How Litigation Funding Benefits Different Stakeholders

Courtrooms may not appear on balance sheets, but in India they are quietly becoming one of the most expensive line items in corporate life. If there was ever proof that litigation has stopped being an occasional corporate headache and become a core cost of doing business, the latest fiscal numbers make it unmistakably clear. In FY25, India's top 500 companies collectively spent over ₹62,000 crore on legal matters, an increase of more than 11 percent from the previous year. This spend goes far beyond counsel fees, covering litigation and arbitration costs, professional and expert fees, regulatory filings, compliance submissions, penalties, stamp duties, and procedural charges. The scale of capital trapped in disputes is equally telling. Litigation expenses in India were estimated to exceed ₹30,000 crore as early as 2019, while outstanding claims against a single authority such as the National Highways Authority of India have crossed ₹78,000 crore. For many businesses, these costs push them toward financial distress long before rightful claims are realised. Even well capitalised enterprises feel the strain, as capital meant for expansion is redirected into disputes, slowing momentum and blurring strategic focus.

So how does a business pursue justice when litigation has already established itself as a fixed cost of enterprise? The answer lies in litigation funding, a financial architecture built to carry legal risk rather than convert it into commercial drag. At its core, Third Party Litigation Funding involves capital support from an independent funder, with returns linked to the outcome of the case. The funder receives an agreed share of recoveries through a decree or settlement.

For MSMEs and startups, litigation funding reframes legal claims as enforceable legal assets rather than financial liabilities, while creating a level playing field against larger, better capitalised opponents. Early-stage and growth-stage businesses operate on limited runways, where sustained legal spend directly competes with product development, hiring, and expansion. Litigation funding preserves working capital by removing the need to finance disputes upfront, allowing meritorious claims to be pursued without compressing cash flows or unsettling investors.

Because the funding is non-recourse, downside risk is shifted away from the business, protecting balance sheets and reducing insolvency pressure during prolonged disputes. Crucially, access to external capital prevents MSMEs and startups from being outspent into premature settlements, enabling them to deploy experienced counsel and expert resources. In doing so, litigation funding allows smaller enterprises to defend value, protect innovation, and convert legal rights into strategic assets without sacrificing growth or long-term focus.

Litigation funding can be a game changer not only in enforcing rights, but in building intellectual property itself, particularly for technology providers. India files over 90,000 patents every year, yet the true value of these assets depends on the ability to defend them. Patent and technology infringement actions can easily require ₹1–2 crore or more in legal and expert costs, a threshold that often discourages enforcement by mid-sized tech companies. Litigation funding changes this dynamic by turning patents, software rights, and proprietary technologies into enforceable legal assets rather than dormant registrations. When infringement can be pursued without upfront capital strain, IP gains commercial credibility, strengthens licensing leverage, and enhances enterprise valuation. In this way, litigation funding supports not just protection, but the long-term construction of intellectual property as a meaningful economic asset.

This explains the need for an influx of capital into the system, but it is not driven by necessity alone. It is an opportunity in its own right. What, then, is in it for investors at large? Litigation funding combines returns, discipline, and diversification in a way few asset classes do. LexShares has reported annualised returns as high as 52 percent, while a 2016 study by Professor Michael McDonald indicates average annual returns of around 36 percent, placing legal finance ahead of private equity, real estate, credit, and hedge funds, as noted by Bloomberg. Unlike traditional investments, returns here are driven by the merit of a claim rather than market cycles, offering insulation from equity and debt volatility. With arbitration timelines in India typically ranging between 36 to 72 months, capital deployment is increasingly time bound and predictable. As Christopher Bogart, Chief Executive Officer of Burford Capital, has consistently emphasised, litigation finance rewards patience and disciplined case selection rather than speculation.

The momentum to build a litigation funding market in India is already taking shape, but its success will depend on how deliberately the ecosystem is designed. As capital, claimants, and courts begin to intersect, the next phase requires institutional readiness. This includes judicial familiarity with funding structures, legal education that treats funding as a commercial and ethical discipline, and clear professional guidance on lawyer funder relationships, disclosure, and conflict management. Equally important is market infrastructure, from valuation standards for legal claims to regulated investment pathways that inspire investor confidence.

At its core, litigation funding is a rare alignment of interests. It delivers opportunity for investors and endurance for claimants, but its legitimacy is anchored in the conduct of lawyers and law firms who sit at the centre of the process. Legal advisors are not facilitators of capital flows; they are guardians of professional ethics, strategic clarity, and client trust. The responsibility lies in ensuring that funding amplifies merit rather than distorts judgment, and that commercial backing never compromises legal independence. Law firms with long term vision and commercial fluency play a decisive role in shaping this balance. When guided by principled counsel, litigation funding does not commoditise justice. It reinforces it, allowing capital, credibility, and conscience to move in step.

Yet, as litigation funding embeds itself deeper into the Indian dispute resolution landscape, harder questions will inevitably follow. What is the true legal position of the funder in the life of a dispute? Can a funder be impleaded as a necessary party? Can liabilities or adverse costs be fastened upon it? And what happens when the relationship between claimant and funder breaks down midstream? The answers to these questions will not just define the contours of legal finance in India; they will determine whether litigation funding matures into a trusted institution or remains a bold but unsettled experiment.

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