Op EdsOP. ED.

As has been discussed earlier, Indian courts are increasingly getting comfortable with the idea of advocate-less representation in arbitrations. The primary reason for this development is the impetus that has been put on party autonomy in a bid to foster India’s status as a pro-arbitration jurisdiction. This is a welcome development, and more steps should be taken to create a suitable regulatory framework for such representation. Accordingly, the present write-up seeks to determine the best way forward in regulating arbitral representation.

Third-party funding – To be or not to be?

The principles behind third-party funding (TPF) are not alien to the Indian legal market. Many a case, especially assets that are subjects of litigation, are bought and sold in the unorganised sector. To this effect, Order 25 Rule 1[1] of the Civil Procedure Code, 1908 (CPC), as amended by the States of Maharashtra, Karnataka, Gujarat, and Madhya Pradesh, recognises the right of the plaintiffs to transfer a suit property to obtain litigation financing. Hence, TPF is not per se prohibited in India, with the only restrictions on it being the principles of champerty and maintenance contained in the Bar Council of India (BCI) Rules,[2] as was clarified by the Supreme Court in Bar Council of India v. A.K. Balaji[3]. The Court held that “There appears to be no restriction on third parties (non-lawyers) funding the litigation and getting repaid after the outcome of the litigation.” Consequently, arbitral representatives have been dichotomised into those who can enter TPF agreements (non-advocates) and those who cannot (advocates).

While this dichotomy may be good in law, it is prima facie inequitable and prejudicial to the interests of the members of the Indian Bar. On one hand, advocates should not be discriminated against by being the only group being denied the right to enter TPF agreements for arbitrations. On the other hand, non-advocates cannot be bound by the rules of an exclusive professional preserve/“club” which they are not members of, as was observed by the Supreme Court in ‘G’, Senior Advocate, In re[4]. It is submitted that the given dichotomy is one of the primary reasons why TPF has not been able to pick up steam in the Indian arbitral landscape.

In a bid to resolve this dichotomy, the Supreme Court has held that it is up to the Bar Council of India and the Central Government to draft a code of conduct for non-advocates representing parties in arbitrations. Accordingly, these authorities can choose between either allowing all categories of representatives to partake in TPF agreements for arbitrations or preventing everyone from doing so. As has been demonstrated by Hong Kong’s success with its TPF Code[5], the advantages of TPF in arbitration can far outweigh its disadvantages, provided appropriate regulations are put into place. Even the high-level committee to review the institutionalisation of arbitration mechanism in India has favoured the introduction of TPF in Indian arbitration in its report. Hence, it is submitted that the authorities concerned should allow for TPF arrangements in arbitrations by introducing a robust code for the same at the earliest. It is also submitted that till the time such a code is enacted, non-advocates are free to enter into TPF agreements for arbitrations.

Contingent fee agreements – A shift from status quo?

The legal position on contingent fee agreements is crystal clear with regards to advocates appearing before courts. Simply put, contingency fee contracts between advocates and clients are not allowed in India since they are against the ethics of the profession. As officers of the courts, advocates should not have any vested interest in the subject-matter of their cases to prevent them from engaging in unethical practices. Hence, all such agreements are deemed void under Section 23[6] of the Contract Act, 1872 and Rule 20 of the BCI Rules.

However, the Bombay High Court has recently held that a contingent fee agreement entered into by a non-advocate to represent his client before an arbitrator would not render such an agreement void, in Jayaswal Ashoka Infrastructures (P) Ltd. v. Pansare Lawad Sallagar[7]. The Court also held that representation before an arbitrator could not be considered as representation before the “Court” under the Arbitration and Conciliation Act, 1996[8] and the CPC. Two positions emerge out of this decision: (a) non-advocates can enter into contingent fee agreements since they are not regulated by the BCI Rules; and (b) advocates can also enter into contingent fee agreements for arbitrations since Arbitral Tribunals are not “courts”.

It is to be seen if the Supreme Court upholds the second position in deciding the appeals against the Bombay High Court judgment. One thing becomes increasingly clear though that there is no bar on non-advocates from entering into contingent fee agreements, considering the Supreme Court’s holdings in A.K. Balaji[9] case and G, A Senior Lawyer[10] case.

In conclusion

Advocate-less representation is gradually gaining acceptance among the Indian arbitral community. As a result, international arbitral practices such as TPF and contingent fee agreements are slowly making inroads into the arbitral framework of the country. In light of these developments, it is imperative that the impetus on party autonomy be balanced with the interests of the Bar to ensure a smoother and equitable transition. Tasked with this balancing act, the BCI and the Central Government are currently faced with two options; either embrace the changing scenarios in international arbitration and reap long-term dividends or stick with the status quo to protect the short-term interests of particular members of the Bar. The author believes that it is high time that India embraces appropriately balanced versions of these popular tools soon, in order to achieve its objective of becoming an arbitration hub soon.

