India's Legal Framework for Third-Party Litigation Funding
The legitimacy of third-party litigation funding in India has evolved substantially over the past decade, moving from a position of legal ambiguity toward clear statutory and judicial recognition. Understanding this landscape is important not only for claimants considering funded claims, but for investors who need confidence that the asset class rests on sound legal foundations.
Historically, the doctrines of champerty and maintenance — inherited from English common law — raised questions about whether funding another party's litigation for profit was permissible. These doctrines held that a third party should not be permitted to have a financial interest in the outcome of litigation, on the grounds that such arrangements might lead to the fabrication of claims or the corruption of the judicial process. For much of the twentieth century, these concerns created uncertainty around the enforceability of litigation funding agreements in India.
The landmark judgment in Bar Council of India v A.K. Balaji (2018) 5 SCC 379 marked a decisive shift. The Supreme Court clarified that while foreign law firms cannot practise in India, there is no absolute bar on third-party funding of litigation. The Court observed that agreements to fund litigation, in exchange for a share of the proceeds, are not contrary to public policy in India — a significant departure from the restrictive English common law position that had historically influenced Indian jurisprudence.
More recently, the Delhi High Court in Tomorrow Sales Agency Pvt. Ltd v SBS Holdings Inc. (2023) gave further recognition to litigation funding arrangements, observing that such funding is "essential to ensure access to justice" for parties who might otherwise be unable to afford the costs of pursuing legitimate claims. The court noted that disclosure of the funding arrangement to the tribunal is required, but that the existence of the arrangement does not itself impugn the validity of the claim or the subsequent award.
At the statutory level, six Indian states — including Madhya Pradesh, Gujarat, and Odisha — have enacted provisions in their Civil Procedure Code amendments that explicitly permit third-party funding agreements. The SEBI Alternative Investment Fund Category II framework, under which Five Rivers Capital Fund I operates, provides the regulatory wrapper that allows institutional capital to be deployed into litigation finance in a structured and fully compliant manner.
The convergence of judicial recognition, statutory reform, and regulatory infrastructure makes India one of the most promising jurisdictions in Asia Pacific for the growth of institutional litigation finance. For claimants, it means access to capital that was previously unavailable. For investors, it means deploying capital into a growing, legally sound market with returns uncorrelated to public markets.
