Open Access Research Article
THE LEGALITY AND PROSPECTS OF THIRD-PARTY LEGAL FINANCING IN INDIA: AN ANALYSIS OF CURRENT TRENDS, CHALLENGES, AND THE IMPACT OF THE MEDIATION ACT, 2023
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Article Details
THE LEGALITY AND PROSPECTS OF
THIRD-PARTY LEGAL FINANCING IN INDIA: AN ANALYSIS OF CURRENT TRENDS,
CHALLENGES, AND THE IMPACT OF THE MEDIATION ACT, 2023
AUTHORED BY - JASRAJ BHOWMIK[1]
ABSTRACT
In India's dynamic legal system, the concept of third-party legal
financing has gained attention as a solution to the financial obstacles faced
by those involved in legal disputes. This paper delves into the current status
of third-party legal financing in India, emphasizing the growing presence of
legal financing firms and the expected market expansion in the near future.
Moreover, it examines the potential hurdles that may confront third-party legal
financing within the Indian legal system. The study critically evaluates the
proposed framework for legal financing under the Mediation Bill, 2023, recently
introduced by the government, and analyzes its possible impacts on the
third-party legal financing sector.
Keywords: Third-Party Legal Financing in India, Mediation Act
2023, Indian Legal Framework for Legal Financing.
- INTRODUCTION
In the changing realm of the legal
system third party legal financing has become an important factor providing
financial support to individuals and organizations dealing with complex
litigation matters. This research paper examines aspects of party legal financing,
in India including its legality, the current legal landscape and its potential
for market growth. It also explores the challenges faced by this growing
industry. Critically evaluates the proposed framework under the Mediation Bill
of 2023.
The regulations governing party
financing intersect with well established norms in the legal profession.
Therefore it is crucial to have coherent guidelines as the demand for these
services continues to increase. This paper adopts an approach by incorporating
research into foundational chapters while addressing essential aspects such as
the structure of legal financing the role of arbitration in litigation and
practical challenges in subsequent sections.
Beginning with an analysis of the
legality of party financing in India this paper critically examines its current
status through a study of judicial cases and state amendments. It then delves
into details, about companies involved in providing financing services shedding
light on their structure, operations and offerings. Market growth projections
take into account both evolving dynamics and economic factors.
The industry presents both
opportunities and challenges which we thoroughly analyze in this paper. Our
analysis is not solely based on data. Also includes interviews, with
individuals who manage legal finance funds in India.
Furthermore we delve into the
relationship between litigation finance and arbitration illustrating how the
growth of one corresponds to the growth of the other. This chapter serves as a
foundation for the chapter explaining why the Mediation Act 2023 highlights the
importance of litigation financing.
A vital aspect of our study focuses
on exploring the impact of the Mediation Bill 2023 on party legal financing. By
examining and analyzing the provisions of this proposed legislation we shed
light on how it could shape the landscape of financing and influence
interactions between litigants, legal financing companies and the mediation
process.
In conclusion, our research provides
a comprehensive overview of the legality and prospects of party legal financing
in India. We place emphasis on laws, market trends, challenges well as
potential implications arising from impending legislation. These insights are
invaluable for stakeholders such, as practitioners, policymakers, scholars
navigating through Indias evolving legal financing landscape.The convergence of
funding the judicial system and the Mediation Bill of 2023 carries substantial
ramifications, for the accessibility of justice and the landscape of
litigation, in India.
1.1. Research Problem
The main focus of this research
revolves around the changing landscape of party financing in India, considering
the consistently high costs associated with legal disputes. Despite reforms,
the expenses related to legal proceedings remain significant, leading to a
growing reliance on litigation funding by businesses and law firms. This
emerging trend, although common in developed countries, presents a challenge
and opportunity within the Indian legal system.
The primary objective is to
comprehend and address the aspects of party legal financing in India. The
research aims to offer insights into the extent and future prospects of this
practice similar to how civil liberties are balanced with national security
concerns. Specifically, the study explores how India navigates through the
realm of financing companies, predicts market growth and tackles challenges
posed by the proposed Mediation Bill 2023.
To conduct an analysis this research.
Contrasts Indias approach with that of the United Kingdom. This comparison
provides insights into how financing intersects with the Indian legal system
and access to justice. The ultimate goal is to contribute to discussions by
offering an understanding of this evolving landscape while emphasizing the
delicate balance needed for facilitating access, to justice.
The main goal of this research paper
is to investigate and analyze the current status and future potential of third
party legal financing in India. Our approach will cover key research
objectives;
1. Legality Assessment;
Examining the existing framework to
determine the legal standing of third party legal financing in India including
any ambiguities or gaps.
