Third-Party Funding in Arbitration: Legal Validity and Regulatory Gaps in the Indian Framework

Abstract

Third-party funding (TPF) has emerged as a significant mechanism in contemporary arbitration, enabling financially constrained parties to access justice by transferring the costs and risks of proceedings to independent funders. While jurisdictions such as the UK, Singapore, and Hong Kong have developed comprehensive regulatory frameworks for TPF, India remains largely unregulated, with legal recognition evolving primarily through judicial interpretation. This paper examines the legal status of TPF under Indian law, its compatibility with the Arbitration and Conciliation Act, 1996, and the associated procedural and ethical concerns, including disclosure obligations and potential conflicts of interest affecting arbitrator independence. By comparing Indian practices with established international models, the paper highlights the regulatory lacunae and proposes a structured approach to legislation and guidelines that balance access to justice, commercial certainty, and the integrity of arbitration proceedings. The study contributes to the discourse on designing a coherent TPF framework suitable for India’s evolving arbitration landscape.