How Does Litigation Finance Work in India and A Practical Way to Approach It
You have a strong case but no money to pay for lawyers, experts, or court fees. That happens a lot. The good news is Litigation Finance in India can help. It lets someone else pay the legal costs now. If you win, they take an agreed share. If you lose, you usually owe nothing. This guide explains what that means, how it works, the rules to watch, and simple steps you can take.
What is Litigation Finance in India?
Litigation Finance in India, also called third‑party funding or Legal Funding in India, is when a funder pays legal costs for a case they did not start. The funder invests in your claim and gets a part of the payout if you win. Most deals are non‑recourse you don’t have to repay the funder when you lose. The funder takes the financial risk.
Think of it like an investor betting on a football team. They study the team, decide it has a good chance, then back it. If the team wins, the investor benefits. If it loses, the investor loses their money. That’s how How does Litigation Finance work in India too.
Why it matters
- Preserves cash: You don’t drain your savings or business capital.
- Shares risk: The funder shoulders legal expense risk.
- Improves access: People and small businesses can bring strong claims they otherwise would drop.
- Levels the field: You can stand up to a richer opponent with help.
How does Litigation Finance work in India? The simple process
Here’s how most funding deals go, step by step, in plain language.
- 1. Reach out: You or your lawyer send case papers to a funder. This includes facts, documents, and a legal note.
- 2. Due diligence: The funder checks the case’s strength, how much you can recover, the opponent’s ability to pay, and how long it may take.
- 3. Offer and negotiation: If the funder likes the case, they send an offer. You negotiate the funding amount, fees, what costs are covered, and the split of any recovery.
- 4. Sign the Litigation Funding Agreement (LFA): This contract lists all terms who pays what, reporting, confidentiality, and whether the funding is non‑recourse.
- 5. Funding and case work: The funder pays lawyers or experts directly. You and your lawyer keep control of legal strategy unless the LFA says otherwise.
- 6. Resolution: If you win, the funder takes their agreed share and you get the rest. If you lose, the funder typically loses the money.
The legal backdrop in India
There is no single law that governs Litigation Finance in India. Still, several rules and court decisions shape how it works.
- Indian Contract Act, 1872: LFAs are contracts. They must be fair and not against public policy.
- Code of Civil Procedure: Procedure and cost rules can affect how funders recover costs.
- Indian Evidence Act: Admissibility of digital records matters when funders test case strength.
- Arbitration Act: Many funders back arbitration cases since awards are easier to enforce.
- Insolvency and Bankruptcy Code: Funders sometimes support creditor claims during corporate insolvency.
The Supreme Court has allowed third‑party funding when it does not amount to champerty or maintenance. The 2018 Bar Council case made it clear that non‑advocates can fund cases. Courts will look closely for bargains that are exploitative or that let the funder control the litigation in a harmful way.
BNS and criminal cases what to watch
The draft Bharatiya Nyaya Sanhita (BNS) is criminal law reform under discussion. If you seek funding for criminal matters, watch BNS changes. Criminal law reform can change procedures, definitions, and remedies. Funders often avoid criminal defence funding, but they may fund private prosecutions or civil consequences linked to criminal conduct. Keep this in mind when asking, How does Litigation Finance work in India for criminal matters?
Which cases attract funders?
- Commercial disputes: breach of contract, debt recovery.
- Intellectual property: patents, trademarks, trade secrets.
- Arbitration: domestic and international where enforcement matters.
- Insolvency litigation: claims that help recover value for creditors.
- High‑value real estate and construction claims.
Funders want clear recoveries, good evidence, and enforceable awards or judgments.
Key terms to watch in the LFA and red flags
- Control vs influence: Keep settlement and appeal decisions with you and your lawyer. Avoid LFAs that let the funder decide unilaterally.
- Non‑recourse: Confirm whether you owe money if you lose. Non‑recourse is safer for claimants.
- Covered costs: Be clear what the funder pays: lawyer fees, court/arbitration fees, experts, enforcement costs.
- Confidentiality & privilege: Make sure sharing documents with the funder does not waive lawyer‑client privilege.
- Termination and exit: Know what happens if the funder stops paying or if the parties disagree.
- Fee split: The funder’s percentage usually ranges from 20% to 50% of recovery, depending on risk. Negotiate fairly.
Practical checklist before you sign
- Verify the funder’s credentials and past deals.
- Get an independent legal opinion on the LFA’s enforceability under Section 23 of the Indian Contract Act.
- Check local court practice: some courts require disclosure of funding in certain matters.
- Map enforcement: ensure the defendant has assets in reach of Indian courts or in jurisdictions where you can enforce an award.
