Skip to main content

Third-Party Litigation Funding in India: A Legal Shift

Third-Party Litigation Funding in India: A Legal Shift


Introduction

Third-Party Litigation Funding (TPLF) is a financial arrangement where external entities fund legal cases in exchange for a share of the final settlement or compensation. This mechanism is particularly beneficial in India, where litigation costs are high and access to justice is often limited to those with financial resources.

By enabling individuals to pursue legal claims without worrying about costs, TPLF promotes fairness in the judicial system. It ensures that marginalized groups, small businesses, and individuals facing powerful opponents can litigate their cases effectively.

The Need for TPLF in India

  • High Litigation Costs: Many Indians struggle to afford legal proceedings, leading to justice being accessible mainly to the wealthy.

  • Legal Backlogs: The Indian judicial system has a high pendency of cases, and financial constraints discourage many from pursuing legal recourse.

  • Access to Justice: TPLF can provide financial support to weaker sections of society, enabling them to challenge powerful corporations, institutions, or the government.

  • Support for Public Interest Litigations (PILs): Many socially relevant cases, including those related to environmental protection and human rights, struggle with funding. TPLF can ensure continued legal action in such cases.

Supreme Court’s Landmark Judgment on TPLF

  • In Bar Council of India v. A.K. Balaji, the Supreme Court ruled that third-party funding is legal in India, provided lawyers do not act as funders.

  • The Privy Council judgment (Ram Coomar Coondoo v. Chunder Canto Mookerjee, 1876) established that English laws on champerty (restriction on third-party funding) do not apply in India.

This legal backing reinforces TPLF as a legitimate financial tool for ensuring judicial access while maintaining ethical standards in litigation.

Potential Impact of TPLF

  • Equal Legal Representation: TPLF helps level the playing field by allowing financially weaker litigants to compete with well-funded opponents.

  • Encourages Specialized Litigation: Cases involving intellectual property rights, medical malpractice, environmental law, and corporate fraud often require substantial resources. TPLF can boost such litigation.

  • Enhances Consumer and Environmental Protection: By enabling lawsuits against corporate negligence, TPLF can improve accountability and transparency.

Concerns and Challenges of TPLF

  • Profit-Driven Funding: Funders may focus on high-reward cases, sidelining those with strong social significance.

  • Influence on Litigation Strategy: External funding can impact how cases are argued, potentially compromising the litigants' autonomy.

  • Ethical Concerns: Without stringent regulations, exploitative funding arrangements can emerge, leading to unfair profit-sharing.

Need for a Comprehensive Regulatory Framework

Currently, states like Maharashtra, Madhya Pradesh, Orissa, and Gujarat have amended civil procedure laws to acknowledge third-party funding. However, India lacks a uniform national framework for regulating TPLF.

A well-defined regulatory structure should include:

  • Transparency in Financial Agreements: Mandating disclosure of funding arrangements to courts.

  • Ethical Investment Standards: Ensuring funders prioritize fair and equitable cases.

  • Profit Cap on Funders: Preventing excessive profiteering from litigation proceeds.

Global Best Practices in TPLF Regulation

  • Hong Kong: The 2019 Code of Practice for Third Party Funding in Arbitration mandates funder disclosure and liability regulations.

  • United Kingdom & Australia: Clear legal frameworks allow funders to operate within ethical and financial guidelines.

  • India’s Adoption Strategy: Implementing similar mechanisms can balance investment in litigation with judicial integrity and litigant protection.

Ensuring Capital Adequacy and Risk Mitigation

  • Funders Must Have Sufficient Reserves: This prevents abrupt withdrawal of financial support, ensuring case completion.

  • Security for Costs: Requiring funders to deposit a security amount can reduce risks for litigants and courts.

Way Forward: Regulating TPLF in India

  1. Establish a National-Level Regulatory Framework: Laws must be introduced to ensure ethical litigation financing practices.

  2. Dedicated Oversight Body: An independent authority should monitor TPLF to prevent misuse and exploitation.

  3. Cap on Funders’ Profits: Limiting the percentage of claim winnings allocated to funders will ensure fair profit-sharing.

  4. Incentives for Socially Relevant Cases: Encouraging funding for cases related to environmental law, human rights, and public interest.

  5. Judicial Oversight: Courts should monitor cases involving TPLF to prevent funder overreach.

  6. Awareness Campaigns: Educating stakeholders—litigants, lawyers, and judges—on the benefits and safeguards of TPLF.

  7. Periodic Review Mechanism: Regulations should be updated periodically to address emerging legal and financial trends.

Conclusion

Third-Party Litigation Funding has the potential to transform access to justice in India. However, an effective regulatory framework is essential to prevent financial exploitation, ensure transparency, and maintain judicial integrity. With well-structured guidelines, India can establish itself as a leader in litigation financing while upholding the principles of fairness and justice.

