Third Party Funders In Arbitration Play A Vital Role In Ensuring Access To Justice; Arbitral Award Cannot Be Enforced Against Them: Delhi High Court

The Delhi High Court has ruled that a third-party funder, i.e., a non-signatory to arbitration agreement, who is not a party to the arbitral proceedings or the award, cannot be held liable for the awarded amount merely because it has funded a party in arbitral proceedings.The court dismissed the contention that third-party funders must be held liable for funding impecunious persons who are unsuccessful in pursuing their claims in the arbitral proceedings. It held that permitting enforcement of an arbitral award against a non-party which has not accepted any such risk, is neither desirable nor permissible.The court remarked that third-party funders play a vital role in ensuring access to justice. In absence of third-party funding, a person having a valid claim would be unable to pursue the same for recovery of amounts that may be legitimately due, the bench comprising Justices Vibhu Bakhru and Amit Mahajan observed.The court took note that in many cases, the claimants become impecunious on account of the very cause for which they seek redressal. While noting that the cost for pursuing claims in arbitration are significant, the court held that in the absence of third-party funders, a person without the necessary means would have no recourse. The bench added that it is essential for the third-party funders to be fully aware of their exposure. Third-party funders cannot be mulcted with liability, which they have neither undertaken nor are they aware of, the court said, adding that any uncertainty in this regard would dissuade third-party funders to fund litigation. The court made the observation while dealing with an appeal filed against the order of the Single Judge in a petition filed by the award holder under Section 9 of the Arbitration and Conciliation Act, 1996 (A&C Act), where it had sought interim measures in aid of enforcement of the Arbitral Award. The court disagreed with the view of the Single Judge that the appellant, Tomorrow Sales Agency Private Limited (TSA) (third-party funder), who had funded the Claimants to pursue the arbitral proceedings, was obliged to pay the costs imposed on them by the Arbitral Tribunal, after they had failed in the said proceedings.The bench concluded that TSA was not a party to the Arbitral Award and it cannot be treated as a judgment-debtor. Therefore, the award cannot be enforced against TSA under Section 36(1) of the A&C Act, the court said. Thus, it concluded that an application under Section 9 of the A&C Act, for securing the award amount against TSA, was not maintainable.The respondent/ claimants, SBS Transpole Logistics Private Limited (Transpole) and its promoters, instituted arbitral proceedings against SBS Holdings Inc. (Japan) (SBS) and Global Enterprise Logistic Pte. Ltd. (Singapore) (GEL) for recovery of approximately Rs. 250 crores as damages for the alleged breach of contractual undertakings.The appellant, Tomorrow Sales Agency Private Limited (TSA), entered into a ‘Bespoke Funding Agreement’ (BFA) where it agreed to provide financial assistance to the Claimants for pursuing their claim against SBS and GEL in the arbitration proceedings conducted under the aegis of the Singapore International Arbitration Centre (SIAC).The claims raised by the Claimants were dismissed by the Arbitral Tribunal, who awarded costs in favour of SBS and GEL.After the Claimants failed to pay the amount awarded against them in terms of the Arbitral Award, SBS called upon TSA to pay the award amount. SBS filed an application under Section 9 of the A&C Act before the Delhi High Court seeking interim measures to secure the amount awarded in its favour. SBS alleged that the Claimants did not have the funds to satisfy the Arbitral Award. It claimed that Transpole was under liquidation and it had no operations or assets. The Single Judge held that SBS had, prima facie, established that TSA had a vested interest in the outcome of the arbitral proceedings. It held that a party, having funded the litigation for gain, could not escape the liability in case the result was contrary to its expectations.The Single Judge thus passed an order directing the Claimants and TSA to file an affidavit disclosing their fixed assets and bank accounts along with the credit balance held by it. The court further restrained the Claimants and TSA from creating any third-party interest/right/title in respect of any unencumbered immovable assets for the sum awarded in favour of SBS in terms of the Arbitral Award, till further orders.Against this, TSA filed an appeal under Section 37 of the A&C Act before the Division Bench.At the outset, the court remarked that a third party may be bound by the arbitral award only if it has been compelled to arbitrate and is a party to the arbitration proceedings.The bench observed that even a signatory to an arbitration agreement against whom an arbitration agreement is not invoked and who is not joined as a party to the arbitral proceedings, would not be bound by the...

Third Party Funders In Arbitration Play A Vital Role In Ensuring Access To Justice; Arbitral Award Cannot Be Enforced Against Them: Delhi High Court

Parina Katyal

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