Lawsuit as an asset class? Indian investors now think so
What's the story
In a first for India, investors are now funding commercial lawsuits in exchange for a share of future settlements or court awards. The practice, known as litigation funding, is already popular in some global markets and is now making its way into the Indian legal landscape. Five Rivers, LegalPay and ELF Partners are among the early players in this emerging field of third-party funding (TPF).
First mover
Five Rivers targeting $25-50M fund close
Five Rivers, a Mumbai-based alternative investment fund (AIF), is in talks with investors to close its first fund of $25-50 million. Irfan Mughal, the Managing Director of Five Rivers, said they are the first dedicated fund of this kind in India. The fund will give investors exposure to returns linked to outcomes in commercial disputes. In India, AIFs require a minimum investment of ₹1 crore.
Industry leaders
LegalPay, ELF Partners act as intermediaries
LegalPay and ELF Partners have been active in the litigation funding space for a few years now. They mainly act as intermediaries connecting the investors to disputes for a fee and a share of potential payouts. Their investor base usually comprises venture capital firms and high-net-worth individuals, with the investment decisions made on a case-by-case basis. However, the market is nascent with no reliable estimates of its size or deal flow due to confidentiality agreements.
Process
How litigation funding works
In litigation funding, a commercial dispute is referred to a TPF firm that assesses the case before deciding whether to fund it. According to Pranav Mago, CEO of ELF Partners, cases are evaluated on three parameters: legal merit, viable quantum. and asset rating. If a case is funded, the firm typically covers the litigation costs and may also provide upfront capital to the claimant in exchange for a share of any eventual award or settlement.
Investment outlook
Payouts can be high, but risks remain
The payout for investors in litigation funding can be as high as 200-300% over four to five years, Mago said. However, if the case is lost, the investors bear the loss. Mughal said the returns on successful cases are generally expected to be around 50-70% at an internalized rate of return (IRR). The fund is targeting over 30% returns on its portfolio by evaluating cases requiring investments of $1-12 million.
Access improvement
TPF could improve access to legal recourse for claimants
Litigation funding can also improve access to legal recourse for commercial claimants, industry participants say. Amrita Grover, VP of dispute finance at LegalPay, said TPF could level the playing field for claimants facing better-resourced opponents. She emphasized that even in legally meritorious matters, the quality of legal representation could materially influence the outcome of a case.
Legal validation
SC judgment on TPF's legality
The 2018 Supreme Court judgment in the Bar Council of India versus AK Balaji case validated India's legal standing on third-party litigation funding. The court held that such arrangements are permissible as long as they are not extortionate, unconscionable or against public policy. Law firm Nishith Desai Associates had said in an April 2024 note that "TPF agreements are considered to be a valid way of funding litigants who would otherwise have to go through inordinate hurdles to procure reliefs."