Author: Tanishq Chaudhary, JIMS, GGSIPU
To The Point
In India, third-party funding in arbitration sits in a curious limbo as it is neither banned nor regulated but quietly happening behind closed doors, leaving lawyers and clients guessing whether they are walking on solid grounds. For many of those litigants, especially small companies and start-ups, the cost of arbitration feels like booking a flight abroad which is accessible only if someone having deep pockets. Third Party funding promises to make the ticket affordable, by letting investors carry the burden of costs in return for a share of the winnings. Globally, arbitration has evolved into an industry where financiers treat disputes such as investment portfolios. Unlike Singapore or Hong Kong, where the legislatures rolled out red carpets for TPF with clear rules, but India is still debating whether to even open the door, leaving the parties to rely on broad principles of contract law and judicial discretion. Institutional arbitration centres like the Mumbai Centre for International Arbitration (MCIA) are eager to grow, but without clarity on third-party funding, India struggles to attract big-ticket international disputes that could boost its credibility. Indian courts have not labelled funding as illegal. In fact, certain judgements quietly acknowledged it as valid, but the silence from the legislature means parties still worry about enforceability. Third-party funding could make arbitration more democratic. In today’s world, wealth often decides who fights and who gives up. With funding as the deciding factor which shift back to the merits of the case rather than the size of the wallet. The challenge for India is not whether to allow funding, but how to design rules that let genuine claims breathe while preventing misuse by profit-hungry financiers. For foreign investors, the presence of third-party funding options is not just about money rather it is a signal that India is ready to play by international rules. India has a golden opportunity of instead copying foreign models blindly, it can frame unique regulations suited to its business environment, ensuring that funding supports justice without creating an unregulated marketplace.
Use of Legal Jargon
The doctrine of party autonomy allows disputing parties to decide how their arbitration will run, but the third party funding stretches this autonomy by bringing in a new player and that is the funder whose role is not defined in Indian law. Arbitral neutrality becomes a concern when a funder secretly bankrolls one side. Arbitrators must be impartial, and without disclosure rules, funders can remain hidden, and creating a risk of perceived bias. Concept of privity of contract also complicates as a funder is not a party to the arbitration agreement and yet their financial control can indirectly dictate litigation strategy, which challenges the purity of the arbitration framework. Doctrine of confidentiality is another landmark flashpoint. Arbitration is meant to be private, but once a funder is involved, sensitive documents and strategies are shared with an outsider, and so raising questions of breach. If a funder has ties with an arbitrator, or with law firm representing a party, the independence of the tribunal is at stake. The ratio decendi in cases such as Bar Council of India v. A.K. Balaji reflected how courts interpret the limits of funding in India, especially about whether can lawyers act as funder. Funders have to act honestly and not push for settlements that maximise profit but disadvantage the claimant.
The Proof
In the case of Jayaswal Ashoka Infrastructure Pvt. Ltd. v. Pansare Lawad Sallagar, Bombay High Court had acknowledged that third-party funding agreements are not per se illegal in India, as long as do not involve lawyers funding clients. In the case of Bar Council of India v. A.K. Balaji (2018), Supreme Court of India had clarified that while foreign lawyers cannot practice law in India, but the third-party litigation funding is not prohibited. Delhi High Court stated in 2022 that funders cannot automatically be forced to pay costs in arbitration, it was a quiet recognition that funders do exist but they should play rules with limits. Arbitration centres in India such as MCIA, want to compete globally. But when they pitch to foreign investors, first question arises that does India allow third party funding? All over the world, major institutions such as ICC demands transparency as if someone is a funder, they have to disclose it. But in India, no such rule exist which means arbitrators may unknowing sit on cases with hidden funders in the background. India wants to be an arbitration hub as it states that in every economic policy document. But hubs are not built on slogans but are built on investor confidence, and without TPF clarity, the confidence is missing. Indian law does not forbid funding at all. This silence itself is proof that the system is open to innovation. Third-party funding is no longer a future concept as it is already part of India’s arbitration reality.
