Why Litigation Funding is Surging in Popularity in India

Third party funding is taking off in India, thanks in part to a robust construction and infrastructure sector that is asset and debt-heavy, yet encumbered with the prospect of litigation.

As reported by CNBC, there is no statutory bar on litigation funding in India. In fact, amendments to Order XXV, Rule 1 of the Code of Civil Procedure, 1908, have established that courts have the power to secure costs from litigation funders by asking them to become a party and meeting a costs order. And The Supreme Court of India has already ruled that litigation funding does not violate the age-old tort of champerty.

Recently, large conglomerates in the infrastructure and EPC sector have been engaging with third party funders. Distressed debt is a major factor for these companies, as is a recent court ruling which makes it easier for creditors to pursue defaulters in insolvency litigation once they have secured an adverse court/arbitration order. This ruling is forcing EPC companies to try to resolve litigation much sooner than they otherwise would, and that is prompting their inviting litigation funders into the mix.

Hindustan Construction Company Limited and Patel Engineering Limited are two prime examples. Both are pursuing claims against government-backed entities, so there is the added security that the defendants are solvent and credit-worthy and will eventually fulfill any payment obligation. In each of these examples, the litigants have structured their funding agreements as assignments of the claims themselves to the litigation funder.

It’s worth noting, however, that the funders in these cases are investment firms BlackRock and Eight Capital. We have yet to see how dedicated litigation funders may structure an agreement or partake in the Indian funding market. That said, the very fact that funding is taking off in India makes the world’s second most populous nation one to watch where litigation funding is concerned.