Litigation funding is a recognised and growing industry in India. Black-letter law does not expressly address litigation funding and, consequently, judicial precedent sets the parameters which apply.

There is no specific legislation or regulation governing litigation funding in India. In fact, the central government, in its responses to parliamentary questions posed on 5 December 2024 and 13 February 2025 by members of the Upper House of Parliament, specifically stated that it has no plans to frame a legal and regulatory framework for litigation funding in India.

Litigation funding agreements must satisfy all the essential elements of a valid contract under the Indian Contract Act, 1872.

The Transfer of Property Act, 1882 (TOPA) prohibits the transfer of a mere right to sue. However, this is distinct from an actionable claim, which can be transferred under TOPA. For instance, while A cannot assign to B the right to sue for a debt due to A, A can assign the debt to B, enabling B to recover it in their own right. TOPA mandates that such a transfer be in writing and signed by the transferor or their authorised agent.

The Code of Civil Procedure, 1908 (CPC), the Arbitration and Conciliation Act, 1996 (Arbitration Act), the Insolvency and Bankruptcy Code, 2016 (IBC), and the Advocates Act, 1961 (Advocates Act) recognise litigation funding as elaborated below.

The states of Gujarat, Maharashtra, Madhya Pradesh, Uttar Pradesh, Andhra Pradesh, Odisha and Tamil Nadu have amended the CPC to permit deposits from a litigation funder as security for costs.

The Arbitration Act sets out guidelines to assess whether any doubts exist regarding an arbitrator’s independence and impartiality, including disclosure by an arbitrator on whether the arbitrator or a close family member has a close relationship with a third party potentially liable for recourse by the unsuccessful party in the dispute.

A report by an Expert Committee on Arbitration Law dated 7 February 2024 recommended mandatory disclosure of litigation funders to ensure transparency. The Expert Committee also recommended amendments to the Arbitration Act to clarify that an arbitrator’s disclosures in respect of a party must include disclosure of any relationship with any individual bearing the cost of arbitration through a funding arrangement with a party. The Expert Committee also suggested referring the broader regulation of litigation funding to the Law Commission. However, these recommendations have not been incorporated in the Draft Arbitration and Conciliation (Amendment) Bill, 2024, which was reported by the press and made available for public comments.

Additional rules apply to litigation funders for claims brought by a debtor undergoing insolvency proceedings under the IBC. The IBBI (Liquidation Process) Regulations, 2016 allows the liquidator to assign Not Readily Realisable Assets (NRRA), including legal claims, to third parties. This is particularly significant for companies in liquidation that lack the financial resources to pursue litigation or arbitration, allowing the liquidator to create value through such assignments.

As set out below, Indian courts have historically recognised, and continue to recognise, litigation funding.

• In Ram Coomar Coondoo v Chunder Cato Mookerjee 1876 SCC OnLine PC 19 (Ram Coomar), the Privy Council held that maintenance and champerty principles were not applicable in India and that any “fair agreement” entered between a litigation funder and a party to the dispute would not be deemed contrary to public policy. The Court clarified that the principles of equity and good conscience would apply to any litigation funding arrangements, and any such funding agreements found to be extortionate, unconscionable and inequitable in nature would not be enforceable. 
• In Ram Sarup v the Court of Wards 1939 SCC OnLine PC 55, the Privy Council established criteria to assess the fairness of litigation funding arrangements. The Court ruled that it was crucial to consider the commercial value of the claim. If the parties had reasonably determined this value after carefully weighing all relevant probabilities, the litigation funding arrangement would likely be upheld. The Court also held that a funder’s potential for significant profits does not, in itself, render the agreement “unfair” or contrary to public policy, as the funder is entitled to the possibility of an exceptional advantage.
• In Bar Council of India v A.K. Balaji (2018) 5 SCC 379, the Supreme Court of India, while addressing the issue of whether foreign lawyers could practice in India, observed that there were no restrictions on third parties funding litigation, provided that lawyers themselves do not fund the litigation. This is because the Bar Council of India Rules, by implication, prohibit such funding by lawyers.
• Most recently, in Tomorrow Sales Agency Private Ltd. v SBS Holdings, Inc & Ors 2023 SCC OnLine Del 3191, the Delhi High Court determined that a litigation funder could not be held liable under an arbitral award when the funder had not accepted such risks. The Court observed that “third-party funding is essential to ensure access to justice”. The said decision of Delhi High Court is currently pending before the Supreme Court in Anant Kumar Choudhary v Tomorrow Sales Agency Private Ltd. (SLP(C) Diary No(s) 54567/2024).

The observations of both the Supreme Court in Bar Council of India v A.K. Balaji (supra) and the Delhi High Court in Tomorrow Sales Agency Private Ltd. v SBS Holdings (supra) are obiter dicta.