2. Landscape of Legal Financing Companies;
Identifying and analyzing the legal
financing companies operating in India including their structures, services
offered and operational practices.
3. Market Growth Analysis;
Estimating and forecasting the growth
trajectory of the third party legal financing industry in India based on
economic and legal factors.
4. Challenges and role of mediation;
Analyzing the challenges associated
with third-party legal financing in India and understanding the correlation
between mediation and legal financing, considering their impact on litigation
finance companies.
5. Evaluation of the Mediation Bill,
2023;
Critically evaluating the provisions
and implications of the proposed Mediation Bill by the government in 2023 with
a specific focus on how it would affect third party legal financing practices.
1.3. Research Questions
In the light of research problem
statement provided above, this study aims to explore the following research
questions:
1.
What
is the legal position/legality of legal financing in India?
2.
How
big is the current third-party legal financing market in India and its
estimated future growth?
3.
What
are the specific challenges that third-party legal financing may encounter in
the Indian legal system?
4.
What
is the framework proposed for legal financing under the Mediation Bill, 2023,
recently introduced by the government, and assesses its potential implications
for the third-party legal financing sector?
1.4. Review of Literature
Cyril Shroff.
Third-Party Funding in India. cyril
amarchand mangaldas advocates &
solicitors. This paper
highlights Third Party Funding (TPF) in India, including its benefits,
ethical considerations, and notable gaps
in the Indian market. It also covers the regulatory framework for TPF, the key terms of TPF agreements, and the
potential impact of TPF on litigation and
arbitration. The author highlights
the global presence of TPF and the potential for the Indian landscape to evolve to support this
innovation in dispute resolution. However, the paper does not provide a detailed analysis of the future of
legal financing in India.
Debajyoti Ray Chaudhuri and Radhika Agarwal. Litigation Funding:A
breakthrough for Avoidance Proceedings
under IBC. Insolvency and
Bankruptcy Board of India (IBBI). The paper discusses the concept of litigation
funding, its benefits, and its international scenario. It also highlights the potential of litigation
funding in India, especially in the context of the Insolvency and Bankruptcy Code (IBC). The author
emphasizes the need for a robust regulatory structure to ensure fairness and equity in the settlement
procedure for parties receiving litigation funding. However, the paper does not provide a
detailed analysis of the challenges and limitations of litigation funding in India, such as the lack
of a clear legal framework, ethical concerns, and the potential for conflicts of interest. It also
does not discuss the role of litigation funding in promoting access to justice and reducing the burden on
the Indian judiciary.
1.5. Hypothesis of Study
1. The current landscape of legal
financing companies in India indicates a growing market that is poised for
substantial expansion in the near future. The arbitration and mediation matters
are set to increase, which will increase the demand for third-party legal
financing continues to increase.
2. The legality challenges faced by
third-party legal financing in India might improve with the framework proposed
under the Mediation Bill, 2023, which offers a potential avenue for the facilitation of third-party legal
financing in India
1.6. Research Methodology
This research paper employs a mix
approach combining both doctrinal research, known as library-based research,
and empirical Research. However, the research is primarily doctrinal, empirical
method is only used in one of the chapters, were interviews has been taken of
legal finance company founders and the rest of the chapters are based on
doctrinal research. The data collection process is derived from a diverse range
of primary and secondary sources, incorporating information from legal finance
company websites, doing case analysis of landmark cases, references from
articles and research papers, as well as insights from the Mediation Act, 2023.
These sources collectively form the basis for a robust and nuanced exploration
of the intricacies surrounding third-party legal financing in India.
1.7. Limitation of the
Study
- Data Availability: The
availability of comprehensive data from legal finance company websites and
court cases may pose limitations, influencing the depth of analysis in
certain areas.
- Scope of Proposed Bill: The
analysis is based on the available draft of the proposed Mediation Bill,
2023, which may still be subject to revisions and amendments, potentially
impacting the comprehensive evaluation of its implications for third-party
legal financing.
This methodology has been carefully
chosen to align with the research problem and objectives, ensuring a
comprehensive and rigorous exploration of the legal and financial landscape of
third-party legal financing in India.
2. THE LEGALITY OF LEGAL FINANCING IN INDIA
This chapter delves into the legal
aspects of third-party legal financing in India, analyzing its evolving
landscape. Beginning with a review of landmark cases, we explore the judicial
stance on legal financing. Subsequently, we examine state amendments to the
Code of Civil Procedure, 1908[2],
designed to regulate legal financing. By navigating through these legal
milestones, we aim to unravel the complexities surrounding the legality and
prospects of third-party legal financing in India. This chapter lays the
groundwork for a detailed exploration of current trends, challenges, and the
potential impact on India's legal ecosystem.
