THE RISE OF THIRD-PARTY FUNDING: INDIA'S POSITION IN A GLOBAL CONTEXT

‍INTRODUCTION

Litigation and arbitration are expensive, and a party with a meritorious claim does not always have the resources to see it through. Third-party funding addresses this gap: an entity unconnected to the dispute agrees to bear the costs of pursuing, or defending, a claim in exchange for a share of the proceeds if the claim succeeds, and typically recovers nothing if it fails. What began as a mechanism to widen access to justice has, over the last decade, grown into a distinct commercial activity in which legal claims are treated as investable assets. Once constrained by common law doctrines that treated such arrangements with suspicion, third-party funding is now a familiar feature of cross-border commercial disputes and international arbitration. Its expansion, however, has outpaced the regulatory and judicial response in many jurisdictions, India included, leaving important questions of disclosure, cost liability, and oversight only partially answered.

BACKGROUND

The doctrines of maintenance and champerty, developed by English courts, historically stood in the way of third-party funding. Maintenance described an outsider supporting another's litigation without any personal stake in it; champerty was maintenance for profit, where the funder took a share of the proceeds. English law long treated both as void on public-policy grounds, out of concern that funding disputes for profit would encourage speculative litigation and hand control over other people's claims to financiers.

India departed from this position early on. In Ram Coomar Coondoo v. Chunder Canto Mookerjee, decided in 1876, the Privy Council held that a fair agreement to finance litigation in return for a share of any property recovered was not, without more, contrary to public policy.¹ Funding a stranger's litigation was therefore never treated as inherently unlawful in India; it became objectionable only where the terms were extortionate, unconscionable, or effectively a wager on the litigation's outcome.

The one clear restriction that has survived concerns lawyers themselves. In Bar Council of India v. A.K. Balaji, the Supreme Court held that a conjoint reading of the Bar Council of India Rules bars advocates from funding litigation or acquiring a stake in a client's claim, since a lawyer's fee must reflect professional work rather than a bet placed on the case.² The Court went on to observe that there is no equivalent bar on funding by non-lawyer third parties, who may recover from the proceeds of a successful claim. That observation created the doctrinal space in which professional funders and investment vehicles now operate.

More recently, in Tomorrow Sales Agency Pvt. Ltd. v. SBS Holdings, Inc., a Division Bench of the Delhi High Court held that a litigation funder, not being a party to the underlying arbitration agreement or award, cannot be proceeded against for the funded party's cost liability at the enforcement stage.³ This is a meaningfully different position from the English Arkin approach, under which funders have, in certain circumstances, been made liable for a successful opponent's costs in proportion to the funding they provided. English courts have gone further still in some cases: in Excalibur Ventures LLC v. Texas Keystone Inc., the funding party held jointly and severally liable for the successful party's costs on an indemnity basis, subject to the Arkin cap, illustrating how differently English courts approach a funder's downside exposure compared to the position now settled in India.⁴

Despite this judicial openness, India still has no dedicated statute governing third-party funding. Several states, including Madhya Pradesh, Odisha, Tamil Nadu, and Uttar Pradesh, have amended Order XXV of the Code of Civil Procedure, 1908 to empower courts to direct a funded litigant to furnish security for costs, but these amendments are piecemeal, vary in text, and do not apply uniformly across the country.⁵

EFFECTIVENESS AND PRACTICAL CONCERNS

Third-party funding has undeniably widened access to justice in India, letting claimants with strong but expensive cases proceed without exhausting their own resources. The absence of a dedicated regulatory framework, however, leaves several questions unresolved: whether a funder must disclose its involvement, whether it can be exposed to adverse costs, and how confidentiality is to be maintained between funder and funded party. Courts and tribunals currently decide these questions case by case, which makes outcomes harder to predict and gives both funders and claimants less certainty than more developed regimes offer. Concerns about a funder's influence over the conduct of proceedings, and about the absence of any mandatory disclosure regime, compound this uncertainty. In the absence of settled rules, both funders and funded parties are often left to negotiate these questions contractually on a case-by-case basis, which raises transaction costs and can deter smaller or first-time funders from entering the Indian market even where a claim is otherwise attractive.

