Kundan Shahi, Founder & CEO – LegalPay
Tell us a little bit about the history of LegalPay and what your business model is?
Kundan Shahi: We started LegalPay in August 2020 as the first domestic litigation funder in India. Our firm focuses on the Indian mid-market, looking at cases that require an investment between USD $30,000 and USD $500,000. Our business model mirrors that of a traditional private equity firm, with a management fee and carry structure. We try to leverage technology as much as possible at our firm – we have developed an internal system that interacts with the Indian court system looking for potential cases to invest in that meet our investment criteria.
What has been the reception to your business from the market?
KS: We are getting great traction so far. Most funding requests are coming from law firms, with the occasional request coming from general counsel of businesses. The cases are all types and sizes, on behalf of companies ranging from small start-ups to listed companies. To date, we have funded approximately 5% of the cases that have come across our desk.
What are the biggest hurdles that must be overcome for your business and in general for litigation funders in India?
KS: The first hurdle is from the Indian legal community. More than 70% of legal professionals incorrectly presume that litigation finance is not permissible in India. This is changing, however, as more and more professionals become aware of the concept and investigate its applicability in India.
The second hurdle is the misconception that the Indian legal system is sluggish. Our research and analysis indicate that the length of time for a case to be resolved is not that much longer than in other jurisdictions – in the US our analysis shows that civil courts dispose of a case in approximately 28 months (though the pandemic has impacted the overall timeline), whereas in Indian jurisdictions, High Courts and above take an average of 36 months to dispose of commercial cases.
Going forward, we can expect even faster realisations as a result of government initiatives to improve the Indian legal system. For example, in 2015 the Indian governments restricted the number of adjournments to three in a commercial case, allowing adjournments only for exigencies. We have already seen this leading to quicker case resolutions post-2015. While we understand that anywhere between 15 and 20% of cases will have a longer tail, we operate on the expectation that most cases can be resolved within 36 months.
Who are the law firms and organizations that are leading the push to establish litigation funding in the country?
KS: Recently we have seen many marquee law firms talking about litigation finance in India. They are helping with awareness by driving discussion of litigation finance in the public and in the media. In India, the law firms we see leading the push and educating stakeholders are Cyril Amarchand Mangaldas, Nitish Desai Associates, Khaitan & Co. and Singularity, to name a few. We are also glad to see stakeholders in the legal fraternity coming together and forming the Indian Association for Litigation Finance, which will hopefully create awareness about the massive opportunities in the country and will work with regulars to make the litigation finance concept more mainstream.
What are the big opportunities for foreign investors and funders in India?
KS: Many foreign funders are already active in the Indian market. To date, the involvement mainly revolves around supporting arbitration filed outside of Indian jurisdiction. For example, every fifth arbitration case filed in Singapore relates to an Indian business.
We would argue, however, that there are many more opportunities for an ambitious funder directly in the Indian market. Our legal expense market is at least USD $20 billion dollars and growing at a 10-12% CAGR. While our focus is on the mid-market and cases that require between USD $30,000 and USD $500,000 there are definitely larger commercial disputes that have the potential for very high returns for a well-capitalised funder.
In addition to commercial claims, there are also many, many potential class action claims that could be filed in India if funding was available for plaintiffs. If a foreign funder familiar with structuring funding for these types of claims invests the time and partners with the right professionals in India to develop a suitable structure for the Indian market, it could be an extremely profitable venture. We see this happening in the very near future.