2.1. Landmark cases
In the absence of specific
legislation governing Third-Party Legal Financing (TPF) in India, the legal
landscape relies heavily on judicial precedent. As of the current date, the
nation follows the doctrine of judicial precedence, where landmark cases play a
pivotal role in shaping legal norms. This section meticulously examines the
evolution of TPF through the lens of significant cases that have left an
indelible mark on India's legal fabric.
Commencing with the 1876 Privy
Council decision in Ram Coomar Coondoo v. Chunder Canto Mookerjee[3], we embark
on a historical exploration of the earliest major case addressing third-party
legal financing. This decision not only laid the groundwork for subsequent
cases but also provided foundational guidance that reverberates through the
corridors of Indian jurisprudence.
Subsequently, our analysis turns to
the contemporary legal landscape with a spotlight on the landmark case of Bar
Council of India v. AK. Balaji[4] . This
2018 Supreme Court ruling stands as a beacon in the realm of third-party legal
financing, setting a precedent that echoes throughout the legal fraternity. As
the current touchstone case in this domain, it plays a pivotal role in shaping
the discourse around the legality and prospects of third-party legal financing
in India.
Ram Coomer Coondoo v. Chunder Canto
Mookerjee (J.C.)[5]-
25/11/1876
Facts :-
The plaintiffs, Ram Coomar Coondoo
and another, filed a suit against the defendant, Chunder Canto Mookerjee,
claiming Rs. 25,202 as the loss and damage alleged to have been sustained by
them from or by reason of alleged wrongful and injurious acts by the defendant.
The circumstances out of which the suit arose are detailed in the judgment of
their Lordships.The case involved an agreement executed by McQueen and his wife
and by the defendant, which was very lengthy and attested. The plaintiffs had
obtained the funds to prosecute the suit by means of this agreement. The
defendant argued that the agreement did not constitute a punishable offense and
could not give the plaintiffs, who were strangers to it, a right of action
against him.
Issues :-
1. Whether the agreement executed by
McQueen and the defendant constituted a punishable offense and whether it gave
the plaintiffs, who were strangers to it, a right of action against the
defendant ?
3. Whether the agreement created legal
privity between the plaintiffs and the defendant, thus giving the plaintiffs a
right of action against the defendant
Arguements :-
The plaintiffs argued that the
defendant had committed wrongful and injurious acts, which had caused them a
loss and damage of Rs. 25,202. They claimed that the defendant had entered into
an agreement with McQueen and his wife, which was attested and very lengthy,
and that they had obtained the funds to prosecute the suit by means of this
agreement. The plaintiffs argued that the agreement created legal privity
between them and the defendant, thus giving them a right of action against the
defendant.
On the other hand, the defendant
argued that the agreement did not constitute a punishable offense and could not
give the plaintiffs, who were strangers to it, a right of action against him.
The defendant also argued that the agreement did not create legal privity
between the plaintiffs and the defendant.
Judgement :-
The court ruled in favor of the
defendant, Chunder Canto Mookerjee. The court held that the agreement executed
by McQueen and the defendant did not constitute a punishable offense and could
not give the plaintiffs, who were strangers to it, a right of action against
the defendant. The court further permitted TPF on the grounds of promoting
access to justice, but held that:
“agreements of this kind ought to be carefully watched, and when found to
be extortionate and unconscionable, so as to be inequitable against the party,
or to be made, not with the bona fide object of assisting a claim believed to
be just, and of obtaining a reasonable recompense therefor, but for improper
objects, as for the purpose of gambling in litigation, or of injuring or
oppressing others by abetting and encouraging unrighteous suits, so as to be
contrary to public policy, effect ought not to be given to them.”
Bar Council Of India V. A K Balaji
And Ors[6]:
Facts :-
Mr. A.K. Balaji, a registered
advocate in Tamil Nadu, filed a writ petition. According to the Advocates Act,
to practice law in India, one must be an Indian citizen with a law degree from
a government-accredited Indian university (Section 29)[7].
Foreign degrees are recognized only if Indian citizens can practice in those
countries. An Indian advocate can't practice in the USA, UK, or Australia
without passing their qualification exams and obtaining the necessary
permissions.
Despite these rules, international
legal professionals are conducting seminars and practicing law in India, often
on visitor visas. They evade immigration and tax regulations since disciplinary
measures of the Bar Council apply only to advocates under the Act. While Indian
legal practitioners can't solicit or advertise, these restrictions don't apply
to foreign legal firms.
