19 October 2023

Third Party Funding: Need For Legislation In India

Intellect Law Partners


Intellect Law Partners is an Indian law firm specialising in Corporate, Insolvency, Real Estate, Arbitration Law including Litigation services. We also provide a full array of services to our clients with a dedicated Corporate Wing which comprises of Company Secretaries and Charted Accountants.
More and more litigants and parties to arbitration proceedings in India, are availing the benefit of ‘Third Party Funding'.
India Litigation, Mediation & Arbitration
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More and more litigants and parties to arbitration proceedings in India, are availing the benefit of 'Third Party Funding'. Given the complex nature of litigation disputes (especially commercial contracts, international commercial arbitrations, class action suits and insolvency proceedings), high costs of arbitration proceedings and the long-drawn court battles, third party funding has emerged to be an economically viable alternative for the parties to a dispute and an investment opportunity for strangers to the dispute.

Third Party Funding, popularly known as 'Litigation Financing', is an agreement between a funder, being a stranger to the dispute, and the party to the proceedings, usually the claimant/plaintiff, wherein the third party on a non-recourse basis agrees to finance the whole or part of the proceedings in return for financial interest only in the claim proceeds recovered on the favourable outcome of the dispute.1 These third party funders can be specialist third party funders, non-banking financial companies, investment banks, hedge funds, insurance companies and pension funds. Third party funders finance pin to elephant of a dispute proceeding, i.e., funding court fee costs, to funding counsel's fee, cost of expert witness and adverse cost order.

The origin of third party funding can be traced to the English Law principles of 'champerty and maintenance'. Champerty is an agreement between "a stranger to a lawsuit and a litigant by which the stranger pursues the litigant's claim as consideration for receiving part of any judgment proceeds"2. Maintenance is the act of one party giving financial support to another party for the continuation of a lawsuit.3 Champerty and Maintenance were prohibited in the medieval England.4 The said principle of law was ultimately abolished in England in 1967 by the enactment of the Criminal Law Act, 19675 on the recommendation of the Law Commission6. However, the Parliament of England was cautious of the probable misuse of the provision and thus specifically codified that this abolition "shall not affect any rule of that law as to the cases in which a contract is to be treated as contrary to public policy or otherwise illegal".Even today, the English law on the subject while permitting third party funding, bars its application where it can run contrary to public interest or undermine the ends of justice.7

The concept of Third Party Funding is prevalent globally. England and Wales, regulate third party funding by way of a voluntary code,8 while other counties, such as Singapore, Hongkong, Australia, France, have legalised third party funding include. As far as India is concerned, although there are many instances of third party funding arrangements being prevalent in the Indian society at grass root levels, such as relatives or friends funding a litigation, there is no law specifically dealing with the concept of third party funding.

The prevalence of the concept of third party funding can be seen in India by studying the judicial precedents in this respect. As far back as in 1876, the Privy Council in the case of Ram Coomar Coondoo and Ors. v. Chunder Canto Mookerjee9 had observed that "the English laws of maintenance and champerty are not of force as specific laws in India"10. This principle of law removed the first and foremost hurdle that might have been faced by any party looking to avail third party funding in India. Thereafter the Supreme Court in Bar Council of India v. A.K. Balaji and Ors.11 observed that there is no restriction on third parties financing litigation and getting repaid after the outcome of litigation. Hence, third party funding is legal in India. Moreover, as recent as in May 2023, the Hon'ble Delhi High Court in Tomorrow Sales Agency Private Limited v. SBS Holdings, Inc. & Ors.12 observed that "Third-party funding is essential to ensure access to justice. In absence of third-party funding, a person having a valid claim would be unable to pursue the same for recovery of amounts that may be legitimately due".

The challenge to the concept of third party funding arises in India when an advocate acts as a third party funder. When third party funding is undertaken by a non-lawyer, Courts have reached the conclusion that it is not morally wrong, does not shock the conscience, not against the public policy and public transaction.13 However, when a lawyer funds another party or charges contingent fee to his client, it is considered highly reprehensible by the courts and is held to amount as professional misconduct.14 This view is majorly relied upon two prevailing principles of law in India, first, Section 23 of the Indian Contract Act, 1872 (Act 9 of 1872) 15 and second, the Bar Council of India Rules, 1975 (A.K. Balaji case (supra)).

The State legislatures were conscience of the prevalence of third party funding in India, and the absence of any central law regulating the same, the legislatures of Maharashtra, Madhya Pradesh, Uttar Pradesh and Gujrat brought amendments to Code of Civil Procedure, 1908 (Act 5 of 1908) ("Code") as applicable to their States. These amendments have been brought to Order XXV, Rule 3 of the Code whereby the courts have the power to implead and demand security from the third party financing litigation. This has the effect of making the third party funder the dominus litis and securing the other party by making the funder as much responsible as the funded party to the suit.

