Third-Party Funding in Arbitration: Scope for Implementation in India

[Anjali is a student at Hidayatullah National Law University.]

In 2025, third-party funding in international arbitration underwent significant developments, prompting renewed debate on the adequacy of existing frameworks. The controversy surrounding the Sulu arbitration underpins concerns around disclosures and transparency of proceedings. In 2017, the heirs of the Sultan of Sulu initiated arbitration against Malaysia, claiming approximately USD 15 billion based on an 1878 agreement. A final award was issued in February 2022, ordering Malaysia to pay USD 14.92 billion to the claimants. The proceedings were backed by third-party funders, whose cross-border financing and influence over the arbitration drew significant scrutiny. Though the Paris Court of Appeal annulled the award in December 2025 on the ground that the underlying arbitration agreement was inapplicable, the case raised critical questions about the future of third-party funding and the need for robust legislative frameworks to regulate its use.

Third-party funding is a practice by which an investor or a group of people fund the arbitral costs and expenses for parties approaching arbitration in exchange for a share in the monetary award that may arise out of the dispute. It is not necessary for the investors to have a vested interest in the dispute or the consequent award.

This piece explores the scope for India to implement operative frameworks to streamline the process of third-party funding in arbitration. It also comparatively analyses models of Singapore, Hong Kong and Australia, specifically in the context of private arbitration where the jurisdiction lies with one country. Lastly, the piece also enunciates the growth of arbitration as a mechanism for dispute resolution post -execution of legislative measures for third-party funding.

The Practice of Third-Party Funding Worldwide

The International Convention on the Settlement of Investment Disputes (ICSID) has defined the bounds in which third-party funding may be allowed. Rule 14 mandates complete disclosure of third-party funding either from the moment the request for arbitration has been made, or as soon as such arrangements have been finalised after the registration of the request.

This provision allows the secretary general to seek, at any time, any documents related to the funding or investors. Additionally, the secretary must be apprised of any changes to the agreement in this regard. This rule enshrines safety and robust disclosure requirements of parties. Subsequently, Rule 14 read with rules 52 and 53 provides a comprehensive statutory framework for the operation of third parties.

The Singapore International Arbitration Centre (SIAC) has enforced a new set of arbitration rules in 2025, which have been regarded as a positive endeavour to better mobilise the practice. These rules have revitalized arbitral proceedings and safeguarded the considerations of the investors, claimants and respondents. Rule 38 of the Seventh Edition of SIAC Rules mirrors provisions of the ICSID – it may be seen that these rules also mandate that notice of third-party funding must be provided to the tribunal as soon as such an agreement is decided.

However, the SIAC rules show a stark contrast to the ICSID rules. Rule 38.3 is narrowly construed so that parties may not fund proceedings where they have a vested interest, and at the same time empowers the tribunal to order withdrawals from the funding arrangement. While both SIAC and ICSID rules aim to avoid conflicts of interest, the former shows a much more precise and limited scope of application.

Model Systems across International Seats

To measure the scope for the implementation of third-party funding within the Indian arbitral framework, it is important to examine the Singaporean approach, particularly illustrated by the recent case of DTH v. DTF, which provides a useful analysis for managing commercial realities and procedural safeguards.

The tribunal in the above case had ruled that a refusal to award costs will not easily be set aside merely because the funded party says that refusal of funding undermines access to justice. This judgment marks the genesis of judicial recognition of third-party funding. The tribunal settled the principles governing third-party funding and narrowed the scope for the parties to recover costs. This provides that while the rules allow for third-party funding, care must be taken to determine the scope and applicability of such funding, if allowed.

Consequently, Hong Kong, Australia, and UK – where arbitration is widely practiced, not only drafted rules on third party funding but have adopted it as a common practice.have not only drafted rules on third-party funding but have adopted it as a common practice. Third-party arrangements are currently enforceable unless the funder compromises the integrity of the litigation process by engaging in wanton and officious meddling.

Interestingly, Australia was one of the earliest seats in the world that had embraced the notion of third-party funding and is known as the birthplace of the modern practice. Historically, funding litigation for profit was prohibited under the doctrines of maintenance and champerty, both of which attracted civil and criminal liability.

