kotrabasappa Harpanhalli v. Khatumbi Kom Jamaluddinsab Nashipudi[6] - Indian courts have reiterated that the torts of champerty and maintenance are not applicable by default, and TPF agreements survive scrutiny under principles of equity and contractual freedom.

The Supreme Court’s judgment in Gemini Bay[7] underscored this: only signatories to the arbitration agreement can challenge or enforce awards under Section 48. This limitation breeds uncertainty not only for financed claimants , who cannot rely on their funder to uphold an award - but also for award-holders unable to collect from a funder unless they are contractually bound or joined in the case.

The Arbitration and Conciliation Act, 1996 neither regulates nor prohibits TPF. There is no statutory mandate for disclosure of funding, no guidance on funder involvement, and no mechanism defining their liability & funder rights in India are governed primarily by the Indian Contract Act[8], not the Arbitration Act. For instance, funders might wield undue control over decision-making without any statutory constraints. Notifications required under Section 12[9]  - where arbitrators must disclose any ties that might create bias - are not clearly extended to funders, leaving unresolved questions around tribunal impartiality.

This vacuum creates uncertainty on issues such as confidentiality, conflict of interest, and whether a tribunal can order security for costs solely because a claim is funded.

India is gradually edging towards formal recognition of TPF. Certain States in India have impliedly recognised TPF agreements by amending the provision for security of costs under the Civil Procedure Code, 1908 (“CPC”) i.e. Order XXV. ^[10]

In India, funding of litigation by advocates is not explicitly prohibited, but a conjoint reading of Rule 18 (fomenting litigation), Rule 20 (contingency fees), Rule 21 (share or interest in an actionable claim) and Rule 22 (participating in bids in execution, etc.)[11] would strongly suggest that advocates in India cannot fund litigation on behalf of their clients. There appears to be no restriction on third parties (non-lawyers) funding the litigation and getting repaid after the outcome of the litigation.[12]

3. The “Boon” Dimension

Arbitration can be very expensive, making it difficult for small businesses, start-ups, and individuals to pursue their claims. Third-Party Funding helps remove this financial hurdle by covering the upfront costs. This allows people with genuine claims to continue with arbitration instead of dropping their cases due to lack of money.[13]

Funding shifts the financial risk from the claimant to the funder.[14] This helps businesses that cannot spare large amounts for litigation. By letting the funder bear the costs, companies can protect their cash flow and still move forward with genuine disputes.[15] Funders usually support only those claims that have a high chance of success. Their detailed checks help screen out weak or baseless cases, which in turn makes the arbitration process more efficient.[16] Jurisdictions like Singapore, Hong Kong, and the UK have enacted clear TPF rules.[17] Their experience demonstrates that transparent regulation attracts funders, supports litigants, and strengthens institutional credibility. For India to compete internationally, adopting a structured framework is essential.

4. The “Bane” Dimension

One major concern is that funders might try to influence how the case is handled. Some experts note that funders may view disputes mainly as investment opportunities, focusing on profit rather than fairness.[18] This can pressure claimants to settle early or follow strategies that do not match their own long-term interests.

Indian law currently lacks safeguards to prevent conflict of interest between funders, counsel, or arbitrators. Unlike the Hong Kong Code of Practice[19], India has no requirement for arbitrators to disclose relationships with funders. This gap risks undermining neutrality. Disclosure of case documents and assessments to funders may clash with Section 42-A[20] confidentiality mandate. Without statutory guidance, parties risk inadvertent breaches of confidentiality when sharing documents with funders.[21]

5. Conclusion

Third-Party Funding presents a promising yet delicate opportunity for India. Its benefits - greater access to justice, risk distribution, and improved claim quality are significant. Judicial developments reflect openness to funding, yet the statutory silence creates avoidable uncertainty. TPF is neither an outright boon nor an inherent bane. With the right regulatory safeguards, it can become a responsible and powerful tool that strengthens India’s arbitration landscape.

[1] ICCA– Queen Mary Task Force, “Report on Third-Party Funding in International Arbitration” 145 (April 2018).

[2] Ram Coomar Coondoo v. Chunder Canto Mookerjee, 1876 SCC OnLine PC 19.

[3] 2023 SCC OnLine Del 3191.

[4] 1939 SCC OnLine PC 55.

[5] 1924 SCC OnLine PC 22.

[6] 1932 SCC OnLine Bom 9.

[7] Gemini Bay Transcription Ltd. v. Integrated Sales Service Ltd.  2021 SCC OnLine SC 572.

[8] The Indian Contract Act, 1872.

[9] The Arbitration and Conciliation Act, 1996, s. 12.

[10] Civil Code of Procedure, 1908, Order XXV Rule 1(as amended by Maharashtra, Tamil Nadu, Orissa, Madhya Pradesh and Uttar Pradesh).

[11] Bar Council of India Rules, 1975, R. 18, 20, 21 and 22.

[12] BCI v. A.K. Balaji, (2018) 5 SCC 379, 411.

[13] William Park & Catherine A. Rogers, “Third-Party Funding in International Arbitration: The ICCA Queen-Mary Task Force”, 42 Penn State Law Legal Studies Research Paper Series 11 (2014).

[14] Ibid.

[15] Lisa Bench Nieuwveld, “Third-Party Funding – Maintenance and Champery – Where is it Thriving?”, Kluwer Arbitration Blog, available at: http://arbitrationblog.kluwerarbitration.com/2011/11/07/third-party-funding-maintenance-and-champerty-where-is-it-thriving/ (last visited on November 24, 2025)

[16] Ibid; Victoria Shannon Sahani, “Rethinking the Impact of Third-Party Funding on Access to Civil Justice” 69 DePaul Law Review 611 (2020).

[17] Statute of Westminster, 1275 (England); Pranav V Kamnani and Aastha Kaushal, “Regulation of Third Party Funding of Arbitration in India: The Road Not Taken” 8 Indian Journal of Arbitration Law 151 (2020).

[18] James Clanchy, “Navigating the Waters of Third Party Funding in Arbitration” 82(3) International Journal of Arbitration, Mediation and Dispute Management 224-230 (2016).

[19] Code of Practice for Third Party Funding in Arbitration, 2017 (Hong Kong); Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Ordinance, 2017 (Hong Kong).

[20] Arbitration and Conciliation Act, 1996, s.42-A.

[21] Re: ‘G’ A Senior Advocate of the Supreme Court; B. Sunitha v. State of Telengana , 2017 SCC OnLine 1412; Supra note 1 at 28.