Non-recourse litigation finance is a funding model where a third party agrees to pay for some or all of a claimant’s legal expenses in exchange for a share of the proceeds if the case is successful, with no repayment obligation if the case is lost. In India, this model is legal when the funder is a non-lawyer, provided the agreement is not unconscionable or extortionate. The Supreme Court has affirmed that while advocates cannot finance their clients or work on contingency fees under the Bar Council of India (BCI) Rules, there is no such restriction for non-lawyers who fund litigation in exchange for a portion of the recovery. This makes non-recourse funding a valuable tool for claimants who have strong cases but lack the resources to pursue them.
Indian law’s approach to maintenance and champerty differs from the old English prohibition. The Privy Council, in historic rulings, upheld such agreements so long as they were not against public policy. Modern Indian courts continue this pragmatic view. Several states, including Maharashtra, Gujarat, Madhya Pradesh, and Uttar Pradesh, have amended Order XXV of the Code of Civil Procedure (CPC) to expressly recognise litigation funders. These amendments empower courts to implead funders in proceedings and require them to furnish security for costs, but they do not prohibit funding.
The appeal of non-recourse finance lies in its ability to shift the financial risk of litigation from the claimant to the funder. Legal disputes—especially commercial litigation and arbitration—can be costly and prolonged, consuming significant resources and creating uncertainty. Under a non-recourse arrangement, the funder’s return is contingent entirely on success; if the claim fails, the claimant owes nothing. This can be a lifeline for individuals or businesses facing well-funded opponents or cash flow constraints. However, because the funder assumes the risk of total loss, they typically conduct detailed due diligence, evaluating the strength of the case, the likely damages, enforceability of any award or judgment, and the financial standing of the defendant.
While the benefits are clear—access to justice, improved cash flow, and the ability to pursue claims without diverting capital from core business activities—non-recourse funding also comes with risks and trade-offs. The primary consideration is cost. Because the funder takes on the risk of losing their entire investment, they will expect a higher return in the event of success. This can be structured as a percentage of the net recovery, a multiple of the capital deployed, or a hybrid of both. Depending on the duration and complexity of the case, the effective cost of capital can be substantial, and claimants must weigh this against the certainty and speed of self-funding. Another risk is strategic control—while most agreements preserve the claimant’s right to make final decisions, funders may negotiate consent rights for settlements below certain thresholds, budget overruns, or changes in counsel. These provisions need careful drafting to avoid disputes and ensure compliance with BCI rules.
The legal structure of non-recourse litigation finance in India revolves around a carefully drafted Litigation Funding Agreement (LFA). This document should define the scope of funding, the non-recourse nature of the arrangement, the calculation and priority of the funder’s return, budget approvals, reporting requirements, and termination triggers. It should also address confidentiality and privilege issues, as funders will require access to sensitive case materials. In arbitration matters, the agreement should incorporate disclosure protocols to arbitrators to avoid conflicts of interest under Section 12 and the Fifth Schedule of the Arbitration and Conciliation Act, 1996. If the matter is before a court in a state that has amended Order XXV of the Code of Civil Procedure—such as Maharashtra, Gujarat, Madhya Pradesh, or Uttar Pradesh—the LFA should also account for the possibility of security-for-costs orders or impleadment of the funder.
Structurally, most non-recourse arrangements in India are set up as pure risk-participation contracts, not loans, to avoid falling under money-lending regulations. The agreement will usually stipulate that repayment is made only from the proceeds of the case, and only after deduction of legal costs and other agreed expenses. In more sophisticated cases, funding may be arranged through a special purpose vehicle (SPV) to ring-fence the transaction, manage tax implications, and protect both parties from unrelated liabilities. Enforcement provisions are also critical, particularly when awards or judgments may need to be enforced against assets located abroad.
From a claimant’s perspective, the decision to enter a non-recourse funding agreement should follow a cost-benefit analysis. The key questions are: does the arrangement enable the pursuit of a meritorious claim that would otherwise be unaffordable? Is the pricing proportionate to the risk being assumed by the funder? Does the agreement protect the claimant’s autonomy in strategic decisions while ensuring adequate capital to see the case through? For businesses, portfolio funding—where multiple claims are bundled into one agreement—can spread risk, reduce cost, and create more predictable litigation budgets. For individuals, especially in high-stakes disputes, non-recourse funding can be the only realistic path to justice.
In conclusion, non-recourse litigation finance in India offers a legally permissible, commercially viable way to shift the financial burden of litigation to a willing third party. Its success depends on clear legal structuring, compliance with professional conduct rules, transparent disclosure where required, and a balanced agreement that aligns the interests of funder and claimant. When used wisely, it can transform the economics of dispute resolution, empowering claimants to pursue their rights without the fear of financial ruin.
Author: Advocate Dimple Rajpurohit (Bombay High Court)
Contact (Admin): info@nolegalpaisa.com
Last updated: 25-09-2025