Senior Editor, Indian Journal of Constitutional Law.

[1] <http://www.scconline.com/DocumentLink/0BN74qqZ>.

[2] A conjoint reading of R. 18 (fomenting litigation), R. 20 (contingency fees), R. 21 (share or interest in an actionable claim) and R. 22 (participating in bids in execution, etc.) of the Bar Council of India Rules strongly suggests that advocates in India cannot fund litigation on behalf of their clients.

[3] (2018) 5 SCC 379

[4] (1955) 1 SCR 490

[5] <http://arbitrationblog.practicallaw.com/and-then-there-were-three-third-party-funding-in-hong-kong/>

[6] <http://www.scconline.com/DocumentLink/dsJF0yn9>.

[7] 2019 SCC OnLine Bom 578

[8] <http://www.scconline.com/DocumentLink/QWdt5a4f>.

[9] (2018) 5 SCC 379

[10] (1955) 1 SCR 490 

Advani & Co.Experts Corner


In about a span of decade, dispute funding or litigation funding or now more commonly known as Third Party Funding (‘TPF’) is no longer just restricted to common law jurisdictions but it has gained much spotlight in international litigation and commercial arbitration, albeit high risk.

The International Bar Association (IBA) in fact has been one of the first organisations to address TPF. The 2014 IBA Guidelines in their General Standard 6(b) in assessing conflicts of interest, includes reference to third-party funders:

If one of the parties is a legal entity, any legal or physical person having a controlling influence on the legal entity, or a direct economic interest in, or a duty to indemnify a party for, the award to be rendered in the arbitration, may be considered to bear the identity of such party.”

The explanation to General Standard 6(b) provides a definition, which includes additional details:

For these purposes, the terms ‘third-party funder’ and ‘insurer’ refer to any person or entity that is contributing funds, or other material support, to the prosecution or defence of the case and that has a direct economic interest in, or a duty to indemnify a party for, the award to be rendered in the arbitration.”


In recent years, with the increasing costs in arbitration and with curbs being placed on legal budgets in corporate companies, it therefore comes as no surprise that the demand for TPF has risen considerably. Also, the fact that with increasing access to justice, companies are now less hesitant in pursuing meritorious claims, while wanting to preserve their cash flow for running their business and manage risks. To simply state, TPF is not restricted to those that are impecunious. Thus, with the rising demand for TPF, a wide array of new funders has entered the global litigation financing market, showing the rapid growth of this industry.


The key participators in litigation funding are the claimants, funders, lawyers and possibly, funding brokers. Funding is usually sought to cover legal fees, expert fees, arbitrator’s fees, arbitral institutions fees or costs associated for enforcement proceedings or appeals.

While most recipients of TPF are claimants, but in some jurisdictions, law firms may also be the users of dispute finance. While still relatively rare, but TPF for respondents is evolving and becoming more available in the event there is a counter claim. However, the funding of respondents leads to challenges with respect to how to reimburse the funders in the event of a successful defence. In some cases, the defence of a claim could also be included in portfolios arrangement.


The nature, constitution, and characteristics of third-party funding arrangements can vary from case to case. Most cases presented to any given TPF are rejected for one reason or another. There are few published statistics available, as well as statements made by some funders, which indicates rejection rate of 80 percent or higher[1].

The decision about whether to fund a claim will be arrived at following detailed due diligence by the funder (often using external counsel, and if required damages or technical experts), and the funder’s board or investment committee’s approval. Funders are concerned with the case merits, the fiscal matters of the proposed investment and the enforceability of any award. For a TPF to consider a potential opportunity there must be suitable indication of a solid claim with a well recoverable margin between the anticipated damages recovery and the anticipated budget for legal fees and costs.


A TPF providing “non-recourse” funding will usually expect to make a multiple return on the capital invested. This shows both the high-risk nature of the investment as well as the Internal Rate of Return (“IRR”) expectations of the funders. The funder’s return (or success fee) may be based on the multiple of the capital invested or as a percentage of the “claim proceeds” (the amount recovered by way of damages or settlement). Some arrangements may also include a combination of these. In the landmark decision of Essar v.Norscot[2] the arbitrator accepted that cost of the third-party funding was reasonable and the same was upheld by the English High Court.


Quite often the concern expressed by the claimants and lawyers is the extent to which the funders while in its efforts to control costs, maintain tight control over the case strategy, arbitration proceedings, including settlements, if any, which may in turn affect analysis of certain issues, for instance disclosures and conflicts etc. While it would be natural for the funders to exercise high degree of control to protect their investment, however, some funders report that, after their initial assessment of the case, the funders only function and monitor from a distance and only receive regular updates.