COMPARATIVE GLOBAL FRAMEWORKS

A number of jurisdictions have moved well beyond India's case-by-case approach.

Singapore and Hong Kong have each enacted dedicated legislation permitting third-party funding in international arbitration, coupled with rules requiring disclosure of the funder's identity and the fact of funding, so as to guard against conflicts of interest.⁶

The United Kingdom permits funding, but its position has recently been in flux. In R (on the application of PACCAR Inc.) v. Competition Appeal Tribunal, the UK Supreme Court held that funding agreements calculated as a percentage of damages recovered are damages-based agreements and, as such, unenforceable unless they satisfy a separate statutory regime, a ruling that unsettled a large part of the funding market. A bill designed to reverse that decision lapsed with the dissolution of Parliament ahead of the 2024 general election and has not been reintroduced as law. In July 2025, the Court of Appeal, in Sony Interactive Entertainment Europe Ltd. v. Alex Neill Class Representative Ltd., held that funding agreements structured as a multiple of the funder's outlay, rather than a straight percentage of damages, are not damages-based agreements and remain enforceable, restoring a measure of certainty to the market pending any legislative fix.⁷

Australia and the United States both permit third-party funding, regulating it through a mix of statute, professional conduct rules, and court practice, particularly around disclosure and conflicts of interest. Australia abolished the torts of maintenance and champerty in most states decades ago, and its courts now treat funding primarily as a question of whether the funding agreement itself is fair and does not amount to an abuse of process. In the United States, the position varies considerably by state; funding is broadly permitted, and in several states the existing contingency-fee culture among lawyers has made third-party capital a natural complement to litigation practice rather than a novel intrusion into it.

Mainland China has no dedicated legislation on the subject, but its courts and leading arbitral institutions have moved toward acceptance. Beijing's Fourth Intermediate People's Court upheld the legality of arbitration funding in 2022, and the China International Economic and Trade Arbitration Commission's 2024 rules introduced, for the first time, an express disclosure obligation for funding arrangements.⁸

INTERNATIONAL CONVENTIONS, SOFT LAW, AND INSTITUTIONAL RULES

The 2021 ICC Rules of Arbitration require, under Article 11(7), that parties promptly disclose the existence and identity of any non-party funder with an economic interest in the outcome, so that arbitrators can properly assess their own independence and impartiality.⁹

The IBA Guidelines on Conflicts of Interest in International Arbitration, most recently revised in 2024, treat a funder's controlling influence over a party, or its direct economic interest in the award, as relevant to whether the funder should be treated as sharing that party's identity for conflicts purposes, a position that has shaped disclosure practice well beyond IBA member associations.¹⁰

The 2022 ICSID Arbitration Rules address funding directly for the first time. Rule 14 requires a party to disclose, in writing, the name and address of any non-party funder at the time it registers its request for arbitration, or as soon as a funding arrangement is later concluded, with tribunals empowered to call for further information about the arrangement.¹¹

Other major institutions, including SIAC, HKIAC, and CIETAC, have introduced comparable disclosure requirements of their own, reflecting a broad institutional consensus that transparency about funding, even short of the funding agreement's full terms, is now treated as a baseline expectation in international arbitration.¹²

COMPARISON TABLE: INDIA AND SELECTED JURISDICTIONS

Sr. No.

Aspect

India

Singapore / Hong Kong

United Kingdom

ICC / ICSID / IBA Standards

1.

Statutory clarity

Limited; state-specific CPC amendments only

Comprehensive dedicated legislation

Common law; unsettled post-PACCAR, awaiting a legislative fix

ICC Rules, IBA Guidelines, ICSID Rules

2.

Disclosure

Not mandated

Mandatory

No general statutory duty; case-specific

Mandatory (funder identity)

3.

Funder's cost liability

Not imposed (Tomorrow Sales Agency)

Defined in rules

Arkin-type liability possible; still developing

Costs subject to arbitral/tribunal discretion

4.

