Champertous Agreement in India: Understanding Its Legal Implications

A champertous agreement is an arrangement between a party who has no particular interest in a dispute, and a party involved in the dispute, where the former agrees to fund the latter`s legal proceedings in exchange for a share in the outcome of the proceedings. This arrangement is considered illegal in many jurisdictions, including India.

The concept of champertous agreements dates back to medieval England, where the practice was prevalent and considered unethical. The term champerty came from the Latin word “campi partitio,” which means the division of the spoils. Initially, champerty was defined as an arrangement where a third party provides a person involved in a lawsuit with financial assistance in exchange for a share in the proceeds of the lawsuit. The third-party would have no legitimate interest in the matter but was merely pursuing a profit.

In India, champertous agreements are considered illegal under the Indian Contract Act, 1872. Section 23 of the Act states that any agreement entered into for the purpose of carrying out an unlawful object is void. The Supreme Court of India has also held that champerty and maintenance are illegal, and any agreement that violates this principle will not be recognized by the courts.

However, while champertous agreements are illegal, litigation funding is not. Litigation funding is when a third-party provides financial assistance to a party involved in a lawsuit, in exchange for a share in the outcome of the proceedings. The key difference between litigation funding and champertous agreements is that the former is considered ethical and legal, while the latter is not.

The legality of litigation funding in India was first recognized by the Delhi High Court in 2018. The court held that third-party funding of litigation is not prohibited under Indian law, as long as the funder does not interfere with the lawyer-client relationship or the outcome of the proceedings. However, the court also cautioned that litigation funding carries some risks, and parties should exercise caution when entering into such agreements.

While litigation funding may provide access to justice for those who cannot afford legal representation, it also raises concerns about conflicts of interest, confidentiality, and the possibility of abuse. Therefore, it is essential to approach litigation funding with caution and carefully consider the terms of any agreement.

To summarize, champertous agreements are considered illegal in India, and any agreement that violates this principle will not be recognized by the courts. However, litigation funding is legal, as long as it does not interfere with the outcome of the proceedings or the lawyer-client relationship. Parties involved in litigation funding should approach the arrangement with caution and carefully consider the terms of any agreement before entering into it.