In India, law is seen as a noble
profession for the benefit of society, not just a money-making business.
However, foreign lawyers have a different perspective, viewing it as a
lucrative trade. A.K. Balaji argued that foreign lawyers should be restricted
unless their countries allow reciprocal rights. He sought guidelines through
the writ petition to prevent foreign lawyers and firms from operating in India.
Issues :-
(i)
Whether the expression ‘practise the profession of law’ includes only
litigation practice or non-litigation practice also?
(ii) Whether such practice by foreign
law firms or foreign lawyers is permissible withoutfulfilling the requirements
of Advocates Act and the Bar Council of India Rules?
(iii)
If not, whether there is a bar for the said law firms or lawyers to
visit India on ‘fly in and fly out’ basis for giving legal advice regarding
foreign law on diverse international legal issues?
(iv)
Whether there is no bar to foreign law firms and lawyers from conducting
arbitration proceedings and disputes arising out of contracts relating to
international commercial arbitration? (v)
Whether BPO companies providing integrated services are not covered by
the Advocates Act or the Bar Council of India rules?
Arguments :-
(i): The rules for lawyers aren't
just for court appearances; they apply to all legal practices. Following
ethical standards is crucial for justice. The term "practice of law"
includes both litigation and non-litigation.
(ii): Practicing law involves more
than just court appearances; it includes giving testimony, creating documents,
and participating in legal discussions. Only advocates registered with the Bar
Council can practice law, and others need permission to appear in court.
Regulations for advocates also apply outside of court.
(iii): When a foreign lawyer visits
frequently, it may be considered legal practice. Whether a visit qualifies as
practice depends on the circumstances. The Advocates Act applies to foreign
lawyers practicing in India, and they can't claim exemption from the regulatory
framework.
(iv): Foreign attorneys can conduct
arbitrations in India, but they must follow institutional regulations and
Sections 32[8] or 33[9] of the
Advocates Act. The Indian legal profession's code of conduct must be obeyed,
and specific provisions may be made by the Central Government or the Bar
Council.
(v): BPO businesses can provide
various services to clients without breaking the Advocates Act, as long as
these activities don't essentially amount to practicing law. The Act doesn't
apply if their services don't directly or indirectly involve practicing law.
Each situation needs individual consideration.
Judgement :-
The case of Bar Council of India v.
A.K. Balaji and Ors[10], is a
landmark decision by the Supreme Court of India. The case addressed the issue
of whether foreign law firms and foreign lawyers could practice in India. The
Supreme Court upheld the decision of the Madras High Court, ruling that foreign
lawyers and law firms could visit India on a "fly in and fly out"
basis to give legal advice on foreign law, but they could not set up permanent
offices or practice.The court also ruled that foreign lawyers can participate
in international commercial arbitrations held in India, but only if they are
domiciled outside India.This case sheds light on the scope of practice of
foreign lawyers and law firms in India and highlights the importance of
maintaining the independence and integrity of the Indian legal
profession.Recently, the Bar Council of India permitted foreign law firms in
India on a reciprocity basis and with certain limitations and restrictions
The Supreme Court futher observed
that “In India, funding of litigation by
advocates is not explicitly prohibited, but a conjoint reading of Rule 18
(fomenting litigation), Rule 20 (contingency fees), Rule 21 (share or interest
in an actionable claim) and Rule 22 (participating in bids in execution,
etc.) would strongly suggest that
advocates in India cannot fund litigation on behalf of their clients. There
appears to be no restriction on third parties (non-lawyers) funding the
litigation and getting repaid after the outcome of the litigation. In U.S.A.,
lawyers are permitted to fund the entire litigation and take their fee as a
percentage of the proceeds if they win the case. Third Party Litigation
Funding/Legal Financing agreements are not prohibited. In the U.K., Section 58B
of the Courts and Legal Services Act, 1990[11]
permits litigation funding agreements between legal service providers and
litigants or clients, and also permits third party Litigation Funding or Legal
Financing agreements, whereby the third party can get a share of the damages or
“winnings””
2.1. Legislation and C.R.P.C
Legal financing in India has
undergone advancements especially with regards to the amendments made to the
Code of Civil Procedure, 1908[12]. In the
past champerty and maintenance doctrines posed obstacles to litigation
financing in India. However there has been an amendment made by the Bombay High
Court to Order XXV Rule 3 of the CPC[13].
This amendment acknowledges that third party funding is permissible for
litigation and grants courts the authority to issue orders requiring funders to
provide "security for the payment of all costs incurred and likely to be
incurred by any defendant."
