Third-party funding needed in arbitrations

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With the advent of the coronavirus, the world is heading towards an unprecedented economic slowdown. The situation is even more peculiar in India, where the economy has been in the doldrums for more than a year. In such a situation, it is difficult for companies and businesses to gather the courage to enter into, or even continue, existing legal proceedings. The legislature should take drastic steps to allow and encourage businesses to obtain their legal remedies.

Arbitration is an expensive mode of dispute resolution, with exorbitant legal fees and arbitral fees. Unlike other modes of dispute resolution, a party runs the risk of termination of proceedings qua its claims in case of a failure to deposit amounts, as has been contemplated under section 38(2) of the Arbitration and Conciliation Act, 1996. In such a scenario, it is essential that parties are not discouraged from opting for arbitration, as it is one of the faster and more effective routes for dispute resolution.

In order to encourage parties to enter into arbitral proceedings amidst the economic slowdown, a viable option for the legislature would be to formally introduce the concept of third-party funding in the Arbitration Act and follow suit with the international hubs of arbitration. Third-party funding is still a relatively new concept in the international arbitration arena.

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