India: Litigation Funding Comparative Guide

1 Commercial legal finance basics

1.1 How is commercial legal finance defined in your jurisdiction?

The term ‘commercial legal finance' or ‘litigation finance' is not specifically defined under Indian law. This practice is more developed in the Western world, such as the United Kingdom and the United States. In fact, legal finance is in its infancy in India and is not yet well developed. However, in simple terms, ‘legal finance' means third-party funding of litigation matters: in other words, a third party unrelated to the litigation provides funds to cover the legal fees. Such financing can be extended to a party in need in case of a judicial dispute. The financier will receive an agreed portion of the monetary relief that the claimant may get should the legal dispute be decided in its favour.

1.2 How does commercial legal finance differ from consumer litigation finance and contingency agreements?

Commercial legal finance enables businesses to protect their commercial interests, such as intellectual property and trade secrets. On the other hand, consumer finance provides assistance to individuals who have been personally wronged and caters to their individual interests, such as discrimination and fraud.

A commercial litigation funder invests capital to cover legal fees in exchange for an interest in a successful future recovery from the lawsuit; while in consumer funding, consumers receive funding in the form of cash pay-outs or loans to cover legal costs and other expenses while their case is pending.

However, neither commercial legal finance nor consumer litigation finance is common in India.

1.3 What are the major legal finance products/solutions in your jurisdiction? (a) Single case fees and expenses; (b) Portfolio fees and expenses; (c) Monetisation of claims; (d) Monetisation of judgments and awards and (e) Other

Few litigation financers are active in the Indian market. Recently, a start-up introduced the concept of third-party financing in the form of an alternative asset class that has a short investment cycle. Currently, two forms of legal financing solutions are available: interim finance and litigation finance. While interim finance is a short-term loan given to an entity going through insolvency to support it with capital to remain operational, litigation finance involves the raising of capital from a consortium of investors in exchange for a portion of the legal settlement to be paid in case of a successful litigation.

1.4 In what areas of law is litigation finance most prevalent in your jurisdiction (eg, competition, insolvency, patents, contracts)?

Litigation finance is in its infancy in India and there is no particular area of law which is preferred at present.

1.5 Who are the major players in the industry (eg, pure players, multi-strategy firms, start-ups)?

Currently, Indian litigation finance start-up LegalPay seems to be the only well-known formal player that offers third-party litigation funding in the country.

2 Legal framework

2.1 How mature is the market for legal finance in your jurisdiction? What types of commercial litigations and/or arbitrations may be funded by a third party?

There is no specific concept of litigation funding in India. However, debts and actionable claims are normally assigned in financing transactions, such as assignment of debts and actionable claims from banks to asset reconstruction firms. Further, in A K Balaji, third-party funding was duly recognised by the Supreme Court, which held as follows:

In 1955, in Re: Mr 'G', a Senior Advocate, the Supreme Court held that:

• the rigid English law rules of champerty and maintenance do not apply in India; and
• "A contract where one party agrees to fund litigation for certain benefits would be legally unobjectionable if no 'lawyer' was involved and it was between third parties."

In 1876, in Ram Coomar Coondoo v Chunder Canto Mookerjee, the Privy Council permitted third-party funding on the grounds of promoting access to justice, but held that:

2.2 Is there a dedicated legal finance regime in your jurisdiction? What other laws and regulations have relevance to legal finance in your jurisdiction?

There is no legal finance regime in India. In fact, there is no specific law on legal finance; instead, agreements such as the assignment of debts and actionable claims are governed by the Contract Act, 1872.

Also, please see question 2.1.

2.3 Which public sector bodies and authorities are responsible for enforcing the applicable laws and regulations? What powers do they have?

Depending on the nature of the claim, the dispute and the debts, the courts/authorities responsible for enforcing the applicable law and regulations are numerous and diverse. For instance:

• in case of an acknowledged debt, the authority responsible for enforcing the applicable law is the National Company Law Tribunal; and
• if the dispute arising from the agreement specifies resolution by way of arbitration, the courts responsible for enforcing the applicable law are the arbitral tribunal, the district courts, the high courts or the Supreme Court, as the case may be.

