How India's rich are finding returns in the country's court backlog

Snigdha Sharma (0:02)

I have something to ask of you before we start. You know, there is a word for the particular kind of autumn season that we experience in India. It's called sharat. And Tagore came back to it again and again in his work. And it has very little to do with a Hollywood-inspired image that we have of red leaves and yellow leaves and pumpkin spice latte. Sharat is the season that comes after the rain. The sky suddenly looks bigger, the colors look brighter. If you pass by any river bank, you will see white cash flowers blooming, glistening in the sunlight. There is this refreshing feeling that the world has been washed clean. And that is the feeling that we're chasing. For the first time, my colleague and the Ken CEO Rohin, who writes our wonderful Sunday newsletter, First Principles, and I from Daybreak, are making an autumn-inspired playlist built by you. So, tell us, what does autumn feel like where you are? What's the little thing that tells you that it has arrived? And what is the one song that sounds like autumn to you? Tell us why that song matters to you as well. We might read your answer on Daybreak, or even feature it on First Principles. It won't take more than three minutes, I promise. The link is in the show notes. I can't wait to hear from you. And now, on to today's episode.

Did you know that India has roughly 54 million cases stuck in its courts? And inside many of them is money somebody is owed, but cannot afford to chase. So, what if you could invest in that case? I mean, back it, pay the legal bills, and then take a cut if the case wins. In the US and the UK., this is already a multi-billion dollar asset class. In India though, a handful of funders are trying to build it now. But they have run into a strange problem. The same backlog that makes this idea so attractive is also what makes it so hard. Because here, of course, you are betting on whether a case wins, but more importantly, you are betting on when it wins.

In a recent edition of our weekly newsletter Ka Ching, my colleague, The Ken reporter Mutasim Khan, looked at who is making this bet, who's putting up the money, and who is it actually helping. And today, I'm reading out his piece for you.

Welcome to Daybreak, a business podcast from The Ken. I'm your host, Snigdha Sharma, and I don't chase the news cycle. Instead, every day of the week, my colleague Rachel Varghese and I will come to you with one business story that's worth understanding and worth your time. Today is Thursday, the 24th of September.

Kundan Shahi wanted to establish India's first litigation fund. This was back in 2019, right when new and quirky concepts, non-fungible tokens, NFTs, fractional art, whiskey casks, and even sneakers were beginning to institutionalize into investment-grade asset classes. Shahi thought lawsuits were the obvious next candidate, and in India, more obvious than most places.

The country suffers from one of the world's largest judicial backlogs, approximately 54 million pending cases, and inside many of them is big money that one party owes another, that the claimants cannot afford to pursue through years of litigation. An investor could identify favorable cases, fund the legal proceedings, and keep a percentage of the claim if they won. Pool enough of these claims together, and it looks something like a private equity fund, except the underlying asset is the claim to a future payout, rather than ownership in a company.

Cut to January 2026 and Shahi's litigation company, LegalPay, has committed 100 crore rupees over the next 18 months to financing commercial and insolvency disputes. The firm has already worked with the likes of Zepto, PWC and Deloitte and claims to deliver returns exceeding 30% internal rate of return, or IRR, to its investors. India's legal expense market is worth at least $20 billion annually and growing at 10-12% CAGR, Shahi estimates. From the US and UK and Hong Kong to Singapore and Australia, third-party litigation funding has matured into a full-fledged asset class with the former president of the UK Supreme Court calling it the lifeblood of the justice system. But right now, India's litigation funding market is constrained by the very conditions that made it attractive in the first place.

Funders pitch litigation funds as private equity returns with none of the correlation to public markets. Beaufort Capital listed on the NYSE and LSE manages a $7.5 billion portfolio of legal claims and claims to have delivered a 26 percent IRR on concluded cases over 15 years. Tempting, but high returns also necessarily involve higher risk. Unlike most other investments, litigation investing comes with a binary risk profile. If the claimant wins the case, the investor wins big. But if the claimant loses, the investor loses all the money. Yet, for funders operating in India, that binary outcome is only half of the equation. In India, you have to underwrite time as much as you underwrite the law, explains Shahi. Even with the high risk, legal pay had started off with the idea that this asset class could be made available to retail investors, offering interim financing bonds as little as 10,000 rupees. Shahi has since concluded that this is not an asset class for retail yet. The most obvious risk in any lawsuit is its merit, which is, can you actually win? In India, the harder question is when.