The growing concerns with respect to potential arbitrator conflicts of interest have increased due to many leading arbitrators having taken up ad hoc consultant roles with some funders. Further, the interdependent relationship between funders and law firms and some arbitrators also gives rise to such potential conflicts of interest, which has thus raised several issues on disclosures. Opposition was met due to the consequences of disclosures of TPF such as frivolous challenges to arbitrators and baseless applications for security for costs.  However, with the growing demand for transparency in arbitrations, arbitral institutions are introducing mandatory disclosures. The Singapore International Arbitration Centre (SIAC) was first to give the Tribunal power to order disclosure of TPF[3]. The Hong Kong International Arbitration Centre (HKIAC) has adopted a similar approach and more recently the ICC RULES 2021[4] has also introduced the requirement for disclosure of TPF.


Debate still exists with regards the regulation of TPF. While common law doctrines against ‘champerty and maintenance’ are well versed with, however, only two countries have taken action to regulate TPF in international arbitration. The Singapore Parliament passed the Civil Law (Amendment) Bill (No. 38/2016)[5]on 10 January 2017, permitting TPF for international arbitration and related proceedings in Singapore.

Similarly, on 14 June 2017, the Hong Kong Legislative Council passed the Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Ordinance, 2017[6]for permittingTPF of arbitration and mediation in Hong Kong.

Meanwhile to regulate TPF in Australia, the Treasurer of the Commonwealth of Australia announced on May 22, 2020, that litigation funders will be subject to financial regulation that requires holding an Australian Financial Services License (AFSL)[7].

While not formally regulated, but In England and Wales, the Court of Appeal decision in the costs appeal in Excalibur Ventures LLC v. Texas Keystone Inc[8], Lord Justice Tomlinson said:

Litigation Funding is an accepted and judicially sanctioned activity perceived to be in the public interest.

Likewise, only recently the Supreme Court of India in Bar Council of India v. AK Balaji[9], clarified the legal permissibility of third-party funding in litigation and opined that

There appears to be no restriction on non-lawyer third parties funding the litigation and getting repaid after the outcome of the litigation.”


Additionally, few states in India including Gujarat, Maharashtra, Madhya Pradesh, Uttar Pradesh, Andhra Pradesh, Orissa, and Tamil Nadu have distinctly recognized TPF by bringing in an amendment in Order XXV Rule 1 of the Code of Civil Procedure, 1908, which empowers the Courts to secure costs for litigation by asking the financing party to become a party and depositing the costs in court.

A legal start-up in India Advok8 aims to create a third-party funding market by aiding litigants for their lawsuits through crowd funding. According to information available, they have completed funding for eight cases[10].

Third party funding has also been adopted into Canadian litigation. In 2020, the Supreme Court of Canada in a unanimous decision in the insolvency case of Quebec Inc. v. Callidus Capital Corp.[11] confirmed that funding for litigation may provide a viable path by which to maximize recovery for an insolvent company’s creditors.

However, in some jurisdictions, for instance the Supreme Court of Ireland in the case of Persona Digital Telephony Ltd v. Minister for Public Enterprise[12]held that third party litigation funding violated its laws on maintenance and champerty.


TPF has gained much acceptance in the world of international arbitration and it is a given that TPF is here to stay. As with any legal practice or institution, to reap the benefits of TPF and in providing justice with greater transparency and to further avoid uncertainties and limit its dangers, a strong mechanism is needed to support the TPF infrastructure in various jurisdictions and develop global and uniform guidelines for practitioners to rely upon. Whether in favour or against TPF, there is a need for policy makes to create an environment of assurance and where accountability is recognised for both funders and applicants in terms of operation. Further, with the recent global fiscal slowdown due to the Covid-19 pandemic, it has become difficult for most parties to pursue their claims due to liquidity crunch. If we want to encourage and promote parties to opt for arbitration, then TPF can be a practical solution. Thus it is the need of the hour for various legislatures to provide a legal framework as regards TPF. Thus, one can only hope for developments for TPF on all  fronts – legislative, regulatory and case-law.

† Hiroo Advani, Senior Managing Partner at Advani & Co.

†† Chaiti Desai,  Senior Associate at Advani & Co.


