Third-party litigation funding refers to a process where an external entity finances the legal costs of a party involved in a legal dispute. In exchange, the funder receives a percentage of any compensation or settlement awarded. This funding model allows individuals or organizations with limited financial resources to pursue legal cases without bearing the full cost of litigation.
India’s Central government has confirmed that it does not currently have plans to regulate third-party litigation funding. In response to a parliamentary question posed by Mohammed Nadimul Haque, a Rajya Sabha member from the Trinamool Congress, the government made it clear that it is not considering any regulatory framework to manage third-party funding of legal cases.
The Ministry of Law & Justice’s Minister of State (Independent Charge), Arjun Ram Meghwal, shared this information.
He stated, “At present, there is no proposal under consideration of the Government for establishment of a legal and regulatory framework to facilitate Third Party Funding of litigation in the country and further, no examination of the potential of Third Party Litigation Funding as a means to address high litigation costs and pendency of cases has been carried out by the Government.”
What is Third-Party Litigation Funding?
Third-party litigation funding refers to a process where an external entity finances the legal costs of a party involved in a legal dispute. In exchange, the funder receives a percentage of any compensation or settlement awarded. This funding model allows individuals or organizations with limited financial resources to pursue legal cases without bearing the full cost of litigation.
This practice is relatively new in India, though it has been in use in other parts of the world for several decades, especially in the United Kingdom and Australia.
In 2018, the Supreme Court of India implicitly acknowledged third-party litigation funding in the case of Bar Council of India v. AK Balaji. However, the practice has not been specifically addressed by any law or legislation in the country. This lack of regulation means third-party funding continues to operate in a gray area.
Despite the growing interest in this type of funding, it remains unregulated in India, as confirmed by the government’s response in Parliament. As of now, there are no efforts from the government to formally examine or regulate third-party litigation funding, nor has there been any consideration to use it as a tool to help reduce the high cost of litigation or to address the growing backlog of court cases.
Third-party litigation funding could potentially help individuals and organizations who cannot afford the high costs of legal battles. This type of funding might make it easier for people to seek justice in courts, without worrying about the financial burden. However, without a clear regulatory framework, there are concerns about how these funds would be managed and whether the interests of those seeking funding are adequately protected.
While countries like the UK and Australia have set legal frameworks to govern third-party funding, India is yet to introduce such measures. The government’s response indicates that it is not looking at this issue as a solution to reduce legal costs or the delays in the judicial system.
