INDIA’S PROSPECTS IN THIRD-PARTY FUNDING IN ARBITRATION: ENCAPSULATION OF CROSS-JURISDICTIONAL APPROACH AND ROAD AHEAD
Third-party funding or litigation funding or dispute funding, is the non-recourse funding of litigation costs of a party by a funder in exchange for a share in the monetary award of the litigation, if successful. Third-party funding can be used to cover the cost in any form of dispute resolution mechanism, including, traditional litigation in courts, arbitration and/or mediation.
Countries have opened up their borders for international trade, foreign investment, transnational banking and finance. Due to this there has been substantial rise in transnational businesses, in turn cross-border commercial disputes has increased. To solve the dispute in between individuals of two nations, no other option is better than International Arbitration. The only down side to this is that high operational cost is required in arbitration.
Nonetheless, there are ethical and practical issues related to third party funding. Many jurisdictions like Singapore and Hong Kong have come up with solution for such issues. In India, even though third party funding is not explicitly barred, there is no regulatory framework for the same. This has caused the exploitation of the receiving party by the funder or violation of rights of the funder.
POTENTIAL COMPLICATIONS IN THIRD-PARTY FUNDING
The market for TPF has grown exponentially. The significance of TPF in arbitration is undeniable, nonetheless, there involves certain practical and ethical issues that needs to be reflected upon and address its acceptance globally. These issues include the disclosure of TPF, the qualification of third-party funders, the funder’s impact on legal professionals, conflicts of interest, the funder’s control on the proceedings, the threat of TPF to confidentiality of case materials and the legal privilege, the funder’s costs liabilities, the termination of the funding agreement, etc. The following are the key problems concerning the TPF that must be considered and solutions shall be given in the regulation so framed.
1. DISCLOSURE REQUIREMENTS
One of the prominent issues surrounding TPF have been about the disclosure of TPF agreements. The arbitral tribunal does not have the jurisdiction to give any finding regarding the funding agreement as their jurisdiction is solely limited to the dispute in hand. To promote transparency in general, the need for disclosure of third-party funding agreements has been identified as an essential practice for assessing the conflicts of interest and promotion of a full and fair discussion of cost-related matters. However, the case may go otherwise. The disclosure of TPF may unduly influence the tribunal or prevent the proper settlement of a case.
2. POTENTIAL CONFLICT OF INTEREST
Third-party funding may cause a conflict of interest with an appointed arbitrator due to multiple appointments indirectly made by the same third-party funder, a relationship between the funder and the arbitrator’s law firm, or shares held by the arbitrator in third-party funding corporation. In event that there is no obligation to disclose the name of the third-party funder, this possibility would impact the transparency of the arbitral process and would also be antithetical to the principle of independence and impartiality of an arbitrator.
Arbitration often includes the confidentiality clause and the parties are required to follow confidentiality before, during or after the arbitral proceedings. This is one of the advantages of arbitration which attracts people to go for arbitration to resolve the disputes. The intensity of confidentiality is more in international commercial arbitration then in international investment arbitration.
COUNTRIES HAVING SET FRAMEWORK FOR THIRD-PARTY FUNDING
England has one of the world’s most developed TPF markets. TPF has thus far become an important component of commercial proceedings in England, whether in litigation or arbitration. Before TPF, English law already provided a variety of non-party funding options for the resolution of disputes. These funding options all serve the same function as TPF, but they are regulated differently than TPF. When dealing with in response to the risks of TPF, England implemented the first industrial self-regulation for third-party funders, which greatly influenced many other countries jurisdictions like Hong Kong. In parallel to that, TPF in England is regulated by case law on an ad hoc basis.
Singapore was the first Asian country to require third-party funding for arbitrations. It has passed the Civil Law (Amendment) Act of 2017, which repeals maintenance and champerty and recognizes third-party funding arrangements as valid for prescribed dispute resolution mechanisms if they are not contrary to public policy, as well as prescribing funder rights and exceptions to those rights. The Civil Law (Third Party Funding) Regulations, 2017, which were passed in 2017, also govern third-party funding arrangements. Singapore considers the disclosure of TPF as a necessity for managing conflicts of interest where third party funders are involved.
3. HONG KONG
Hong Kong remained a British colony until 1997, and its laws on maintenance and champerty were based on English legal precedent. The Hong Kong courts have ruled in favour of upholding prohibitions on maintenance and champerty, but those do not apply to third-party funding in arbitration, whether international or domestic. The Hong Kong Legislative Council passed the Arbitration and Mediation Legislation (Third-party Funding) Amendment Ordinance, 201754, which resulted in the publication of the Hong Kong Code of Practice for Third-party Funding in Arbitration.
