THE SILENT SHAREHOLDER: HOW OUTSIDE INVESTORS ARE BUYING A STAKE IN INDIA’S LAWSUITS

India’s courtrooms have remained the exclusive domain of litigants, lawyers and judges. But with rapid growth and changing times, a new class of financial aspirants is now entering the equation by financing lawsuits in exchange for a share of the eventual recovery through Third Party Litigation Funding (TPLF). Long established in jurisdictions such as the USA, Australia, and the United Kingdom, the practice of TPLF is gaining quiet traction in India too. Funders see an opportunity in financing litigation as an asset class, backed by the expectation of a favourable settlement or judgment.

What almost nobody outside a small circle of lawyers and financiers realises is that this "investor" doesn't show up on your company's balance sheet, doesn't sit in your boardroom, and under current Indian law doesn't have to tell anyone they're involved. In every meaningful sense, they are a silent shareholder in your dispute. This shift raises important questions for India's legal and business ecosystem. Does outside funding improve access to justice by financially constrained litigants and help them pursue legitimate claims, or does it introduce a profit motive into a system meant to operate independently of commercial interest? As litigation funding moves from the margins to the mainstream, understanding how it works and who it truly serves has become essential.

 AN EMERGING INVESTMENT FRONTIER

The cost of pursuing large or complex lawsuits has traditionally been a significant barrier to justice. In recent years, third-party litigation funding (TPLF) has emerged as an innovative solution to this problem. Under a typical  TPLF arrangement, an outside financier, with no direct stake in the case, agrees to pay some or all of a litigant’s legal fees and expenses in exchange for a share of any recovery which the litigant eventually wins. If the case fails, the funder loses its investment and the litigant owes nothing, making the funding non-recourse. This is, structurally, closer to buying equity than lending money; the funder isn't guaranteed repayment the way a lender is; their return exists only if the "investment" pays off.

The financing parties do not take every case that walks in the door; instead, it depends on three criteria: the legal merit of the claim, the recoverable quantum and the financial strength of the opposing party to pay if the case is won. The return on offer explains the interest and probability of funding any legal suit. 

To understand the significance of TPLF, it is important to grasp the legal doctrines that traditionally restricted third-party involvement in litigation. The common law historically outlawed maintenance (supporting litigation in which one has no legitimate interest) and champerty (maintenance in exchange for a share of the proceeds) as crimes or torts, on public policy grounds; the fear was that such practices could encourage frivolous lawsuits or result in profiteering off litigation. India’s relationship with doctrines of maintenance and champerty is part of its common law legacy, but significantly, Indian law has never absolutely prohibited third-party funding. This position has been clarified through case law over time. Notably, as early as the Privy Council’s decision in Ram Coomar Coondoo v. Chunder Canto Mukherjee, Indian courts recognised that a funding agreement is not per se void except if found to be extortionate or made for an improper purpose (for example, to stir up unjust litigation). 

BUILT ON PRECEDENT, GOVERNED BY PATCHWORK

Here's what makes India's boom genuinely unusual: none of this rests on a modern law. As of 2026, no Indian statute expressly permits or regulates third-party litigation funding. Instead, the entire industry runs on general contract law from 1872, layered on top of a single court ruling, Ram Coomar Coondoo v. Chunder Canto Mookerjee,  which held that an agreement done by an investor funding the litigation in return for a share is permissible, but they must not undermine the very principle of public policy.  That's still, more or less, the only real legal test in place today.

The most significant modern affirmation of TPF’s legality came from the Supreme Court in Bar Council of India v. A.K. Balaji. In that case, which primarily dealt with the right of foreign lawyers to practice in India, the Court explicitly observed that “There appears to be no restriction on third-parties (non-lawyers) funding the litigation and getting repaid after the outcome of the litigation.” the Supreme Court acknowledged that while Indian advocates must avoid contingency fee-like arrangements and champerty, a third-party financier with no lawyer-client relationship is not forbidden from making such an agreement. This clear statement from India’s apex court has often been cited as the green light for litigation funding in India’s legal system.

Because Parliament has never stepped in to formalise any of this, a handful of states have tried to fill the gap on their own. Madhya Pradesh, Andhra Pradesh, Tamil Nadu, Uttar Pradesh, Maharashtra and Gujarat have updated their local civil procedure rules to formally recognise funders and let courts demand they guarantee costs if needed. But outside these states, there's no such recognition at all and even where it exists, basic questions remain unanswered: Does the other party or the court need to be informed about the involvement of a funder?  What happens if there is a conflict of interest between the funder and the complainant? No statute has addressed any of this.

 In Tomorrow Sales Agency v. SBS Holdings Inc., the Delhi High Court refused to force a funder to guarantee costs the way an actual party to the case is required to . This indicates that even the judiciary isn't fully settled on how much responsibility “this silent shareholder”  should carry. 

THE LAWYER’S PARADOX

This produces a structural quirk that doesn't exist in markets like the United States. American lawyers routinely fund cases themselves through contingency-fee arrangements. Indian professional conduct rules foreclose that entirely. The Bar Council of India's rules bar advocates from stipulating fees contingent on a case's outcome, from sharing in litigation proceeds, and from holding any interest in a client's claim. Funding capital in India is only permissible by the non lawyers which is precisely why dedicated funding institutions like Five Rivers, LegalPay, and ELF Partners now exist to fill that space.

What Having a Silent Shareholder Can Cost You

A stake with no visibility carries real risk for the person who took the funding. Sharing case strategy and internal documents with a funder during due diligence can break legal privilege, since the funder isn't part of the protected lawyer-client relationship. There's no law requiring anyone to disclose that a funder is involved in a case at all. And because nothing caps what a funder can take, a claimant can win their case and still walk away with only a modest fraction of what they were actually owed, because their silent shareholder took the rest.

Right now, India's funding market looks like Australia's did in its early days — plenty of disputes and growing investor appetite, but almost no rules in place. Singapore and Hong Kong, by comparison, have already passed clear laws spelling out exactly how this kind of funding should work. Globally, the industry was worth roughly $12.2 billion in 2022 and is projected to reach nearly $25.8 billion by 2030, with capital actively looking for markets like India: large, full of unresolved disputes, and still wide open.

Until Indian lawmakers decide whether they want this industry, and on what terms, the silent shareholder isn't going anywhere. They aren't purely a villain or purely a public good; they are both at once, an unregulated hybrid of investor and stakeholder that Indian laws have never been asked to define. They're buying stakes in Indian lawsuits faster than the law has even figured out what to call them.