The concept of third party funding is
recognized by law in states like Maharashtra, Gujarat, Madhya Pradesh and Uttar
Pradesh through their respective state amendments to Order XXV rules 1 and 3 of
the Civil Procedure Code, 1908 (CPC)[14].
While some states have not explicitly
recognized third party funding in their statutes there are no laws prohibiting
it either. The terms of contracts have been under judicial scrutiny since 1867
when the Privy Council first allowed third party funding as a means of
enhancing access to justice, in India.
To sum up the legal system in India
has undergone changes to acknowledge and oversee financing. Several amendments
at the state level have been made to the Code of Civil Procedure, 1908[15]
permitting third-party funding in litigation. These advancements have led to
increased understanding among litigants and lawyers about the legality and
regulation of financing, in India.
3. Current market and challenges for legal financing in India
The legal financing industry, in
India has been experiencing growth aiming to assist clients who are burdened
with legal expenses and inefficiencies in the legal services sector. In this
chapter, we will delve into the state of the market. Discuss the obstacles
faced by legal financing in India. Our analysis will primarily focus on two
companies, Lawventures and Legalpay examining their structure and the services
they provide. Additionally, we will shed light on the challenges encountered by
these companies while operating within the system. To offer insights we
conducted an interview, with the founder of Lawventures. Also, highlight some
general challenges faced by businesses operating in India.
3.1. Current players
In this section we will analyze two
third party litigation companies; LegalPay and Lawventures.
LegalPay :-
LegalPay Technology Private Limited
is a company that offers assistance to individuals who require legal
representation. The company was established in November 2019. Has received seed
funding, from 9Unicorns, LetsVenture well as notable angel investors like
Ashwini Kakkar and Ambarish Gupta. LegalPay utilizes its technology to evaluate
cases and provide funding for approved expenses. They only charge an agreed
upon percentage for cases that are successfully won while no fees are imposed
on cases that are lost. LegalPay has partnered with over 4,000 professionals
than 1,000 businesses and approximately 15,000 investors[16].
Their primary objective is to ensure access to justice for all individuals of
their financial circumstances. The company primarily focuses on resolving
disputes, within the B2B sector by selecting cases that offer returns.
LegalPay[17]
relies on AI and machine learning to evaluate claims taking into account
factors such, as merit, financial feasibility the opposing partys standing,
legal representation and alignment with the companys overall strategy. By doing
LegalPays litigation financing approach can alleviate stress for businesses and
strengthen their in house legal teams by sharing the burden. It's important to
note that LegalPay doesn't replace or undermine the role of in house teams;
instead it empowers them by providing access to expertise risk sharing
opportunities and efficient cash flow management. Furthermore LegalPay has
expanded its presence beyond Delhi NCR with offices in Surat, Mumbai, Pune and
Bangalore. In essence LegalPay Technology Private Limited is a legal financing
company that offers support for those in need of legal representation.
Leveraging their technology for case underwriting and funding approved cases
legal costs sets them apart. LegalPay only charges a agreed percentage for
successful cases while no fee is imposed for lost cases. Their mission is to
ensure access, to justice of ones financial circumstances.
LegalPay specializes in resolving
disputes, in the B2B sector utilizing AI. Machine learning to evaluate valid
claims. They offer a range of services including debt financing with the goal
of ensuring access to justice for everyone regardless of their financial
circumstances. By providing support LegalPay empowers businesses to pursue
representation confidently. Their unique technology allows them to assess cases
and cover the associated costs for approved claims. LegalPay operates on a
agreed percentage basis for successful cases while not charging any fees for
unsuccessful ones[18].
Regarding revenue sharing LegalPay
Technology Private Limited recorded operating revenues below INR 1 crore for
the year ending on March 31 2022. The companys net worth is reported at INR
10.8 crore with an investment of INR 6,067,646. Their revenue/turnover remains
below INR 1 crore while EBITDA has shown a decrease over time. Moreover
LegalPay has successfully raised $382,000 through five funding rounds involving
contributions, from 25 investors.
Lawsuits ventures :-
Lawsuit Ventures is a company that
specializes in litigation finance, which is the practice of providing funding to
plaintiffs and law firms to cover the costs of litigation in exchange for a
portion of the settlement or judgment if the case is successful.The company is
the first official non-recourse litigation finance company in India. Lawsuit
Ventures has a proven track record of success, generating 5x ROI through
litigation finance[19].
