With a rapid enhancement in cross-border transactions, international commercial and investment arbitrations have gained its relevance. Though, arbitration is the more efficient and time saving procedure especially in Indian jurisdiction, where legal disputes are most time consuming, here arbitration exists with limited beneficiaries. The prime reason for limited use of arbitration in Indian jurisdiction is the exorbitant costs attached to it which makes it expansive process. Parties with disputes involving small amounts don’t prefer arbitration due to high handed fees of arbitrators and other incidental costs.
The concept of third-party funding agreements has helped financially weaker claimants to successfully pursue their legitimate interests without putting their businesses at economical risk. Under third party funding arrangement someone who is not involved in an arbitration provides funds to a party to that arbitration in exchange for an agreed return. Typically, the funding will cover the funded party’s legal fees and expenses incurred in the arbitration. The funder may also agree to pay the other side’s costs if the funded party is so ordered, and provide security for the opponent’s costs.
The concept of third-party funding is statutorily recognized in civil suits under the Civil Code of Procedure in states such as Maharashtra, Gujarat, Madhya Pradesh and Uttar Pradesh. This consent to third-party funding can be adduced from the Civil Procedure Code 1908, which governs civil court procedure in India. Order XXV Rule 1 of the code (as amended by Maharashtra, Gujarat, Madhya Pradesh and Uttar Pradesh) provides that the courts have the power to secure costs for litigation by asking the financier to become a party and depositing the costs in court. The Arbitration and Conciliation Act, 1996 does not mention about third-party funding and therefore its validity need to be checked under Indian Contract Act, 1872. There are other issues with respect to the enforceability of the award which may be challenged on the grounds of illegal funding arrangement.
Thus, the concept of third-party funding is still new to Indian jurisdiction but it may have positive implications. Especially in India where the amounts involved in the disputes are less, there it becomes pertinent to provide financial assistance to parties with lack of funds. Further this would promote specialized agencies who would finance arbitration and ensure timely enforcements of the awards. Third party funding would make India a pro-arbitration jurisdiction and also bring it in line with international practices.
5th Year, UPES, Dehradun
Intern, The Indian Lawyer