INDIA’S CURRENT DYNAMICS OF THIRD-PARTY FUNDING
Third-party funding in India would be really helpful for parties going for arbitration for resolving their disputes as in India arbitration can be exponentially costly. TPF would give the financially weaker party an opportunity for the dispute being financed without undertaking the immediate risk for expending their financial resources. TPF in arbitration aid India to achieve its public policy objective of “access to justice”. In Anita Kushwaha case, the Hon’ble Supreme Court observed that ‘access to justice will be no more than an illusion if the adjudicatory mechanism provided is so expensive as to deter a disputant from taking resort to the same.’
In India, as discussed above, the doctrine of maintenance and champerty has not been explicitly there. The cases have examined the contract on the basis of malicious intent on the part of the funder in the TPF agreement. If the intent of initiating frivolous legislation was found then only the doctrines was applied. In Mr. “G” a Senior Advocate, the apex court observed that the stringent English standards of champerty and care are not widely practiced in India. The TPF agreement legally enforceable and beneficial in whichever case it is granted. In 2018, the Supreme Court in Bar Council of India v. A.K Balaji & Ors, held that TPF in arbitration is not prohibited, nonetheless, the legal representative is specifically precluded from entering into contingent contract with their client.
NEED FOR REGULATORY FRAMEWORK IN INDIA FOR THIRD-PARTY FUNDING
Even though TPF is not explicitly barred in India and in the past few decades the TPF in arbitration has increased by a huge margin, but there is no legislation to guide it. For India TPF can be especially beneficial for the micro, small and medium enterprises who fears to allocate their valuable funds for resolving their dispute though arbitration. Nonetheless, for the parties to avail full benefit for the same regulation is needed. This legal uncertainty can affect the party in proceeding in the following manner:-
1. When the claimant is the funded party, the opposing party may seek an injunction on the grounds of abuse of legal process during the arbitration.
2. When an arbitral award is issued in favor of the funded party, the opposing party may seek to rescind the award on the grounds that it was the result of a funded arbitration rather than public policy.
All these risk issues can be settled for both domestic and international arbitration if proper regulatory framework is put into place. Moreover, the parties cannot be eft to decide these terms in their own contract primarily due to these two reasons. Firstly, India is still at a very nascent stage in terns of TPF and the experienced funder can take the benefit of such naïve parties and exert higher degree of control over them. Secondly, the aim of arbitration funding id to popularize arbitration among masses.
RECOMMENDED POLICY FRAMEWORK FOR REGULATING THIRD-PARTY FUNDING IN INDIA
The 2019 Amendment Act of the Arbitration and Conciliation Act, 1996, aimed to make India a hub of domestic and international arbitration. Nonetheless, it failed to address the issue regarding regulation of TPF in India’s international Commercial Arbitration proceedings. The authors of this paper recommend the following features for the regulatory framework for TPF.
1. Explicit provision in the Arbitration and Conciliation Act, 1996- The Arbitration and Conciliation Act is the primary act in India which lays down rules and regulation for arbitration within the Indian jurisdiction. In this act and explicit provision must be inserted regarding the validity of third-party agreement and compliance of the same. This would help in expanding the public policy objective of “access to justice”.
2. Mandate Disclosure of third-party agreements- The Indian jurisdiction should amend the confidentiality clause and make it an exception for disclosing third-party agreements to the opposite party and the arbitrator. Further, the arbitrator must be vested with the discretionary power to order disclosure of the funding agreements.
3. Define third-party funding- A uniform definition must be taken for third-party agreement. The two alternatives are either it can adopt a specific definition as provided under the US Transatlantic trade and Investment Partnership negotiations. Otherwise can go along the lines of Principle 6 of the IBS Guidelines where it can be incorporated in the act or every arbitral institution can be given the discretion to make their own definition.
To sum it up, the paper has viewed the concept of TPF with variety of lenses. Starting from the roots of the concept and it being criminalized by the common law jurisdictions. Further, saw the shift of perspective of the global view regarding the doctrine and the removal of criminal and tortious liability by majority of the jurisdictions.
