In the recent case of
In making such observations, the Hon'ble Court re-invoked an essential topic in relation to the importance of third-party funding or litigation financing in
Although, there is an absence of a special law which governs litigation financing in
Fundamental Aspects of Litigation Financing
The term 'litigation financing' seeks to define many forms of transactions including adverse order insurance, claim succeeding investment, as well as claim management and recovery. The most popular form of financing, though, is the quid-pro-quo agreement, where the financier, whether being a company, individual, or organization, having no interest in the case, agrees to fund the litigation of a party, in exchange for a monetary return, if the case succeeds.
While the Indian economy is relatively novice in providing active grounds for litigation financing, countries like
Legality of the Concept in
In
In terms of third-party funding, however, the absence of laws provides a greater avenue for companies to invest in Indian litigation. In the case of
"...funding of litigation by advocates is not explicitly prohibited, but a conjoint reading of Rule 18 (fomenting litigation), Rule 20 (contingency fees), Rule 21 (share or interest in an actionable claim) and Rule 22 (participating in bids in execution, etc.) would strongly suggest that advocates in
Even in the earliest case of Ram Coomar Coondoo & Ors. vs. Chunder Canto Mookerjee3, the
"Their Lordships think it may properly be inferred from the decisions above referred to, and especially those of this tribunal, that a fair agreement to supply funds to carry on a suit in consideration of having a share of the property, if recovered, ought not to be regarded as being, per se, opposed to public policy. Indeed, cases may be easily supposed in which it would be in furtherance of right and justice, and necessary to resist oppression, that a suitor who had a just title to property, and no means except the property itself, should be assisted in this manner."
Thus, while the agreements shall not be opposed to public policy, as provided in the aforementioned case as well as under Section 23 of the Indian Contract Act, 1872, litigation financing agreements have an implied acceptance under the Indian legal system.
Certain Loopholes in the Absence of a Law
In the Tomorrow Sales Agency Case, the Hon'ble
The Hon'ble
"In many cases, the claimants become impecunious on account of the very cause for which they seek redressal. The cost for pursuing claims in arbitration are significant; the same not only include fees paid to arbitrators and institution, but also professional fees for legal counsels and experts and other attendant expenses. A person without the necessary means would have no recourse, in the absence of third party funders. Third party funders play a vital role in ensuring access to justice."
Thus, while the Hon'ble Court held the case in favor of the Appellants, an issue also came to the forefront, in relation to the obligations of the financiers, in case the litigation/arbitration did not succeed. In the absence of any law, however, the questions pertaining to such obligations, remains ambiguous.
Conclusion
It is undoubted that the Indian litigation financing sector is in a very nascent phase of development and requires more systematization, either in the form of a law or as guidelines. A systematic approach may not only aid in the underlining of the rights and liabilities of the litigants but may also work towards protecting the interests of the financiers.
That said, the Hon'ble Courts, in many cases have laid down observations and directions promoting the conducting of due diligence,
- by the financiers in relation to the extent of their exposure;
- by the litigants in order to expect transparency from the financiers; as well as
- by the Courts, in assuring the protection of litigants from exploitation and preventing the enforcement of any agreement which proves to be extortionate, unconscionable, or against public policy.
Nevertheless, the vitality of the sector and the need for its promotion cannot be denied.
Footnotes
1.
2.
3. Ram Coomar Coondoo & Ors. vs. Chunder Canto Mookerjee, (1876).
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.
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