At the outset, let me clarify that contrary to popular belief, third-party litigation funding is not prohibited in India.
While lawyers in India are not allowed to fund a litigation when they are representing one of the parties to the case, a third-party (non-lawyer) is allowed to fund the litigation cost of a disputing party. If the party wins the case, the third-party funder is allowed to take a fee, which could be a percentage of the claim received by the party. The funders do not get anything if the party loses the case.
Litigation funding, though not prevalent in India, has always been allowed. In fact, Privy Council in 1876 in Ram CoomarCoondoo v. Chunder Canto Mookerjee 1 , permitted third-party funding on the grounds of promoting access to justice. Later, the Supreme Court in 1954 2 confirmed as an obiter that there is nothing morally wrong, nothing to shock the conscience, nothing against public policy and public morals in a transaction where a third-party (non-lawyer) has financed a litigation. Again, in 2018, the Supreme Court in Bar Council of India v AK Balaji 3 confirmed the legality of third-party funding in litigation. Certain states have also amended the Order XXV of the Code of Civil Procedure, 1908 to set out the situations in which a funder can be made a party to litigations.
While third-party funding is allowed in India, it comes with certain riders. A funding agreement between a party in dispute and a funder should not be found to be extortionate and unconscionable, so as to be inequitable against the party and should not be made for improper objects, e.g. for the purpose of gambling in litigation, or of injuring or oppressing others. 4
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