The outcome of litigation is often shaped not only by the strength of a legal claim but also by the ability of parties to sustain the financial demands of dispute resolution. The rising costs of litigation and arbitration can create a structural advantage for well-resourced parties, leaving many legitimate claims under-pursued or abandoned altogether. Third-party litigation funding [“TPLF”] has emerged as a response to this imbalance, enabling external funders to finance legal claims in return for a share of the eventual recovery. While this model has the potential to enhance access to justice, it simultaneously raises complex legal and ethical questions within the Indian legal framework. Recent developments, including the finality of the Delhi High Court’s ruling in SBS Holding Inc. v. Anant Kumar Choudhary, have brought these questions into sharper focus, placing TPLF at the forefront of India’s evolving dispute resolution discourse.In this background, Third-Party Litigation Funding [‘TPLF’] has emerged as a mechanism to bridge this gap, enabling access to justice for individuals and corporate entities alike. TPLF traces its lineage to the doctrine of maintenance and champerty; where maintenance refers to a non-party funding the litigation, champerty refers to funding for a share in the proceed (or the maintenance for profit, as they call it). In its simplest form, TPLF, as the name suggests, is a litigation funding strategy, where the funder enjoys a right in the outcome of the litigation which is usually contingent on eventual success. The minutiae of this financial arrangement may vary according to the nature of entities involved, the risks the funder is exposed to, and the likelihood of a positive outcome. One of the earliest obstacles to TPLF was the legal validity of the contract for funding, as champerty was a tortious act believed to have the potential to malign the stream of justice. This understanding of a ‘champertous’ arrangement has undergone a shift. In Bar Council of India v. A.K Balaji, TPLF was cited as an example to buttress the submission that India’s ethical standards differed from those in other countries, and therefore, foreign law firms ought not to be permitted to practice law in India. It was submitted that while advocates in India cannot fund litigation on behalf of their clients, in the United States, lawyers are permitted to fund the entire litigation, and their fee is a percentage of the proceeds if they win the case. In this backdrop, the Court observed, as an obiter, that there is no restriction on third parties [non-lawyers] funding litigation in India. In any case, champerty and maintenance are not actionable torts in India. However, while TPLF arrangements may not be invalid per se (including on grounds of public policy), they expose the contracting parties to other legal and practical risks.
Can a Third-party Funder be Mulcted with Costs?
One such risk revealed itself in a petition under Section 9 of the Arbitration and Conciliation Act, 1996, where a successful party sought recovery of costs levied by the arbitral tribunal from the third-party funder. In SBS Holding Inc. v. Anant Kumar Choudhary & Ors., SBS (the petitioner) having succeeded in arbitration proceedings and awarded costs of those proceedings, sought interim protection against the claimants in the arbitration proceeding as well as Tomorrow Sales Agency [‘Tomorrow’], who was funding the claimants under a Bespoke Funding Agreement [‘BFA’].
Under the terms of the BFA:
- Tomorrow was funding the entire litigation, including the costs of lawyers, the tribunal, the experts, etc., and it also enjoyed an unreserved prior right on any damages that could have been awarded by the arbitral tribunal.
- Clause (c) of Article 1 of the BFA expressly provided that Tomorrow would provide financial assistance in pursuit of the claim in accordance with the budget plan on a non-recourse basis.
- Thus, if the claimants are unsuccessful, Tomorrow would not have any recourse for recovery of the amount financed either against the lawyers or the claimants.
Submissions of the Parties
SBS submitted that having so funded the arbitration proceedings, Tomorrow would be equally liable to make good the costs levied on the claimants [respondents before the Court].
Tomorrow, by contrast, submitted that the BFA terminates in case the claimant fails before the arbitral tribunal. As the claimant had failed, and the contract stood terminated, Tomorrow had no contractual obligation to make good the costs levied under the arbitral award.
The Decision
Observing that Tomorrow prima facie had a vested right in the outcome of the arbitral proceedings, and cannot escape its liability, the learned Single Bench held that the costs which have been levied would be covered under the BFA. The learned Single Judge rejected the contention that a foreign award can only be enforced against a party to the agreement, and granted interim protection to SBS, even against Tomorrow (who was a non-signatory to the arbitration proceedings).
