Litigation Finance or Third-party litigation funding (TPLF) is not a new concept in India, as historically, lawsuits have often been bought and sold in an informal, unregulated manner by opportunistic investors and litigants.

Legal Recognition

The turning point came in 2015, when the supreme court in Bar Council of India Versus A.k. Balaji rule that:

• Non-Lawyers allowed to fund cases
• They can recover their investments from the case proceeds
• Lawyers themselves cannot fund cases or work on contingency basis.

While there is no comprehensive national legislation regulating third-party litigation funding, several Indian states including Maharashtra, Karnataka, Gujarat, and Madhya Pradesh have amended their Civil Procedure Codes to explicitly acknowledge the role of litigation financiers. These amendments set out circumstances under which such financiers may be made parties to litigation.

Limitations Under Current Law

Despite the evolving legal landscape, there remain important limitations:

Lawyers in India are prohibited from funding litigation or taking success-based fees under Bar Council of India rules. This restricts funders who rely on contingency fee arrangements with lawyers to maintain alignment of interests.

Whether a TPLF agreement violates public policy depends on its specific terms, particularly the funder’s share in the recovery. Agreements deemed extortionate or unconscionable can be invalidated.

The permissibility of foreign investment in TPLF remains unclear and has yet to develop as a recognized aspect of the Indian legal market.

In summary, while litigation funding is legally permitted and increasingly acknowledged by courts and lawmakers in India but it still lacks a proper legal framework. With rising litigation costs and increasing demand for access to justice, India’s litigation funding market is expected to expand further.

How third party litigation funder assess case merit

Litigation funders assess case merits through a detailed, multi-step due diligence process aimed at evaluating the strengths, risks, and financial prospects of a case before deciding to provide funding. Key elements considered in their assessment include:

Initial Legal Merit: Funders evaluate whether the case has a solid basis and technical merits that indicate it is winnable rather than speculative. This early assessment usually involves reviewing key issues of the claim, supporting evidence, and a preliminary legal opinion about the likelihood of success.

Due Diligence: If the initial review is favorable, funders conduct a deeper analysis involving key documents, evidence, case strategy, potential defenses, and the financial feasibility of the claim.

Risk Analysis: Funders assess the risks associated with the litigation, including procedural risks, enforceability, counterparty’s ability to pay, and timeline for resolution. The costs of litigation and the likelihood of sustained legal fees are also scrutinized.

Financial Return and Investment Outlook: The potential size of the award or settlement is weighed against the anticipated costs and risks to ensure the case can deliver a sufficient return on investment. Funders also consider the alignment of interests between claimant and legal counsel.

Experience and Capability of Legal Team: The track record, experience, and capability of the law firm handling the case are important as funders want assurance that the case will be managed professionally and effectively. Usually the funder company associate with the law firms by themselves to solve the issues related with the expertise of the advocates or law firms for work efficiency and trust.

Claimant’s Background: Assessment includes evaluating the claimant’s past litigation history, and credibility since these can impact case outcomes and settlement negotiations.

Transparency and Full Disclosure: Funders require comprehensive and honest disclosure of all case details to avoid surprises later and build trust for a successful funding partnership.

This assessment often culminates in a review by an investment committee that makes the final funding decision based on the risk-return profile and strategic fit for the funder’s portfolio. The overall process balances legal merits, risks, timeline, financial prospects, and the probability of a successful recovery.

Who make key decisions in third party funding litigation case?

In litigation funding, the claimant remains the primary decision maker for key aspects of the case, such as whether to settle or proceed with the trial, while the funder primarily make financial decisions and the expenses aspect. Funders typically do not control the litigation strategy.

However Recover Paisa not only provide financial assistance they also provide case management for efficient litigation process by their associated firms and legal expert team. Which not only help to combat the stress from claimant it also help to ensure the interest of the claimant as well as the funder.

Who select the advocate for in third party funding litigation case?

The selection of the advocate in litigation funding usually rest with the claimant, as they have primary interest and control over the litigation. Although litigation funders may suggest or approve the advocate to ensure the case is handled effectively, but the final decision is made by the claimant.

In Recover Paisa there is a dedicated legal team to examine the case progress with the Attorney’s or law firm as the case maybe.