Exploring the Need to Regulate Third Party Funding in India

The purpose of this article is not to regurgitate the law on Third Party Funding (TPF) but to give a bird’s eye view of the judgment rendered by the Hon’ble Delhi High Court in the case of Tomorrow Sales Agency Private Limited v. SBS Holdings, Inc. and Ors[1] and to emphasise the need for the regulation of such funding.

Third Party Funding

TPF is also referred to as litigation financing and relates to funding from an independent third party for the purpose of covering litigation costs, upon agreement that in the event of success, the third party will receive a share of the monetary amount awarded in the form of damages. It is widely regarded as an essential tool to promote access to justice by levelling the playing field, at least in terms of financial capacities.

Relevance in the Indian Context

In India, where “we the people” have been given “access to justice” in the preamble of our constitution, the need for TPF cannot be understated. Independent third parties certainly stand to gain from such arrangements as they receive a return on their investments. TPF agreements may have any lawful structuring and can cover the legal counsel’s fees, court/tribunal fees, venue costs, and other costs for cases such as class action suits, commercial suits, commercial arbitrations, tortious claims, etc.  The third party in all such cases is usually a bank, hedge fund, insurance company or sometimes can even be an individual. This process enables the parties to realize their likely standing, in case they pursue litigation and can thus, lead to a higher number of out-of-court settlements[2].

TPF is not expressly prohibited in India. In fact, several judgments highlight its benefits and express that there is a need for its regulation. A perusal of existing statutes and precedents set by courts indicates that though several restrictions are in place for TPF, it is not altogether prohibited. One such noteworthy restriction is that advocates cannot fund the litigation on their client’s behalf[3]. This can also be gathered from the Standards of Professional Conduct and Etiquette as per the Bar Council of India (BCI) Rules[4], which impose several restrictions on the advocates, some of which are as follows: –

  • Acting or pleading in matters in which he is pecuniarily interested[5];
  • Bidding for or purchasing any property sold in the execution of a decree or order in any suit, appeal or other proceedings in which he was in any way professionally engaged[6];
  • Being a party to fomenting of litigation[7];
  • Stipulating for a fee contingent on the results of litigation or agreeing to share the proceeds thereof[8].
  • Buying or trafficking in or stipulating for or agreeing to receive any share or interest in any actionable claim[9].

TPF is obtained by entering into an agreement and thus, is subject to the provisions of the Indian Contract Act, 1872. As per Section 23 of the said Act, the funding must not be considered by courts to be “opposed to public policy”. Further, it will be barred if it is not for a bona fide purpose, is extortionate, is an unconscionable & unfair agreement, is gambling in litigation, etc[10].

While TPF is still not statutorily recognised in the country, certain state amendments have been made to the Code of Civil Procedure, 1908, in Gujarat, Madhya Pradesh, Maharashtra and Uttar Pradesh. TPF is also widely used for arbitrations as it is a money-intensive dispute resolution mechanism and the claims staked are likely to give the investors large payouts. The Arbitration and Conciliation Act, 1996, however, remains silent on the matter.

Existing Issues and the Need for Regulation of TPF

Some of the issues faced in the country in opting for this mode of funding are as follows: –

  • Confidentiality of Arbitration Proceeding

As per Section 42A[11], the parties to the arbitration, the arbitral institution, and the arbitrator must maintain the confidentiality of all proceedings except for awards which require to be disclosed for their enforcement. The application of this provision and its impact on TPF is unclear as of now. Ordinarily, the litigant should be able to update the third party on key developments of the proceedings as the third party invests on the basis of such knowledge.

  • Third Party-Litigant Confidentiality

As per Section 126 of the Indian Evidence Act, 1872, Attorney-Client privilege is statutorily recognized to protect the rights of the client. As per this Section, communications made by a client to a barrister, attorney, pleader or vakil in the course and for the purpose of his employment cannot be disclosed by such professional. This applies to the advice provided by the professional to his client and the contents of any documents he becomes acquainted with, in the course and for the purpose of his employment. An important question then arises as to whether a similar standard applies to a Third Party Funder since the client puts such a party in a position of active confidence. As a part of general practice, confidentiality clauses may be added to the agreement between the litigant and the investor. However, such an agreement would not be as secure as the protection provided under said Section.