The Appeal
Allowing the appeal filed by Tomorrow, the Ld. Division Bench held that a third party may be bound by the arbitral award, only if it has been compelled to arbitrate and is a party to the arbitration proceedings. According to the Court, “there is no question of enforcing an arbitral award against a non-signatory, who is not a party to the arbitral proceedings”. As SBS had made no attempts to join Tomorrow as a party to the arbitration proceedings, Tomorrow had no obligation to satisfy the award. Further, the Court held that none of the clauses of the BFA provide any obligation for Tomorrow to fund an adverse award.
The judgment of the Division Bench has large-scale implications for the rights and liabilities of a third-party funder and is a promising development for funding companies in India. In fact, when confronted with the submission that third party funders should be held accountable for funding impecunious persons, the Division Bench noted that third party funders play a vital role in ensuring access to justice, and that they cannot be mulcted with a liability they have neither undertaken nor been made aware of. The Court also cautioned against exploitative funders, and observes that the factum of third party funding is relevant to determine whether the other party ought to be secured. Therefore, both decisions in SBS Holding reveal the meticulous specificity necessitated in TPLF contracts to ensure a limited exposure to liability for the parties involved.
Significantly, while the Division Bench judgment was under challenge before the Supreme Court since 2023, the appeal was withdrawn in January 2026, bringing finality to the Delhi High Court’s ruling. This lends renewed relevance to the decision, placing third-party litigation funding firmly at the forefront of India’s dispute resolution discourse.
To Settle or Not to Settle?
Barring the commercial and economic implications of a TPLF contract, the concept has also stirred jurisprudential interest in the ethical implications of a contract of this nature. One such concern highlighted by academics is the funder’s potential to exploit a vulnerable litigant – be it an individual or a corporate entity.
To state one example, a third-party funder may discourage settlements between parties should their evaluation indicate a successful and more profitable outcome before the court. However, at the same time, a defendant may feel encouraged to settle the dispute, knowing that the plaintiff is financially supported by a funder. In a similar vein, a funder may seek to influence the legal strategy adopted by the litigant, including positions taken before the court. In such circumstances, it may be imperative that the litigant discloses the existence of a TPLF funder before the court.
TPLF arrangements operate in a largely unregulated space in India, and there is presently no statutory obligation to disclose third-party funding. However, leading arbitral institutions commonly engaged by Indian parties have begun to introduce disclosure requirements within their procedural frameworks. For instance, institutional rules such as those of the Mumbai Centre for International Arbitration (MCIA), Singapore International Arbitration Centre (SIAC), the International Chamber of Commerce (ICC), and the Hong Kong International Arbitration Centre (HKIAC) require parties to disclose the existence of third-party funding and, in some cases, the identity of the funder to address potential conflicts of interest and maintain transparency in the proceedings.
Viewed from the lens of equity, however, a disclosure of such contracts will ensure fairness in the proceedings. Objectively, such disclosure will not impact the substantive law and facts governing a case and may have little impact on the outcome. Even so, such disclosures may impact ancillary decisions in the case. As noted by the Division Bench in SBS Holdings, many decisions, such as securing the other party, will be influenced by such disclosure.
Who is the ‘client’?
Scholars have also expressed concerns over a TPLF contract diluting the professional independence indispensable for a lawyer to protect its client’s interests.
Under a TPLF contract, the third-party funder is likely to bear the costs of the legal team involved. While it is “the duty of an advocate to fearlessly uphold the interests of his client by all fair and honourable means”, a lawyer’s ability to impartially and independently advise her client may be adversely impacted by her financial relationship with the funder.
Moreover, a TPLF contract may also raise questions regarding ‘who’ the lawyer actually represents, and therefore, who the ‘client’ is. A third-party funder’s influence over the relationship between the client and the litigant can be limited, if considered prudent, through express contractual terms. These considerations ought to be borne in mind while entering into a TPLF contract.
Conclusion: An Opportunity
The challenges highlighted in this article are not an indictment against TPLF, but an invitation to all stakeholders, including the government, to weigh competing interests, opportunities, and risks. As India navigates the evolving terrain of TPLF, it becomes imperative to establish robust regulatory frameworks.
Clear guidelines can help mitigate risks, address conflicts of interest, and uphold ethical standards within the legal profession. The judiciary, legal practitioners, and policymakers must collaboratively develop a framework that fosters the positive aspects of litigation funding while safeguarding the core tenets of the Indian legal system.
The evolution of TPLF in India should be guided by a commitment to enhancing access, efficiency, and inclusivity, while preserving the fundamental principles underpinning the administration of justice.
(Views are personal)