[2]Essar Oilfields Services Ltd v Norscot Rig Management PVT Ltd, [2017] Bus LR 227

[3] SIAC IA Rules, Art 24.1


[5] https://sso.agc.gov.sg/Bills-Supp/38-2016/Published/20161107?DocDate=20161107



[8]Excalibur Ventures llc v Texas Keystone Inc and others (No 2) (Association of Litigation Funders of England and Wales intervening), [2017] 1 WLR 2221

[9](2018) 5 SCC 379


[11]9354-9186 Québec inc. v. Callidus Capital Corp., 2020 SCC 10, see https://www.canlii.org/en/ca/scc/doc/2020/2020scc10/2020scc10.html

[12][2017] IESC 272

Op EdsOP. ED.


Third-party funding (TPF) of litigation is one of the hottest discussion topics in India given the usurious cost of litigation. As the name indicates, it involves an entity/person who is not concerned with, or involved in a dispute between two (or more) parties funding the costs of conducting a litigation by one of the parties. A more scientific and comprehensive definition is the one suggested by the Task Force of the International Council for Commercial Arbitration and Queen Mary University of London in their April 2018 Report, which takes into account multiple models of funding:[1]

The term “third-party funding” refers to an agreement by an entity that is not a party to the dispute to provide a party, an affiliate of that party or a law firm representing that party,

(a) funds or other material support in order to finance part or all of the cost of the proceedings, either individually or as part of a specific range of cases; and

(b) such support or financing is either provided in exchange for remuneration or reimbursement that is wholly or partially dependent on the outcome of the dispute, or provided through a grant or in return for a premium payment.

As the definition demonstrates, the benefactor is not impelled by considerations of altruism, but by a possibility of a profit, or gaining the asset in dispute. The profit, too, is made by either obtaining a share in the eventual sum awarded, or a fixed figure to be paid in the event of a successful outcome.

The concept, as outlined above, is bound to cause some discomfort in the minds of any student or practitioner of law. This is because a diligent student or practitioner of law will be quick to draw an analogy to a prohibited practice in Indian law – that of contingent fee arrangements, where a lawyer agrees to represent a party in a dispute subject to being paid a share in the amount eventually awarded. While contingent fee arrangements are legal in many other countries, it is still strictly frowned upon in India, with such agreements not only being illegal, but also capable of inviting disciplinary action against the practitioner concerned. This approach of Indian law seems justified given the experiences of countries like the United States, where lawyers are termed “ambulance chasers”, when they pursue victims of accidents to represent them on a contingent fee basis.

It is worthy recounting here the observations of the Supreme Court in “G” Senior Advocate, In re[2], where a practitioner had entered into a contingent fee arrangement with his client for 50% of the monies recovered to be his fees. When the agreement was defended by the practitioner drawing reference to the practice in parts of the United States of America, the Court observed:

  1. We see no reason why we should import what many feel is a mistake, even in the country of its origin, from another country and seek to perpetuate their error here when a sound and healthy tradition to the contrary already exists in our Bar. The reasons for exacting these high standards in this country, where ignorance and illiteracy are the rule, are even more important than they are in England where the general level of education is so much higher….

TPF transactions, however, do not involve funding from advocates or solicitors, and to such extent, do not run afoul of the above observations. Much of the legitimacy for TPF transactions in India is presently claimed from an observation by the Supreme Court in Bar Council of India v. A.K. Balaji[3]  that there appears to be no prohibition to TPF so long as they are not lawyers. The obiter observation is merely suppositional, with the Supreme Court not having any occasion to consider the issue. Thus, such obiter cannot be considered binding but merely directional. Though a similar observation has been made by the Supreme Court in the judgment in “G”  Senior Advocate, In re[4], it is submitted that the observations, as in the A.K. Balaji decision[5], are obiter as well.

History – Maintenance and Champerty

To consider the legitimacy of TPF transactions in the context of extant laws in India, one needs to first understand the concept of maintenance and champerty. Briefly put, maintenance, in its modern form, is when a third-party cause or promotes unwanted litigation by causing or supporting a person to sue another. Champerty is an aggravated form of maintenance where the third party funds a party to enable such party to sue another, in return for funds if the litigation were successful. As is apparent from the definitions, champerty and TPF transactions are significantly similar to each other, since both involve an unrelated person funding a party to initiate or continue to prosecute a dispute, in return for monetary consideration. It is thus essential to consider the law of champerty and assess whether TPF transactions stand the test of prohibition against champerty.

Dating back to as early as the year 1275, champerty was a common feature in the first two Statutes of Westminster,[6] as well as the articles upon the Charter.[7] It was initially intended to prevent powerful lords, noblemen and officers of the courts from funding or maintaining disputes that they otherwise had no interest in. The observations of Lord Mustill, speaking for a unanimous House of Lords in Giles v. Thompson,[8] on the history of champerty is particularly instructive in this regard:

the crimes of maintenance and champerty are so old that their origins can no longer be traced, but their importance in medieval times is quite clear. The mechanisms of justice lacked the internal strength to resist the oppression of private individuals through suits fomented and sustained by unscrupulous men of power. Champerty was particularly vicious, since the purchase of a share in litigation presented an obvious temptation to the suborning of justices and witnesses and the exploitation of worthless claims which the defendant lacked the resources and influence to withstand. The fact that such conduct was treated as both criminal and tortious provided an invaluable external discipline to which, as the records show, recourse was often required.

