According to a recent survey conducted by the Global Arbitration Review (GAR, 2023), there has been a steady increase in the number of funded arbitrations each year from 2019 to 2023. This data underscores the rising global demand for Third-Party Funding (TPF). India’s legal framework for third-party funding (TPF) is still being developed, but there is no denying its potential to empower claimants and improve access to justice in complex disputes.
Third-party funding
It is an arrangement in which a non-involved entity offers financial support to a party in arbitration in exchange for a portion of the monetary award or settlement. This practice, although still relatively new in India, has gained significant popularity in jurisdictions like the UK, Australia, and Singapore. Under the TPF arrangement, the funder assumes responsibility for all expenses related to arbitration, which encompass legal fees, expert witness fees, and various procedural costs.
As part of the agreement, the funder is entitled to a portion of the awarded amount or settlement if the funded party is successful in the case. In the event of an unfavorable outcome, the funder assumes the financial risk.
India has experienced a consistent increase in the use of arbitration as a favored approach to resolving disputes, especially in the realm of commercial conflicts. It is essential to take the guidance of the best arbitrary lawyer in Chandigarh high court. The Arbitration and Conciliation Act, 1996, has been amended multiple times to establish the legal framework for arbitration in India.
In the realm of Indian courts, delays have long been a persistent issue, resulting in a significant accumulation of pending cases. Arbitration has become a popular choice for dispute resolution due to its efficiency and flexibility. Throughout the years, India has made dedicated efforts to bring its arbitration framework in line with global standards.
Incorporating important changes, the 2015 and 2019 amendments to the Arbitration and Conciliation Act brought about notable reforms. These reforms included the creation of the Arbitration Council of India and the implementation of provisions aimed at simplifying the arbitration process. The reforms are designed to create a more favorable environment for arbitration in India. Although there are no specific regulations in India regarding TPF, there have been recent developments that suggest a growing acceptance and interest in this practice.
At first, there was some hesitation regarding TPF because of concerns about ethical matters and a lack of awareness. Nevertheless, the rising expenses associated with arbitration and the imperative of ensuring access to justice have sparked a growing interest in TPF.
Several significant case
In the case of Bar Council of India v. AK Balaji (2018), the Supreme Court of India made a crucial observation. The Court acknowledged that there is no explicit prohibition on third-party funding in litigation, thereby implying its feasibility. This ruling established an important legal precedent for the potential use of third-party funding in arbitration, indicating that the judiciary is receptive to this practice.
By recognizing the possibility of non-lawyers financing litigation within the boundaries of the law, the Court established a solid basis that could potentially apply to arbitration as well. This case has played a crucial role in influencing the discussion on TPF, promoting its wider acceptance in the Indian dispute resolution field.
At present, India does not have specific regulations governing third-party funding (TPF) in arbitration, which has resulted in a legal ambiguity surrounding this practice. Consult the top advocate in Chandigarh if you are seeking guidance related to this law. Provisions found in the Indian Contract Act, 1872, and the Code of Civil Procedure, 1908, provide a solid legal framework for TPF agreements.
The laws governing contracts and civil proceedings implicitly uphold the validity of such funding arrangements. When there are no specific regulations regarding third-party funding (TPF), it is essential to carefully craft TPF agreements to guarantee their enforceability and adherence to ethical standards.
Advantages of Third-Party Funding in Arbitration
TPF has a notable advantage in improving access to justice.
- Arbitration costs can pose a significant obstacle, particularly for smaller businesses and individuals with limited financial means, making it difficult to pursue or defend claims. TPF relieves individuals of this burden by offering the essential funds in advance, allowing those who are financially limited to pursue valid claims or defenses without the added concern of cost.
- TPF enables parties to effectively manage financial risks. Through the utilization of a third-party funder, businesses can effectively shift the burden of arbitration costs and risks, allowing them to allocate their financial resources in a more efficient manner. This enables businesses to concentrate on their core operations, rather than being preoccupied with the expenses associated with litigation. This aspect of third-party funding can provide significant advantages for companies that may otherwise be discouraged from pursuing legal action due to the exorbitant expenses associated with it.
- TPF can provide assistance in arbitration to ensure fairness. It is not uncommon for there to be a notable difference in financial resources between the parties involved in various disputes. In many cases, the party with less financial resources finds themselves in a challenging position, making it difficult for them to effectively compete against a more affluent adversary. TPF addresses this issue by offering the essential financial assistance, allowing the disadvantaged party to level the playing field. This can result in outcomes that are more balanced and fair in arbitration proceedings.
Challenges and Concerns
- There are certain challenges that arise when third-party funders become involved in arbitration. Ensuring ethical considerations is of utmost importance, as the involvement of the funder could potentially impact the arbitral process. There is a concern that funders may prioritize their financial interests over the interests of the funded party, which could potentially compromise the fairness of the proceedings. It is of utmost importance to preserve the integrity of arbitration by ensuring that the influence of the funder does not unduly impact the outcome.
- Ensuring confidentiality and managing disclosure can be quite challenging in TPF. Confidentiality is a key aspect of arbitration, which is highly regarded. However, when a third-party funder is involved, it becomes necessary to disclose certain information to prevent any potential conflicts of interest. Finding the delicate equilibrium between openness and privacy is a multifaceted task that demands meticulous thought to safeguard the concerns of all individuals concerned.
- In addition, the absence of a well-defined regulatory framework for third-party funding in India gives rise to apprehensions regarding the standards and practices followed by funders. Establishing precise guidelines is crucial for upholding ethical standards and safeguarding the interests of all parties involved, as well as maintaining the integrity of the arbitration process. It is imperative to establish a comprehensive regulatory framework to effectively address these concerns, creating a well-defined structure for TPF and ensuring its adherence to ethical standards.
Conclusion
In order for India to fully harness the benefits of third-party funding, it is imperative to establish a comprehensive regulatory framework that takes into account ethical concerns, promotes transparency, and offers efficient mechanisms for resolving disputes. By studying international best practices and tailoring them to the Indian context, third-party funding has the potential to greatly impact the arbitration landscape in India, fostering equitable and efficient resolution of disputes.
In the ever-changing landscape of arbitration, hiring the best law firm in Chandigarh has emerged as a source of financial innovation. It provides a glimmer of hope and opportunity for individuals who are constrained by economic limitations but still strive for justice. India has the potential to leverage the advantages of third-party funding, which can lead to a more inclusive and accessible arbitration system, given the appropriate regulatory framework.