  • Disclosures regarding Third Party Funding

Presently, there is no mandate for a party to disclose to the opposing party that it is engaging a third party for funding the litigation/dispute costs. Such disclosures may be relevant since the opposing party may have objections to such funding. This could be for a number of reasons such as apprehension that the third party will exert undue control over the funded party to the disadvantage of the adverse party, apprehension regarding the relationship between the third party and the arbitrator, further, there is often reasonable cause for the adverse party to believe that the investor is providing funding not for profit but due to their interest in the subject matter.

  • Profit Sharing

In the case of a favourable outcome, the amount recovered from the opposition party is utilized for paying the investors as per the TPF Agreement. However, the courts have not yet clarified what proportion of this amount would be deemed to be so excessive that the arrangement is categorized as extortionate and unconscionable.

  • Conflict of Interest

Since the number of institutions providing such funding is minimal but the number of parties requiring TPF, especially for arbitration is very large, there is a likelihood of overlap in the appointments of the same investors and arbitrators.

  • Recovery of costs against funders

A question which has arisen with the rise in the trend of third party funding is whether a third party funder can be held liable to pay the amount granted under the arbitral award to the adverse party. This question was discussed recently and answered in detail in the case of Tomorrow Sales Agency Private Limited v. SBS Holdings, Inc. and Ors[12]. In the said case, the Claimants were promoters of the company, Transpole Logistics Private Limited. Along with Transpole itself, they had instituted an arbitral proceeding against SBS Holdings. These proceedings resulted in an amount being awarded to SBS as per the arbitral award dated December 22, 2022, under the rules of the Singapore International Arbitration Centre. Tomorrow Sales Agency Private Limited (“TSA”) was the third party funder for the Claimants and had entered into a Bespoke Funding Agreement with them. However, TSA was not a party to the arbitration agreement, arbitration proceedings or even the arbitral award. The Claimants defaulted in making the payment awarded to SBS as per the arbitral award. Thus, SBS called upon TSA to cover the awarded amount. TSA refused to do so on the ground that the funding agreement stood terminated when Transpole lost its claim. Further, the agreement was only for the litigation costs of the proceedings. Thus, SBS filed a petition under Section 9 of the Arbitration and Conciliation Act, 1996 before a Single Judge Bench of the Hon’ble Delhi High Court praying that the Claimant and TSA be directed to disclose details of their assets. SBS also prayed for interim measures to secure the amount awarded to SBS as per the arbitral award by way of an order restraining them from creating any third-party interest/right/title regarding unencumbered moveable/immovable assets. The Single Judge Bench ruled in favour of SBS Holdings considering their argument that the proceedings were instituted with the funding provided by TSA. SBS had also claimed that TSA had full control over the arbitral action. Thereafter, TSA filed an appeal under Section 37 of the 1996 Act, against the impugned order of the Single Judge Bench. Before the Hon’ble Division Bench, the issue was whether a person who was not a party to the arbitral proceedings or the award, rendered in respect of disputes inter-se the parties to the arbitration, could be forced to pay the amount awarded against a party to the arbitration. The Hon’ble Division Bench set aside the impugned order to the extent that it directed TSA to disclose its assets, furnish security for the amount of the arbitral award and restrained TSA from alienating or encumbering its assets. The Hon’ble Court held that third parties are only bound by awards if they were a party to the proceedings for which they would have to first consent. Both SBS and the Claimants were bound by the SIAC Rules pursuant to the arbitration proceedings, however, TSA was not. Thus, as per SIAC rules, it could allocate costs only to the parties and could not pin such costs against a third party funder. The Court also highlighted that in the award, the duty to pay the costs in favour of SBS was imposed on the Claimants, not TSA. Lastly, Section 9 of the Act provides for aid in the enforcement of an arbitral award, however, as per the arbitral award there is nothing to enforce against TSA. The Court while concluding opined that, “Whilst, there is no cavil that certain rules are required to be formulated for transparency and disclosure in respect of funding arrangements in arbitration proceedings, it would be counterproductive to introduce an element of uncertainty by mulcting third party funders with a liability which they have not agreed to bear”.

