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The Need and Rise of Litigation Funding in India



 

Introduction


Litigation in India is a costly endeavour. The expense of litigation has not been significantly decreased by the recent changes to the law governing business disputes and alternative dispute resolution. The studies have revealed that the average cost (other than fees of lawyers) incurred by a litigant is ₹1,039 per case per day and the average cost incurred due to loss of pay/business is ₹1,746 per case per day.


Litigation Finance is a risk-free solution for claimants, who may not wish to or be able to take on the financial burden or risk inherent in large-scale litigation. By covering the costs of legal action, litigation funding, sometimes also referred to as "third-party funding," is a method that makes it easier for people and businesses, particularly those who are struggling financially, to recover the claims they have made. Instead of the claimant bearing the cost of the litigation, a litigation funder does so in exchange for a portion of any recovery obtained through the proceedings. By enabling claimants to exercise their legal rights while being protected from the burden of excessive spending paid in the form of attorney's fees, arbitrator's costs, court fees, and other unrelated litigation-related charges, litigation funding may increase access to justice for claimants. This form of funding is frequently provided on a non-recourse basis, which means that if the claim is unsuccessful, the claimant is not obligated to pay back the litigation funder's legal expenses. Thus, the litigation funding agreement typically stipulates that the litigation funder assumes the majority of the risk, including the risk of losing a claim and the risk of any damages, levied as a result of the lawsuit involving the claim. According to the World Bank’s Ease of Doing Report, commercial contracts are resolved in around 1445 days in India, while in OECD (Organization for Economic Co-operation and Development) countries it takes around 589.6 days. The report shows that the cost of litigation in India is approximately 31% of the claim value which is around 10% higher than in OECD countries. Because of the high costs involved in pursuing the claim, claimants are frequently deterred from starting legal actions to recover claims that could have the potential to be successful.


Litigation Funding in India


LegalPay is India’s first data-driven and tech-enabled alternative-investments platform specializing in legal and debt financing assets. It provides a massive investor network with access to flexible and innovative investment products to modernize their portfolio by including asset-backed alternatives a clear example of how litigation funding adds value to businesses. LegalPay works with the motive to help businesses to eliminate the costs and efforts of fighting a legal battle, and hedge the risk of losing additional costs to fight such disputes. Litigation finance, expressed simply, is the funding of legal disputes by a third party.


While lawsuit finance is still relatively new in India, it is very common in many industrialised nations where there are specific businesses that focus on this type of funding. In India, litigation funding is quickly gaining popularity as more businesses and law firms resort to it to finance their legal cases. Litigation funding is a new model in India . However, western countries like US and UK have a good command over it and the financiers are helping to fuel a rise in India as well.


Potential of Litigation Funding in India


The COVID-19 pandemic's resource shortage has already made it difficult for businesses in some sectors to operate as they struggle with contracting balance sheets and a decline in credit availability. Due to these elements, there may be more options for litigation funding and for funders to assist businesses in pursuing their legal claims via "third-party finance." Certain states in India such as Madhya Pradesh, Maharashtra, Gujarat, and Uttar Pradesh have amended Order XXV Rules 1 and 3 of the Civil Code of Procedure (CPC), 1908, to allow third-party litigation funding. As a result, we can observe that the CPC in India has granted permission for third-party funding. Furthermore, the same is not expressly forbidden by any laws. Arbitration decision monetisation in Hindustan Construction Company and Patel Engineering are two notable recent examples of third-party fundraising that led corporate finance specialists to think about lawsuit funding as an alternative source of capital.


Litigation finance would undoubtedly help the main infrastructure corporations in India address their stretched receivables and sizable outstanding claims. There is some hope for this type of funding thanks to the Indian Association for Litigation Financing (IALF), which was incorporated on February 11, 2021, by practitioners, law firms, and third-party financiers. The association's goals include self-regulating lawsuit funding in India and educating the public on the subject so they may understand the litigation finance industry. This is the first step in establishing the legal funding regulatory framework in India.


Conclusion


India needs a strong regulatory framework that concentrates on the disclosure, credentials, and behaviour of lawsuit funders. Such statutory and regulatory measures are required to guarantee that parties receiving litigation funds have access to a fair and equitable settlement process that can withstand court scrutiny. In terms of realizing the promise of lawsuit funding, India still has a long way to go. However, a lot of parties involved are taking this seriously to fund the costs of the litigation necessary to recover a claim. A strong business plan can pique the interest of potential investors in the venture. Without a doubt, litigation funding has a significant potential to increase access to justice in India by allowing regular people and small businesses—who typically cannot afford to endure the high costs of civil and commercial litigation—to exercise their legal rights and seek redress from the court. However, it has not yet developed into a specialized industry in large part because of the systemic difficulties outlined above, as well as the unpredictable nature of the legal system as a result of a lack of regulation and the overall lack of legal understanding among the general public. At LegalPay we understand the need for alternative financing for legal disputes and help businesses to focus on their operations. As the largest player in India for funding such disputes, you do what you are best at and leave the rest to us.

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