The company's experienced team of
legal and financial professionals carefully selects cases with strong merits
and provides funding to individuals or businesses to pursue legal action, such
as a lawsuit, arbitration, or other form of alternative dispute
resolution.Lawsuit Ventures also provides legal analysis and co-equal financing
in litigation finance.The company's financial model provides high returns for
investors while also promoting access to justice for plaintiffs who might not
otherwise be able to afford legal representation[20]
Services they provide :-
Lawsuit Ventures operates as an
online litigation financing platform for individuals and businesses, serving in
the B2C, B2B space in the Financial Services market segments.The company's
primary business model revolves around providing funding to plaintiffs and law
firms to cover the costs of litigation in exchange for a portion of the
settlement or judgment if the case is successful.This innovative model allows
plaintiffs to pursue their legal rights without worrying about the high costs
of legal fees, while also providing a return for investors.Lawsuit Ventures has
been incredibly successful in the field of litigation finance, generating 5x
ROI, and has a proven track record of success.The company's financial model
provides high returns for investors while also promoting access to justice for
plaintiffs who might not otherwise be able to afford legal representation[21]
3.2. Challenges faced in the Indian Landscape.
Litigation finance is an industry, on
the rise in India, attracting interest from startups, law firms, companies and
investors. In this part, we aim to under the
challenges that litigation finance companies in India encounter in two
phases, the first part is general challenges and second part interview with
Hiren Thadeshwar sir, the founder of Lawsuits Ventures.
General challenges
These challenges fall into
categories;
Transparency and Regulation; One of
the obstacles in developing the financial market in India is the lack of
transparency caused by incomplete regulations for green bonds and insufficient
requirements for disclosure and verification. The same applies to the
litigation finance industry; it requires a framework to ensure proper
functioning and protect investor interests.
Market Awareness; Litigation
financing is still a concept in India, so there is a need to raise awareness
about its benefits and risks among potential users and investors. This can help
overcome hesitations and limitations faced by companies and litigants when
seeking access to litigation finance.
Legal and Ethical Challenges; The
litigation finance industry faces ethical challenges, such as navigating
securities law disclosures for traded litigation finance companies. This can
create ambiguity and opacity, within the industry making it difficult for
investors and litigants to have trust in the system.
Limited Market Size; The estimated
value of the litigation funding market, in 2022 was $12.2 billion. Experts
predict that by 2030 this market will reach $25.8 billion showing a compound
annual growth rate of about 9% during the period between 2022 and 2030[22]. While
there is potential for growth in India's litigation finance sector it currently
has a market size compared to the market. This difference might impact the
profitability and sustainability of litigation finance companies operating in
India.
Competition within the litigation
finance industry is intensifying as it continues to grow. Consequently,
companies are compelled to develop strategies and unique value propositions to
differentiate themselves from their competitors.
Accessing capital is a factor for
litigation finance companies as they require funds from investors and financial
institutions to support their operations and facilitate their expansion. In
India startups and small companies face challenges when it comes to securing
capital due to availability and stringent financing terms.
To summarize litigation finance
companies in India encounter challenges such as transparency and regulation
issues, market awareness limitations, legal and ethical concerns, restricted
market size, competition pressures and accessing capital obstacles. Overcoming
these challenges will necessitate a framework along with increased awareness
initiatives and innovative strategies aimed at fostering growth and ensuring
long-term success within the industry, in India.
Interview:-
We are honored to have taken the
interview of Hiren Thadeshwar[23], the
founder and managing director of Lawsuits venture[24].
We asked him about the challenges faced in running a legal finance company in
India and the Impact of Mediation Act,2023.
His response:-
“As
such a big problem is to find the right expertise, complex process of India's
legal system. Impact of of Mediation Act 2023. There is no such big impact on
the Mediation Act because people do not want to spend behind the legal process.
But it will definitely help the public at large who can resolve disputes in a
short time span.”[25]
4. ADR and Legal Financing: Growth in One Leads to Growth of Another
ADR and legal financing are connected
concepts that have seen expansion in recent times. This section examines the
correlation, between the growth of ADR and its impact on the rise of financing.
Additionally we will delve into the market for financing in India and explore
how mediation and legal financing intertwine, particularly their influence on
litigation finance companies.
ADR and Legal Financing; Basics
ADR encompasses methods for resolving
disputes outside of the court system, including mediation, arbitration and
early neutral evaluation. On the hand legal financing refers to providing
resources to cover expenses related to litigation, such as legal fees, expert
witness costs and court fees.
The surge in ADR can be attributed to
factors such as a desire for more cost effective and convenient dispute
resolution processes. As ADR gains popularity among parties involved in
disputes there is an increased demand for support through financing to cover
associated costs. This has resulted in the growth of an industry solely
dedicated to providing financial assistance to litigants engaged in both
litigation proceedings and alternative dispute resolution methods, like
mediation.The growth of Alternative Dispute Resolution (ADR), in India has been
noteworthy in years as the government actively supports and encourages its use
to alleviate the burden on the court system and expedite dispute resolution.