2.4 Do the rules and codes of any self-regulatory organisations or professional associations have relevance to legal finance in your jurisdiction? What powers do such organisations and associations have?

There are no such organisations or professional associations for legal finance in India at this stage.

2.5 What is the general attitude towards legal finance in your jurisdiction among the courts and other relevant bodies?

As legal finance is currently evolving, there are divergent views among supporters and critics on the desirability of this practice in India. Despite implicit recognition by Indian courts, there is no express legislation regulating third-party financing of litigation. Under Order XXV of the Civil Procedure Code, 1908, some states (Maharashtra, Madhya Pradesh, Gujarat and Karnataka) have acknowledged the concept within their territories and have stated the circumstances in which financiers may be impleaded as parties to the dispute and can be induced to furnish security on behalf of the plaintiff.

Third party legal finance also received a favourable reference in the report of the High-Level Committee on the Institutionalisation of the Arbitration Mechanism in India (2017).

2.6 Is legal finance considered consumer credit and is it captured by the relevant protective regulations in your jurisdiction?

No. Please see questions 1.4, 2.1 and 2.2.

3 Other risk-sharing models available to litigants and law firms

3.1 Are conditional (contingent or success) fee agreements permitted in your jurisdiction? In what circumstances are they typically used? What are the advantages and disadvantages for clients and for law firms?

The Bar Council of India (BCI) prohibits lawyers from charging contingency fees to their clients. Under Rule 20 of the Bar Council of India Rules, 1961, "an advocate shall not stipulate for a fee contingent on the results of litigation or agree to share the proceeds thereof".

As such, contingency fee agreements are believed to adversely affect the advocate's ability to act objectively and in a detached manner as an officer of the court and thus to hinder the administration of justice. It is due to such ethical considerations that contingency fee arrangements are not allowed in India.

3.2 What is the maximum contingency that is permitted (ie, up to 100% of hourly fees or something less)? Is there a cap on the amount of success fees lawyers can receive under such arrangements?

Please see question 3.1.

3.3 Are damages-based agreements permitted in your jurisdiction? In what circumstances are they typically used? What are the advantages and disadvantages for clients and for law firms?

Yes, damages can be quantified as pre-liquidated damages under the Contract Act. If the pre-liquidated damages are reasonable, the courts may allow the same without requiring the claiming party to prove the actual loss. The law of damages in India is codified in Sections 73 and 74 of the Contract Act. Section 73 deals with damages arising from breach of a contractual obligation resulting in losses to the other party. Under this section, damages that are awarded to the aggrieved party are in the nature of unliquidated damages upon assessment of the loss and injury suffered; they do not compensate for indirect or remote losses arising out of such breach. Section 74 deals with liquidated damages where the contract stipulates the quantum of damages in case of a breach of contract.

3.4 What other funding and/or risk-sharing options are available to litigants in your jurisdiction? In what circumstances are they typically used? What are the advantages and disadvantages for clients and for law firms?

The sources of funding in India include:

• insurance;
• corporate financing;
• portfolio funding; and
• sale of claims.

Please see questions 1.1 and 2.1.

3.5 Are law firms in your jurisdiction allowed to have non-lawyer owners or non-lawyer shareholders?

Currently, there is no regulation in India that expressly bars a non-legal person from being an owner or a shareholder of a law firm. The current BCI rules apply to individual lawyers and only individual qualified advocates can practise law in India. A non-lawyer shareholder can be responsible for the administrative work of running the firm, but cannot appear before a court or tribunal.

3.6 How do the available funding and risk-sharing options impact on the attitudes of corporate litigants about affirmative recovery programmes or the pursuit of high-value commercial claims more generally?

Currently, there is no precedent on this in India.

3.7 How do the range of funding and risk-sharing options available impact on the attitudes of law firms about their own business?

Currently, there is no precedent on this in India.

