From courtrooms to capital: Investors are turning lawsuits into asset class

New Delhi, Sep 23, 2026

Would you invest in a lawsuit? Inside India's emerging litigation-finance market

What if a company has a ₹100-crore legal claim but does not have the money — or does not want to spend its own money — to fight the case?

There is another option increasingly being explored in India: get an outside investor to finance the litigation and share in the eventual recovery.

This is known as third-party litigation funding (TPF) or litigation finance. The funder typically pays some or all of the costs of pursuing a legal claim and, in return, receives an agreed share of the eventual settlement or court/arbitral award if the case succeeds. Under a non-recourse structure, the claimant does not have to repay the funder if the case fails.

The market is still small, but it is beginning to attract institutional investors and specialist platforms.  Five Rivers, LegalPay and Singapore-based ELF Partners are among the entities active in India's litigation-finance market.

And the government is now examining whether litigation funding can be used to pursue certain insolvency-related claims, potentially opening up another significant area for the industry.

First, what exactly is litigation funding?

Suppose a company has a ₹100-crore commercial dispute against another company.

It believes it has a strong case but estimates that lawyers, arbitrators, experts and other expenses could cost ₹5 crore over several years.

Instead of spending ₹5 crore from its own balance sheet, it approaches a litigation funder.

The funder assesses the case, including its legal merits, potential recovery, likely duration, costs and the opposing party's ability to pay. If it invests, it may fund the litigation costs in return for a contractual share of the eventual recovery.

Under a non-recourse arrangement, if the claim fails, the funder bears the investment loss rather than recovering the money from the claimant. 

"Think of it as someone else paying for your fight in court. A financier picks up the legal bills, and if you win, they take a slice of the recovery — if you lose, they eat the cost. Indian law doesn't stop this. The Supreme Court said as much in the A.K. Balaji case back in 2018: lawyers can't fund their own clients, but nobody else is barred from doing it. A handful of states — Maharashtra, Gujarat, UP — have even tweaked the Civil Procedure Code to recognise these financiers. The trouble is there's no rulebook. Nobody regulates the funders, there's no requirement to disclose who's paying, and it's unclear whether the funder is on the hook if the case goes badly. We saw exactly that in Tomorrow Sales v. SBS Holdings in 2023 — the Delhi High Court said a funder that wasn't a party to the arbitration couldn't be asked to pay the costs the claimant lost. Meanwhile, players have already backed many of commercial and insolvency claims in India. The market has moved on; the law is still catching up, and that's where the next round of reform needs to go," said Sameer Jain, Managing Partner, PSL Advocates & Solicitors.

One of the most important Indian cases involving litigation finance is Tomorrow Sales Agency v SBS Holdings.

In December 2018, SBS Transpole entered into a funding agreement with Tomorrow Sales Agency (TSA) to fund a claim of approximately ₹250 crore against SBS Holdings and another party. The dispute was to be resolved through arbitration under Singapore International Arbitration Centre rules.

The funding agreement was explicitly non-recourse. In other words, if the claim failed, the funder could not recover its investment from the claimants or lawyers.

The arbitration eventually went against the funded claimants.

The opposing party subsequently sought to impose liability and security requirements on the funder.

The Delhi High Court's Division Bench rejected the attempt to treat the funder as though it were a party to the arbitration. The court held that an arbitral award could not simply be enforced against a third-party funder that was not itself a party to the arbitration proceedings.

But the judgment went beyond that immediate dispute.

The court said third-party funding can be important for access to justice, particularly because arbitration can involve substantial arbitrator, legal, expert and other costs. It also said funders need to know the extent of their exposure and that funding should be transparent and not exploitative.

So, is litigation funding legal in India?

Third-party litigation funding is not expressly prohibited in India.

The Supreme Court addressed the issue in Bar Council of India v A.K. Balaji in 2018. The court's ruling has subsequently been cited as establishing that there is no general legal bar on non-lawyer third parties funding litigation. The Ministry of Corporate Affairs' Insolvency Law Committee also referred to the judgment and concluded that there was no legal bar to third-party litigation funding.

However, India does not have a comprehensive central statute specifically governing third-party litigation funding.

"Litigation funding can be structured in several ways depending on the nature of the dispute and the underlying asset. In land-related matters, the return can be structured through a pre-agreed and clearly demarcated share of the land. In other disputes, capital can be raised against the claim for a defined period and investment quantum, with the return structured as a fixed or multiple return—such as up to twice the investment or through a success-linked percentage of the eventual recovery, potentially supported by clear-title property as security.

The key is the structuring: investment quantum, timeline, security, expected recovery and downside risk must all be assessed at the outset. The model becomes particularly attractive where the fund has access to strong in-house legal expertise capable of conducting due diligence on the claim, assessing litigation and enforcement risk, and determining the realistic probability and timeframe for resolution before capital is deployed," said Alay Razvi, Managing Partner, Accord Juris.

What happens if the person paying for the litigation starts influencing the litigation itself?

A funder's financial interest may be different from that of the claimant.

For example, a claimant might prefer a settlement of ₹40 crore because it needs cash immediately. A funder may prefer to continue litigating because it believes a larger award is possible.

The funding agreement therefore becomes crucial.

What are the risks for the funder?

Litigation funding can potentially generate large returns, but the risks are equally unusual.

1. The case can be lost

Under a non-recourse arrangement, a failed claim can mean the funder loses the money invested. This was explicitly contemplated in the Tomorrow Sales funding agreement.

2. Winning is not the same as collecting

A claimant can win a judgment or arbitral award but still face challenges in recovering the money.

That means funders need to examine not only "Will we win?" but also "Can we collect?"

3. Capital can remain locked up for years

A litigation investment does not have a predictable maturity date in the way a fixed deposit or bond does.

The case could settle quickly — or continue through multiple stages of litigation and enforcement.

4. Legal rules can change

India currently has no comprehensive statute governing third-party litigation funding. Chambers notes that issues including disclosure and conflicts remain areas of uncertainty.

5. The funder's control is a sensitive issue

The Delhi High Court recognised the importance of transparency and warned against exploitative arrangements, while the parliamentary committee has separately recommended that funders should not control litigation strategy in insolvency-related cases.

What does this mean for companies?

For a company with a potentially valuable claim, litigation finance can effectively turn a legal claim into a source of external capital.

That can be particularly relevant to companies that are cash-constrained but have significant claims tied up in commercial disputes.

There is also no standardised "litigation fund return" against which investors can benchmark the asset class.

The market's early-stage nature means investors need to understand whether they are funding one case, a diversified portfolio or a fund that spreads capital across multiple disputes.

"Litigation funding in India is in an innovative early phase that is unregulated by statute but governed by contract and precedent, allowing flexible arrangements tailored to claimant and funder needs. Moving ahead, India should aim for a balanced regulatory regime to protect consumers and inspire investor confidence, while voluntary self-regulation (via industry bodies like IALF) raises ethical standards until formal legislation emerges," said Neeha Nagpal, founding partner at NM Law Chambers.

[The Business Standard]