Litigation Finance is a mechanism that provides financial help to claimants and law firms to pursue their or their client claims in the courts and also to make justice more accessible to the public at large. It safeguards the interest of those parties/ claimants who are not able to finance the case themselves or don’t want, either. It also provides an opportunity for financers to get a good return on their investments. The rate of return offered by TPLF Companies is better than the investment in traditional options. And after the covid the financial situation of businesses have worsened and stressed, many are unable to bear litigation costs. Here, the role of third-party litigation funding companies become more vital to assist claimants financially for the safe disposal of claims.
It is non-recourse funding; in simple words: it is not a loan, it is financial assistance to the claimant that they need not repay, only if the result of the proceedings is in favour of claimants then an agreed per cent on the final recovery will be charged and if case the unsuccessful, won’t be charged anything.
Though the concept of litigation funding is a renewed mechanism for a country like India, it has become very prominent for other countries like the USA, Australia…
In England, a uniform code of conduct for litigation funders under the guidance of the Ministry of Justice has been operating since the 1960s. Similarly, in the USA, the Litigation Funding Transparency Act of 2019 was enacted which again empowered and made it more transparent for funding in litigation. Singapore has also introduced Civil Law (third-party funding) Regulations, 2017, making litigation financing legal. Further, Hong Kong has amended its legislative framework to allow it in arbitration and mediation. Many other nations have specific legislation defining its legality.
There is no specific legislation or governing body for litigation finance as of now. However, all the compliances and legal issues are taken care of under The Indian Contract Act, 1872.
In the famous landmark case of AK Balaji vs Bar Council of India, it was observed that legal finance agreements are permitted in India and also granted legal permission for third-party litigation funding (TPLF). There is only one stipulation raised by the apex court that the financer himself cannot be an advocate in the case for which he is providing the funding. Therefore, it can easily be noticed that the legal validation for litigation finance has already been granted in India.