4 Collective actions

4.1 Is it possible to bring collective actions in your jurisdiction? If so, can they be funded by third parties? In those circumstances, how is the amount of the funder's return determined? Are there caps or other restrictions? Do such agreements require court approval?

Class actions are permitted in India. The procedure for class action suits is mentioned under Order I, Rule 8 of the Code of Civil Procedure. Apart from civil proceedings, class action or group action suits are also recognised under Section 12 of the Consumer Protection Act, 1986 and the Companies Act, 2013.

Class action suits or representative claims which provide a high likelihood of exemplary damages that attract funders have not gained third-party traction in India. There is no specific legislation on the funding of class actions by third parties. There is also no specific law barring the funding of class actions.

4.2 How significant is the funding of collective actions in your jurisdiction relative to the use of legal finance by individual commercial litigants?

Currently, there is no reported precedent on this in India.

5 Securing financing

5.1 What factors will a funder generally consider when evaluating whether to fund a case?

Before deciding to fund a claim, finance parties will assess factors such as:

• the merits of the claim;
• the litigation budget;
• market volatility;
• due diligence;
• reliability; and
• transparency.

Investors should also assess whether there are any counterclaims in the litigation that is proposed to be transferred.

5.2 What should a litigant or litigant's counsel look for in a legal finance partner?

Litigants will consider questions such as the following:

• How much money has the funder made?
• How much capital is available?
• How reliable are the sources of that capital?
• Does the funder have relevant expertise on its team?
• Does the funder conduct all of its diligence in-house?

5.3 What is the typical process for concluding the legal finance agreement?

The process for concluding legal finance agreement is same as that for any other agreement pertaining to movable property. The parties must pay the relevant stamp duty. However, if the litigation funding agreement or legal finance agreement creates any right or interest in immovable property, the agreement may have to be registered with Companies House in India.

5.4 What terms does the legal finance agreement typically include?

The standard terms of legal finance agreements address issues such as the following:

• the duties of the party;
• the duties of the funder;
• the distribution of proceeds following a successful claim;
• representations by the party;
• representations by the funder;
• assignment of claims to the funder as security;
• termination;
• settlement proposals by the court or opponent;
• confidentiality and disclosure; and
• data transfers by the funder to third parties.

5.5 Do any caps apply to the funder's fees?

Currently, there is no precedent on this in India.

5.6 Can the funder terminate the legal finance agreement before the litigation has ended? If so, under what circumstances and what are the implications?

As a legal finance agreement – just like any other agreement – is governed by the Contract Act, it can be terminated for breach.

5.7 Under what circumstances (if any) must funding be approved by the court in advance?

There is no explicit law governing litigation finance in India.

5.8 Have there been notable disputes arising from legal finance agreements, and if so, what can a litigant or counsel do to avoid such disputes?

No. Third-party funding is still an evolving area in India.

5.9 Is the funder bound to fund any counterclaims arising from the funded litigation?

No. Third-party funding is still an evolving area in India.

6 Purchasing a litigation claim, judgment or award

6.1 Can the funder purchase legal claims?

Under Indian law, certain legal claims can be assigned in favour of a third party. Section 130 of the Transfer of Property Act deals with the assignment of actionable claims. In general terms, an ‘actionable claim' is a debt or claim for which a person can approach a court of law for recovery of its debt or claim. An actionable claim can be transferred only by the execution of an instrument in writing. Once executed, the rights and remedies of the transferor – whether by way of damages or otherwise – will vest in the transferee. Also, the transferee of an actionable claim may sue or institute proceedings in its own name without obtaining the transferor's consent to such proceedings and without making it a party thereto.

In Iron and Hardware (India) Co v Shamlal & Bros, the court held as follows:

6.2 How does a funder purchase a claim out of an insolvency?

Under Indian law, a funder cannot purchase a specific claim if any company is under insolvency. It must bid to revive the whole company, which is referred to as a ‘corporate debtor' under Indian law.

6.3 Are final judgments and/or mere causes of action assignable in your jurisdiction and is there a regulatory framework governing this?

Some examples of actionable claims include:

• claims for rent arrears; and
• the right to claim maintenance.