India is witnessing a growth in the model of third party funding. Leading third party funders like Burford, Harbour and Fulbrook are looking to enter the Indian market.16 The situation necessitates the enactment of a central law regulating third party funding in India. Despite the amendment to the Code in various States and a plethora of precedents on the issue, the law on the issue remains inadequate for the proper inclusion of the concept in the Indian dispute settlement mechanism as it directly affects not only the rights of the parties to the dispute but also the rights in rem.

This article tries to summaries a few suggestions for such enactment. In the following section it discussed the problems that can arise when third party funding is properly put into force in India, and the possible solutions for the same.

1. Regulatory Body: There is a need to recognise a regulatory body responsible for overseeing litigation financing transactions in the country. As third party funding is seen by many as an investment opportunity and it may involve third parties from both India and outside India, the regulations may fall under the domain of the Reserve Bank of India under the existing regime of Non-Banking Financial Institutions. Further, amendment may be made to the Code to bring uniformity regarding laws pertaining to third party funding in all states.

2. Competence of the Third Party Funder: In cases of third party funding, it might get difficult to ascertain as to who is the actual owner of the claim. The third party funder can set up a hoax claimant/plaintiff to push its own interests directly or indirectly through the suit proceedings. A suggested solution to this problem is that a specific section in the said enactment can be included which deals with 'competence of third party', which may include:

  1. the third party should be a stranger to the suit,
  2. the third party should not have any interest, financial or otherwise in the suit,
  3. the third party should not be barred under any other law to enter such an agreement,
  4. the third party should not be insolvent.
  5. In Public Interest Litigations ("PIL"), the third party funder should also be impleaded to the petition and should be made to establish its competence to file the petition on the same grounds as the petitioner.

3. Defined Contractual Relationship between the Third Party Funder and the Funded Party:

  1. There should be a condition precedent as to the period or stages of litigation the Third Party funder will be funding, to avoid premature withdrawal of funding for any reason whatsoever, including reduction in potential winning costs.
  2. Third-party funders to be fully aware of their financial and legal exposure. Since, any uncertainty in this regard, would dissuade third party funders to fund litigation.(See: Tomorrow Sales Agency Private Limited v. SBS Holdings, Inc. & Ors.17)
  3. The liability of the Third Party funder for the payment of adverse costs on behalf of the funded party, should be contractually defined. In the absence of the forestated, the third party may either withdraw from the proceedings at any stage or refuse to pay the adverse costs imposed on the party to the proceedings.

4. The liability of the opposite party to pay the costs incurred by the funded party for availing the services of a third party funder (except legal costs), in case the funded party succeeds in the proceeding, should be limited and defined. If such a claim is made by the funded party, then the parties to the suit will be put in an unequal position, as the other party cannot be expected to pay high costs which the funded party chose to avail due to its financially strong position.

As there is no bar in India from availing the services of a third party funder, there is an imminent need for its regulation by a central enactment to preserve the fairness and justice oriented purpose of the dispute settlement mechanism prevalent in India.


1. International Council for Commercial Arbitration (ICCA), Report of the ICCA–Queen Mary task force on third-party funding in international arbitration (April 2018),

2. Black's Law Dictionary 252 (9 ed. 2009).

3. Black's Law Dictionary 1039 (9 ed. 2009).

4. Bradlaugh v. Newdegate, (1883) 11 QBD 1.

5. Criminal Law Act s. 14(2) (1967).

6. Law Commission Proposals for the reform of the Law Relating to Maintenance and Champerty (1966).

7. R (Factortame) v. Secretary of State for Transport, (No. 8) [2003] QB 381, 400.

8. Leslie Perrin,England and Wales, in The Third-Party Litigation Funding Law Review, 48-58 (Leslie Perrin Ed., 2018).

9. (1876) L.R. 4 I.A. 23.

10. See In Re: 'G', A Senior Advocate of The Supreme Court, AIR 1954 SC 557; Bar Council of India v. A.K. Balaji and Ors., AIR 2018 SC 1382; Vishal Kedia v. Sureshkumar S. Bafna (Summons For Judgment No. 108 of 2018 in Commercial Summary Suit No. 1215 of 2018).

11. AIR 2018 SC 1382.

12. FAO(OS) (Comm) 59 of 2023 and CM Nos. 14792 of 2023 & 14794 of 2023

13. In Re: 'G', A Senior Advocate of The Supreme Court, AIR 1954 SC 557.

14. In re N. F. Bhandara 3 Bom. L.R. 102, 113.

15. In Re: K.L. Gauba, AIR 1954 Bom 478, 27.

16. Sugata Ghosh, Entities Funding India Inc's litigation costs see good business opportunity, (April 22, 2013, 04.00 a.m.),

17. FAO(OS) (Comm) 59 of 2023 and CM Nos. 14792 of 2023 & 14794 of 2023

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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