Third-Party Litigation Funding in India: Law, Practice and Emerging Regulation

Third-party funding, also called litigation financing, is a comparatively recent development in Indian law, though it is well established elsewhere. A funder with no prior interest in a dispute meets some or all of the cost of pursuing a claim and, in return, receives an agreed share of any settlement or award. In the usual non-recourse structure, the claimant owes the funder nothing if the claim fails.

A simple illustration shows why this matters. A company holding a substantial claim may be unable to bear several years of legal and arbitral costs. A funder can carry those costs in exchange for part of the eventual recovery. The practice therefore serves a larger purpose, it allows meritorious claims to be heard that might otherwise be abandoned for want of means.

How Funding Works?

Funded costs may include filing fees, counsel fees, expert witnesses, and tribunal expenses, and funding is used in both litigation and arbitration. Because the funder bears the risk of loss, it examines a claim with care before committing capital. It considers the legal merits, the likely recovery, the expected duration and cost, and the opposing party’s ability to pay. The last point deserves emphasis, since winning an award and collecting upon it are separate matters.

The funder’s return is commonly a percentage of the recovery or a multiple of the capital invested. India has no standardised benchmark for such returns, and capital may remain committed for years without a fixed date of maturity.

The Legal Position and Balaji

India has no comprehensive statute on third-party funding, and the practice is not expressly prohibited. The leading precedent commonly relied upon is the Bar Council of India v. A.K. Balaji, (2018) 5 SCC 379. The case concerned the practice of foreign law firms in India, and the Supreme Court addressed funding in passing. It observed that advocates are not expressly forbidden from funding litigation, but that a combined reading of Rules 18, 20, 21 and 22 of the Bar Council of India Rules strongly suggests that they may not fund their clients’ cases. It added that there appears to be no restriction on non-lawyers funding litigation and being repaid after its outcome. These observations are generally regarded as obiter dicta, yet they are widely relied upon as recognising funding by independent financiers.

The Delhi High Court in Tomorrow Sales Agency

The second case commonly relied upon is Tomorrow Sales Agency (P) Ltd. v. SBS Holdings Inc., 2023 SCC OnLine Del 3191, decided by a Division Bench of the Delhi High Court on 29 May 2023. A funder had backed a claim in arbitration under the rules of the Singapore International Arbitration Centre. After costs were awarded against the funded claimants, the opposing party sought interim relief directly against the funder, including disclosure of assets and security.

The Division Bench set aside those orders. It held that a funder who is not a party to the arbitration cannot have an award enforced against it, and that the Court had no rule or procedure for impleading a non-party funder merely to recover costs. The Court described third-party funding as essential to access to justice and observed that funders must be able to understand their exposure. It also noted that, unlike in England, Indian law gives courts no general power to order costs against a non-party funder. The Court did, however, treat the fact of funding as a relevant consideration when deciding whether security should be ordered against the funded party.

Statutory Recognition

However, with such precedents in place, statutory recognition is limited in the Indian regime. Order XXV Rule 1 of the Code of Civil Procedure, as amended in Maharashtra, Gujarat, Madhya Pradesh and Uttar Pradesh, permits funders to be impleaded and costs to be secured from them. The Arbitration and Conciliation Act, 1996 contains no dedicated funding regime, although item 19 of its Fifth Schedule indirectly acknowledges the practice by treating an arbitrator’s close relationship with a third party who may be liable for recourse as a ground for doubts about independence. Funding arrangements are therefore governed chiefly by contract and precedent.

Developments in Insolvency

In August 2026, the Ministry of Corporate Affairs informed a parliamentary standing committee, in a written reply, that litigation funding for preferential, undervalued, fraudulent and extortionate (PUFE) transactions would be examined in light of global best practices and through consultation with stakeholders. The Ministry also noted that the funding market in India is still nascent. Such transactions, undertaken before insolvency, favour certain creditors or divert assets and so reduce the value available for resolution.

The scale of the problem explains the interest. According to data of the Insolvency and Bankruptcy Board of India, more than ₹4.38 trillion across 1,878 applications remained locked in avoidance proceedings as of 31 March 2026. Only 379 cases involving ₹66,919 crore had been disposed of by June 2025, with ₹7,931 crore ordered to be clawed back. The committee observed that funding could allow complex, high-value claims to be pursued without burdening an already depleted insolvency estate. It recommended safeguards: mandatory disclosure of funding arrangements to the adjudicating authority and the Committee of Creditors, a prohibition on funder control over litigation strategy, transparent and reasonable returns, and oversight by the Board. These remain recommendations, and no legislation on funding has been enacted.

The 2026 Amendments

The Insolvency and Bankruptcy Code (Amendment) Act, 2026 received assent on 6 April 2026, and most of its provisions came into force on 26 May 2026. It strengthens the framework for avoidance transactions. It confirms that such proceedings continue independently of the completion of the resolution or liquidation process, and it reformulates the look-back periods to run from the “initiation date” to the insolvency commencement date. Commentators also note that creditors may now pursue recovery where the professional or liquidator fails to do so. The Act does not, however, appear to address expressly whether a third-party funder may take part in such proceedings, and funding of avoidance claims will for now have to be structured around the existing roles of the resolution professional and liquidator.

Arbitration and Institutional Rules

In arbitration, institutional rules have moved faster than legislation. Rule 38 of the SIAC Arbitration Rules 2025, in force since 1 January 2025, requires a party to disclose the existence of any funding agreement and the identity and contact details of the funder. It prohibits funding arrangements entered into after the tribunal’s constitution that could create a conflict with a tribunal member, and it allows the tribunal to direct withdrawal from such an arrangement. The tribunal may also order further disclosure, including whether the funder has undertaken adverse costs liability, and may take funding into account when apportioning costs. Because many Indian parties arbitrate under such rules, disclosure expectations reach Indian practice through the choice of seat and institution, ahead of any domestic statute.

Global Market Size and Outlook

Third-party litigation funding is now a substantial industry worldwide, although its precise size is difficult to establish. Funders are largely private, and agreements are confidential, so published figures are estimates prepared by market researchers rather than audited totals. They differ from one report to another according to what each counts and how each defines the market.

Subject to that caution, most recent estimates place the global market at roughly USD 17 billion to USD 26 billion for the years 2024 to 2026. One estimate puts it at about USD 19 billion in 2024, another at about USD 20.6 billion in 2025, and another at about USD 25.8 billion in 2026.

Researchers attribute this growth to rising legal costs, an increase in commercial and cross-border disputes, and wider acceptance of funding among businesses and law firms. North America is generally identified as the largest region, and Asia Pacific, which includes India, as the fastest-growing.

Conclusion

Third-party funding in India currently rests on judicial precedent and private contract rather than dedicated legislation. Balaji distinguishes between advocates, who should not fund their clients’ cases, and independent financiers, who may. Tomorrow Sales confirms that a funder who is not a party to an arbitration cannot be made liable for costs or security through that proceeding.