Consequently there has been a rise in the number of ADR cases being handled
leading to an increased demand for financing.
Multiple factors have contributed to
this growth;
The government's dedication to
promoting ADR and establishing ADR courts.Increased awareness among individuals
about the viability of ADR as an alternative to litigation.Enhanced knowledge
and application of ADR processes by lawyers and judges.
As India's demand for ADR and legal
financing continues to grow it is expected that the legal financing market will
expand, creating opportunities for litigation finance companies to operate
successfully.
The connection between ADR and legal
financing can be observed through aspects;
1. Funding; Legal financing companies
offer resources for covering expenses related to ADR processes such, as
mediation and arbitration.This allows individuals to easily access alternative
dispute resolution (ADR) without worrying about the implications associated
with pursuing alternatives, to litigation.
2. Increased Usage; As ADR gains
popularity there is a demand for legal financing, which leads to the growth of
the legal financing industry. Consequently this facilitates accessibility to
ADR methods for parties involved as financial resources become available.
3. Impact on Litigation Finance
Companies; The expansion of ADR and legal financing is expected to have an
effect on litigation finance companies. These companies can benefit from the
increased demand for their services in providing financing. Furthermore as ADR
becomes widely accepted there may be opportunities for litigation finance
companies to offer financial support to parties involved in these alternative
dispute resolution processes.
Mediation and Legal Financing
Mediation is a form of ADR where
parties engage in negotiations facilitated by a third party called a mediator.
The growth of mediation can be attributed to its effectiveness in resolving
conflicts, its nature and its emphasis on empowering parties to reach agreeable
solutions.
The connection, between mediation and
legal financing can be observed through ways;
The increasing popularity of
mediation has led to a demand, for financing services. Parties involved in
mediation require resources to cover the associated costs.
One advantage of mediation over
litigation is its cost-effectiveness. It allows parties to reach settlements
without undergoing expensive trials. This makes mediation an appealing choice
for those wanting to resolve disputes without depleting their reserves.
The rise in demand for mediation and
legal financing services also impacts litigation finance companies positively.
These companies provide support for parties engaged in mediation and other
alternative dispute resolution processes. Consequently, this can lead to the
growth and expansion of companies.
ADR, mediation plays a role in
promoting the growth of legal financing. It creates a relationship between the
two industries offering more options for resolving disputes and making
alternative dispute resolution more accessible, for litigating parties.
As alternative dispute resolution
(ADR) gains increasing traction, in India it is anticipated that the legal
financing market will witness growth thereby creating an environment, for
litigation finance companies to flourish and prosper.
5. Impact of proposed mediation bill, 2023 on legal financing.
The Mediation Act of 2023 a
legislation, in India has brought about changes to the legal landscape
particularly in the field of dispute resolution. This Act. Facilitates
mediation as the method of resolving disputes whether they are commercial or
otherwise. This shift towards mediation has ranging implications for the
financing industry, which has traditionally focused on conventional litigation
processes.
Legal Financing Framework under the
Mediation Act of 2023 :-
Although the Mediation Act of 2023
does not explicitly address financing it establishes a framework that
indirectly supports its growth and development. The Acts emphasis on using
mediation as an early intervention mechanism creates an environment that's
favorable for litigation financing. This is because mediation often leads to
settlements potentially reducing dispute costs and making it more appealing for
third party funders to invest.
Additionally the Act includes
provisions for maintaining confidentiality and enforcing mediated settlement
agreements. These provisions enhance certainty and predictability when it comes
to outcomes making financing based on mediation to investors. Moreover the Act
sets up guidelines for registering mediators ensuring there is a pool of
experienced professionals to conduct mediation proceedings. This can lead to
standardization, in mediation practices. Further increase investor confidence.
The Mediation Act of 2023 is expected
to have an impact, on the practices of party legal financing in India. By
placing emphasis on mediation it will open up opportunities for funders to
provide financial support for mediation related expenses, such as mediator fees
and expert witness fees. Moreover the Acts inclusion of provisions for
confidentiality and enforceability of mediated settlement agreements will help
mitigate the risks associated with financing based on mediation making it an
appealing investment choice.
However the Act also brings forth
challenges for third party funders. The increased focus on mediation may lead
to a reduction in litigation which could potentially decrease the demand for
litigation financing. Additionally the confidentiality provisions within the
Act may limit funders ability to monitor the progress of mediation proceedings
and assess the likelihood of an outcome.