The decision of the King’s Bench in England in Essar Oilfields Services Ltd. v Norscot Rig Management PVT Ltd (2016) EWHC 2361 (Comm) is also pending enforcement in India before Bombay High Court in Norscot Rig Management Pvt. Limited v Essar Oilfields Services Limited & Anr (CARBP/153/2020). The English decision is relevant since it upheld the arbitrator’s decision to recover costs of litigation funding in arbitration proceedings. The decision of the Bombay High Court in enforcement proceedings may set out observations in respect of litigation funding in India.

In 2021, several practitioners, law firms and third-party funders established the Indian Association for Litigation Financing (IALF). IALF is a self-regulatory organisation and disseminates information to help the public understand litigation finance. However, IALF has not stipulated any guidelines on litigation funding so far.

In India, litigation funders typically follow established international industry practices, guidelines and ethical standards. These include the following.

• International best practices: litigation funders often reference the International Bar Association Guidelines on Conflict of Interest in International Arbitration, the International Legal Finance Association and Code of Conduct for the Association of Litigation Funders, which provide guidance on best practices for litigation funders including transparency, confidentiality and conflict of interest.
• Due diligence and risk assessment: litigation funders conduct extensive and exhaustive due diligence before entering into funding agreements. This includes assessing the merits of the case, the likelihood of success and the financial stability of the litigant.
• Confidentiality agreements: confidentiality agreements are often used to ensure that sensitive information disclosed during the litigation process is protected. These agreements help in safeguarding the interests of all the parties involved.

• Fee and profit-sharing structures: the terms and conditions of profit-sharing between the funder and the litigant are typically outlined in funding agreements. While these arrangements vary, it is common to see provisions regarding the percentage of the award or settlement the funder will receive, as well as the payment structure.
• Ethical guidelines: litigation funders often adhere to ethical guidelines to prevent conflicts of interest. For example, funders are usually prohibited from influencing the legal strategy or decisions of the litigant’s legal counsel, ensuring that the litigant retains full autonomy over the litigation process.
• Code of conduct for litigation funders: in some cases, litigation funders may adhere to self-imposed codes of conduct that govern their activities, ensuring that their conduct is in line with ethical expectations and industry standards.

Note that while these are not mandatory in India, they are recognised and normatively applied as ultimately benefiting all the parties involved.

Litigation funding in India is usually availed for arbitration or high stakes litigation. In these instances, the law which applies is referenced in 1.2 Rules and Regulations on Litigation Funding

Additional conditions are typically triggered when a counterparty is entitled to additional safeguards to protect them from exploitation or undue influence in the litigation process (eg, in consumer causes).

In terms of the Consumer Protection Act, 2019 (CPA 2019), a “consumer” is “a person who buys goods or services for personal use and not for resale or commercial purposes”. “Services” as defined in the statute extend to financial services and financial products. The CPA 2019 proscribes “unfair contracts” as creating an “imbalance in the rights and obligations of the parties, to the disadvantage of the consumer”. Consequently, any litigation funding to a “consumer” in a proceeding instituted under the CPA 2019 needs to address these requirements.

Monies received from foreign entities typically also attract the application of the Foreign Exchange Management Act, 1999 (FEMA). FEMA addresses capital account transactions (ie, involving assets or liabilities; generally proscribed unless expressly permitted) or a current account transaction (relating to current and revenue expenses in the ordinary course of business; generally permitted unless expressly prohibited). Litigation funding must be structured bearing this in mind.

Apart from the precedent referenced in 1.2 Rules and Regulations on Litigation Funding litigation funding agreements have not been tested in Indian courts. Some principles which apply are set out below.

• Lawyers being funders: in India, lawyers are prohibited from acting as litigation funders.
• Vexatious and/or oppressive claims: if the claims funded are held frivolous, vexatious or oppressive, the litigation funding agreement may be unenforceable in India.
• Speculative agreements: the litigation funding agreement must be fair and reasonable so that it is not construed to be a form of gambling or speculative trading and accordingly void. 
• Control over legal strategy: litigation funding agreements that grant funders control over legal strategy, settlements or even the choice of counsel are voidable and unenforceable if they compromise the independence of legal counsel and undermine the rights of the litigant.
• Funding agreement without disclosure to the court: if the litigation funder’s involvement is not disclosed, or if the agreement is structured to avoid judicial scrutiny, it could be declared unenforceable or subject to modification by the court to ensure fairness.

These issues will typically be determined at first instance and must be addressed in the funding agreement.

Per 1.2 Rules and Regulations on Litigation Funding, some states (Maharashtra, Tamil Nadu, Odisha, Andhra Pradesh, Madhya Pradesh, Uttar Pradesh and Gujarat) mandate the disclosure of funding by third parties in litigation.

The Arbitration Act requires disclosure by an arbitrator if “the arbitrator or a close family member of the arbitrator has a close relationship with a third party who may be liable to recourse on the part of the unsuccessful party in the dispute”.

