Litigation finance to be $57 bn market in India by 2035: LegalPay founder

Rising legal costs in India often lead to companies and litigants prematurely closing cases due to financial constraints. Legalpay, a litigation finance firm, is helping companies undergoing costly litigation with much needed funds to keep fighting their cases. We caught up with founder of LegalPay Kundan Shahi to know more about litigation finance space in India. Here’s an excerpt:

Give us a brief about the company, and what was the reason for choosing a niche area like ligation finance?

Legalpay is India’s leader in litigation financing and management of legal risk. It has developed efficient ways to finance legal expenses through its proprietary technology. To put it simply, Legalpay funds, pursues, and manages legal cases on a non-recourse basis.

The legal services market in India is worth $1.3 billion. There was an increasing need in the market to develop technology and methods that can aid in dealing with the inefficiencies that impair the legal services landscape. Legalpay identified this opportunity and was further driven by its mission to help enhance access to justice and enforcement of legal rights of claimants irrespective of their financial capacity. 

Tell us about the litigation finance space in India — the market size, other players, and the future?

The litigation finance space in India is gaining momentum, although it is still in its early stages compared to the global market. Globally, the litigation funding market reached an estimated $12.2 billion in 2022, according to Custom Market Insights. Legal tech start-ups in India had received approximately $55 million in investments as of March 2022, showing growing interest in this sector.  

In the global landscape, several established players operate in the litigation finance space, including companies like Apex Litigation Finance, Burford Capital, Omni Bridgeway, and many others.

There is significant potential for growth in the Indian litigation funding space. Rising legal costs in India often lead to companies and litigants prematurely closing cases due to financial constraints. Forecasts suggest that the litigation funding investment market in India is expected to surpass $57.2 billion by 2035, with a compound annual growth rate (CAGR) of 13.14% from 2023 to 2035. Litigation funding is becoming increasingly vital as more individuals and corporations seek financial support to pursue legal claims. It helps bridge the gap in covering legal expenses, making it possible to pursue a wider range of cases.

What are the major challenges for litigation finance in India?

The biggest challenge to litigation funding in India is the backlog of cases in courts that has a direct impact on the time taken to resolve the matters. It is estimated that there are over 40 million cases pending in the lower Courts. Due to such pendency, the timeline of a case is often predicted to run into several years. Litigation Funders in India must find creative solutions to get around this issue. Legalpay customises its funding options and solutions for all the cases in order to find quick and effective redressal.

Companies facing the corporate insolvency resolution process do face problems in raising interim finance. How is LegalPay helping such companies?

LegalPay offers interim financing for businesses, who find themselves embroiled in corporate insolvency resolution procedures under Insolvency and Bankruptcy Code (IBC). Our specialized financing services are designed to offer indispensable support to distressed companies, allowing them to sustain their operational activities and safeguard their valuable assets throughout the entirety of the resolution process. Moreover, our financing solutions are meticulously structured to ensure the lender’s legal rights and protections are fortified, thereby establishing a robust framework for a successful and efficient insolvency proceeding within the Indian legal framework.

What are your parameters for funding a company undergoing CIRP?

 LegalPay adheres to rigorous financial criteria when extending financial support to companies navigating the Corporate Insolvency Resolution Process (CIRP) in India. A critical parameter within this framework is the Loan-to-Value ratio, which is mandated to be no less than 5%. To illustrate, if we are proving a company Rs 5 crore of Interim financing, it is imperative that its asset base be valued at a minimum of Rs 100 crore to satisfy this essential criterion.

This stringent evaluation of the Loan-to-Value ratio serves as a cornerstone in our risk mitigation strategy. Our commitment to adhering to these standards underscores our dedication to fostering sound lending practices within the realm of corporate insolvency resolution proceedings in India.

Who are your finance partners, as in financial institutions from which you raise funds for litigation finance?

We fund our cases off our own balance sheet, which gives us the flexibility and speed to support our clients. We also have many tie-ups with family offices that trust our expertise and judgment in selecting and managing high-quality litigation portfolios. In addition, we have partnerships with multiple international litigation funding firms that enable us to co-fund matters with cross-border implications and access global markets. We are always looking for new ways to expand our reach and offer our services to more people who need them. That’s why we sometimes raise funds from retail investors who are interested in this emerging asset class and want to diversify their portfolio with non-correlated returns.

You claim 72% success rate? How do you define the success rate? What’s the reason for such a high success rate? What happened in the rest of 28% cases?

The 72% success rate for LegalPay in the context of third-party litigation funding is defined as the percentage of cases in which LegalPay’s involvement led to the resolution of the matters, resulting in the parties receiving their funds back. This typically occurs through settlements, judgments, or other favorable outcomes for the parties that LegalPay has funded.

The reason for our high success rate is our robust underwriting process that uses advanced technology to assess the merits and risks of each case. We also have a deep understanding of the legal system and the best strategies to achieve favorable outcomes.

As for the remaining 28% of cases, these are likely matters that are still in the litigation stage. Litigation can be a lengthy and complex process, and the outcome is often uncertain until a final judgment or settlement is reached. The cases that fall into this category may still have the potential for success, but they are ongoing and have not yet reached a resolution. LegalPay may continue to support and monitor these cases with the aim of achieving a positive outcome in the future.

In summary, LegalPay’s high success rate is a result of their careful selection of cases, strong underwriting processes, legal expertise, and ongoing risk management efforts. The cases that are still ongoing represent a portion of their portfolio that has not yet concluded and may still have the potential to yield positive results in the future.

What is claims under management? You have Rs 2,600 crore claims under management. Do you have a target in mind for say next one year?

Claims under management is a term that we use at LegalPay to describe our legal portfolio that we manage for our clients. We help our clients to get faster and easier access to justice by financing their legal expenses and providing them with expert guidance. Our claims under management represent the total value of the cases that we are currently supporting or have supported in the past.

As of now, we have Rs 2,600 crore claims under management, which is a testament to our success and credibility in the legal industry. Our target for the next year is to manage Rs 6000 crores worth of claims, which means we aim to double our portfolio and reach out to more clients who need our services. This suggests our intention to expand our portfolio and assist clients with a broader range of legal matters, reflecting our confidence in our ability to effectively manage and support a larger volume of cases.

Also Read: Litigation funder LegalPay closes Rs 12-crore interim financing bond