India Ready for Litigation Funding- Is it a Valid Debate?

Litigation Funding - Taxscan

Recently, the Indian Prime Minister on the global summit gave a very welcoming speech for foreign investments in India. Foreign investors and foreign companies are invited with open arms in India. There is a plethora of foreign investment; and one of its kind is Litigation Funding i.e. third party funding. There is a commendable surge in the litigation funding in the United Kingdom, Unites States of America, Cannada, Australia, etc. There is a possibility that in the present recession caused due to COVID-19 may accelerate the funding in the big size cases. But the question remains that ‘is the Indian judicial system acceptable to foreign investors for Litigation funding’?Indeed, foreign investment related to Litigation Funding in India is far-far away.

In this pandemic where the lawyers and law firms are struggling with the recession due to the lockdown of Indian Courts and tribunals. The judiciary in order to keep the litigation process continue with the motive to deliver justice had started Virtual hearing. Perhaps it is keeping lawyers busy to a certain extent. However, it may not be sufficient to attract Third-party litigation funding. Even in good times, India had never been the market for Litigation Funding. Companies like Augusta, Vannin, Burford, Citigroup legalists, and Harbour have been doing litigation funding abroad. Despite the potential and profitable market, India is being deprived of third-party litigation funding.

Indeed, litigation is expensive for the particular segment. Litigation is at times burden on the litigant. However, the Litigation Funding provides the financial support and keeps the books intact of a corporate. In 2019 HCC had raised litigation funding of Rs.1750 crores on the basis of arbitration claims awarded, which was used for the payments of its debts. In India infrastructure related projects have pending arbitration in large numbers, which might be beyond calculations. The contracts have long drawn arbitration disputes that are being stayed, which delays the entire arbitration process. Even the contractors losses the hope to see some justice on the claims. The long delays in the judicial process is not letting the litigation funders to invest in the Indian legal market which is worth $80 billion.

 “For instance, National Highways Authority of India’s (NHAI’s) FY17 annual report says contracts have claimed about Rs. 42,000 crore, whereas the actual payout may turn out to be less than 25 per cent of the same.”

More so, the process for enforcing international arbitration award is so encumbered that the risk factor in litigation funding in such arbitration dispute is very high. Irrespective of easement in the policies of the GoI, no investor will have that courage to do the litigation funding in India. It is the need of the hour that the Indian judicial system shall seek massive changes for the enforcement of foreign awards. In the Indian domestic market it is very important that Indian Court system shall be streamlined, so that the contractual disputes related to damages, properties and business are decided in the quickest possible manner.

No doubt with the introduction of Commercial Courts Act 2015; Insolvency and Bankruptcy Code 2016; and amendments in Arbitration and Conciliation Act 1996 (as amended upto 2019) GoI has tried to fill up the gap in Indian litigation system, which is still not sufficient.

Nevertheless, under Code of Civil Procedure, decree holder is at liberty to assign the decree in favour of third party, who shall then be responsible to seek the execution of the decree. In the 2015 in the case of Bar Council of India vs. AK Balaji, the Hon’ble SC clarified that there is no restriction in the third party funding of litigation. However, such provisions are futile until and unless there is complete transparency and quickness in the judicial process like other foreign jurisdictions.  

It is to be considered that with such type of funding it will be convenient to pursue high stake litigation that cannot be otherwise singularly funded. This will not only increase the market place for lawyers but will also help the individuals and various small organizations to seek justice. Now, it is high time when GoI shall look into the methodology of encouraging Litigation Funding.

S.S. Ahluwalia Adv. is a legal practitioner with an experience of more than 15 years at the Bar in advising and representing clients on wide variety of matters before Hon’ble Supreme Court of India, Delhi High Court, Tribunals and Appellate authorities including Arbitration, DRAT, NCLT, Green Tribunal, PMLA and Arbitral Tribunal.