The Current Scenario of Third-Party Litigation Funding in India

Introduction

Third-party litigation funding (TPLF) is an arrangement whereby a third party, usually a professional investor, provides finance to a claimant or litigant in return for a share of any damages or settlement awarded by the court. It has been gaining prominence in recent years as it provides an opportunity for individuals to pursue legal claims without bearing the financial burden of litigation costs.  In India, TPLF is still at a nascent stage. There are very few players offering this service, and most of them are start-ups. The industry is highly unregulated, as there are no specific regulations governing this sector.

third party litigation funding

This article will discuss the current scenario of third-party litigation funding in India and its potential future.

Developments in the Recent Time

There has been a growing trend towards third-party litigation funding in India over the last few years. This has been driven by various factors, such as increasing awareness among litigants about their rights and the availability of more sophisticated legal services. Furthermore, several initiatives have been taken by the government to encourage this form of financing. For instance, in 2017, the Indian government amended its Companies Act to allow companies to provide financial assistance for legal proceedings on behalf of their shareholders. There were also some changes made to legal statutes, including the Code of Civil Procedure (CPC), 1908 and the Arbitration and Conciliation Act, 1996. These regulations provide a framework for third-party litigation funders to operate within, as well as protect investors. The current landscape is also seeing an increase in the number of private equity firms investing in litigation funding. This is due to the potential returns that can be made from such investments. Private equity firms can provide capital to litigants who may not have access to traditional financing options. The Supreme Court of India recently allowed certain categories of cases to be funded by third parties. This has opened up opportunities for those who are unable to bear the full financial costs associated with litigation but still wish to pursue their legal rights.  Additionally, several companies have entered the market, offering different types of funding options such as pre-litigation, post-litigation, and contingency fee arrangements. These companies provide tailored solutions for different types of cases and can help litigants manage their legal costs more effectively. They are offering their services across various sectors, including civil and criminal matters, intellectual property disputes, and other forms of legal action.

LegalPay is India’s only data-driven and tech-enabled alternative-investments platform specializing in legal and debt financing assets. In recent times, LegalPay has become Asia’s biggest Third-Party Litigation Funding platform for litigants and businesses looking for litigation financing options. 

Limitations of Third-Party Litigation Funding

Despite its increasing popularity, there are still some barriers that need to be addressed before third-party litigation funding can be fully embraced by Indian society. One major issue is that there is still some uncertainty surrounding how these companies can operate within Indian laws as there are no specific regulations governing them yet. Another issue is that many litigants may be reluctant to use such services due to concerns about privacy or a lack of trust in such entities. Additionally, there may be some reluctance from investors due to concerns about returns on their investments or a lack of knowledge about how these services work. Furthermore, there is a lack of transparency when it comes to the pricing structures and terms offered by the companies in the market, making it difficult for potential clients to make informed decisions about whether or not to pursue this type of financing. Furthermore, there are also concerns about potential conflicts of interest between funders and litigants, which could lead to unethical practices such as “pay-to-win” arrangements where funders receive a larger share of any settlement or award than what was initially agreed upon.

Future of Third-Party Litigation Funding in India

Overall, the current landscape of third party litigation funding in India holds much promise for both investors and litigants alike. With the continued development of the regulatory framework and increased investment from venture capital firms and other institutional investors, this sector will likely continue to grow in importance over the coming years. Despite the challenges, it is clear that third-party litigation funding has great potential for growth in India due to its ability to provide access to justice for those who may not have the means otherwise. As more people become aware of its potential benefits and regulations become clearer around how these companies can operate legally within India’s jurisdiction, this form of financing will likely continue to grow in popularity over time. With more investors becoming interested in this form of financing due to its potential returns on investment and increased transparency around how these services work, we will likely see further growth in this sector over time as well. More companies will enter this space, and competition will increase, which could lead to better terms and pricing structures being offered by funders as well as greater transparency around how these arrangements work. Additionally, regulatory bodies could also play an important role in ensuring that ethical standards are maintained when it comes to third-party litigation funding arrangements so that all parties involved benefit fairly from them. More education and awareness need to be provided so that individuals understand how TPLF works and can make informed decisions when considering it as an option for financing their legal claims.  With these measures in place, third-party litigation funding will likely become increasingly popular over time as an alternative form of finance for individuals looking to pursue legal claims without having to bear all the costs themselves. 

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