With the evolution of a stronger and more independent judiciary, as well as quality of legal ethics, the need to prosecute persons for the offences of champerty and maintenance were obviated. However, the civil consequences remained even after Parliament repealed champerty as an offence, with issues arising on considerations of contracts being contrary public policy.[9] An analysis of the evolution of champerty in the United Kingdom is beyond the scope of this essay.[10] It is, however, apparent that the primary concerns of the law in respect of champerty arises from the fact that it causes the maintenance of litigation that would ordinarily not be maintained, by a person who has no greater interest than the financial benefits that will accrue to them from a successful outcome.

Position in India on Maintenance and Champerty

In India, however, maintenance and champerty were never made offences, largely because the circumstances that existed in mediaeval England did not obtain in the courts operated by the East India Company (and later by the Crown). Nonetheless, the law, as with England, remained relevant to consider validity and enforceability of agreements on questions of public policy and morality.[11] The law in this regard, set by a few decisions in the late 19th century by the Judicial Committee of the Privy Council, remains unchanged till date, and are particularly instructive of how courts viewed champerty.

The earliest occasion when the Judicial Committee had occasion to consider the issue was in G.F. Fischer v. Kamala Naicker,[12] where it had to consider whether an agreement must not be enforced merely because it was champertous in nature. Observing that the Sudder Adawlut was perhaps overzealous in assessing whether the agreement was champertous when the parties were not even at issue on the same, the Judicial Committee nonetheless laid the principal test for assessing whether a champertous agreement violates public policy in the following terms:[13]

The Court seem very properly to have considered that the champerty, or, more properly, the maintenance into which they were inquiring, was something which must have the qualities attributed to champerty or maintenance by the English law: it must be something against good policy and justice, something tending to promote unnecessary litigation, something that in a legal sense is immoral, and to the constitution of which a bad motive in the same sense is necessary….

Thus, the Judicial Committee, in effect, imported principles of champerty and maintenance from England to India, albeit for the limited purpose of assessing whether an agreement is void on considerations of public policy. This was further expounded upon by the Judicial Committee in Ram Coomar Coondoo v. Chunder Canto Mookerjee,[14] where the Court, in considering a TPF transaction, held:

Their Lordships think it may properly be inferred from the decisions above referred to, and especially those of this tribunal, that a fair agreement to supply funds to carry on a suit in consideration of having a share of the property, if recovered, ought not to be regarded as being, per se, opposed to public policy. Indeed, cases may be easily supposed in which it would be in furtherance of right and justice, and necessary to resist oppression, that a suitor who had a just title to property, and no means except the property itself, should be assisted in this manner.

The Committee, however, went on to clarify in the very next paragraph:

But agreements of this kind ought to be carefully watched, and when found to be extortionate and unconscionable, so as to be inequitable against the party; or to be made, not with the bona fide object of assisting a claim believed to be just, and of obtaining a reasonable recompense therefor, but for improper objects, as for the purpose of gambling in litigation, or of injuring or oppressing others by abetting and encouraging unrighteous suits, so as to be contrary to public policy, — effect ought not to be given to them.[15]

The above decisions were regularly followed by the various courts in India, to assess whether agreements where a third party financed litigation fall on the right side of morality. Since there may be situations where a litigant has a genuine cause of action, but is unable to proceed due to lack of funds, a champertous agreement in such a situation may be valid, indicating that not every champertous agreement will be considered as being against public policy. Nonetheless, however salutary the principles laid down may be, the reality of champertous and maintained litigations were bleak in pre-Independence India, especially given the socio-economic conditions and the state of literacy.[16]

While much discussion can and may be had on what transactions may amount to an unenforceable champertous agreement, the law is silent on the issue that is being considered in the present essay: how best to govern and control such agreements. Even the recommendation of the Civil Justice Committee,[17] which was at great pains to narrate the ills of champerty in British India, was merely to offer a remedy to the uninformed and illiterate victim of speculative champertous agreements to avoid such agreements. Even extant provisions of law[18] and decisions[19] deal only with the aspect of enforceability or otherwise of such agreements, and not the regulation thereof.

