Third Party Litigation Funding
Watch our video on Third-Party Litigation Funding featuring- Ashwini Kakkar, Ex-Chairman, Via.com, along with Shruti Khanijow, Principal Associate, at Khaitan and Co., and Kashish Grover, Chief Investment Officer at LegalPay.The discussion focuses on the growth of Third-Party Litigation Funding and significant changes it can create in the Indian landscape. Our speakers take us through the need for Litigation Finance, the legality surrounding Litigation Financing in India, its benefits, relevance and its importance.
The video will also talk about LegalPay which is the first homegrown third party Litigation Funding company exclusively funding commercial disputes in India.
To get featured in more such conversations, write us on [email protected]
Third Party Litigation Funding
Third-party litigation funding is the method of third parties providing funds to litigants who can no longer afford their litigation expenses. The concept of third-party litigation funding is not new.
However, it has gained prominence after the new bankruptcy rules, which disallow non-dischargeable assets from bankruptcy. As a result, most debtors in debt problems have no option but to opt for this method.
Third-party litigation funding companies help in paying for the expenses incurred in the course of the litigation. It includes the fee for attorneys, transportation cost of the investigators, and other costs.
Third-party litigation funding enables a debtor to take support from a party outside the country. It is generally used in debt settlement cases.
Some lenders provide 100% financing, which means that there is no credit check done. However, the approval of the application is based upon the applicant fulfilling the eligibility criteria fixed by the lending firm.
Companies provide third-party litigation funding with expertise and experience in representing clients who cannot finance their litigation.
As per the latest statistics available, more than 27 million Indian citizens need this form of help.
Concept and Legality of Litigation Financing
Litigation financing helps both lenders and debtors to settle their disputes in an orderly fashion. This process is also referred to as settlement funding.
A litigation financing company represents the most familiar type of third-party litigation financing. It generally provides cash awards to the applicants who can prove themselves to be eligible for them.
Coming to the legal side, it will be justified to say that litigation financing has given too many misconceptions regarding its legality.
However, it is significantly permittable in India; nevertheless, the terms are subject to the Indian Contract Act, 1872.
Some remarkable judgments have been there to eliminate the misconceptions, which have created some confusion.
As per the judgment given by SC in 2018, In Bar Council of India v. AKA Balaji, the court observed that third-party financing agreements are not prohibited in India.
The third party litigation financing agreements are legally recognized for majorly the civil suits as amended by the being Maharashtra, Gujarat, Madhya Pradesh, and Uttar Pradesh) of Order XXV Rules 1 and 3 of the Code of Civil Procedure, 1908.
There are cases when a third-party litigant fails to convince a lender to provide a loan. In such instances, a third-party litigant may approach a funding company for cash assistance.
When the litigant has a good history of winning cases, the lenders look at his credit record and the nature of the claims filed.
Therefore, the amount of a loan for a litigant depends on the type of his cases and his success rate.
The applicant needs to have a strong credit record and should have sufficient means to repay the loan.
Litigation funding companies will closely look at the credit history of the litigant and take into account whether the litigant has been able to pay off his debts within a given period.
The applicants need to ensure that their credit records are clear and do not contain any errors.
The companies usually require the applicants to submit documents that prove that they are financially capable of repaying the loan and show that they have a good history of financial payments.
The applicant should also have a co-signer with a high credit score so that his application for the loan can be approved.
A third-party litigant may use the third-party litigant loans to meet the demands of a lawsuit. If a litigant cannot fund the case because of not having the required amount of money, they can seek another source of funds for the same purpose.
These funding companies also offer non-recourse options in which the litigant does not have to pay back the loan if the litigant loses the case.
The litigant only needs to deposit the money received from the third-party litigant loan into their account.
Many of these companies allow a certain period for the loan repayment, which is generally two weeks to six months after the litigant, wins the case.
Way Ahead in TPLF
Third-party litigation financing has increased the scope of justice and awareness among people regarding the law very well.
However, the government’s role would be to emphasize the legal part by regulating prominent laws in this field.