Legal

Analysis: Is India ready for Third Party Litigation Funding?

calendar24 Sep, 2020
timeReading Time: 2 Minutes
Third Party Litigation Funding

The boom in litigation cost has led to emergence of Third Party Litigation Funding in India. A third party who separately provides funds to parties for a dispute in exchange for a portion of monetary compensation that is recovered from the proceedings is called Third-Party Litigation Funding. Litigation Funding by any third party involves funding for legal proceedings by entities other than the parties, their counsel, or any other entity with a pre-existing contractual relationship with one of the party in exchange for a fraction of settlement or judgment proceedings. Litigation funding has become a common way of jurisdiction in USA, UK and Singapore.

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Litigation Funding in India

Third-party litigation funding is lawfully recognized in India. The idea of litigation funding is allowed under the Civil Code of Procedure[1], 1908 in some states by the respective state amendments to Order XXV rules 1 and 3. Therefore, the authorization of Third-Party Litigation Funding in India can be demonstrated from the CPC. Litigation Funding has been recognized in India way back in 18th century and has always been permitted.

Case Reference

  • The Privy Council in 1876 in Ram Coomar Coondoo v. Chando Canto Mookerjee (1876-77) 4 IA 23 permitted Third Party Litigation Funding on the grounds of promoting access to Justice.
  • The Supreme Court in Bar Council of India v AK Balaji (2018) 5 SCC 379 has observed that,”There appears to be no restriction on third parties funding the litigation and getting repaid after the outcome of the litigation.”

Disadvantage of Third-Party Litigation Funding

The disadvantage of Third Party Litigation Funding is that it increases the volume of offensive and frivolous litigation. It can happen because the investors see disputes as an investment opportunity. That makes them more willing to fund the cases that are weak on the virtues but have a higher chance for a large compensation.

Conclusion

Third Party Litigation Funding is an interesting concept and practiced worldwide. However, it is not illegal in India but there is a requirement of a dedicated regulation that can govern Litigation Funding. There are arguments that in India many applicants doesn’t have access to justice due to shortage of funds. Still the question arises about the investors that will they be keen on investing in normal cases or only on big projects. Well, it totally depends upon the risk and virtues of the case.

Litigation Funding is an expanding market in India, at the same time it should also be seen that the principle of justice is not defeated at any cost. Funding for judicial proceedings is growing progressively and soon it will take a form of structured system that can be used in benefit of both investor as well as party in a planned way.

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