litigation funding startups: Litigation funding startups eyeing arbitration and insolvency resolution cases

From funding the corporate insolvency resolution process (CIRP) of bankrupt companies to providing financial support to fight arbitration suits or even helping companies find sector expert lawyers for fighting costly disputes, a clutch of litigation funding startups are offering a range of services in the third-party funding market in India.

Startups such as LegalPay, LitiCap, LegalFund and FightRight are helping companies fund their costly disputes, focusing on sectors including infrastructure, real estate, logistics, media entertainment and manufacturing.

“We are funding largely the plaintiff side, who want to recover their money, but now we have also started to fund defendants in certain cases,” said Kundan Shahi, CEO, LegalPay. “We are expecting a maximum timeline of 36 months to recover our investments and an average IRR (internal rate of return) of 22-27%, with an average return of 12-15%, on a case-to-case basis.”

Gurgaon-based third-party litigation startup LegalPay aims to disburse Rs 200 crore in 2024 through its own non-banking finance company (NBFC), Padmalaya Finserve, along with other partner NBFCs. The startup has also funded the CIRP for companies including Lavasa Corporation, Bengaluru-based Yashomati Hospitals and Mumbai-based real estate firm Wadhwa Buildcon.

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Courts and tribunals will also play a crucial role in creating a robust third-party funding system, said experts.

Anuroop Omkar, founding partner of law firm AK & Partners. said courts need to have very strict and process-driven case management rules to make dispute resolution and third-party funding a commercially viable value proposition for all stakeholders “We also need to amend the Arbitration and Conciliation Act, 1996, to ensure that funders get access to updates on what is happening in the arbitration, and the arbitrator can impose a security for costs order on funders even if they are not a party to the arbitration,” said Omkar.

ET’s queries emailed to other litigation funding startups such as LitiCap and LegalFund remained unanswered till press time.

“One of the primary ways we assist our clients is through negotiation and mediation with creditors. We aim to reach mutually beneficial agreements that can prevent the need for litigation or insolvency proceedings,” said Harish Parmar, founder of SingleDebt.

“In cases where litigation is unavoidable, we explore TPLF (third-party litigation funding) options to ease the financial burden on our clients. By securing funding from third-party investors, we enable our clients to pursue their claims without depleting their resources.”

Mumbai-based SingleDebt provides debt counselling and comprehensive legal advisory services for micro, small and medium enterprises, and individuals.

Startups are seeing great potential in the business given the huge pendency in various courts and tribunals.

A total of 7,567 companies across sectors were brought into administration until March end, according to the latest data from the Insolvency and Bankruptcy Board of India. As per the National Judicial Data Grid, more than 45 million cases are pending in courts across the country, including about six million cases in 25 high courts and 83,800 cases in the Supreme Court.

Nishith Dhruva, managing partner of law firm MDP & Partners, said litigation funding startups are largely looking at arbitration cases where the claims are crystallised and there are greater chances of settlement between parties. “Litigation takes longer time compared to arbitration and even cases related to Insolvency & Bankruptcy Code, and hence those disputes are difficult to get funding,” he said.