Litigation funding—also called third-party funding (TPF)—is the practice where an independent entity finances the legal costs of a dispute in exchange for a share of the recovery if the case is successful. In India, such funding is legal provided it is not unconscionable or extortionate. The Supreme Court in Bar Council of India v. A.K. Balaji clarified that there is no restriction on non-lawyers funding litigation for a share of the proceeds, although advocates themselves are prohibited under the Bar Council of India (BCI) Rules from funding their clients’ cases or working on contingency fee arrangements. This prohibition stems from the Standards of Professional Conduct, which forbid advocates from having an interest in the subject matter of litigation.
Indian law’s approach to maintenance and champerty differs from the old English prohibition. The Privy Council, in historic rulings, upheld such agreements so long as they were not against public policy. Modern Indian courts continue this pragmatic view. Several states, including Maharashtra, Gujarat, Madhya Pradesh, and Uttar Pradesh, have amended Order XXV of the Code of Civil Procedure (CPC) to expressly recognise litigation funders. These amendments empower courts to implead funders in proceedings and require them to furnish security for costs, but they do not prohibit funding.
Litigation funding is also relevant in arbitration. While the Arbitration and Conciliation Act, 1996 does not explicitly regulate funders, the duty to disclose any circumstances that might give rise to doubts about an arbitrator’s independence under Section 12 and the Fifth Schedule is generally interpreted to include disclosure of any funding arrangements. Early disclosure is considered best practice to avoid conflicts of interest. The Delhi High Court’s decision in Tomorrow Sales Agency Pvt Ltd v. SBS Holdings is a landmark in this context—it held that a funder cannot be made liable for adverse costs in arbitration unless such liability is expressly assumed in the funding agreement or the funder is made a party to the proceedings. This makes contractual drafting critical.
In India, litigation funding is typically deployed in high-value commercial disputes such as shareholder conflicts, construction contracts, maritime claims, intellectual property enforcement, and corporate insolvency-related proceedings. The process usually begins with an introduction and signing of a non-disclosure agreement, followed by the claimant providing pleadings, merits assessments, budgets, and enforcement prospects. The funder then conducts due diligence on the merits, quantum, collectability, timelines, and the respondent’s solvency. If the claim is attractive, the funder issues indicative terms, generally on a non-recourse basis, where repayment is contingent on success. Pricing may be a percentage of recovery, a multiple of the capital deployed, or a hybrid model. After final approval, the parties execute a Litigation Funding Agreement (LFA) and set up escrow and reporting mechanisms.
A robust LFA in the Indian context should specify the non-recourse nature of funding, the budget and use of proceeds, control provisions (with the claimant retaining primary decision-making power), compliance with BCI rules by keeping lawyers on standard fee terms, early disclosure obligations in arbitration, allocation of adverse costs (either by funder commitment, insurance, or other security arrangements), termination events, confidentiality and privilege protections, and enforcement plans for awards or judgments. Pricing structures can vary, and claimants are advised to normalise competing term sheets by modelling different recovery scenarios and timelines.
From a compliance perspective, funders must ensure they are not acting as advocates, and advocates must avoid contingency or success-fee models. In states that have CPC Order XXV amendments, funders should be prepared for possible security-for-costs orders or impleadment. In arbitration, disclosing the funding arrangement at the outset minimises challenges to tribunal independence. Funding should also be structured as truly non-recourse to avoid characterisation as a money-lending transaction. Confidentiality and data protection obligations are important to safeguard privileged materials shared with the funder.
For businesses, litigation funding can be a strategic cash-flow tool, allowing them to pursue meritorious claims without diverting working capital. They can also opt for portfolio funding, where multiple claims are bundled, reducing the cost of capital. For individuals, funding can make it possible to litigate strong claims that would otherwise be financially out of reach, though they should expect closer scrutiny and potentially higher pricing for single-case risks. In both cases, the client should retain ultimate control over settlement decisions, with funder consent rights limited to clearly defined thresholds.
India currently has no dedicated legislation regulating litigation funding, though an industry body, the Indian Association for Litigation Financing (IALF), promotes self-regulation and best practices. Until a statutory framework is introduced, the combination of judicial precedent, state-level CPC amendments, professional conduct rules, and contractual safeguards will continue to govern the field. Ultimately, litigation funding in India offers both businesses and individuals an alternative path to justice—provided it is structured within legal and ethical boundaries, with clear agreements that balance access to capital, compliance with the BCI Rules, and preservation of the client’s control over their case.
Author: Advocate Dimple Rajpurohit (Bombay High Court)
Contact (Admin): info@nolegalpaisa.com
Last updated: 25-09-2025