Moreover, it reflected upon the modern-day regulatory framework adopted after legalizing TPF in their respective countries. Continuing the study of India’s stance, it analyzed the status of TPF in India both through legislative as well as judicial approach. Further, the need of making a set legislation in India for TPF was reflected upon. The TPF is essential for India to fulfill its public policy objective of access to justice for all. The work has started towards making a regulatory framework, however it has a lot to cover to establish a smooth arbitration process involving third-party arbitration.
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Disproportionate assets case: Delhi High Court stays Lokpal proceedings initiated against Jharkhand Mukti Morcha chief Shibu Soren
On Monday, the Delhi High Court has stayed the proceedings initiated by Lokpal of India under the provisions of the Lokpal & Lokayuktas Act, 2013 against Jharkhand Mukti Morcha (JMM) Chief and Rajya Sabha MP Shibu Soren in connection with a disproportionate case of assets.
The bench comprising of Justice Yashwant Varma observed and has passed an order on Soren’s plea challenging the validity of the said proceedings, claiming that the same was ex facie bad in law and without jurisdiction.
In the present case, the proceedings were initiated by Lokpal of India pursuant to a complaint dated August 5, 2020 filed by BJP’s Nishikant Dubey. Therefore, it has been directed by the CBI to make a preliminary enquiry into the Complaint under section 20(1)(a) of the Lokpal and Lokayuktas Act, 2013. It was claimed by Soren that the said order was not served on him.
While claiming the complaint was false, frivolous and vexatious, Soren in his plea submitted that according to section 53 of the Act and there is a statutory bar against the Lokpal of India assuming jurisdiction to investigate or inquire into any Complaint made after the expiry of seven years from the offence alleged.
The plea reads that the initiation of the proceedings under the Complaint, or at the very least, continuation thereof, once it has been demonstrated by the preliminary inquiry that it pertains to alleged acquisitions prior to the 7-year period and is clearly barred by statute, without jurisdiction and the same is liable to be quashed.
Further, the petition filled submits that the maximum period of 180 days for completion of preliminary enquiry from the date of Complaint expired on February 1, 2021. In this backdrop, it has been stated that by this time, only on July 1, 2021, the comments were sought from Soren which is beyond the prescribed statutory period.
The plea adds that the final preliminary enquiry report was submitted by the CBI on 29.06.2022, about a year and a half after expiry of the 180- day period. Such purported report is void and null and non-est in the eyes of law and cannot be received or considered by the Respondent No.1.
Thus, the court took note of the order passed by Lokpal of India dated August 4, 2022 directing that proceedings under section 20(3) of the Lokpal Act be initiated to determine whether a prima facie case existed to be proceeded against Soren. It is Soren’s case that the order was passed without considering the preliminary objection on jurisdiction being raised by him.
In the said order, the court noted that all the Lokpal of India recorded was that the comments received from the petitioner were forwarded to CBI so as to examine and submit an enquiry report.
It was ordered by the court that the challenge to assumption of jurisdiction by respondent no. 1 (the Lokpal of India) has neither been answered and nor dealt with. Matters require consideration. Subsequently, there will be a stay of proceedings pending before the Lokayukta.
Accordingly, the court will now hear the matter on 14 December.
DELHI HC SETS ASIDE MURDER CONVICTION & LIFE SENTENCE OF MAN WHO WAS UNPRESENTED BY LAWYER; REMANDS CASTE BACK TO TRIAL COURT
The Delhi High Court in the case Narender @ Lala v. State Of NCT Of Delhi observed and has set aside the orders of conviction for murder and sentence of life imprisonment awarded to a man in 2018 who was unrepresented by a lawyer before the Trial Court. Thus, the Delhi High Court has remanded the case back to the Trial Court for cross examination of certain prosecution witnesses.
The division bench comprising of Justice Mukta Gupta and Justice Anish Dayal observed and was of the view that there had been a grave miscarriage of justice to the man as when number of witnesses were examined, he was not represented by a counsel and that the legal aid counsel, who was present before Trial Court and was appointed on the same day and asked to cross- examine the witnesses on the same day.
On March, 2018, Narender was convicted for offence of murder punishable under section 302 of Indian Penal Code, 1860. On 4th May, 2018, he was sentenced by the Trial Court for life imprisonment and also to pay a fine of Rs. 10,000.
In the present case, the case of the prosecution was that the man had committed murder of his wife by strangulating her to death.
In a appeal, it was argued by the man that during the substantial course of trial, he was not represented by a lawyer and hence the trial in the absence of a lawyer had seriously prejudiced him. He thus sought recalling of all the prosecution witnesses and thereby ensuring a fair trial.