However, the 1990s marked a significant turning point, as these long-standing doctrines began to be judicially reconsidered and progressively dismantled. Insolvent and bankrupt companies could no longer afford their litigation, and liquidators were allowed to assign claims for a share of proceeds. The absence of stringent limitations in the law has made Australia a renowned seat for third-party funding in international arbitration.

The Hong Kong Law Reform Commission in 2013 set up a sub-committee to review the possibility of permitting third -party funding. The Committee published a detailed report in 2016, after which third-party funding was finally accepted as reasonable practice. Today, funders are allowed to sponsor arbitral costs provided they adhere to the Code of Practice for third-party funding of arbitration. These established provisions display a carefully calibrated regime that can facilitate third-party funding and safeguard the interests of all the parties involved in the process.

All these systems share multiple foundational characteristics: mandatory disclosure of the existence of third parties; apprising the concerned tribunal of any changes; an external investor may only be eligible to fund the costs of the proceedings if there is no conflict of interest within the dispute. The similarity in the provisions points to the conclusion that it is not necessary for the law to be complex in nature and that it is more important for tribunals to effectively enforce honest practices.

The Scope of Practice in India, Possible Hurdles and Solutions

India has long adopted a liberal approach to third -party funding. The earliest example of this approach was mirrored in the decision of the privy council in Ram Coomar Cantoo and Chuunder Canto [(1876-77) 4 IA 23] where the council held that champerty was not a recognized practice in India and that third-party financing for litigation may be allowed unless found contrary to public policy.

This position was further upheld in the case of Tomorrow Sales Agency Private Limited v. SBS Holdings, where the court reasoned that there is no restriction on external financing by way of a third party in litigation. However, the court also narrowed this scope to the limits of the bar council rules and held that such financing cannot occur in cases of vested interests or where there is an ethical conflict.

While the above pronouncements reflect India’s lenient view in accepting third-party funding, the discussion around the possibility of implementing such a practice cannot happen without a detailed analysis of the possible challenges that may surface and examining if India is equipped to handle them.

First, the lack of a statutory framework poses a pertinent issue of regularisation in the way that third-party funding arrangements are made. A defined scope is vital to ensure legitimate and lawful third-party funding. The Arbitration and Conciliation Act 1996 remains silent on this matter and provides no provisions on mandatory disclosures, conflict of interests, and funding regulations. While this provides flexibility, it also creates uncertainty about party roles and funder liability, which today are mostly governed by general agreements and principles of contract law.

Parties in India must also be able to rely on complete disclosures, contractual certainty, and specified funder liability by way of bespoke funding agreements. These agreements clearly outline the duties of funding parties, thus promoting transparency. Tribunals too must change and adopt a different view in allowing third-party funding following compliance with all required parameters.

Second, recovery of costs is the only material measurement of whether third-party funding is a viable practice. Close attention must be paid to ensure that parties are able to recover the agreed costs that are promised in the agreement. Further, care must be taken to ensure that arbitral costs are recovered from the third party, and that, according to what the agreement stipulates, the third party also recovers the monetary gains from the award. A similar principle has been endorsed under Section 31A(4) of the Arbitration and Conciliation Act 1996, and extending the scope of this provision will substantially strengthen the regulatory regime surrounding costs.

Conclusion

In light of international developments, India must move beyond purely contractually recognized agreements towards a comprehensive legislative framework mirroring that of the ICSID, SIAC and Hong Kong International Arbitration Centre, thus validating funding agreements and mandating disclosure requirements. Drawing upon international practices and upholding the long-standing acceptance by the Indian judiciary of third-party funding will increase investor confidence, promote definitive roles of funders, provide security to parties, and create more overall legal certainty in such arrangements.

This growing acceptance of third-party funding across leading jurisdictions underscores the need for India to adopt robust frameworks that both regulate its use and safeguard the integrity of proceedings. A fear of inaccuracy or inefficiency cannot become a bar to accepting an already appreciated global practice.