Litigation finance in India: Opportunities and challenges

The landscape of legal dispute resolution is undergoing a seismic transformation, due to the emergence of Litigation Funding or Third-Party Funding (TPF). This revolutionary concept has disrupted traditional norms, offering a fresh perspective on how legal battles are financed and navigated. This article by Tanya Prasad, CIO, LegalPay, delves into the dynamics of litigation funding and its challenges in the Indian market.

The global litigation funding market achieved a remarkable valuation of US$ 12.2 billion in 2022. However, this is merely the prologue. Projections indicate that by 2030, the market will ascend even higher, surpassing a staggering US$ 25.8 billion. The 9% compound annual growth rate (CAGR) during the forecast period from 2023 to 20301 underscores its robust trajectory. To demonstrate the size of the Indian litigation market, as per data from the National Judicial Data Grid as of May 1, 2023 there are nearly 43.5 million pending cases throughout the Indian Court system. With this volume, the Indian litigation market offers new avenue for investment. International investors and funders recognize India’s potential, and indigenous players like Legalpay have already staked their claim.

While in its nascent stage, concept of litigation finance or Third Party Funding (TPF) has shown promise and gained considerable traction in India. This can be attributed to several factors amongst which are:

A. Domestic and International Disputes: India’s economic surge spawns a proliferation of domestic disputes across sectors. Simultaneously, globalization and burgeoning trade relations ignite international disputes, creating a symphony of opportunities.

B. Insolvency Reforms: Recent amendments streamlining bankruptcy and insolvency processes have carved a niche for litigation funding. The legal landscape now accommodates strategic financing, transforming risk into opportunity

C. Global Enforcement and Debt Recovery: Indian awards and decrees traverse borders seamlessly. Participation in the New York Convention and reciprocal arrangements amplifies enforceability, enticing investors.

D. Modernization of Legal Jurisprudence: Cross-border disputes, akin to intellectual crucibles, forge new frontiers. India’s courts, adorned with complexity, beckon financiers seeking both challenge and reward.

However, while India’s litigation finance industry is growing, there remain certain obstacles that impede its growth. Some of the primary challenges are in form of judicial backlog in Indian courts and the lack of regulatory support for litigation finance.

The “Ease of Doing Business” report indicates that the time taken in trial and judgment in a matter has fallen from 1095 days in 2020 to 424 and 306 respectively3 whereas the time for enforcement of a decree has remained constant at 305 days. While these numbers have improved significantly in some jurisdictions owing to certain reforms, the time taken for disposal of matters is still very high, which makes determination of timeline for such cases uncertain.

Predictability—essential for prudent litigation finance—demands further reforms to streamline the process. Further, a strict costs regime must be introduced to discourage delay tactics in Courts. The other area that proves to be a challenge in the field of litigation finance is the absence of express statutory or regulatory framework governing it. While the practice of TPF is now firmly embedded in its legal system, comprehensive regulatory framework remains elusive. Legislative clarity will harmonize interests and foster investor confidence. The Indian government should set up a committee to examine and accordingly recommend rules to regulate litigation financing. The world of litigation finance in India is undergoing a transformation. Although Legal precedents have affirmed the permissibility of litigation funding, the path ahead encourages further development. As India’s economy reaches new heights opportunities in litigation finance expand. Regulatory prospects are on the horizon and clear guidelines may soon shape the landscape. The stage is set for an exciting era in litigation finance within India.

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