The Court observed that the manner in which the trial is conducted, there was a serious denial of fair trial to the appellant and the appellant is required to be given an opportunity to cross-examine the witnesses i.e., the witnesses examined in the absence of the lawyer, or the lawyer having been appointed on the same day from the legal aid and is asked to cross-examine the witnesses.
Further, the court remanded the back to Trial Court for cross-examination of ten prosecution witnesses. Also, the court directed the Trial Court Judge to follow due process of law and also to record the statement of the man under Section 313 CrPC and permit leading the defence evidence if so required.
The Court ordered that the case be listed before the learned Trial Court on 26th September, when Superintendent Tihar Jail will product the appellant before the learned Trial Court and the learned Trial Court is requested to expedite the trial and conclude the same preferably within four months.
SUPREME COURT REFUSES TO ENTERTAIN PLEA CHALLENGING EXCLUSION OF SC/ST RESERVATION IN JHARKHAND DISTRICT JUDGES APPOINTMENT
The Supreme Court in the case Dr. B.R. Ambedkar Educational And Cultural Trust v. Hon’ble High Court Jharkhand And Ors. observed and has refused to entertain a plea challenging the non-inclusion of reservation for Scheduled Castes, Scheduled Tribes and Other Backward Classes communities in the process of appointment of District Judges in pursuant to an advertisement issued in March, 2022 by the High Court of Jharkhand. The present petition claimed that the exclusion of reservation violates Jharkhand State Reservation Policy and constitutional guarantee under Article 16(4). Apart from this, it is also in derogation of a resolution being passed by the High Court vouching to implement reservation in the Jharkhand Superior Judicial Service.
The bench comprising of Justice D.Y. Chandrachud and the Justice Hima Kohli observed and has granted liberty to the petitioner to file a petition under Article 226 of the Constitution before the Jharkhand High Court.
The court while considering that the process of appointment as per the concerned notification is underway, Justice Chandrachud asked the petitioner to approach the High Court with respect to future appointments.
It stated that “For the future you can file a petition before the High Court… We will give you liberty to approach the High Court under Article 226 of the Constitution.”
The bench of Justice Chandrachud observed that the Decisions of the Administrative side of the High Court can be challenged before the judicial side of the High Court. You can move the High Court.
In the present case, a writ petition challenging a similar notification was filed in 2017 before the High Court, which was eventually dismissed. It was observed by the High Court that there is no duty vested in the authorities to reserve seats for all posts, more particularly in higher judiciary. Moreover, it had already initiated the appointment process, the High Court opined that it cannot alter the rules midway. Thus, the appeal filed before the Apex Court was also dismissed.
However, in 2018 the Full Court of the Jharkhand High Court had agreed in principle to grant reservation in the recruitment for Jharkhand Superior Judicial Service. The advocates belonging to the SC/ST/OBC communities in 2021 had made representations to the Chief Justice of the High Court requesting for the implementation of the Reservation policy in appointment of District Judges (direct entry from Bar)/ superior judicial service. The impugned notification was issued without incorporating reservation for SC/ST/OBC communities in March 2022.
Mr. Arvind Gupta, Advocate on Record has filled the present petition.
Right to contest election is not a fundamental right; it is only a right conferred by statute: Supreme Court
The Supreme Court in the case Vishwanath Pratap Singh vs Election Commission of India observed that the right to contest an election is not a fundamental right but only a right conferred by a statute.
The bench comprising of Justice Hemant Gupta and the Justice Sudhanshu Dhulia observed while dismissing a Special Leave Petition filed by Vishwanath Pratap Singh that an individual cannot claim that he has a right to contest election and the said stipulation violates his fundamental right, so as is required under the Act, to file his nomination without any proposer.
Also, the court imposed a cost of Rupees one lakh on Singh.
In the present case, Singh had first approached the Delhi High Court challenging a notification issued by Election Commission of India for election to Rajya Sabha after he was not allowed to file his nomination without a proper proposer being proposing his name. His contentions were rejected by the High Court that his fundamental right of free speech and expression and right to personal liberty has been infringed.
While dismissing the SLP, the Apex Court observed that the writ petition before the High Court was entirely misconceived.
The bench observed while referring to earlier judgments viz Javed v. State of Haryana, (2003) 8 SCC 369 and Rajbala v. State of Haryana (2016) 2 SCC 445 wherein it was stated that the right to contest an election is neither a fundamental right nor a common law right. It is a right conferred by a statute.