Whether a litigation funder will be held liable to pay adverse costs will turn on the terms of the third-party funding arrangement.

The Delhi High Court in Tomorrow Sales Agency Private Limited v SBS Holdings, Inc. and Others (supra) held that if no such stipulations exist in the litigation funding agreement, the funder could not be held liable for adverse costs. However, Indian courts or tribunals may impose costs if it is found that the funder is engaged in extortionate or unconscionable conduct. Further, the enforcement proceedings pending before the Bombay High Court in Norscot Rig Management Pvt. Limited v Essar Oilfields Services Limited and Anr (supra) may determine if a party can be awarded litigation funding costs by an arbitral tribunal in India.

A court addressing commercial disputes may order security for costs when it determines that a party may not be able to pay the costs of the opposing party if they lose the case. The court may also order security for costs if the party seeking relief is a non-resident party.

The principles of the CPC are applied to arbitration, and an arbitral tribunal may order security for costs in similar circumstances. If a tribunal finds that one party may be unable to pay costs at the end of arbitration, it may order security for costs to protect the interests of the parties.

It is pertinent to note that security for costs is not routinely granted and is generally considered an exceptional measure. Arbitral tribunals typically order security for costs only when there is a clear justification, based on the circumstances of the case.

It is thus clear that security for costs in India is ordered based on facts and circumstances and is not normative.

Litigation funding is growing in India but, in the authors’ experience, insurance to mitigate associated risks is not common in India (arguably since most funders are not based in India). Of course, an insurance contract should be considered while addressing the litigation funding agreement.

In addition to time cost billing, lawyers may also charge based on milestones. Alternative fee structures such as contingency fees, success fees, or “no win no fee” arrangements are not permissible under the Advocates Act, 1961, and the Bar Council of India Rules (the “BCI Rules”) which explicitly prohibit advocates from charging fees contingent on the success of a case to avoid speculative litigation and maintain professional ethics.

It follows that advocates are entitled to retain fees irrespective of the outcome of the case.

Litigation funding agreements in India address milestones which account for the probability of settlement. Appropriate risk and probability outcome assessments are essential.

The BCI Rules prohibit lawyers from:

• receiving any share or interest in any actionable claims;
• directly or indirectly acquiring or dealing with any property sold in the execution of a decree or order in a suit or appeal or other proceeding where the lawyer was engaged otherwise than on behalf of a client;
• entering arrangements whereby funds in their hands are converted into loans;
• loan monies to clients for the purpose of any action in respect of which they are engaged; and
• entering into a partnership or sharing fees with non-advocates.

Litigation funders cannot share fees with lawyers. However, litigation funders can receive a portion of the client’s recovery or damages subject to the principles summarised above.

In India, non-lawyers cannot own equity or hold equivalent ownership in law firms.

In 2023, the Bar Council of India issued rules allowing foreign lawyers and firms to practice on a limited basis, but equity ownership or partnerships with non-lawyers remain proscribed.

Goods and Services Tax (GST) in India applies to legal fees if the client is in India. In these instances, GST is paid on a “reverse charge” mechanism, and the payer (client) receives concomitant input tax credit. GST is not payable where the client is outside India.

These principles apply equally to litigation funding.

Legal fees are also subject to Tax Deducted at Source (TDS) and not to Tax Collected at Source (TCS). This means that the client, including the litigation funder, is responsible for deducting TDS and depositing it with the tax authorities in the advocate’s or firm’s TDS account. If the client, including litigation funder, is a non-resident, ie, not having a “permanent establishment” in India, then no TDS nor TCS is applicable.

The tax treatment depends on how the offshore India litigation funder books the returns it receives from India (as business profit or return on capital deployed) and whether or not the litigation funder has a “business connection” or “permanent establishment” in India.

The rate of tax and consequent liability to withhold or not additionally depends on whether or not India has a Double Taxation Avoidance Agreement (DTAA) or a Multilateral Instrument with the relevant jurisdiction. India has DTAAs with several jurisdictions and litigation funders should review these provisions when considering applicable taxation rates. India does not have a specific DTAA with the Cayman Islands, Guernsey or Jersey that addresses the taxability of such payments, thus withholding is determined in accordance with Indian law (the Income Tax Act, 1961).

When the client remits the claim amount to the funder, the tax treatment depends significantly on how the payment is classified in the funder’s financial records, more specifically, if the payment is considered business profit, with no permanent establishment and no DTAA, then neither TCS nor TDS is applicable; and if the payment is classified as income from other sources, with no permanent establishment and no DTAA, TCS does not apply, however, TDS is applicable.

In summary, the Income Tax Act, 1961 does not require an Indian client to withhold taxes on payments made for services to a person residing outside India. That said, the Indian Revenue and courts have not conclusively addressed the character of payments made to litigation funders and the consequent necessity, or not, to effect withholding.