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Third Party Litigation in India

Litigation, as has been seen, is a costly and lengthy affair for most of the population, especially in India. The legal structure of India is such that not many people may be of interest to come to court to resolve the dispute, either because of the lengthy procedure or the cost which can be invariably high. The legal system in India, over the decades, has seen many changes by including different mechanisms in order to cut the cost and time of the litigation process.

One such mechanism which has recently been discussed is Litigation Financing or is Third-Party Funding. In this process, a third non-Lawyer party, which does not have any interest in the matter, fund the litigating party or plaintiff in order to get the issue resolved with the defendant after signing the agreement in which they charge their share from the amount the court awards, after winning the case.

In India, third party funding is not an alien concept, as it has been discussed earlier by the Privy Council in the case of Ram Coomar Coondoo v. Chunder Canto Mukherjee, [(1876) 4 I. A 23] in which the court justified the funding of the case from the other non-disputed party on the ground that the funding should be scrutinized on the ground of Public Policy, which is one of the main requirements of any agreement under Section 23 of the Indian Contract Act, 1872, provides that consideration or the object of the agreement should not be forbidden by law or against the public policy. Public Policy is a very alterable process and it cannot be defined per se rather it evolves according to the facts of the case.

There is no legislative framework in India which talks about Third-party Funding but common law countries like Australia, England, Wales, Hong- Kong, have put their foot forward by implementing a legislature for Third-Party Litigation in commercial litigation and arbitration process.

In the year 2017, Singapore enacted the Civil law Amendment Act, 2017 which lifted the prohibition on third party litigation funding for International Arbitration and other legal proceedings. In enacting this legislation, the practice of funding by any party having no personal interest also known as Maintenance and Chempetary was abolished. Similarly, Hong Kong amended its legislation and enabled the third-party funding in arbitration and mediation.

Challenges in India

The the procedure which is followed in India is very old and terms like Third Party Funding is considered as prohibited practice in India as it is confused with the terms like Maintenance and Champerty, which is of course not applicable in India.

The class action suit which is at a nascent stage needs to be bought in practice as it attracts the funders to invest in the case. Moreover, in India, there is no the precedent set in which an exemplary cost is granted in the commercial dispute, thus leading the funders in despair for taking any interest in the process.

The unpredictability in the system especially that of the roaster change during the the course of the case makes the risk assessment very difficult.

Funder may want to share the risk of their investment with the lawyer by charging them with contingency fees which is prohibited in India.

Litigation is not a short term engagement; it may turn out to be very costly for the claimant, especially for those who are going through insolvency proceedings. The factor of cost is such that most of the claimant may not want to get involved with the courts as it may cost them unexpected finances. Thus if the Third-Party can fund the dispute or insolvency process, it could be a huge relief for the majority of such claimants, as then they do not have to worry about the finances.

In the arbitration proceeding, it could be of great advantage, if the claimant is not in a position to provide the amount asked for the appointment of Arbitration, which can be high, thus not jeopardizing the position of the claimant as against the defendant.

The principle of Third-party Litigation is more of the Access to justice; thus parties who are not able to reach the court because of the financial crunches will have a little hope to help themselves to get justice.

Mechanism of Third Party Litigating

Third Party Funding is applicable on court cases as well as on out-of-court mechanisms; i.e. arbitration and mediation. The Third-Party Funding covers all the expenses i.e. counsel fees, court fees, Expert advice fees, adverse court order costs etc.

In India, as there is no legislative framework for the application of The TPF, but inference for the same can be drawn through various provisions; for example, Section 35 of the Code of Civil Procedure, 1908 includes the awarding of cost to the third party according to the circumstances of the case. Also the Order XXV of the Code of Civil Procedure as amended by the different states of India covers the third party which financed the suit to pass the award as per their discretion.

It is also pertinent to mention that there are specific provisions by the Legislature in the Bar Council of India, which specifically mentions that the advocates cannot fund the case of the parties in dispute and can neither charge the contingent fees from the clients.

The the potential class which can be funded for the civil matters by the Third-party includes matters relating to Commercial Contrast, International Commercial Arbitration, tortious claims, Personal injury insolvency proceedings, etc. But the main focus can be on the Shareholder Class suit, in which a huge number of people will be involved. Companies have a large number of shareholders and it is not possible for each shareholder to file a suit against the Company.

These suits thus can be considered as access to justice to many shareholders as not every shareholder might be in a financial position to file the case against the company. In India, after the Satyam Scam, the legislation has provided a provision under the Companies Act where the shareholder can file a class action suit against the company. The amendment in 2019, regarding fixing the number of shareholders to apply the class action suit seems to be a step forward in bringing the progressive changes for access to justice.

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