A TPF transaction, no matter how it may be structured, is in essence?? of a dealing in a right to sue, inasmuch as it empowers a third party to control and take decisions in a litigation, and also obtain benefit under the litigation. It is pertinent to note that under Section 6(e) of the Transfer of Property Act, 1882, a mere right to sue cannot be transferred. This derives from the salutary principles prohibiting champertous agreements.[20] An agreement made to defeat a provision of law is in itself unlawful and cannot be enforced. Historically, the maxim ubi jus ibi remedium[21] was understood in reverse in common law. Courts dispensing the Crown’s justice had pre-written writs that were drawn up for specific purposes, such as compelling a person to pay damages. The system of having pre-written writs soon devolved into forms of actions, with assumpsit[22] and indebitatus assumpsit[23] rapidly growing as popular writs.

Tempered by equity and eventually abolished by successive Judicature Acts, the concept of writs, and of forms of actions played a significant role in enabling the modern lawyer to determine what is known as the right to sue. What is of significance of the modern rights is that a party is expected, even till date, to take a conscious decision to exercise and enforce their right against another, for the law to help vindicate their right. Thus, for instance, sleeping over one’s right results in claims becoming barred, and having to dispel presumptions of acquiescence. So too is a person expected to bear the fee of initiating their action, as a compensation to the Court for its service, howsoever meagre it be.

Thus, a clear image emerges regarding modern rights, which is that they are always accompanied by the right to sue. The right to sue has its own set of socio-economic as well as legal factors attached to its exercise or non-exercise thereof. It would be quite myopic to contend that the right to sue can be exercised by a person merely by being funded by another, with absolutely no application of mind by the person exercising such right. A person with a right to sue may choose to not sue, if only to avoid indulging in speculative litigation, which likelihood is highly reduced if no restrictions are placed on TPF transactions.

Thus, a TPF transaction is not merely champertous in its nature, it deals with the very basis of modern civil justice delivery system – the right to sue and enforce such right. Transactions of such nature, though they may be beneficial in certain instances, ought to not be enforced without any law governing it. It is submitted that appropriate legislation of TPF is absolutely essential. Such legislation ought to, at the first instance, compel parties to disclose the factum of the litigation being funded by a third party. Clear guidelines that are more detailed than the presently existing “public policy” principles must be adopted for discriminating permissible from impermissible TPF transactions. A counterparty must have a right to seek summary disposal by calling upon the Court to consider whether the TPF transaction is above board and genuine, and not merely speculative litigations. Indian courts cannot bear the burden of a surge in litigation when the backlog and case disposal schedule make interim relief the new means to a sometimes-unjust end.

We hope that this practice does not commence given the interest being shown in this area before a framework for its use has been implemented. The Government should seriously consider such an initiative. TPF is not per se bad but its champertous nature requires careful handling and strict regulation. After all, public policy is amorphous but ever improving as society develops.

The author would like to thank Madhura Ajit Zende for her contribution to this article. Madhura is an associate of ASA Legal Services LLP and is based in Mumbai.

* Practicing Advocate in Delhi and other places in India.

** Experienced lawyer with over 20 years of experience at various law firms. Currently, heads Ashwin Mathew & Associates, a commercial law firm in Mumbai.

[1] <https://cdn.arbitration-icca.org/s3fs-public/document/media_document/Third-Party-Funding-Report%20.pdf>
(last accessed on 5-2-2020).

[2] (1955) 1 SCR 490.

[3] (2018) 5 SCC 379.

[4] Supra note 2, para 11.

[5] Supra note 4.

[6] Statute of Westminster, 3 Edw. 1, c. 25 and 13 Edw. 1, c. 49.

[7] 28 Edw. 1, c. 11

[8] (1994) 1 AC 142, 153 : (1993) 2 WLR 908 (HL).

[9] See Giles v. Thompson, (1994) 1 AC 142 :  (1993) 2 WLR 908 (HL).

[10] For a comprehensive analysis of the history and evolution of the law of champerty, see Winifield, P.H., The History of Conspiracy and Abuse of Legal Procedure, Cambridge University Press, 1921, particularly Ch. VI.

[11] A survey of the early decisions of subordinate courts on the issue can be found in Ram Coomar Coondoo v. Chunder Canto Mookerjee, 1876 SCC OnLine PC 19 :  (1876-77) 4 IA 23, 40-44.

[12] 1860 SCC OnLine PC 2 : (1859-61) 8 Moo IA 170.

[13] Id., 187.

[14] 1876 SCC OnLine PC 19: (1876-77) 4 IA 23, 47.

[15] Ibid.

[16] See Ch. 43 of the Report of the Civil Justice Committee, 1924-1925 for a detailed discussion of the extensive speculative and champertous litigations that were observed in courts.

[17] Ibid.