However, the Supreme Court in Javed (supra) had made the following observations: Right to contest an election is neither a fundamental right nor a common law right and it is a right conferred by a statute. At the most, in view of Part IX having been added in the Constitution of India that a right to contest election for an office in Panchayat may be said to be a constitutional right and a right originating in the Constitution and given shape by a statute. But even if, it cannot be equated with a fundamental right. It is stated that there is nothing wrong in the same statute which confers the right to contest an election also to provide for the necessary qualifications without which a person cannot offer his candidature for an elective office and also to provide for disqualifications which would disable a person from contesting for, or from holding, an elective statutory office.
It was held in Rajbala (supra) that the right to contest for a seat in either of the two bodies is subject to certain constitutional restrictions and could be restricted further only by a law which the parliament made.
Further, the court added that Singh did not have any right to contest election to the Rajya Sabha in terms of the law made by the Parliament.
The Court stated while dismissing the SLP that the Representation of People Act, 1950 read with the Conduct of Elections Rules, 1961 has contemplated the name of a candidate to be proposed while filling the nomination form. However, it cannot be claimed by an individual that he has a right to contest election and the said stipulation violates his fundamental right, so as to file his nomination without any proposer as is required under the Act.
Post-conviction compounding of offences is permissible: Himachal Pradesh High Court
The Himachal Pradesh High Court in the case Shri Kantu Ram v Shri Beer Singh recently observed that a court, while exercising powers under Section 147 of the Negotiable Instruments Act and can proceed to compound the offences even after recording of conviction by the courts below.
The bench comprising of Justice Sandeep Sharma observed in a case where the revision Petitioner, who was convicted under Section 138 of the NI Act by the Magistrate Court and was aggrieved by subsequent dismissal of appeal by the Sessions Court and had agreed to pay the amount due and settle the matter.
Thus, the petitioner had sought compounding of offences.
In the present case, the respondent admitted the factum with regard to receipt of the amount due from the accused and expressed that the prayer made on behalf of accused for compounding of offence can be accepted.
However, the High Court allowed the prayer and the offence committed by the Petitioner under Section 138 NI Act was ordered to be compounded.
The Court observed that the Reliance was placed on Damodar S. Prabhu V. Sayed Babalal H. (2010) 5 SCC 663, wherein the Apex Court has categorically held that court, while exercising power under Section 147 of the NI Act and can proceed to compound the offence even after recording of the conviction by the courts below.
‘Pensionary benefits to employee, who is removed from service for misconduct, is not at par with those who retire on superannuation’
The Jammu and Kashmir and Ladakh High Court in the case Bashir Ahmad Wani v Jammu and Kashmir Grameen Bank and Another recently observed and stated that an employee who is removed from service for misconduct is not at par with those who is being retired on superannuation.
The bench comprising of Justice Sanjeev Kumar observed while dismissing the pension claim made by a former employee of the J&K Grameen Bank, who was removed from service in 2011.
In the present case, the petitioner had sought benefit of the J&K Grameen Bank (Employees) Pension Regulations, 2018 whereby provision was made for terminal benefits.
However, the court disallowed the claims on two grounds:
Firstly, that at the time of removal of the petitioner from service when there were no norms, rules or regulations providing for the benefit of pension to the employees of the respondent-Bank.
In the year 2011, the employees of the respondent-Bank were governed by the J&K Grameen Bank ( the Officers and Employees) Service Regulations, 2010… it is abundantly clear that it does not prescribe imposition of a penalty of removal along with the pensionary benefits.
Secondly, it was opined by the court that though the 2018 Regulations had been made applicable to those employees who were in service between 1st day of September, 1987 and 31st day of March, 2010 and the employees retired from the services of the Bank before 31st day of March, 2018, however, this leeway cannot come to aid of the Petitioner.
The Curt observed that the reason for finding that the Petitioner was not an employee who had “retired” on superannuation from the bank. Rather, he was “removed” for misconduct.
The Court stated that the regulations apply to those employees who retired from the service of the Bank before 31.03.2018 and not the employees who were terminated for misconduct. Viewed thus, the order of removal of the petitioner dated 02.09.2011 holding the petitioner entitled to terminable benefits and cannot, by any stretch of reasoning, be construed to be an order of removal with the benefit of the pension. Neither, the petitioner, at the time of his removal from service, nor with the promulgation of Pension Regulations of 2018, is entitled to the benefit of pension.
Accordingly, the court dismissed the petition.
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