LITIGATION FUNDING IN INDIA

INTRODUCTION

Litigation funding, also known as third-party financing, is a relatively new concept in India. It protects the interests of someone who is unable to fund oneself and gives financiers the opportunity to earn a higher return on the investment. This sort of financing can yield a profit of 50% to 100%, which is far better than that of any investment in conventional corporate finance transactions. Covid-19 has caused widespread economic hardship, with stakeholders unable to afford the high litigation costs. Litigation funding may become the new reality in the nation for capital infusion and conflict resolution in both internal and overseas disputes, given the current pandemic scenario and greater rate of return on investments. Investment banks, hedge funds, and insurance companies, in relation to the exclusive third-party financiers, engage in legal claims as an asset class.

WHAT IS THE MEANING OF LITIGATION FUNDING?

Litigation funding is semi financing where a third party gives financial assistance to a litigant in order for them to foot the bill of litigation or arbitration. In most cases, the third-party financer gets a monetary payment if the lawsuit is able to succeed. The litigant acquires all or portion of the funding from a third-party financer or commercial funder, which may or may not have a personal interest in the legal proceedings, based on pre-determined terms of an agreement to fund its court bills. If such a case is won by that of the funded party after the process is completed, the third-party financer or commercial funder gets an agreed share of the sum of money achieved as a result of the litigation. If the case is lost, the funder loses its cash, and the litigant owes no wealth.

PRESENT INDIAN SCENARIO

Throughout India, third-party litigation funding is legal, and there’s no specific law or government organization that regulates it. As a result, the conditions of a third-party litigation funding agreement are currently governed by the Indian Contract Act of 1872. The Indian Supreme court ascertained the legal appropriateness of third-party funding in litigation in Bar Council of India v AK Balaji and explained that legal financing agreements are not forbidden in India. By amending Order XXV Rules 1 and 3 of the Civil Procedure Code, 1908, some states, including Maharashtra, Gujarat, Karnataka, and Madhya Pradesh, have recognized the notion of litigation funding. Furthermore, as held in ‘G’, a Senior Advocate of the Supreme Court of India, advocates are expressly prohibited from financing any litigation or arbitration while representing a person in any underpinning dispute.

The current coronavirus pandemic has harmed India’s economic development, with many companies suffering significant losses, leading to much more legal contractual disputes between Indian businesses. Only one alternative for Indian firms is to fight the case and pay massive legal costs to good lawyers. Due to the high cost of legal bills, businesses are unable to meet their working capital requirements. In India, a number of incidents with strong merits go unchallenged. The year before, two significant instances of third-party funding increased awareness between corporate finance advisors to see litigation funding as an alternative means of financing: the revenue of an arbitration award in Hindustan Construction Company and Patel Engineering.  Litigation funding will indeed undoubtedly assist large infrastructure firms in India that are dealing with bad debts and large pending claims.

LITIGATION FUNDING IN THE OTHER PARTS OF THE WORLD

Litigation funding is an age-old notion that has already been legal in England and Wales since the 1960s, with the Ministry of Justice facilitating a code of conduct for litigation funders. The Corporations Amendment (Litigation Funding) Regulations 2020 were enacted in Australia aim of providing regulatory control over financiers. Correspondingly, the Litigation Funding Transparency Act of 2019 was passed in the United States, requiring the transparency of litigation funding. Several other countries have approved litigation funding to keep moving away from the negative law concepts of barratry and maintenance, and have provided a variety of legal instruments for litigation funding. The Civil Law (Third-Party Funding) Regulations, 2017, have made litigation funding legal in Singapore. Hong Kong’s national legislation has also been modified to ensure third-party funding in arbitration and mediation.

FEES AND FUNDING ARE LIMITED

There really is no legislation that limits the expenses or interest that a funder can start charging. It will solely be determined by the terms of the parties’ contract. The privy council supplied guidance in this regard for the very first time in Ram Coomar Coondoo v. Chunder Canto Mookerjee, allowing third-party funding on the grounds of trying to promote access to justice, and holding that such contracts should be reached with noble intentions and not for unlawful reasons. The agreements entered into in cases where even the third party financing the litigation is a foreign entity must comply with the provisions of the Foreign Exchange Management Act, 1999, and its laws and regulations.

The Indian scenario is bound to enhance in light of the growing international reach of third-party funding in dispute resolution. Many global litigation funders are beginning to enter the market in India in anticipation of an increase in contract and bankruptcy cases. As a result, a strong legal framework for third-party funding facilities is likely to emerge, removing the uncertainties that currently exist in India’s government regulations.