Judicial stance

Generally permissive

Strong statutory support

Permissive, presently cautious pending legislation

Institutional support for transparency

CONCLUSION

Indian jurisprudence on third-party funding is judicially permissive but structurally underdeveloped, a combination that has, so far, allowed the practice to grow without either the protections or the predictability that a dedicated statute would bring. Courts have consistently declined to treat funding arrangements as unlawful, while at the same time flagging the absence of a comprehensive statutory framework. Bar Council of India v. A.K. Balaji and Tomorrow Sales Agency v. SBS Holdings together show a judiciary comfortable with the utility of funding, and careful to shield funders from liabilities they never agreed to bear. Yet the patchwork of state amendments to the CPC, and the absence of any uniform disclosure or cost-liability rule, leaves real gaps in predictability for funders and claimants alike.

By contrast, Singapore, Hong Kong, and, notwithstanding its recent turbulence, the United Kingdom have moved toward more detailed statutory and regulatory treatment of funding, built around transparency and accountability. The ICC Rules, the ICSID Rules, and the IBA Guidelines reinforce the same direction internationally: disclosure of a funder's existence and identity is increasingly treated as a baseline requirement for a fair and well-administered proceeding, rather than an optional courtesy.

For India, the practical takeaway is that judicial openness to funding has not yet been matched by legislative clarity. Without codified rules on disclosure, cost liability, and the ethical boundaries of a funder's role, India risks losing ground to jurisdictions that already offer funders and claimants a predictable framework to work within, a consideration that matters increasingly as parties choose where to seat their disputes. A calibrated legislative response, balancing wider access to justice against the risk of abuse, would go some way toward closing that gap, and would strengthen India's standing as a venue of choice for arbitration.

REFERENCES

1. Ram Coomar Coondoo v. Chunder Canto Mookerjee, (1876) L.R. 4 I.A. 23 (P.C.).

2. Bar Council of India v. A.K. Balaji, (2018) 5 S.C.C. 379.

3. Tomorrow Sales Agency Pvt. Ltd. v. SBS Holdings, Inc., 2023 SCC OnLine Del 3191.

4. Excalibur Ventures LLC v. Texas Keystone Inc., [2016] EWCA Civ 1144.

5. Code of Civil Procedure, 1908, Order XXV, Rule 1, as amended by the Code of Civil Procedure (Madhya Pradesh Amendment) Act, the Code of Civil Procedure (Orissa Amendment) Act, the Code of Civil Procedure (Tamil Nadu Amendment) Act, and the Code of Civil Procedure (Uttar Pradesh Amendment) Act.

6. Civil Law (Amendment) Act 2017 (Act 2 of 2017) (Sing.); Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Ordinance 2017 (H.K.).

7. R (on the application of PACCAR Inc.) v. Competition Appeal Tribunal, [2023] UKSC 28; Sony Interactive Entertainment Europe Ltd. v. Alex Neill Class Representative Ltd., [2025] EWCA Civ 841; Litigation Funding Agreements (Enforceability) Bill [HL], HL Bill 56 (2023-24) (lapsed on dissolution of Parliament).

8. China International Economic and Trade Arbitration Commission, Arbitration Rules art. 48 (2024); DLA Piper, Reshaping the Landscape for Third Party Funding in China (Dec. 2023), https://www.dlapiper.com/en/insights/publications/2023/12/reshaping-the-landscape-for-third-party-funding-in-china-new-cietac-arbitration-rules-on-tpf.

9. Int'l Chamber of Commerce, Rules of Arbitration art. 11(7) (2021).

10. Int'l Bar Ass'n, IBA Guidelines on Conflicts of Interest in International Arbitration, Gen. Standard 6 & explanatory notes (rev. 2024).

11. ICSID, Arbitration Rules r. 14 (2022).

12. Lake Whillans, "State of the Rules" on Third-Party Funding in International Arbitration (2021), https://lakewhillans.com/articles/state-of-the-rules-on-third-party-funding-in-international-arbitration/.

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AUTHOR- NIKITA TOMAR

LEGAL ASSOCIATE, SHEPHERD KNIGHT LLP

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