[18] See the amendments by High Courts of Bombay, Gujarat, Madhya Pradesh and Allahabad in Order 25 of the Code of Civil Procedure, 1908 whereby courts are empowered in those States to compel third-party financiers to furnish security for costs.

[19] See S.V.R. Mudaliar v. Rajabu F. Buhari, (1995) 4 SCC 15.

[20] Per K.K. Mathew, J. in Union of India v. Sri Sarada Mills Ltd., (1972) 2 SCC 877. The majority does not express any opinion on this, and differs from Mathew, J’s opinion on facts.

[21] Translates to “where there is a right, there is a remedy”.

[22]A promise by which someone assumes or undertakes an obligation to another person. The promise may be oral or in writing, but it is notunder seal. It is express when the person making the promise puts it into distinct and specific language, but it may also be implied because the law sometimes imposes obligations based on the conduct of the parties or the circumstances of their dealings. Taken from Assumpsit legal definition of assumpsit (thefreedictionary.com).

[23] That species of action of assumpsit, in which the plaintiff alleges in his declaration, first a debt, and then a promise in consideration of the debt, that the defendant, being indebted, he promised the plaintiff to pay him. The promise so laid  is, generally, an implied one only. Taken from ibid.

Op EdsOP. ED.


A well-known example of huge litigation costs is the famous defamation case of super model Naomi Campbell, against the publishers of the newspaper Daily Mirror. The trial court awarded damages of UK £3500. The decision was reversed by Court of Appeal[1] but restored by the House of Lords[2] by a majority of 3:2. While doing so, the House of Lords ordered MGN Ltd., the publishers of the newspaper to pay the costs in the Court of Appeal and in the House of Lords. The solicitors of Naomi Campbell filed a bill of costs of UK £377,070.07 in the trial court, UK £114,755.40 in the Court of Appeal and UK £594,470.00 in the House of Lords totalling a staggering figure of UK £1,086,295.47!

According to a Press Note released by the Government of India in August 2016 the total amount currently tied up only in infrastructure project related arbitrations is estimated at Rs 70,000 crores, one can imagine the costs that would be involved by the time the entire arbitral process fructifies. Today globally, various jurisdictions have recognised the benefits of third-party funding of arbitrations and have legalised the same.

The most common benefits of third-party funding are, it can provide access to justice for under-resourced parties (as is often the case in investor-State disputes), enabling them to pursue proceedings which a lack of financing would otherwise have prevented. For parties that are adequately resourced, funding can offer a more convenient financing structure, allowing capital which would otherwise be spent on legal fees to be allocated to other areas of their business during the proceedings. This article proposes to examine the Indian legal position vis-à-vis third-party arbitration funding.

Legal position in India

In India, third-party funding is expressly recognised in the context of civil suits in States such as Maharashtra, Gujarat, Madhya Pradesh and Uttar Pradesh. This consent to third-party funding can be found in the Civil Procedure Code, 1908, (CPC) Order 25 Rule 1 (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[3].

Currently, there is no law which expressly bars or allows third-party funding agreements in arbitration. The Arbitration and Conciliation Act, 1996 (1996, Act) governs arbitration in India. As the 1996 Act is silent on this issue, third-party arbitration agreements have been rendered virtually non-existent in India. To date, no precedent on third-party arbitration funding exists and thus these agreements are uncommon.

Debate on common law doctrines of maintenance and champerty

Maintenance refers to funding of legal proceedings by an unconnected third party. Champerty is where a third-party funds legal proceedings for a share in the proceeds.

Although not directly deciding in relation to arbitrations, following are a few decisions which dealt with the issue of maintenance and champerty. A few are as old as passed by the Privy Council:

A constitutional Bench of Supreme Court, in G, Senior Advocate, In re[4], has noted that a champerty contract in which returns are contingent on the success of the case is not per se illegal, except in cases where an advocate might be a party[5]. While making a distinction between litigations that involve lawyers and those that involve non-legal persons, it was observed that in case of the latter, “…there was, nothing against public policy and public morals in such a transaction per se….”

The Privy Council, in Ram Coomar Coondoo v. Chunder Canto Mookerjee[6], while recognising that champertous agreements are void in England, held that this principle is not applicable in India, but would apply to a transaction which is “inequitable, extortionate and unconscionable and not made with the bona fide objects of assisting a claim”. It was observed in this case that the prohibition was not absolute, but restricted to “improper objects, gambling in litigation, or of injuring or oppressing others by abetting and encouraging unrighteous suits”.

In Ram Lal v. Nil Kanth[7] the Privy Council went so far as to hold that “agreements to share the subject of litigation, if recovered in consideration of supplying funds to carry it on, are not in themselves opposed to public policy”.

