Financing Arbitration in India: The Emergence of Third-Party Funding

Authored by - Purvi Singla (Law Student, Rajiv Gandhi National University of Law, Punjab)

I. Introduction

International arbitration, particularly in cross-border commercial and investment disputes, has long fought the stigma of being "rich man’s litigation."[1] The prohibitive expense of justice often forces financially weaker claimants, especially startups and SMEs to abandon meritorious claims.[2] This financial asymmetry has catalysed the rise of Third-Party Funding (TPF), a mechanism where a non-party financier covers the legal costs of a dispute in exchange for a share of the proceeds if the claim succeeds.

Once a niche practice conceptualized in Australia and gaining judicial traction in the landmark Campbell’s Cash and Carry Pty Ltd v Fostif Pty Ltd (2006),[3] TPF has exploded globally since the 2008 financial crisis. It is now a mainstay in arbitration hubs like Singapore, Hong Kong, London, and Paris. India, however, stands at a complex crossroads. While there is no explicit legislation prohibiting TPF, there is also no statutory framework to govern it.

TPF is more important than ever as India establishes itself as a worldwide centre for arbitration. In high-stakes business conflicts, infrastructure disputes, and insolvency cases, it is increasingly seen not only as a financial tool but also as a requirement for access to justice. This article's main argument is straightforward: India can no longer afford regulatory inaction. India must transition from tacit acceptance to active regulation, creating a clear architecture that strikes a balance between access to justice and essential protections, in order to realize its full potential as a dispute resolution forum.

II. Evolution & Current Legal Position in India

• Absence of Statutory Recognition - Regarding third-party funding, the 1996 Arbitration and Conciliation Act say nothing.[4] India has no permanent decision, in contrast to Singapore and Hong Kong, which changed their civil laws to specifically allow TPF in arbitration. However, this silence is read in accordance with the common law precept that "what is not prohibited is authorized," so long as it doesn't go against public policy.

• Judicial Recognition - The courts have mainly influenced how acceptable TPF is seen. Key guidance emerged from Bar Council of India v. A.K. Balaji (2018), when the top court stated lawyers can't finance cases - since that risks bias and breaches conduct rules - but private funders who aren’t attorneys face no ban.[5] That difference matters; it supports outside financing without crossing legal ethics lines.

• Governmental Signals - The executive branch has shown growing support. While the 2017 High-Level Committee Report on Institutionalisation of Arbitral Mechanisms in India suggested TPF might strengthen arbitration locally.[6] In mid-2025, IFSCA permitted changes enabling Third-Party Fund Management in GIFT City, aligning India's financial framework with international dispute-resolution centres where such financing is standard.[7]

• Industry Practice - Even though there aren’t official regulations, TPF is operating in India’s arbitration sector. Major conflicts receive backing from international firms such as Burford Capital[8] or Omni Bridgeway,[9] alongside local investors. Still, this leads to a fragile setup: unregulated activity thrives behind closed doors, lacking consistent transparency requirements.

  
  

III. Reasons Behind TPF’s Growing Importance in India

The economics behind today’s conflict resolution boost interest in third-party funding. Although arbitration in India takes less time than court cases, expenses are rising steadily. Charges from tribunals, management overheads, along with specialist witness rates in intricate infrastructure or intellectual property conflicts, often reach crore-level amounts.

1. Levelling the Playing Field for SMEs

For small and medium businesses dealing with large corporations or government bodies, legal funding can block contract enforcement. Because access to justice shouldn't depend on financial strength, third-party financing helps level the field, so rightful cases aren't dropped just due to limited funds.

2. Corporate Financial Strategy

It’s not only those short on resources who turn to TPF. Big firms now rely on it more often, to handle cash flow better. Shifting legal expenses to a backer helps businesses avoid adding debt to their books. A victory means splitting gains, while losses are covered by the supporter. That shift turns legal teams into profit contributors, no financial risk involved.

3. Sector-Specific Needs

Sectors such as infrastructure, energy, or telecom face slow disputes plus tied-up funds - making them strong cases for support. Besides, IBC-related claims usually concern troubled assets where firms hold rights yet lack money to act. In these bankruptcy situations, third-party funding becomes the sole option, enabling administrators to recover value for lenders.

IV. Risks, challenges, and uncertain aspects

1. Conflict of Interest

The biggest concern is unseen backer involvement. If disclosure isn't required, a financier might support a case where the arbitrator has prior ties - either work-related or monetary. That directly challenges fair judgment. In serious situations, investors could push clients to refuse sensible deals chasing higher payouts, sidelining the client’s own choice.

2. Confidentiality & Disclosure

Indian arbitration rules don't clearly ask parties to reveal if someone else is funding the case. Without this openness, risks grow, arbitrators can't properly check for bias. Also, those being sued often won't know who's really behind the legal action. Tribunals might miss important conflicts without full picture.

3. Cost & Security for Costs

A major unclear point involves responsibility for legal expenses if things go wrong. Should the losing side cover the winner’s costs? When the supported party can’t afford it, the backer might still avoid payment. In 2023, the Delhi High Court addressed this issue in Tomorrow Sales Agency Pt. Ltd. v. SBS Holdings, Inc., revealing how big the loophole really is.[10] The court decided that someone financing a case from outside can't face cost penalties unless they signed the arbitration deal or clearly agreed to it in the funding terms. Although this aligns with existing contract rules about direct parties, it puts winning defendants at risk often preventing them from reclaiming expenses from those who backed the claim financially.