Clarity on Third Party Funding is the need of the hour

While the permissibility, in fact, the encouragement, of TPF by the Judiciary is a positive sign for smaller businesses and other organizations/individuals that are finding themselves in a tight corner financially, it has become clear that unregularised TPF will be helpful only so far. Till the time clarity is not provided regarding the several possible issues and situations that arise on account of TPF, it will be difficult for the parties to the dispute, the third party funder as well as the arbitral tribunals and Courts to anticipate the consequences of their decisions and actions. This is why judgements such as that of Tomorrow Sales Agency Private Limited v. SBS Holdings, Inc. and Ors, are seen as knights in shining armour as they set the footprint of regularisation and standardisation of the TPF mechanism. Such orders by the Court don’t only clarify important points of dispute but also draw the government’s attention to the need for legislation, rules and regulations regarding TPF. Till that point attempts must be made by all parties involved to keep, at the very least the arbitral tribunal and Courts updated with all relevant disclosures, and where required even the adverse party should be kept in the loop. Further, agreements for third party funding should be drafted very carefully to ensure that all possible situations are specifically catered to so that future liabilities are not shifted or shirked.


[1] 2023 SCC OnLine Del 3191.

[2] Dormaan Jamshid Dalal, Third Party Litigation funding and the Law in India, SCC Blog (Apr. 11, 2022), https://www.scconline.com/blog/post/2022/04/11/third-party-litigation-funding/.

[3] Bar Council of India v A.K. Balaji, (2018) 3 MLJ 470.

[4] Chapter II, Part VI, Standards of Professional Conduct and Etiquette, Bar Council of India Rules.

[5] R 9, Chapter II, Part VI, Standards of Professional Conduct and Etiquette, Bar Council of India Rules.

[6] R 22, Chapter II, Part VI, Standards of Professional Conduct and Etiquette, Bar Council of India Rules.

[7] R 18, Chapter II, Part VI, Standards of Professional Conduct and Etiquette, Bar Council of India Rules.

[8] R 20, Chapter II, Part VI, Standards of Professional Conduct and Etiquette, Bar Council of India Rules.

[9] R 21, Chapter II, Part VI, Standards of Professional Conduct and Etiquette, Bar Council of India Rules.

[10] Harilal Nathalal Talati vs Bhailal Pranlal Shah, (1940) 42 BOMLR 165.

[11] Inserted by the Arbitration and Conciliation (Amendment) Act, 2015.

[12] Supra 1

Image Credits:

Photo by Pixabay: https://www.pexels.com/photo/selective-focus-photo-of-stacked-coins-128867/

While TPF is still not statutorily recognised in the country, certain state amendments have been made to the Code of Civil Procedure, 1908, in Gujarat, Madhya Pradesh, Maharashtra and Uttar Pradesh. TPF is also widely used for arbitrations as it is a money-intensive dispute resolution mechanism and the claims staked are likely to give the investors large payouts. The Arbitration and Conciliation Act, 1996, however, remains silent on the matter.


Private Equity Investment in Sports: The Off-centre Opportunity

                 “The field of sport is akin to a jigsaw puzzle, where many pieces need to come together to produce a long-term successful athlete. The athlete’s success depends not only on his/her talent but also on the support system s/he receives”

                                                                                                                                                                                        –Sudha Murthy

Earlier this year CVC Capital Partners agreed to a USD 3 billion deal with Spain’s soccer league, La Liga, in return of 10% of all media returns for the next 50 years. Closer to home, in a dramatic turn of events, when the BCCI invited bids for two new Indian Premier League (IPL) teams, a windfall of INR 12,715 crores was definitely unforeseeable – the involvement of the global private equity firm, CVC Capital Partners, to “take over” Ahmedabad added to the mystique.

