Third Party Funding In Arbitration: Boon Or Bane?

Ananya P Rau & Snehal Nandi, University Law College, Bangalore University

ABSTRACT

Legal disputes have been present since time immemorial and legal dispute resolution has since evolved. Novel concepts in dispute resolution are a common feature keeping in mind the dynamic nature of Law. In lieu of such practices, Third Party Funding is finding a stand in the Arbitration practices, not only in India, but internationally. The subcontinent of India has for long been the breeding ground for new investment opportunities. Following India’s IT boom, investors are forever on the lookout for new investment ideas. One such avenue is Third Party Funding in the legal strata of India. Further, due to numerous factors; some of which include a massive population boom, legal awareness, etc; Indian Courts of law are simply overburdened with case files. This has led to the pendency issue at hand currently in the Indian legal system. This, has led to the adoption of alternative means of accessing justice.

Hence, there has been a rise in the use of alternative dispute resolution. The most common and formal means of ADR is arbitration. Therefore, there has been an inevitable spike in the number of arbitral proceedings in the country. Arbitral proceedings have now led to the advent of outsider financing more technically known as Third Party Funding. Third Party Funding has its benefits for advocates, parties and lucrative business interests for funders. In addition to which it also assists courts in faster access to justice thereby reducing the burden on courts. This paper aims to explore the viability as well as the feasibility of Third-Party Funding in the arbitral proceedings of India. The respective paper also explores third party funding in arbitration proceedings throughout the globe. This is to draw comparisons from global examples and assists to explore the viability of the subject in the Indian context.

Arbitration is not a new concept in India. It is an out of court, Alternative Dispute Resolution method, (‘ADR’). It is governed by the Arbitration and Conciliation Act, 1996. In its general essence, Arbitration is not as conventional as litigation. However, it is considered to be more formal than its counterpart ADR Methods, Mediation and Conciliation. Parties to disputes prefer Arbitration due to its economical nature and faster decision making in comparison to litigation. Novel practices in the arena of out of court settlements, especially Arbitration, are fast paced. Third Party Funding is one such practice that is witnessing an increasing trend in Arbitration practices in India. Third Party Funding, (‘TPF’), is not limited to Arbitration, but has marked a trend in Arbitration. TPF in its essence means that an out of dispute party, funds a part of the proceedings, in return of a share in the award. This article will be weighing the benefits of adding Third Party Funding in the existing legal framework for dispute resolution.