- Plan tax and accounting: talk to tax advisers about how recoveries and funder fees affect your income and GST implications.
How businesses and individuals can use funding
Use funding the smart way:
- For businesses: Treat claims as assets. Use staged funding to keep cash flow steady and fund the case in tranches tied to milestones. Get board approval and a legal review.
- For individuals: Start with a strong case brief and local counsel. Ask funders about sensitivity in family, matrimonial, or personal matters.
- For insolvency cases: Make sure funding does not conflict with rules under the IBC or with insolvency professionals.
Tax, accounting and regulators
Get tax advice early. The funder’s share of the recovery can affect taxable income. GST may apply to legal services. Big institutional funders may fall under SEBI or RBI rules if they use regulated fund vehicles. Expect more regulatory guidance as the market grows.
Risks and drawbacks
- The funder’s share can be high compared to your net recovery.
- Potential pressure to settle early to secure the funder’s return.
- Reputational risk in sensitive matters if funding becomes public.
- Poorly drafted LFAs can be hard to enforce.
Negotiation tips and risk reduction
- Use staged funding: tranches reduce rush to settle.
- Insist on ethics clauses preventing funders from contacting your counsel directly.
- Include clear step‑in and exit rules so you know what happens if payments stop.
- Seek an independent counsel opinion on public policy and enforceability.
FAQs
Q1. Is litigation finance legal in India?
Ans: Yes. Courts allow third‑party funding if the LFA does not amount to champerty or maintenance and it follows contract law. The Supreme Court and High Courts have confirmed this in several rulings.
Q2. Who pays if the case fails?
Ans: In a non‑recourse deal, the funder pays the costs and loses their investment. The claimant generally pays nothing to the funder if the case fails, unless the LFA says otherwise.
Q3. Can the funder control the litigation?
Ans: A good LFA keeps control with the claimant and counsel. Avoid agreements that let the funder make settlement decisions without your consent.
Q4. Do courts require disclosure?
Ans: Some courts and tribunals may ask for funding disclosure. Rules vary by court and the nature of the case. Check local practice directions.
Q5. How long does funding take?
Ans: Simple cases: 2–6 weeks for initial diligence. Complex or cross‑border matters can take longer.
Q6. What costs are covered?
Ans: Funders can cover advocate fees, court/arbitration fees, expert fees, and enforcement costs. Confirm the list in the LFA.
Q7. Does BNS affect litigation funding?
Ans: BNS is a reform draft for criminal law. If your case involves criminal issues, watch BNS updates. Changes could affect funding structures for criminal matters.
Short practical example
A Mumbai manufacturer had a strong contract claim against a large distributor but lacked funds for arbitration. A funder agreed to staged payments tied to pleadings, discovery, and the hearing. The LFA capped the funder’s share and kept settlement decisions with the company. The manufacturer won the award and paid the funder their agreed share. The company kept working capital intact while pursuing the claim.
Where Litigation Finance in India is headed
The market will grow. Courts, funders, and counsel work toward clearer practice: transparent LFAs, limits on funder influence, and better disclosure rules. Regulators may issue guidance for institutional funders. Criminal law reform, like BNS, can add new considerations for cases with criminal elements. Overall, funding will become a key tool to access justice without draining resources.
Next steps and who can help
If you think funding fits your case:
- Prepare a clear case memo with facts, evidence, and estimated costs.
- Shortlist reputable funders and ask for an early term sheet.
- Get an enforceability opinion on the LFA and a tax review.
- Plan enforcement if the opponent has assets outside India.
About LawCrust Legal Consulting
LawCrust Legal Consulting, a part of LawCrust Global Consulting Ltd., stands as one of India’s trusted names in legal and consulting services. Our team works across a wide range of areas to support both businesses and individuals.
We offer services such as litigation finance, legal protection, litigation management, startup support, fundraising guidance, hybrid consulting, mergers and acquisitions, insolvency & bankruptcy, and debt restructuring.
We also help people with matrimonial matters, property disputes, criminal cases, civil issues, immigration concerns, NRI legal support, society matters, and estate planning. Along with this, we provide ALSP and LPO services to clients in India and overseas.
Our network includes more than fifty offices across India and a team of over seventy specialised lawyers. This helps us offer steady and reliable support for many legal needs.
You can also use our legal app to connect with lawyers quickly. It is one of the most helpful legal apps available, so feel free to download it.
LawCrust Groups also includes several companies such as LawCrust Realty, LawCrust Ventures, LawCrust Hybrid Consulting, Gensact, LawCrust Foundation, and LawCrust Consumer Products.
Need Legal Help? Contact Us
You can reach us anytime for expert legal support.