For the past 13 years, IPL has been the benchmark for exemplifying what private investments can do to a sport and has opened the doors to attracting more corporate investments in other sporting ecosystems. For instance, handball is set to hit India’s television screens next year as the Premier Handball League (PHL) supported by Bluesport entertainment under the patronage of the Handball Federation of India[1].

The Indian Super League (ISL) has also successfully managed to establish itself in terms of viewership and engagement. Furthermore, sports such as hockey, kabaddi, wrestling, badminton and volleyball have managed to garner a significant following and enthusiasm in the country their respective sports league. Owing to stellar performances in the Tokyo Olympics by the likes of Neeraj Chopra, Mirabai Chanu, P.V Sindhu and Ravi Kumar Dahiya, brands are reeling to sign them, driving commercial valuations and impact associated with their respective sports onto a profitable highroad. Hence, India is an ideal ground for significant investments in the field.

Up until a few years back, the involvement of leading conglomerates like JSW, Edelweiss Group, Embassy Group and Infosys had always been purely philanthropic in nature.

However, with the visible shift in trends, the next consideration is whether private equity investment in sports would be a slam dunk!


Factors Driving Valuation in Sports Teams and Leagues

Odisha FC, nicknamed the Kalinga Warriors, under the ownership of a global shipping giant, is the most valuable club in the ISL standing at an impressive INR 433.26m. In a more impressive feat, the Pro Kabaddi League, since its inception in 2014, has managed to rank above the ISL and stand in close competition with the IPL in terms of viewership. In 2015, Vivo signed a 300-crore engagement to become the league’s title sponsor. In 2018, over 70 sponsors competed to invest in the league[2]. The previous edition of the event was sponsored by Dream11, while big names like Tata Motors and Honda also retained their sponsorship[3]. Additionally, with the new class of spenders from the Fintech and EdTech industries like CRED, Unacademy and Upstox making their presence felt in the roaring business of cricket, it is evident that private equity investment and sports are definitely a match!

In alignment with the abovementioned dynamics, the following factors seem to be responsible for driving valuations in these sports teams and leagues:

  1. Scarcity and the inherent elite status

Between IPL, ISL and Pro-Kabaddi, there are only 33 teams across the board. Likewise, there are only six significant sporting leagues that show potential for lucrative returns in the country[4]. On the international front, according to the PitchBook data[5] in the United States, there are only 151 teams across the NFL, NBA, MLB, MLS and NHL. Similarly, there are only 98 teams in the Premier League, Serie A, Bundesliga, Ligue 1, and La Liga. Hence, since the supply is limited, the demand remains high, which leads to sky-rocketing prices and bigger returns!

  1. Monopoly

In addition to the limited available options, these leagues rarely expand. Hence, from an investor’s point of view, working in the confines of a marketplace with limited competition and foreseeable projection of factors like market share and revenue is easier.

  1. Illiquidity

Buying shares of a sports team is challenging since most teams are not listed on the stock market. Options like affiliations and exchange-traded funds are currently the only means through which individuals can participate in the functioning of their favourite teams. Therefore, when shares are not traded frequently and the ownership is complex, buyers are keen to pay a premium if and when the opportunity arises.

  1. Fans and emotions

For private equity firms, financial profits and ancillary gains are definitely driving factors. However, when it comes to sports, followership and emotions play a significant role. Andrew Laurino of the PE firm, Dyal, pointed out once that it is more fun to own your favourite sports team than root for a chemical plant.[6]

  1. Money

Considering the financial dynamics and broadcasting revenues involved, sports do offer a fertile ecosystem of astronomical returns. For instance, Sony acquired the media rights for IPL for the first 10 years for approximately 8,000 crores. For the next 5 years, Star India bagged the media rights for 16,000 crores. Media rights for IPL are scheduled to go up for auction in 2023[7] with an expectation of the deal closing in at over 30,000 crores[8]!


