Third party funding has been legal in India since at least 1954, when the Supreme Court ruled that there is nothing morally wrong with outside funding of legal cases, as long as an attorney is not the one doing the funding. In 1996, changes were adopted to the Arbitration and Conciliation Act which further attracted the attention of third party funders. Now, thanks in large part to the construction and infrastructure industry, third party funding is gaining a foothold in the world’s second most-populous nation.
An LFJ Conversation with Michael Kelley, Partner, Parker Poe
Third party funding has been legal in India since at least 1954, when the Supreme Court ruled that there is nothing morally wrong with outside funding of legal cases, as long as an attorney is not the one doing the funding. In 1996, changes were adopted to the Arbitration and Conciliation Act which further attracted the attention of third party funders. Now, thanks in large part to the construction and infrastructure industry, third party funding is gaining a foothold in the world’s second most-populous nation.
According to CNBC, many Indian construction/infra firms are in desperate need of liquidity, given that there is often a significant delay from government agencies in providing the rights to develop on land parcels. Company assets often remain idle on the books, which negatively impact balance sheets.
As a result, many infra firms in India have outstanding legal claims against government agencies. Yet lengthy trial timelines coupled with insolvency woes leave these firms in dire straits. That’s where outside financing comes into play.
With several big arbitration payouts being handed down recently against government agencies (Jindal ITF Ltd won Rs 2015 crore in a claim against NTPC Ltd, and Delhi Airport Metro Express Private Limited won Rs 2950 crore against Delhi Metro Rail Corporation), the appetite for third party funding in India is growing stronger by the year.
