Bombay High Court: Third Party Funding Of Litigation Not Illegal; Does Not Violate Section 23 Contract Act
The Bombay High Court set aside the decision that had quashed the amalgamation of two Trusts on the grounds that the matter was a “champertous litigation.”
The Bombay High Court has held that third-party funding of litigation is not “per se illegal” as it does not violate Section 23 of the Indian Contract Act.
The Court allowed an Appeal by setting aside the decision of the Civil Court that had quashed the amalgamation of two Trusts after holding that the matter was a “champertous litigation” prohibited by Section 23 of the Indian Contract Act, 1872 (the Act). The High Court revived the Order of amalgamation, initially approved by the Assistant Charity Commissioner.
A Single Bench of Justice Sharmila U Deshmukh held that “It therefore cannot be countenanced that third party funding of litigation is per se illegal and violates Section 23 of Contract Act, apart from the fact that such contemplation is alien to an inquiry under Section 50A (2) of Trusts Act.”
Advocate Mayur Khandeparkar appeared for the Appellants, while Senior Advocate Narendra Walavalkar represented the Respondents.
Brief Facts
The trustees of Rizvi Education Society and the Kailash Seva Sadan Trust, in 2005, had filed an application seeking amalgamation of the two trusts, which was approved by the Assistant Charity Commissioner. The Brihan Mumbai Municipal Corporation (BMC) challenged this amalgamation order in the City Civil Court.
Court’s Reasoning
The High Court referred to the Supreme Court’s decision in Bar Council of India v. A.K. Balaji (2018), wherein it was held “In India, funding of litigation by advocates is not explicitly prohibited, but a conjoint reading of Rule 18 (fomenting litigation), Rule 20 (contingency fees), Rule 21 (share or interest in an actionable claim) and Rule 22 (participating in bids in execution, etc.) would strongly suggest that advocates in India cannot fund litigation on behalf of their clients. There appears to be no restriction on third parties (non-lawyers) funding the litigation and getting repaid after the outcome of the litigation.”
“As far as the finding that it is matter of champertous litigation which is prohibited under Section 23 of Contract Act, considering that public policy is involved in determining the validity of champertous contract, recourse is usually taken to Section 23 of Indian Contract Act,” the Bench remarked.
The Court also noted that the impugned Order was assailed on the grounds that the finding of champertous litigation by the City Civil Court were rendered after finding that Kailas Seva Sadan Trust is not in a position to adopt appropriate steps for recovery of property, has thereafter, held that the scheme of amalgamation is prohibited under Section 23 of the Indian Contract Act, 1872, which is unsustainable.
Consequently, the Court ordered, “In light of the above, the First Appeal is allowed. The impugned judgment dated 8th May, 2015 passed in Charity Application No 09 of 2013 is quashed and set aside. Resultantly, order of 30th October, 2011 of amalgamation stands revived.”
Accordingly, the High Court allowed the Appeal.
Cause Title: Rizvi Education Society & Ors. v. The Brihan Mumbai Municipal Corporation & Ors. (Neutral Citation: 2025:BHC-AS:21629)
Appearance:
Appellants: Advocates Mayur Khandeparkar, Anand Pai, Mahesh R. Mishra and Arun
Respondents: Senior Advocate Narendra Walavalkar; Advocates Rahul Soman, Vidya Vyavhare, Pallavi Khale and Komal Punjabi