Abstract
Arbitration is often sold as a quicker alternative to courts in India, but the reality the sky-high costs leave many genuine claimants stranded before they can even reach the tribunal. Third-party funding has emerged globally as a game-changer, as investors take on the financial risk of the case and in return share the spoil if the party wins. For the small and medium businesses in India, TPF could be the difference between walking away from a valid claim and fighting a fair battle against a corporate heavy weight. India still is in a confusing middle ground as funding is not illegal, but it is not formally regulated either, and thus creating uncertainty for both funders and litigants. Other Asian arbitration hubs such as Singapore and Hong Kong have already taken the leap, drafting laws that make TPF safe, transparent and investor-friendly. Without similar clarity, Indian claimants often shift their disputes abroad just to access funding which is an irony for a country that wants to position itself as a global arbitration centre. With the best, TPF can democratise arbitration by ensuring justice does not depend on bank balance. It gives weaker parties the courage to fight stronger ones on equal footing. India’s real challenge is not whether to allow TPF; it is about how to regulate it by balancing investor confidence with fairness and ethical safeguards. In the end, this article argues that third-party funding is not a threat to justice to justice but an opportunity for India to build a more accessible, fair and globally trusted arbitration system.
Case Laws
Bar Council of India v. A.K. Balaji (2018)
Supreme Court was asked whether foreign lawyers could practice in India. Court mentioned that third-party funding is not prohibited in India, except when lawyers themselves fund clients. This headline of the case held observation which acknowledging funding though unregulated is not illegal.
Jayaswal Ashoka Infrastructure Pvt. Ltd. v. Pansare Lawad Sallagar (2011)
According to this case, the Court looked at whether a funding arrangement was valid. It did not strike it down, signalling that as long as the deal was not exploitative, funding was not against Indian public policy.
Singapore’s Civil Law 2017
As it is not a Indian case, this law is a landmark moment in Asia. Singapore openly legalised and regulated third-party funding in arbitration, setting global standards. For India, it is like a mirror which shows that how clear rules can attract global investors and disputes, while India still hesitates.
Conclusion
The debate on third-party funding in India often feels like a door left open which is acknowledged by courts, but never fully embraced. For litigants struggling with high legal costs, this practice quietly stands as a lifeline, even if the law does not shout its approval. Indian courts in their scattered observations have treated funding more as a tool of fairness than a threat to justice. However, the absence of formal rules leaves litigants and funders walking on thin ice, unsure of how far it can go. Globally countries such as Singapore and Hong Kong have shown that regulation can convert hesitation into confidence. In India, the silence of the legislature forces people to rely on judicial hints rather than concrete statutes. Critics worry about funders turning justice into a marketplace, but courts have the power to draw boundaries against exploitation. For Corporate disputes and international arbitration, clarity on funding could be the difference between India being a global hub. Without reforms, funders hesitate to step into Indian disputes, which fears uncertainty more than investment risk. Ultimately, third-party funding in India is not just a question of money but it is a question of whether justice should depend on who can afford it.
FAQs
1. Is third-party funding legal in India?
Third-party funding is not declared illegal in India. Courts have accepted its presence in multiple judgments, but there is no clear statute or regulation that defines its boundaries. So, while it exists in practice, it operates in a legal grey area.
2. Why do people opt for third-party funding?
Many litigants in India struggle with high legal costs, especially in commercial and arbitration matters. Funding allows them to pursue justice without draining their personal or business resources, making it an attractive option for those who cannot afford long legal battles.
3. What are the risks of third-party funding?
The biggest risk lies in the absence of clear rules. Without proper regulation, disputes may arise between funders and claimants over control, profits, or strategy. There’s also a fear that justice could turn into a business deal if funders dominate the process.
4. How has the judiciary reacted to third-party funding?
Indian courts have not opposed it outright. Instead, they’ve treated it as a tool that can balance fairness by allowing weaker parties to fight strong opponents. However, they’ve also hinted that safeguards are necessary to prevent misuse.
