An introductory note on Third-Party Litigation Funding in India

What is litigation funding? 

According to the Oxford Dictionary, ‘litigation’ is ‘the process of taking legal action’. Litigation funding is when a third-party provides financial support to one of the claimants from a lawsuit before the judicial forum or an arbitration tribunal. In litigation funding, a claimant obtains a financial investment from a third-party in the outcome of a lawsuit in exchange for funds to be used in litigating the lawsuit. These investors then have a claim to a portion of any verdict the claimant receives, often in addition to the fee of the claimant’s lawyer or law firm.  

Through recent years, the access and use of litigation funding has grown globally. India too, is now opening access to this new asset class. In return of the investments made, the investor gets a multiplier of the amount funded or a fixed portion of the monetary share received by the claimant upon success. 

Litigation funding is not a loan, hence, screening a case for meritorious/genuine pursuits before providing funding is very crucial. If the case is lost, the investors lose their money and they do not have recourse for its recovery.  

Why is third-party litigation funding helpful for claimants to seek justice? 

Litigation funding ensures a level playing field for everyone and takes away the advantage that only well-financed parties have in certain disputes, where the opponent party has a genuine claim but lacks the financial backing. 

Is it helpful for lawyers or law firms?

In many cases where a claimant has a meritorious case/claim, but cannot pay legal fees, the case has to be re-thought on the business angle for the lawyer/law firm. Litigation funding aids lawyers/law firms to convert such clients and in-return not worry about following up to receive their legal fees.  

What does third-party litigation funding cover and not cover? 

It covers: disputes that are quantified and time-bound to release payments/cover damage.

It does not cover: disputes that do not have monetary order (ex: family/matrimonial disputes etc.) and individuals or group of individuals vs government cases. 

Benefits of a third party litigation funding arrangement

Litigation Funding enables your business to minimise the negative financial impact of litigation. A third party litigation funding arrangement not only serves as a source of liquidity, but also affords relief from budgetary constraints, preserving working capital, increasing P&L predictability, expanding options for working with preferred lawyers or law firms. 

Currently Businesses are using litigation funding to:

• Fund Legal fees and expenses to assert legal claims;
• Leverage legal claims to generate capital for purposes unrelated to the claims;
• Monetise the uncollected judgements;

 The current status of third-party litigation funding in India

Over the years, many international players have dominated the Indian market to channel third-party litigation funds. With the recent news of New Delhi based Legal FinTech Startup - LegalPay, India now has a home-grown online platform to access the litigation finance market. This opens up huge scope for the litigants who are low on funds as well as retail investors in order to make well-sought after investments in this new asset class. As India anticipates the rise of the third-party litigation funding infrastructure, one can also expect robust legislative frameworks to evolve favourably over time.