MCQs for UPSC CSE

  1. What is the primary purpose of Third-Party Litigation Funding (TPLF)? a) To allow lawyers to invest in legal cases b) To provide financial assistance to litigants in exchange for a share of the settlement c) To reduce the number of pending cases in Indian courts d) To increase legal fees for complex cases

    Answer: b) To provide financial assistance to litigants in exchange for a share of the settlement

  2. In which landmark case did the Supreme Court of India rule that TPLF is legal? a) Kesavananda Bharati v. State of Kerala b) Vishakha v. State of Rajasthan c) Bar Council of India v. A.K. Balaji d) Golaknath v. State of Punjab

    Answer: c) Bar Council of India v. A.K. Balaji

  3. Which of the following countries has a structured regulatory framework for TPLF? a) India b) Australia c) Brazil d) South Africa

    Answer: b) Australia

  4. What is a major concern regarding unregulated TPLF? a) Decrease in the number of litigants b) Increased case backlog in courts c) Profit-driven funders prioritizing financially rewarding cases over socially relevant ones d) Higher government expenditure on judiciary

    Answer: c) Profit-driven funders prioritizing financially rewarding cases over socially relevant ones

Mains Practice Question

What is Third-Party Litigation Funding (TPLF), and why is it necessary in India's legal system? Discuss its potential to democratize access to justice while highlighting the need for a regulatory framework. (250 words).

Also Read:

Labels:

Comments

Post a Comment

Popular posts from this blog

Surveillance Capitalism: Impact, Challenges & Regulation | UPSC CSE Notes

  Introduction In the digital age, where technology dominates every aspect of life, surveillance capitalism has emerged as a powerful economic model. Major corporations like Google, Meta, Amazon, and Microsoft collect vast amounts of personal data to predict, manipulate, and monetize user behavior. This practice raises serious concerns regarding privacy, autonomy, democracy, and digital rights. Coined by Shoshana Zuboff in 2018 , surveillance capitalism describes a system where personal experiences are transformed into data-driven commodities for corporate gain. Governments and policymakers worldwide are now debating how to regulate this growing influence while ensuring user privacy and ethical use of data. What is Surveillance Capitalism? Surveillance capitalism is an economic system where private companies collect, analyze, and monetize user data to influence human behavior. Unlike traditional capitalism, which focuses on material production, this system profits from human ex...
Post a Comment
Read more

Reducing India's Fertilizer Dependence l UPSC CSE Notes

Introduction India heavily depends on imported fertilizers like Urea, Di-Ammonium Phosphate (DAP), and Muriate of Potash (MOP) to sustain agricultural productivity. However, this dependence has led to economic burdens, environmental degradation, and supply chain vulnerabilities . The Indian government is now strategizing ways to reduce fertilizer imports , promote alternative fertilizers , and encourage balanced fertilization to achieve sustainable agricultural growth. Current Status of Urea, DAP, and Potash in India Urea Production Capacity: India produced 31.4 million tonnes (MT) of Urea in 2023-24, compared to 22 MT in 2011-12 . Import Dependency: Imports declined from 9.8 MT (2020-21) to 7 MT (2023-24) due to increased domestic production. Government Initiative: Energy-efficient Urea plants have improved productivity (Economic Survey 2023-24). Di-Ammonium Phosphate (DAP) Import Dependence: India imports finished DAP and raw materials from Saudi Arabia, Morocco, Jordan, and...
Post a Comment
Read more

Impact of Climate Change on Education - UNICEF Report

  Introduction A recent UNICEF report on climate change and education highlights a growing global crisis, particularly in developing nations. The report reveals that extreme climate events in 2024 disrupted schooling for millions of students across 85 countries. The most affected regions included South Asia (128 million students impacted, with 55 million in India) , East Asia, the Pacific, and Africa, where El Niño-induced floods and droughts severely affected education systems. Key Findings of the UNICEF Report Major Climate Hazards Affecting Education Heatwaves : The biggest threat to schools in 2024, affecting countries like Bangladesh, the Philippines, and Cambodia. Multiple Climate Hazards : Countries like Afghanistan faced both heat waves and floods, leading to significant school closures. El Niño Impact : In Africa, El Niño caused a double crisis of floods and droughts, severely damaging school infrastructure. Impact on School Infrastructure and Accessibility Damage to sch...
Post a Comment
Read more