A small saree business gets entangled in a dispute with its textile supplier over the latter’s refusal to come to terms with the purchase agreement signed. As the supplier is unable to fulfill the order of raw materials as per the pre-decided price, the small business owner now wants the advance paid to be returned to which the former is not agreeing. To settle the dispute the supplier makes a low-ball settlement offer and the business owner is left with no other option but to accept the offer.
What happened above?
The small business owner had to compromise on the low-ball settlement offer because it did not have the monetary resources to be able to bear the cost of lawyer’s fees and court proceedings to provide working capital.
Cases like these are not rare, there are several unrecorded cases where lack of monetary strength has prevented small business owners to seek judiciary help for contesting litigation and are forced to bow down to the offer made by the party with deeper pockets. Nothing can be as distressing as a financially weak party that denies justice by taking the case back with the fear of being unable to sustain the fight in case of stretched litigation.
To prevent MSMEs from falling into the pit of injustice, a litigation financing company is a boon. A litigation financing firm is a third party that offers the necessary monetary assistance required by the party to fight out the litigation in court without having to compromise.
The number of litigation financers in India is dismal
India has few international litigation financers with their focus to provide financial assistance only to bigger companies. Litigation financiers for MSMEs is the most neglected space, realising which Kundan Shahi the founder formed a tech-driven litigation financing company- LegalPay that alleviates the difficulties of a financially weak party for its court proceedings. Litigation financing was practiced in India since the 18th century but there has been no organised player serving this space.
What is LegalPay?
Founded in 2020, by Kundan Shahi’s LegalPay is India’s first homegrown litigation financing company that offers flexible, non-recourse funding solutions that covers litigation costs consisting of lawyer’s fees, expert witnesses, working capital, etc. Non-recourse is a condition the allows the financing company to receive its share from only out of the assets that the borrower is legally obliged to repay the loan.
It aims to serve the $20 billion legal expenses market by helping businesses with their shareholder and IPR related disputes by gathering data from government-based websites. It focuses on late-stage cases that have financial requirements in the range of Rs 20 lakh and Rs.3.5 crore.
LegalPay is India’s first homegrown litigation financing company that offers flexible, non-recourse funding solutions that covers litigation costs consisting of lawyer’s fees, expert witnesses, working capital, etc.
How LegalPay assists the financially weak parties?
LegalPay is a tech and data-driven litigation financer that leverages technology and data to filter such cases from the websites of Indian courts. Every case that comes to them undergoes a stringent 15-point checklist proprietary algorithm that rates the case on different metrics. Moreover, only those cases are selected for financing which has strong legal merit, an efficient legal team, and clarity on the settlement timeline.
In general, LegalPay invests in cases belonging to commercial litigations in forums such as the high court, supreme court, NCLTs, and other commercial arbitrations.
LegalPay’s earning model is a simpler one, where before investing it mutually agrees on a fixed percentage of the award upon a successful outcome of the case.
Sourcing of funds for monetary assistance
LegalPay sources its funds from large family offices and high net worth individuals (HNIs) and ultra HNI in the country and operates on a fund structure. The investors can begin investing in it with an amount as low as Rs 25000. LegalPay utilises the funds to invest in diverse cases so that investors can receive higher returns with minimum risk. The investors later earn by getting a portion from the end proceeds or recovery from such disputes. An impressive 30 percent IRR ( internal rate of return) can be earned by the investor across stages and types of cases. LegalPay also earns by charging a two percent management fee and a 20 percent carry for the transactions made on the platform.
How MSME business owners and law firms can benefit from such litigation financing platforms?
LegalPay aspires to become the NABARD of the $20 billion legal expense market in India to help allow lawsuits to be decided on their merits and not based on the party having deeper pockets. In all these years, the lack of formal litigation financing players in the legal market was largely has made the weaker party -a prey for compromises. But recently the legislature, executive, and the judiciary in India have recognised and have been promoting litigation financing arrangements as India progresses towards being a global arbitration hub.
Striking a strategic partnership with these litigation financing companies will be beneficial to the law firms as they can convert prospective clients and assist them in a better manner by referring meritorious claims to these litigation financing companies eventually becoming a revenue churner for the lawyers and law firms.