Arbitration and commercial litigation are expensive. Tribunal fees, institutional charges, counsel fees and expert evidence can put a meritorious claim beyond the reach of a small company, a homebuyer group or an insolvent estate. Third-party funding — an outsider financing the dispute in exchange for a share of the recovery — has grown worldwide as the answer. India has no statute regulating it, but the building blocks of the legal position are reasonably settled, and they matter to anyone thinking of taking or giving such funding.
What third-party funding is
Third-party funding (TPF) is an arrangement by which a person with no pre-existing interest in a dispute finances a party's costs of pursuing it — court fees, arbitral fees, counsel fees, experts — usually on a non-recourse basis. If the claim succeeds, the funder receives an agreed return, commonly a multiple of the amount advanced or a percentage of the recovery. If the claim fails, the funder bears the loss. The model is distinct from a loan: the funder's return depends on the outcome, and the funded party ordinarily repays nothing on defeat.
The legal foundation in India
English notions of maintenance and champerty — under which funding another's litigation was itself unlawful — were never adopted as rigid rules in India. The position that has long prevailed is that a funding agreement by a non-lawyer is not per se void; it is simply a contract, enforceable unless it offends ordinary contract-law limits.
Contract Act limits
An agreement that is extortionate, unconscionable, made for an improper object or contrary to public policy can be refused enforcement under Sections 23 and 28 principles. A funder's return so large that it swallows the claimant's recovery invites this scrutiny.
The advocate's bar
The Bar Council of India Rules prohibit advocates from charging fees contingent on results, sharing the fruits of litigation, or buying an interest in the actionable claim they are conducting. TPF in India is therefore a market for funders, not for counsel.
Procedural recognition
State amendments to Order XXV of the Code of Civil Procedure, 1908 in certain States empower courts to deal with a financier of the plaintiff's suit, including requiring security for the defendant's costs — an implicit recognition that funded litigation exists and is not forbidden.
Where funding is most used
- Commercial arbitration: high-value construction, infrastructure and shareholder disputes, where tribunal and institutional fees are heavy and recovery timelines long.
- Insolvency estates: resolution professionals and liquidators pursuing avoidance claims or recoveries for the estate often lack funds; financing recoveries benefits the creditor body as a whole.
- Group claims: homebuyers or investors with modest individual stakes but a strong collective claim.
- Enforcement proceedings: funding the execution of a decree or award against a recalcitrant judgment-debtor, where the asset trail is costly to follow.
The issues a funded party must think through
| Issue | Why it matters |
|---|---|
| Control of the case | Settlement and strategy decisions should remain with the party and its counsel. A funder who controls the litigation invites public-policy objections and professional-conduct complications for counsel. |
| Privilege and confidentiality | Case assessments shared with a funder should be protected by carefully drafted confidentiality terms; share no more than the funder genuinely needs. |
| Adverse costs | If the claim fails, the opposite party's costs may be awarded. The agreement should say whether the funder bears them; in funded suits, courts in some States can direct the financier to give security. |
| Arbitrator conflicts | An arbitrator connected to the funder can face disclosure and challenge questions. Tribunals may ask about funding for exactly this reason. |
| The funder's return | Returns are commonly staged by time or recovery size. A return that leaves the claimant with a token share of its own claim risks being branded unconscionable. |
| Termination | A funder exiting mid-proceeding can strand the claim; termination should be restricted and transition funding addressed. |
The regulatory horizon
India has no dedicated TPF legislation, no licensing regime for funders, and no mandatory disclosure rule of general application. That leaves the field governed by contract law, professional-conduct rules for advocates, and the case-by-case supervision of courts and tribunals. Parties should expect tribunals — especially institutional ones — to ask about funding where it bears on conflicts or security for costs, and should expect enforcement courts to look at the fairness of the bargain if it is ever put in issue.
This article is general information on an evolving commercial-law topic, not legal advice. A funding agreement should be settled with independent professional advice on its specific terms.
Frequently Asked Questions
Is third-party funding of litigation legal in India?
There is no statute prohibiting a non-lawyer from funding another person's litigation or arbitration in return for a share of the proceeds. Funding agreements are tested like any other contract: they must not be extortionate, unconscionable or contrary to public policy under the Indian Contract Act, 1872. An agreement that is grossly one-sided or gives the funder improper control over the proceedings risks being refused enforcement.
Can my advocate fund my case or take a percentage of the winnings?
No. The Bar Council of India Rules framed under the Advocates Act, 1961 prohibit an advocate from stipulating a fee contingent on the result of litigation or agreeing to share the proceeds of it, and from purchasing an interest in the subject matter of a suit. Funding must come from a person who is not acting as an advocate in the matter.
Does the funded party have to disclose the funding?
There is no general statutory duty of disclosure in Indian court litigation, though some State amendments to the Civil Procedure Code allow the court to join or seek security from a financier of the suit. In arbitration, disclosure may be required by institutional rules or directed by the tribunal, particularly where the funding could bear on an arbitrator's conflicts of interest or on security for costs.
What should a funding agreement cover?
At minimum: the funder's commitment and its limits, the funder's return and how it is computed, who controls strategy and settlement decisions, confidentiality and privilege protections, what happens if the claim fails (the funded party should ordinarily owe nothing), adverse-costs responsibility, and exit and termination terms. Independent legal advice before signing is prudent, since these agreements are enforced on ordinary contract principles.