Key Trends Favouring Private Equity Investments in Sports

The sports industry is expected to grow tremendously in the year 2022, by reaching a valuation of USD 614.1 billion globally. The Asia-Pacific and the Middle East are expected to become the fastest emerging markets in the sports industry, with annual growth rates of 9.04% and 6.2% respectively, in the next few years[9].

The key trends that are expected to drive considerable growth and offer new investment opportunities are:

  1. Because of the pandemic’s rapid integration of technology into all aspects of life, the field of sports is witnessing never-before-seen consumer behaviour. Leveraging a combination of virtual reality, new streaming media and mobile technology, the industry has expanded its experience to a global audience and paved the way for new advertising revenues.
  2. The fitness industry is booming, driven by the new age of health-conscious consumers. The trend has resulted in a growth in participatory sports.
  3. The Indian gambling industry forecasts revenue growth that could hit INR 118.8 billion in 2023[10]. Consequently, the fantasy sports and betting industries are undergoing significant regulatory changes, which are set to streamline the industry and offer more substantial and comprehensive investment opportunities.
  4. Similarly, esports is set to experience a positive movement owing to the development of more sophisticated VR tools.

Since participation in sports will experience growth from traditional and newer channels, investment in associated ancillary industries seems lucrative.  


Issues With Private Equity Investments in Sports

Unlike other countries, India lacks a robust, centralized, and comprehensive regulatory framework governing the sport, despite the recent changes (being) introduced over the last decade in this regard. Issues pertaining to competition law, betting, anti-competitive actions, match-fixing, and dispute resolution are dealt with varying legislative frameworks spanning from Torts to criminal law.

Investors are organising collaborations with teams and sporting authorities to access a broader consumer cohort since cemented footholds and sponsorship guarantee greater returns on investment. Often, such sponsorship and advertising campaigns during a sporting event, or associated with any sportsperson, lead to ambush marketing by other competing brands. Moment marketing is another factor that treads upon the intellectual property rights of the players and dents the commercial gains of the investors.

It is therefore prudent to formulate a competent legal framework to curb doping, betting, match-fixing, ambush marketing, sports-related arbitration, and mediation and dispute resolution. There is a pressing need for cohesive and specific legislation comprehensively covering sports in India to be implemented.

Further, at a time when private investment activity in sports is moving away from CSR and philanthropic objectives and short-term collaboration and involvement, it is pertinent to ensure that the regulatory framework aligns with the commercial interests of investors while upholding the integrity of sports. The absence of the same can and will dissuade significant private party involvement in the area.

While there are still obstacles to be overcome, the prospects for sports are evident, and successful case studies have already begun to support the investment thesis. Investors and sporting organisations must be aware of possible hazards, but under the proper circumstances, the partnership has the potential to produce radical change and growth in the sector.

At a time when private investment activity in sports is moving away from CSR and philanthropic objectives and short-term collaboration and involvement, it is pertinent to ensure that the regulatory framework aligns with the commercial interests of investors while upholding the integrity of sports.


The Messi Exit: A Legal & Financial Perspective

Behind the passions of the fans, tackled goals, swanky parties and brand endorsements, there is a lot that goes into structuring a football team/club, registration as well as the transfer of a player while maintaining sustainable finances. 

In response to multiple financial irregularities in clubs such as Deportivo La Coruña, Racing Santander, Valencia, Real Zaragoza, Real Mallorca, Albacete, Real Betis etc., the economic control framework was introduced in 2013 to keep clubs financially afloat and maintain competitive sustainability.

At a later stage, FFP (Financial Fair Play) came into effect against errant clubs for breach of regulations. Spain’s economic control- La Liga controls the fire before it can damage (to an extent) by setting a limit to the amount a club can spend, thereby making it easier to stay within limits and preventing the creation of unsustainable debts. 

What were the legal reasons for Messi’ s exit from Barcelona?


Recently Argentinean professional footballer Lionel Andrés Messi, popularly known as Leo Messi, decided to part ways with the Spanish football club FC Barcelona and join the French football club Paris Saint-Germain. Messi had been with the Spanish club for the last 21 years and their association came to an end on 30th June 2021, when they decided to move on.

