Cash landing on you: Litigation funders bet on inheritance battles over crores

In 2008, Delhi-based businessman Amit Aggarwal (name changed) eyed a plot of agricultural land that cost Rs 40 crore. He promptly paid an advance and entered into an agreement with the owners. In 18 years, the price of the land has shot up and is estimated to cost an eye-watering Rs 250 crore. The land, though, is still not Aggarwal’s.

That plot was part of a farming family’s ancestral property. When Aggarwal was in the process of purchasing it, other family members waded in and asserted their claims. The dispute has spawned multiple cases—some at the appellate stage and others still before trial courts. Now, even the children of the original seller want the pricey land for themselves. Aggarwal is caught in a maze of competing claims and inheritance rights.

He doesn’t want to give up. His stakes have grown with the property’s value. He finally knocked on the doors of Share Samadhan, a Delhi-based consultancy firm, on what he should do next. Should he take the help of litigation funders? These are third-party financiers who will cover legal expenses in exchange for a share of the spoils if they win a case or reach a settlement. A client generally does not reimburse the firm if they lose the case.


Share Samadhan is now hand-holding Aggarwal through the process, helping him identify a financier who will pay his legal fees and other expenses. “The asset has appreciated sharply while locked in litigation, and the buyer cannot comfortably fund a contest of this length,” says Vikash Jain, cofounder of Share Samadhan.

Litigation funding firms, which are getting many cases like Aggarwal’s, are now dipping their toes in inheritance disputes over property worth hundreds of crores of rupees. Inheritance disputes still account for only a small share of India’s litigation funding which is mainly focused on commercial cases.

LAND-MARK CASES

LegalPay, a legal financing firm based in Delhi, receives about 10 queries a month on inheritance disputes from families, NRIs and individual claimants, compared with almost none five years ago, says founder Kundan Shahi. While 70% of en quiries reach the evaluation stage, only 10% receive funding.

“Families are asset-rich and cash-poor,” says Shahi, pointing to heirs who may have claims on valuable assets but lack the liquidity or the appetite to finance litigation for years.

Irfan Mughal, managing director of Five Rivers Capital, an alternative investment fund that provides finance to legal proceedings, says, “Claimants may choose funding because they don’t have the resources to pursue the claim themselves, don’t want to take the risk of investing in litigating a case they may lose, or just have better uses for their capital than spending it on litigation.”

Mughal sees potential in property disputes where immovable assets can appreciate and provide a possible route to recovery.

PLOTTING CAREFULLY

High-value property is a juicy prospect. But the firms are, justifiably, cautious, too.

“The real challenge is underwriting,” says Shahi, as their investment will go down the drain if they lose the case.

A family in Delhi-NCR approached LegalPay with a claim to ancestral property valued at over Rs 300 crore. Their claim had merit, but the land was occupied, seven heirs were fighting over it, resolving the dispute could take years and there was no potential buyer in sight. LegalPay declined to fund it. “Had there been a buyer ready to take the land once the title was clear, we would have funded it the next day,” says Shahi.

For the firms, the challenge is in determining whether disputed wealth can translate into a recoverable return. They assess the merits of the case, documentary evidence, stage of legal proceedings, the opposing party’s financial position and likely recovery before committing money. In effect, they put a price on uncertainty.

At the end, ownership must be established, competing claims resolved and a route to monetisation identified.

Legal financiers are interested mostly in high-value property so that their share would be substantial. There is a catch though. A property may be worth Rs 100 crore but the claimant may be entitled only to a fraction of it. Meanwhile, legal costs, appeals and enforcement difficulties could deplete returns.

Legal Pay looks for cases where potential returns justify capital being tied up for seven-eight years. Shahi says the firm targets returns of five to ten times the capital invested in cases with a defined exit. These are just targets, not guaranteed outcomes, he warns. A co-heir willing to buy out the claimant, a court-ordered sale, or a developer prepared to purchase the property once the title is cleared can provide a route to recovery. Without one, even a strong claim may be unsuitable for funding.

At Elf Partners, a consultancy for litigation finance, less than 4% enquiries involving inheritance and family property disputes clear preliminary due diligence, says founder Pranav Mago. The firm examines legal merits and recoverable value. Overseas assets raise additional questions about enforcement across jurisdictions, he says.

“A legally meritorious claim is not necessarily an investable claim,” says Mago. Winning in court is only one part; the outcome must produce a financial recovery.

Share Samadhan generally considers claims of around Rs 50 crore and above, says Jain, as senior counsel fees, court costs and potential appeals can make smaller disputes difficult to finance. The firm accepts less than 5% of requests for litigation finance consulting.

Jain has an easy formula to figure out whether they should go ahead with a case—the proposed funding should be 10- 15% of anticipated recovery. Capital may be deployed in stages, with returns structured as a multiple of investment or a capped share of net recovery.

The Supreme Court of India (“SC”) in Salem Bar Association v/s Union of India opined that Alternative Dispute Resolution (ADR) methods, as spelt out by Section 89 of the CPC need to be promoted for expeditious disposal of cases. The judgment enabled the establishment of the Mediation and Conciliation Project Committee (MCPC) to encourage mediation.

CASH SWINGS CASES

Interestingly, litigation finance can itself change the course of a case. One person’s access to capital can change the opposing being readily monetizable.

Share Samadhan too says some family offices and wealthy investors are prepared to co-invest in certain cases or participate through funds. Its subsidiary, Nyaya Mitra, assesses large claims and helps connect clients with funding capital.

Five Rivers Capital is also seeing interest from HNIs and family offices drawn by potential returns and portfolio diversification.

Five Rivers Capital mostly finances commercial disputes and arbitrations. Its MD, Mughal, recalls a case in which an Indian company had won an arbitration award, but its counterparty did not pay. The claimant approached Five Rivers to finance enforcement proceedings, including legal and counsel fees. Within three months of funding, the counterparty agreed to settle for almost the entire outstanding award. As the dispute was resolved in the first year, Five Rivers received a sumptuous return that was twice the capital deployed.

In inheritance cases, the route is less predictable. They can get particularly tricky if outcomes depend on evidence that is difficult to assess at the outset, says Mughal.

For litigation investors, the opportunity is not simply to fund India’s raging family feuds. Their real skill lies in distinguishing wealth trapped in litigation from wealth they can realistically help unlock. It is a tricky terrain, but they are carefully plotting a course.