When critically evaluating the
provisions and implications of the Mediation Act in 2023 it becomes evident
that this legislation represents a step towards promoting mediation as a
preferred method of resolving disputes. The commendable inclusion of provisions
indirectly supporting financing expands parties options when seeking
assistance, in dispute resolution scenarios.
However the Acts focus on mediation
may present challenges, for third party funders in terms of litigation volumes
and potential restrictions on monitoring mediation proceedings. To address
these challenges and promote the practice of financing the following steps
could be considered;
1. Increasing awareness and education
about financing; It is important for both the legal community and potential
clients to have an understanding of the advantages and potential of legal
financing including its role in facilitating dispute resolution through
mediation.
2. Encouraging collaboration between
funders and mediators; Building partnerships between legal funders and
mediators can help streamline the mediation process while addressing concerns
related to confidentiality and risk assessment.
3. Exploring financing models; Legal
funders should explore financing structures that are specifically tailored to
the unique characteristics of mediation. For instance outcome based financing
models can align funder interests with successful dispute resolution outcomes.
4. Providing guidelines; Having clear
and consistent regulatory guidelines for legal financing can enhance investor
confidence and encourage wider adoption of legal financing practices in India.
The Mediation Act of 2023 represents
a change in Indias landscape by emphasizing mediation as a preferred method,
for resolving disputes. While not explicitly addressing financing this Act
indirectly supports its growth and development.Legal financers have the chance
to seize this growing opportunity by adjusting their methods and working
together with mediators. This collaboration can result in solutions tailored
specifically for resolving disputes, through mediation
6. Conclusion
In Conclusion this research paper explores the realm of
party legal financing, in India shedding light on its current status and future
possibilities. Through an examination of the existing framework and an
insightful analysis of the landscape occupied by legal financing companies it
provides a nuanced understanding of the challenges and opportunities within
this dynamic sector. By drawing comparisons with the model followed in the
United Kingdom the research highlights the significance of learning from
practices to develop an effective regulatory approach.
The paper particularly emphasizes the
importance of establishing a structure to govern third party legal financing.
It underscores the need for fairness and equity in the settlement process for
parties seeking litigation funding. Recognizing the advantages offered by
financing, such as enhanced access to justice and reduced financial barriers
for litigants this study advocates for a cautious yet progressive regulatory
stance that promotes industry growth while safeguarding all stakeholder's
interests.
In addition to discussions, about
India's evolving legal financing landscape this research offers valuable
insights that contribute to these conversations.
The paper explores the importance of
maintaining a balance to ensure accessible justice in India. It sparks
conversations, about how legal financing can contribute to improving the efficiency
and fairness of the system. This research sets the stage, for studies and
policy discussions guiding the country towards a legal ecosystem that is more
equitable and accessible.
[1] 3rd Year Law Student, CHRIST
(Deemed to be University), Delhi-NCR Campus
[2] The Code of Civil Procedure, 1908
[3] Ram Coomar
Coondoo v. Chunder Canto Mookerjee, 2 App Cas 186
[4] [(2018) 5 SCC 379]
[5] Supra Note 2
[6] Supra Note 1
[7] The Advocate Act, s. 29
[8] The Advocate Act, s. 32
[9] Ibid. s.23
[10] Bar Council of India v. A.K. Balaji and Ors, (2018) 5
SCC 379
[11] The Courts and Legal Services Act, 1990, s. 58, cl. B
[12] Supra Note 2
[13] The Civil Procedure Code, 1908, Rule.3
[14] Ibid. Rule 1 & 3
[15] Ibid
[16] Legal Pay, available at: https://pitchbook.com/profiles/company/466723-45
[18] Supra note 16
[19] Law Suit Ventures, available at: https://lawsuitventures.com/
[20] Supra note 18
[22]Ashish Rukhaiyar, ‘From start-ups to law firms: The rise
of litigation financing in India’, available at: https://www.businesstoday.in/magazine/deep-dive/story/from-start-ups-to-law-firms-the-rise-of-litigation-financing-in-india-381685-2023-05-17
[23] Linkedin, https://www.linkedin.com/in/hiren-thadeshwar-972872a5/
[25] Supra note 22
Article Information
THE LEGALITY AND PROSPECTS OF THIRD-PARTY LEGAL FINANCING IN INDIA: AN ANALYSIS OF CURRENT TRENDS, CHALLENGES, AND THE IMPACT OF THE MEDIATION ACT, 2023
Authors: JASRAJ BHOWMIK
- Journal IJLRA
- ISSN 2582-6433
- Published 2024/04/24
- Issue 7
About Journal
International Journal for Legal Research and Analysis
- Abbreviation IJLRA
- ISSN 2582-6433
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- License CC 4.0
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