However, not all claims are actionable claims; for example, the right to sue is a right, but it is not an actionable claim. The Indian courts have further held that a judgment debt or decree is not an actionable claim.

7 Role of the funder

7.1 Can the funder influence the litigant's choice of counsel?

There is no jurisprudence in India on third-party funders insisting on a choice of counsel. However, since the engagement of counsel is left to party autonomy, and in the absence of any legislation prohibiting the engagement of counsel of choice by the third-party funder, third-party funders may elect to insist upon their choice of counsel, provided that such counsel has no interest for or against the parties to the dispute.

7.2 Can the funder attend and/or participate in the court proceedings?

All proceedings in India are essentially open court proceedings and may thus be attended by any person, irrespective of whether they are a party to the suit. Very few proceedings are held in camera, such as those involving family disputes or divorce. Therefore, there is nothing barring financers or funders from attending proceedings or hearings. If the funder or financer is impleaded as a party to the suit, it must participate in the proceedings and settlement proceedings, on account of being a third-party funder under Order XXV of the Civil Procedure Code.

7.3 Can the funder influence the acceptance or terms of a proposed settlement agreement?

The funder can have veto rights in respect to settlements, which may arise:

• from the terms of the funding agreement entered into between the parties; or
• on the basis of an understanding between the parties to the funding agreement.

7.4 In what other ways can the funder participate in, and exert influence on, the litigation?

The funder may engage in interactions with the lawyers during the preparation of the matter, including for the hearing.

8 Ethical considerations

8.1 In what circumstances (if any) is it necessary to disclose a legal finance agreement to the court or to the opposition? What specific information must be disclosed?

There is no specific law governing legal finance or litigation funding in India.

8.2 Are communications between the parties to the legal finance agreement subject to privilege in your jurisdiction?

The concept of attorney-client privilege is applicable in India. Professional communications between attorneys and their clients are governed by Section 126 of the Evidence Act, 1870.

8.3 Does the rule of attorney work product apply to documents generated for the purposes of securing legal finance in your jurisdiction?

Yes, if any legal finance agreement is generated by an attorney, he or she is bound not to disclose the same to a third party.

8.4 In what circumstances (if any) do rules about fee-splitting impact on the use and practice of legal finance?

The law is silent on fee splitting.

8.5 Do the doctrines of champerty and maintenance apply in your jurisdiction?

The rigid English rules of champerty and maintenance do not apply in India, as pointed out by the Privy Council in Ram Coomar Coondoo v Chunder Canto Mookerjee in 1876.

Please also see question 2.1.

8.6 Are there any types of proceedings (family, private prosecutions) for which funding is not permitted?

While there are no specific types of suits for which third-party funding is not possible, the disputes that attract legal finance generally include:

• commercial contract disputes;
• international commercial arbitration;
• class action suits;
• tortious claims such as medical malpractice and personal injury claims;
• antitrust proceedings;
• insolvency proceedings; and
• other like claims that have a calculated chance of resulting in a substantial monetary award.

9 Proceedings

9.1 What is the typical timeframe for first-instance proceedings in your jurisdiction?

Most claims under contract are subject to a limitation period of three years, while some land-related disputes have a limitation period of 12 or 30 years. Tortious actions generally have a limitation period of either one or three years.

9.2 What are the opportunities in the litigation process for a case to be struck out prior to a trial?

The Indian courts have the power to strike out unnecessary, scandalous, frivolous or vexatious pleadings. Any pleadings which are likely to cause embarrassment or to delay the fair trial of the action, or which are otherwise an abuse of the process of law, will also be struck out pre-trial.

9.3 How much party discovery of evidence is permitted in your jurisdiction? Are there procedures for seeking or compelling evidence from non-parties?

Order 11 of the Civil Procedure Code permits the discovery of evidence. The types of discovery that are permitted include:

• interrogatories;
• requests for the production of documents and inspection;
• requests for admissions;
• depositions; and
• physical and mental examinations.

