Litigation funding or third-party funding (TPF)

Litigation Funding or Third-Party Funding is a non-recourse funding where third-party funder bears all of the litigation costs such as litigant’s attorneys’ fees, court fee and other costs, in exchange for a share of any potential recovery. If the litigant is successful in its case, the funder receives a portion of its recovery. On the other hand, if the litigation is unsuccessful, the funder will not get anything.

The Supreme Court in Bar Council of India v. AK Balaji, acknowledged that funding of litigation by advocates in India may be impermissible. However, there appears to be no restriction on third parties (non-lawyers) funding the litigation and getting repaid after the outcome of the litigation. The Court also noted that the United Kingdom and United States of America are open to the concept of third-party litigation funding and legal financing agreements.

Recently, there has been a rise in various legal disputes such as insolvency cases, breach of contracts cases and other commercial disputes due to the pandemic. Parties involved in such disputes are finding it difficult to bear the high cost of litigation or arbitration as there has been a shortage of funds due to unexpected Covid-19 crisis. Litigation Funding or TPF can help overcome the burden of such businesses that are facing financial hardships due to economic slowdowns to pursue litigation and recover sums owed in genuine disputes.

MSMEs – The heart of Indian economy

There are close to 6 crore MSMEs in India and contribute close to 30% of the Indian economy. Medium and Small Enterprises have a hard time pursuing their legal claims in the court of law, the reasons span from lack of financial resources to legal inconsistencies within transactions.

MSMEs often struggle for working capital and especially after the COVID19 pandemic the situation has only become worse. While the pandemic has led to deterioration of the financial health of business but has led to an increase in the number of legal disputes.

How litigation funding can help MSMEs

Litigation funding in this scenario is a big help to all the MSMEs to fight the legal disputes properly and ensure access to justice. Litigation Funding globally is a very popular practice and it became famous in USA after the 2007 recession as it had a similar impact to how COVID19 has affected businesses. As the funding is non-recourse in nature, the business only owes money back to the funder if the funded case is won.

LegalPay is the first homegrown Third Party Litigation Funding company in India making non-recourse investments in commercial legal disputes.

MSMEs can avail the maximum benefit of the opportunity of litigation funding. MSME’s can approach LegalPay with their litigations/arbitrations/commercial disputes and ask for funding for their respective claims against defendants. This will help MSME’s to concentrate on their business by transferring their financial burden of litigation to LegalPay. MSME’s can use their capital in essential activities like sales, marketing or human resources and still enjoy the benefit of getting the gains after a successful outcome of the case. Meanwhile, if the case is lost the business anyway does not owe anything to the funder.

LegalPay empowers MSMEs so they are not forced into accepting a low-ball offer because they now possess the financial resources to effectively contest the dispute in court, compelling the defendants to offer significantly higher sums for settlement of the disputes. The time has come for MSME’s in India to open its door for third party litigation for both litigation as well as arbitration which will help make India an efficient and expeditious dispute resolution centre.

One of the very first cases referred to Project Monitoring Group (PMG) by the Prime Minister’s Office was related to an investment of about Rs 2,000 crore that had been made around the Delhi airport to set up an Aero-City that housed a number of hotels. This was not coming to fruition because of certain security concerns expressed by the local police.

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