HNIs are funding litigations and making money too; here's how

Litigation finance, which is basically availing third-party finance for pursuing legal tussles, is on the rise in India with even global biggies now enquiring about the Indian market.  

Further, with the opening up of the Indian market to foreign law firms, there is even more scope for international players, says Ashish Chhawachharia, Partner – Recovery & Reorganisation, Grant Thornton Bharat. 

“There is tremendous scope for growth litigation funding in India. With the rising legal costs in India, there are severe limitations faced by companies and litigants to continue with the litigations and often end up closing prematurely,” said Chhawachharia. 

“We have seen a rise in enquiries from global players in the industry and we understand some have already started scoping some opportunities in India. With the opening up of the Indian market to foreign law firms, there is even more scope for international players.  The rising number of disputes among organisations is expected to provide opportunities for the growth of the litigation funding investment market, with special interest from lenders/investor groups,” he added. 

In India, start-ups like FightRight, LegalPay, LegalFund and LitiCap, among others are operating in this segment.  

Globally, there are big names like Parabellum Capital, Bentham Capital, Juridica Investments, Burford Capital LLC, Woodsford Litigation Funding, Apex Litigation Finance and Omni Bridgeway that have a proven an impressive track record in terms of litigation funding. 

More importantly, these ventures not only provide the much-needed liquidity support but also help entities choose the right legal strategy with their AI-backed analytics tools. 

Interestingly, the segment is increasingly becoming popular as an alternative investment avenue as well especially for the high-net-worth individuals as start-ups looking to fund litigants are pooling in money from wealthy individuals. 

“Risk capital is always looking for attractive opportunities and return. HNIs and family offices are likely to invest in funds which pool in investments with a similar thesis or objective rather than invest directly in this market,” says Chhawachharia. 

For every case these start-ups fund, they take a cut in the range of 15 per cent to 25 per cent from the final claim amount. In other words, it makes money on every case where the party it funds finally wins. 

Further, these ventures typically fund only commercial litigations involving either land, property or money as they account for almost two-thirds of all outstanding commercial disputes and the start-ups are able to plot the dispute’s legal expected journey based on their AI/ML tools. 

Industry estimates peg the annualised ROIs in excess of 50 per cent while In India, the ROIs are estimated to be in excess of 30-35 per cent currently. 

This assumes significance since the global litigation funding investment market was estimated at $12.2 billion in 2022 and is projected to reach approximately $25.8 billion by 2030 with a compound annual growth rate (CAGR) of roughly 9 per cent between 2022 and 2030, as per a report by Custom Market Insights, a market research and advisory company.