In Lala Ram Sarup v. Court of Wards[8], the Privy Council observed that given the uncertainties of litigation, the financier “may be allowed some chance of exceptional advantage”.

In Vatsavaya Ventaka Jagapati v. Poosapati Venkatapati[9], the validity of a charge on the probable decretal amount in favour of the financier was upheld by the Privy Council on the ground that the financier did not derive an undue benefit and was trying to recover only the amount loaned.

Additionally, if a third-party funding agreement contains an extortionate or unconscionable objective or consideration (e.g. recovery of a gambling debt), the agreement would be rendered unenforceable under the Contract Act, 1872.[10]

Projected risks of third-party funding

Despite the benefits highlighted above, there are concerns about third-party funding of arbitration and there is a level of projected risks involved. Clear insight into the potential downsides and sufficient risk preparation are therefore essential when making a decision on funding.

Under the 1996 Act, the claimant company would have to disclose any third-party funding agreement to verify the absence of any connections between the financier and the arbitrator[11]. There are primary risks that arise out of this disclosure for claimant companies. A respondent might use knowledge of the third-party funding to block the arbitration[12] at the outset, or if the arbitration proceeds, to challenge it on grounds of it being against Indian public policy[13] or the Contract Act.

Further, the claimant company is likely to face risks such as dilution of autonomy, conflict of interest, breach of confidentiality and discouragement of settlement as part of the third-party funding agreement because of the financier’s involvement.

As mentioned above these are merely projected risks, as neither the legislature nor the executive has provided an opinion on the issue of third-party funding agreements and the courts have not had a chance to verify their validity due to the absence of these agreements in relation to arbitration.

Assuming that third-party funding agreements are rendered legal for arbitrations, the risks would be best managed by legislating strict rules regarding: (a) the financier’s right to interfere; (b) penalties for duress and threat; (c) the right to terminate the funding agreement; and (d) rules regarding confidentiality and disclosures.


Arbitration funding is becoming increasingly prevalent around the world with funders who are legally sophisticated and understand a wide breadth of claim types, with each funder having a varying risk profile and appetite.

The International Council for Commercial Arbitration (ICCA), working with Queen Mary University of London, has created a taskforce that has examined third-party funding in international arbitration. Public consultation on the draft report ran from 1-9-2017 to 31-10-2017, with a view to adopt the final report in April 2018 at the ICCA Congress.

American Jurist Oliver Wendell Holmes Jr. had famously quoted:

The life of the law has not been logic; it has been experience. The felt necessities of the time, the prevalent moral and political theories, intuitions of public policy, avowed or unconscious, even the prejudices which Judges share with their fellowmen, have had a good deal more to do than the syllogism in determining the rules by which men should be governed.

In keeping with the felt necessities of the time and to keep pace with current economic scenario and the global developments in international commercial arbitration, it is essential that India considers legalising third-party funding of arbitration albeit, with external regulation in the form of statutory guidelines in order to set out the parameters within which a third-party funding agreement may apply. The proposed regulation should seek to maintain uniformity in relation to these agreements, which would further assist in regulating them. Further, it would prevent unscrupulous agents from misusing third-party funding agreements by establishing the necessary limitations and penalties.


* M. Rishi Kumar Dugar, Advocate, Madras High Court.

[1]  Compbell v. MGN Ltd., 2003 QB 633 : (2003) 2 WLR 80.

[2]  Compbell v. MGN Ltd., (2004) 2 AC 457 : (2004) 2 WLR 1232.

[3]  Or. 25 of CPC was amended for Maharashtra by Bombay High Court Notification P. 0102/77 dated 5-9-1983. This same amendment has been adopted by Gujarat and Madhya Pradesh. Allahabad has added only R. 2 of Or. 25, which states that costs may be secured from the third-party funding of litigation.

[4]  AIR 1954 SC 557 : (1955) 1 SCR 490.

[5]  R. 20, Bar Council of India’s Standards of Professional Conduct and Etiquette, Ch. II, Part VI, Bar Council of India Rules, 1975 [read with S. 49(1)(c) of the Advocates Act, 1961 read with the proviso thereto].

[6]  1876 SCC OnLine PC 19.

[7]  1893 SCC OnLine PC 7.

[8]  1939 SCC OnLine PC 55 : AIR 1940 PC 19.

[9]  1924 SCC OnLine PC 22.

[10]  Ss. 27 and 28 of the Contract Act,1872.

[11]  Under S. 12, read with Sch. 5 of the 1996 Act even affiliates of parties are covered.

[12]  It may be argued that the arbitration agreement (inextricably linked to the third-party funding agreement) is not prima facie a valid arbitration clause.

[13]  S. 34(2)(b)(ii) of the 1996 Act.