Messi had agreed to a new five-year contract with Barcelona, however on 8th August 2021, the legendary football player announced his exit from the Spanish club, by signing a two-year contract with the French club Paris Saint-Germain, with the option of further extension up to a year. FC Barcelona announced that despite the agreement between the club and Messi, they were not able to honour the new contract due to the Spanish football league’s (LaLiga’s) financial fair-play rules. 


What is LaLiga Financial Fair-play Rule? 


Under the LaLiga fair play rule, each club is provided with a cost limit for each season, which includes the wages of the players, the coaching staff, physios, reserve teams, etc. Clubs have the flexibility to decide how the wages are distributed, as long as the overall limit is not breached. Factors taken into consideration for setting the financial cap are inclusive of expected revenues, profits and losses from previous years, existing debt repayments, and sources of external financing among others. In this case, the Catalan club could not accommodate Messi’s contract within the financial limit for the upcoming year, even though Messi was allegedly willing to take a 50% pay cut. 

Considering the fact that Messi is Barcelona’s record scorer with 751 goals and 10 La Liga titles, Messi’s exit could mean a heavy blow for the world’s most valuable[1] European football club. 

A football clubs’ main revenue is generated from TV broadcasting rights, matchday sales, and commercial revenue which includes sponsorship contracts, merchandising sales, and digital content that the club creates. It is too early to say whether Messi’s departure will have an impact on how Barcelona performs in the ongoing season. However, there is no question over how Messi has played an important role in bringing laurels to Barcelona over the past few years, which has garnered a significant fan following, not just for the footballer, but also for the club. Thus, his exit may likely cause a dip in the viewership and fan following which will directly affect the Club’s revenue.

Typically for a footballer, his contract with any club would include basic salary, signing-on fees, royalty fees, and objectives based on games. Apart from these, some of the other key element included in a contract is his image rights, merchandising right and licensing deals, which form a major portion of any footballer’s gross income. 


What are Image Rights? 

Image rights are the expression of a personality in the public domain. For an athlete, it will include their name, photo, and likeness, signature, personal brand, slogans, or logos, etc. Generally, football clubs try to extract a greater percentage from the image rights of a player, in a club capacity as compared to their personal capacity. Club capacity is usually when the image rights of the player are used in connection with or combined with his name, colours, crest, strip, logos identifying him as a player for his club. Personal capacity is usually when the player is appearing in and conducting activities outside his role as a player at the club. 

Any player leaving the club would have an impact on the commercial revenue generated by the club in the form of sponsorship contracts, merchandising sales as well as digital content. This would be especially notable for a player like Messi, whose personal brand value boasts over 130 trademarks. Messi’s trademark portfolio consists of mostly a single class trademark in his home country of Argentina, with others filed or registered in China, Brazil, EU, Malaysia, UK, Spain, Canada, Chile, and the US. The most common goods and services represented in Messi’s trademark portfolio are class 25 (clothing and footwear), class 28 (games, toys, and sporting apparatus) and class 9 (computer software). Apart from the above classes, class 18 has been filed in multiple applications.

The trademark consists of either the word mark MESSI/LIONEL MESSI or his logo. This means that Barcelona will no longer be able to use the footballer’s name or logo for apparel and merchandise sales, which will directly impact its revenue as most clubs collect a portion of the sales revenue. Also, Messi’s exit means that the club will have no control over his image rights to attract corporate sponsorships. Further, Messi’s huge online presence, with over 276 million Instagram followers, which is more than double of Barcelona’s official account (100 million), will have a direct impact on any advertising or publicity that the club may generate. 

A player of Messi’s stature, brand, and persona is significant to any club. How the present scenario is played with the new club and how much impact Messi’s presence will bring to Paris Saint-Germain is yet to be seen. 

A football clubs’ main revenue is generated from TV broadcasting rights, matchday sales and commercial revenue which includes sponsorship contracts, merchandising sales and digital content that the club creates. It is too early to say whether Messi’s departure will have an impact on how Barcelona performs in the ongoing season.