When it comes to litigation funding, a third party provides the financial resources to facilitate costly litigation or arbitration. The litigant receives all or part of the funding to cover his legal costs from a private commercial litigator who has no direct interest in the proceedings. In return, the lender receives an agreed share of the proceeds of the claim if the case is won. If the case is unsuccessful, the funder loses their money and the litigant owes nothing. Litigation funding is a very old concept and has been allowed in England and Wales since the 1960s. Third party litigation funding is permitted in India. There is no specific public body that oversees or regulates third party litigation funding. However, the terms of such a contract are governed by the Indian Contracts Act of 1872.
Litigation funding is a little known concept for litigants and law firms in India. Some of the world’s leading litigation finance firms are planning to open their offices or representative offices in India to enter the Indian market that is full of opportunity. The litigation funding would protect the litigants from losing enormous legal costs for claims with high tickets. Litigation financiers, on the other hand, could get higher returns on their investment if decisions are made in favor of the party they rely on. These transactions are not subject to recourse, ie there will be no reclamation if the verdict is not in favor of the litigator.
The coronavirus pandemic hit India’s economic growth and many companies suffered huge losses, leading to more legal contract disputes between companies in India. Indian companies have only one way to fight the case and pay lawyers, who are very expensive, high legal fees. Corporations are unable to meet working capital requirements due to paying high legal fees to attorneys. The number of good merit cases in India is undisputed. Over the past year, two notable examples of third-party funding have alerted corporate finance advisors that litigation funding is an alternative form of funding: arbitration monetization at Hindustan Construction Company and Patel Engineering. Large infrastructure companies in India are grappling with stressed assets and huge pending claims. Funding litigation would definitely help them settle their claims.
India has more potential for monetizing claims than London, Singapore and Hong Kong. The return on this type of financing is greater than 50% to 100% in some cases. This is a vastly better return on any traditional corporate finance investment in the Indian market.
The Indian legal sector has been growing very rapidly for several years. However, clients are still very conscious of spending money on litigation even if they have good earnings. Litigation funding is welcomed by customers and has a bright future in India. However, India needs a strong legal framework that focuses on disclosure, qualification and conduct of litigation funders.
Disclaimer: The views expressed in the article above are those of the authors and do not necessarily reflect the views of this publisher. Unless otherwise stated, the author writes in his personal capacity. They are not intended and should not be viewed as an official idea, setting, or policy of any agency or institution.
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