4. Lack of Regulation

Unlike the clear systems in Singapore and Hong Kong, India's irregular methods lead to uncertainty. Because rulings on 'public policy' might cancel investments suddenly, global investors hesitate. Also, there’s no way to know whether a court will demand cost protection from them.

V. Comparative Perspective

India doesn't have to start from scratch; insights can come from places where TPF already works well.

Singapore updated its Civil Law Act in 2017, allowing third-party funding for international arbitration.[11] A minimal yet firm oversight approach was introduced. The law requires revealing who funds the case while setting entry rules like minimum capital levels. As a result, only financially stable entities can operate here.

Hong Kong followed in 2019 by launching a Code of Practice for funders, this version sets capital standards, limits influence during arbitration, while enforcing clear conflict rules.[12] Autonomy of the person receiving funding remains central here instead.

UK uses a relaxed, self-governed system. Instead of strict laws, the Association of Litigation Funders sets optional rules. Though adaptable, it depends largely on how developed the industry is.

A lesson from abroad: a fully self-governed system, like the UK’s could lack enough oversight for India’s varied emerging markets. Still, going too far in control, like Hong Kong does, risks slowing young sectors. Instead, blending legal backing with flexible frameworks - similar to SIAC’s approach - may strike the right balance.

VI. Suggestions

Mandatory Disclosure must come first. The Arbitration and Conciliation Act ought to be updated, parties would then have to reveal if a third party is funding them, right when the process starts. That way, arbitrators can spot possible conflicts early, even if financial details stay hidden. Changes are needed so transparency improves without exposing private deal terms.

A Code of Conduct for funders could be introduced in India, possibly monitored by an entity such as the suggested Arbitration Council of India. Instead of unchecked influence, rules would require financial readiness - proof that backers can cover costs if needed. Rather than allowing full control, limits on involvement should apply so parties keep their independence.

Clearer laws must define acceptable funding deals. For instance, a rule might say that contracts claiming under 30–40% of damages are automatically seen as fair - unless proven otherwise. This would reduce disputes over fairness

Institutional Rules: Leading Indian arbitration bodies - like DIAC, MCIA, and IIAC ought to update their regulations to formally include third-party funding. Alternatively, they could introduce guidance notes, much like those used by SIAC or ICC, to help mediators manage financial disclosures and privacy matters in supported disputes.

VII. Conclusion

Third-party funding in India isn't just an idea anymore, it’s already happening, with no clear rules in place. With arbitration getting more expensive and business conflicts growing complicated, outside financing is unavoidable. The real question now shifts from whether to permit it toward how best to manage it wisely

The so-called 'grey area' benefits nobody. Because it leaves participants facing unseen disputes, claimants stuck with out-of-pocket expenses, while backers face uncertain legal outcomes. An updated TPF structure will safeguard Indian stakeholders while showing globally that India has evolved into a capable centre for international dispute resolution.

[1] Arbitration is Rich Man’s Litigation, Poor Don’t Opt for It: Supreme Court Justice Sudhanshu Dhulia, Bar & Bench, https://www.barandbench.com/news/arbitration-is-rich-mans-litigation-poor-dont-opt-for-it-supreme-court-justice-sudhanshu-dhulia (last visited Nov. 29, 2025).

[2] Alaukik Agarwal, Third-Party Litigation Funding: Global Growth and the Emerging Landscape in India (SSRN, Aug. 12, 2025), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5383727.

[3] Campbells Cash & Carry Pty Ltd v Fostif Pty Ltd (2006) 229 CLR 386 (Austl. H.C.)

[4] Arbitration and Conciliation Act, No. 26 of 1996

[5] Bar Council of India v. A.K. Balaji, (2018) 5 SCC 379 (India).

[6] High Level Comm. to Review the Institutionalisation of Arbitration Mechanism in India, Report (2017), https://legalaffairs.gov.in/sites/default/files/Report-HLC.pdf.

[7] Veronica Pasumarthy, India GIFT City: Proposed Amendments to IFSCA Fund Management Regulations – October 2025, FUNDS-AXIS (Oct. 16, 2025), https://funds-axis.com/india-gift-city-proposed-amendments-to-ifsca-fund-management-regulations-october-2025/.

[8] Burford Capital, https://www.burfordcapital.com/ (last visited Nov. 29, 2025).

[9] Omni Bridgeway, https://omnibridgeway.com/ (last visited Nov. 29, 2025).

[10] Tomorrow Sales Agency (P) Ltd. v. SBS Holdings Inc., 2023 SCC OnLine Del 3191 (India).

[11] Civil Law (Amendment) Act 2017, No. 2 of 2017 (Sing.), https://sso.agc.gov.sg/Acts-supp/2-2017/ (as of Mar. 1, 2017).

[12] Mun Yeow & Peter Hirst, Comparing Hong Kong Code of Practice for Third Party Funding Arbitration with the Code of Conduct in England & Wales, Kluwer Arb. Blog (Feb. 4, 2019), https://legalblogs.wolterskluwer.com/arbitration-blog/comparing-hong-kong-code-of-practice-for-third-party-funding-arbitration-with-the-code-of-conduct-in-england-wales/.