Currently, third party funding (“TPF“) in India is not permitted. However, arbitration costs are on the rise, and some practitioners are beginning to look to TPF as a solution. Advocates Payal Chawla and Aastha Bhardwaj brought this to the forefront in a recent article published in Bar & Bench, suggesting that “[p]erhaps third party funding is the answer.”
Chawla and Bhardwaj recognize that India is growing as an arbitral center but argue that: “If India truly wishes to be a serious contender in international arbitrations, she must make it expedient for litigants to have access to funds.”
The authors point out that Indian parties have few financial options to pursue their claims. Indian law prohibits counsel from financially supporting a litigation or accepting a case on contingency. See Rule 20 of India‘s Standards of Professional Conduct and Etiquette (“An advocate shall not stipulate for a fee contingent on the results of litigation or agree to share the proceeds thereof”).
If a party is barred from negotiating a contingency arrangement with its counsel, then a party’s only options are to pay for the entire arbitration itself or drop its claim. Third party funding could alleviate this situation but is presently blocked by historic precedent against champerty. Champerty is a common law offense that prohibits an outside party from funding another party’s claim in return for a share of the monetary damages.
The authors pointed to Singapore and Hong Kong as regional examples which recently amended their laws–explicitly bypassing or overruling common law offenses of champerty–to allow for third party funding in international arbitrations. For example, the Hong Kong law states that “the tort of champerty . . . does not apply in relation to third party funding of arbitration.”
If India were to follow Hong Kong and Singapore’s lead, then it would provide another financial option to Indian parties as well as open third party funding to one of the largest legal markets in the world.