Litigation Financing Deep-dive: In conversation with LegalPay founder Kundan Shahi

Growing up in a small village, Kundan Shahi witnessed firsthand how legal issues created significant hardships for families, including his own. .He soon realized that legal help in India is almost entirely an out-of-pocket expense, making it inaccessible for many. This personal and professional experience inspired him to start something that could bridge this gap - a litigation financing platform called LegalPay. Simply put, litigation financing or third-party funding refers to entities who are not parties to a dispute financing the legal costs of a party, in return for a share of the damages awarded or the settlement.While it is a relatively new field in India, its origins go back a few decades in other parts of the world, especially in the United Kingdom and Australia. .In 2018, India’s Supreme Court, in Bar Council of India v. AK Balaji implicitly recognised the practice stating, “In India, funding of litigation by advocates is not explicitly prohibited, but a conjoint reading of Rule 18 (fomenting litigation), Rule 20 (contingency fees), Rule 21 (share or interest in an actionable claim) and Rule 22 (participating in bids in execution, etc.) would strongly suggest that advocates in India cannot fund litigation on behalf of their clients. There appears to be no restriction on third parties (non-lawyers) funding the litigation and getting repaid after the outcome of the litigation. In U.S.A., lawyers are permitted to fund the entire litigation and take their fee as a percentage of the proceeds if they win the case. Third Party Litigation Funding/Legal Financing agreements are not prohibited. In the U.K., Section 58B of the Courts and Legal Services Act, 1990 permits litigation funding agreements between legal service providers and litigants or clients, and also permits third party Litigation Funding or Legal Financing agreements, whereby the third party can get a share of the damages or “winnings”.”.funding of litigation by advocates is not explicitly prohibited....AK Balaji judgment.However, there is still no legislation explicitly regulating third-party litigation financing. Despite these murky waters and divergent views in the legal community, litigation financing is evolving at a considerable pace. .In 2019, Kundan Shahi entered the evolving space with his venture, LegalPay. In this article, Bar and Bench's Giti Pratap speaks to the founder of India’s largest litigation funder on this relatively unexplored space and the potential that it holds in India's legal landscape. .Giti Pratap: Could you please tell us about yourself; your background, education, work, etc.?Kundan Shahi: I come from a small village in Muzaffarpur, Bihar. My father is a farmer, and my mother is a homemaker. After completing my schooling in my village, I moved to Patna for my bachelor’s in computer application. In 2005-06, I shifted to Delhi and started working in a call center, my first job was selling caller tunes to mobile users. My career took a turn when I joined EXL in 2008, where I worked for 8 years.At EXL, I was exposed to the world of risk, insurance, and process improvement. I became deeply involved in Six Sigma, lean, and continuous improvement methodologies. I worked with one of the largest US-based insurance companies, identifying business gaps and driving improvements. This experience piqued my interest in insurance and risk management, laying the foundation for my idea of creating a legal insurance company in India..Giti: What made you enter the litigation financing world and start LegalPay in 2019?Shahi: India is the third-largest legal expense market after the US and UK, yet many individuals and businesses with strong cases can’t afford to pursue them. This gap inspired me to create a solution. Initially, I wanted to set up a legal insurance company, but capital and regulatory hurdles led me to litigation finance, where I saw potential to promote settlements and reward those opting for alternative dispute resolution.I built a case-tracking tool for lawyers to understand the industry's challenges better. This helped me realize that with the right financial support, cases could be resolved more efficiently, enabling litigants to make informed decisions without enduring long legal battles..Giti: Could you briefly explain how LegalPay works?Shahi: LegalPay is a litigation finance startup that provides capital to litigants, ensuring they can pursue justice without financial constraints. We believe cases should be decided on merit, not financial resources. We assess each case’s merit through tech-driven due diligence, analyzing factors such as financial viability, collectability, and legal readiness. If the case meets our criteria, we provide non-recourse funding, meaning we only profit if the case succeeds, and the client owes nothing if it doesn’t..Giti: Initially, did you have anyone with experience in litigation financing help guide LegalPay?Shahi: When I started, top law firm partners were skeptical, thinking litigation finance was illegal and had no scope in India. As someone without legal training, it was perhaps easier for me to envision the potential. Despite facing multiple roadblocks and misconceptions, I was persistent in gathering supporting information.Thankfully, a Supreme Court ruling clarified that there’s no law prohibiting litigation funding. I also reached out to global litigation funders to understand their perspective, which helped shape LegalPay's direction..Giti: How do you navigate litigation financing in India in the absence of regulations?Shahi: In most jurisdictions where litigation finance is thriving, formal regulations are also absent. The industry often operates under self-regulatory guidelines, developed through experience. In India, we adhere to public policy principles and maintain transparency in all transactions. While the industry is still evolving here, we believe that as it grows, it will eventually attract regulatory attention. Until then, we remain committed to best practices and ethical standards..Giti: How do you deal with the long durations of litigation?Shahi: We recognize that litigation can be a lengthy process, which poses a challenge in managing both capital and timelines. To navigate this, we conduct thorough due diligence before funding, ensuring the case has merit and clear timelines. Additionally, we diversify our portfolio across multiple cases to balance risk and mitigate delays. Our non-recourse model also ensures we only invest in cases with a strong likelihood of success, allowing us to be patient while ensuring clients have the resources to continue their legal battles..Giti: What are Debt Defense and Quick Settle?Shahi: We’ve realized that defendants are key stakeholders in litigation, and it’s crucial to help them understand that settlements don’t need to negatively impact their working capital. With Debt Defense, we provide innovative financial solutions that are tailored to meet both business and litigation liabilities. If a defendant faces a large settlement amount, we design financing solutions that help them manage payments without hindering their growth, ensuring their operations remain unaffected while resolving their legal obligations.Quicksettle is designed to help individuals defend themselves against aggressive debt collection practices. We provide tools and support to negotiate settlements, avoid harassment, and manage legal notices, empowering customers to regain control of their finances.."Quicksettle is designed to help individuals defend themselves against aggressive debt collection practices".Giti: What is the general investor profile in litigation financing in India?Shahi: In India, investors in litigation financing are typically high-net-worth individuals (HNWIs), family offices, and alternative investment funds (AIFs). These investors seek non-market-correlated returns and are comfortable with longer investment horizons. They are attracted to the high potential returns that litigation finance offers, especially since it is an emerging asset class in India with a unique risk-reward profile.Investors are usually those with an understanding of the legal landscape or those looking to diversify their portfolios with alternative investments. This is not for retail investors..Giti: What has the growth in litigation financing been like since 2019 and what are your predictions for the future?Shahi: Since 2019, litigation financing in India has seen steady growth, driven by increasing awareness and a growing appetite for alternative investments. LegalPay, as one of the pioneers, has witnessed a rise in demand from both individuals and businesses seeking to level the playing field in legal disputes. The market is maturing, with more investors showing interest due to the non-market-correlated returnsLooking ahead, the sector is poised for significant expansion, as more businesses recognize the benefits, and regulatory frameworks become clearer. As litigation finance becomes more mainstream, I anticipate exponential growth, especially as access to justice improves and more complex cases are funded. TheIndian market holds immense potential for litigation finance to flourish in the coming years..Giti: Why should law graduates and legal professionals work in litigation financing?Shahi: Litigation financing offers law graduates and legal professionals the opportunity to combine legal expertise with financial strategy, making a direct impact on access to justice. It’s a dynamic and emerging field that allows them to work on high-stakes cases without being directly involved in courtroom litigation.Professionals can leverage their legal knowledge to assess case merits, underwrite legal risks, and structure financial solutions, making it intellectually stimulating while also fostering innovative approaches to dispute resolution. Plus, it provides exposure to the business side of law, broadening career horizons