9.4 Are interlocutory appeals (appeals of non-final judgments) permitted during proceedings in the first instance?

Yes, interlocutory appeals are permitted during proceedings at first instance.

9.5 Are first-instance decisions commonly appealed in your jurisdiction? What is the typical timeframe for appeal proceedings?

Depending on the nature of the decision and the dispute, the parties can appeal decisions and orders of the courts of first instance. The timeframe for filing an appeal will depend on:

• the nature of the order/decision; and
• the court passing the decree/order.

Under the Limitation Act, 1963, the timeframe for filing an appeal is 90 days.

9.6 How are decisions typically enforced in your jurisdiction? What is the typical timeframe for enforcement proceedings?

Orders and judgments are enforced by way of execution. Under Sections 51 to 54 of the Civil Procedure Code, a decree holder can choose its mode of execution of the decree. A decree can be enforced by:

• delivery of any property specifically decreed;
• attachment and sale or sale without attachment of the property;
• arrest and detention;
• appointment of a receiver;
• partition; and
• any such manner which the nature of the relief requires.

The timeframe for enforcement depends on the nature of the relief.

9.7 Is there an automatic stay on enforcement pending appeal or under what circumstances is one granted? Are appeals from first instance granted as of right?

There is no such concept of an automatic stay on enforcement pending appeal. A stay is usually granted on appeal after analysing the specific facts of the case. Usually, an appeal from the first instance is granted.

10 Costs and insurance

10.1 Will the court order the losing party to pay the costs of the winning party? How else might costs be allocated between the parties and under what conditions?

Yes. The award of costs is at the discretion of the courts. The Civil Procedure Code provides for:

• general costs;
• miscellaneous costs; and
• compensatory costs for false and vexatious claim or defences.

10.2 Are some or all of the costs of funding recoverable by the winning party?

The costs of funding might not be recoverable by the winning party if they are not reasonable.

10.3 Can the court order costs against the litigation funder?

The court has the power to secure costs for litigation by asking the funder to become a party to the suit and deposit the costs in the court.

10.4 Can the court order security for costs? If so, in what circumstances will it generally do so and how is this calculated and provided?

Yes. Under Order XXV of the Civil Procedure Code, the court can order security for costs. However, before an order for security for costs is made, the defendant must satisfy the court of two legal requirements:

• There will be obstacles or an enforcement burden in relation to a subsequent order for costs in the context of the particular foreign claimant or country concerned; and
• Having regard to all circumstances in the case, it would be just to make an order for security for costs.

10.5 Is security for costs commonly ordered in funded litigation?

Security for costs will not be ordered if it can be shown that an adverse costs order could be met.

10.6 Is after-the-event (ATE) insurance allowed in your jurisdiction? If so, how mature is the market?

Litigation insurance is not prevalent in India.

10.7 In what circumstances is ATE insurance typically used? What are the advantages and disadvantages?

Please see question 10.6.

10.8 What other types of insurance are available for litigants in your jurisdiction? In what circumstances are they typically used? What are the advantages and disadvantages?

The main types of insurance in India include:

• health insurance;
• motor insurance;
• home insurance;
• fire insurance; and
• travel insurance.

11 Trends and predictions

11.1 How would you describe the current legal finance landscape and prevailing trends in your jurisdiction?

Third-party legal finance is in its infancy in India and is thus still evolving.

11.2 Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?

No.

12 Tips and traps

12.1 What would be your recommendations for the smooth progress of funded litigation in your jurisdiction and what potential pitfalls would you highlight?

Recommendations that can help to ensure the smooth functioning of third-party funding in India include the following:

• Transparency: The existence of any litigation funding agreement should be promptly disclosed. Claimants should disclose all material facts and events that may influence the third party's decision to fund the claim.
• Conflict management: In case of a conflict of interest, the interests of the claimant must prevail. The funder must not be allowed to withdraw its funding at any point during the litigation, unless there is a breach of trust or fraud on the part of the claimant.
• Confidentiality: The confidentiality of the information pertaining to litigation should be ensured.

Co-Authored by Hetram Bishnoi.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.