Case title:
Tomorrow Sales Agency private Ltd vs SBS Holdings INC & Ors.
Date of Order:
29th May 2023
Bench:
Justice Vibhu Bakhru and Amit Mahajan
Parties:
Petitioner: Tomorrow Sales Agency private Ltd
Defendant: SBS Holdings INC & Ors.
Facts:
- The Court acknowledged the crucial significance third party donors played in providing Under section 37 of the Arbitration and Conciliation Act of 1996, the appellant filed the current appeal before the Delhi High Court in opposition to the impugned order and judgement from a petition filed by the respondent on March 7, 2019.
- The respondent requested in the petition that the appellant and respondents 2 through 4 be ordered to disclose their assets and bank accounts as well as provide a security payment totaling Rs. 9620119 with interest in order to secure it in accordance with the arbitral ruling.
- The appellant (here) supported the claimants financially but did not participate in the arbitration. The respondent who was eligible to receive the arbitral award won the arbitration. The appellant (here) supported the claimants financially but did not participate in the arbitration. The respondent who was eligible to receive the arbitral award won the arbitration.
- The assailed order said that the appellant TSA had a vested interest in the arbitral proceedings and that this was prima facie obvious. In order for it to profit from the arbitral proceedings, it paid the claimants.
- The claimants and TSA were asked to provide information on their fixed assets and bank accounts. The claim that a foreign award can only be enforced against an arbitration party was denied by the single bench.
- The Order directing TSA to disclose its assets, provide security, and prevent it from alienating or encumbering those assets was set aside by the Division Bench while allowing the appeal.
Arguments:
- There is no issue with having the arbitral award enforced against someone who is not a party to the arbitration procedures, according to the knowledgeable attorney speaking on behalf of the respondents.
- Only when a third party took part in the arbitration process is it held accountable. On the other hand, it was asserted that the claimants and respondent agreed to abide by the SIAC Rules when they entered into the arbitration agreement.
- According to the aforementioned regulations, the respondent was not allowed to include the appellant as a party in the arbitration proceedings unless a number of requirements were satisfied.
- According to the argument, the respondent SBS took no action during the initial phase of the proceedings to satisfy the requirements.
Judgment:
- The Court examined several rulings where the Supreme Court acknowledged that a non-signatory could be held liable under the arbitration agreement.
- The Court did not, however, believe that it was essential to go any further in addressing the issue of whether TSA, a non-signatory, could be compelled to participate in the arbitration or be bound by the arbitration agreement.
- The Court stated that a third party may only be held liable for the arbitral ruling if it was required to arbitrate and is a participant in the arbitration. While allowing the appeal, the Division Bench set aside the Order to the extent that it was aimed against TSA for providing security, disclosing assets, and enjoining it from.
- Furthermore, even a signatory to an arbitration agreement who is not named as a party to the arbitration proceedings and against whom an arbitration agreement is not invoked would not be bound by the arbitral ruling.
- Therefore, it is not possible to enforce an arbitral ruling against a non-signatory who was not involved in the arbitration.
- The following observations were made by the Court:
According to the SIAC Rules, TSA could not be added as a party to the arbitration proceedings, and SBS had not made any attempts to compel TSA to participate in the arbitration or obtain any sanctions against TSA from the Arbitral Tribunal.
The Court determined that TSA was not required to pay for an unfavourable award under any of the BFA's stipulations.
TSA could not be regarded as a judgment-debtor under the Arbitral Award if it were to be enforced as a decree, as required by Section 36(1) of the Act, because TSA was not a party to the Arbitral Award.
The request under Section 9 of the A&C Act to secure the disputed sum against TSA was not maintainable in the present circumstances.
There are no procedures for pleading third parties for the specific purpose of calculating the expenses, and no regulations have been developed that foresee recovering costs from individuals who are not parties to the suit or action.
Analysis:
Specifically, Anant Kumar Choudhary, Vivek Shukla, Pravin Chandra Rai, and SBS Transpole (collectively, the "Claimants") received funding from Tomorrow Sales Agency Private Limited ("TSA"), a non-banking financial company, through a Bespoke Funding Agreement ("BFA") in order to pursue their claim for recovery of damages against SBS Holdings Inc. ("SBS") before the Singapore International Arbitration Centre ("SIAC"). TSA, however, was not a party to either the arbitration in question or the arbitration agreement. An arbitral award (the "Arbitral Award") was issued after the dispute was resolved in SBS's favour. This Arbitral Award did not include TSA as a party. SBS demanded temporary measures to secure the awarded sum on the grounds that TSA was responsible for paying it.
Conclusion:
The Court acknowledged the crucial contribution that third party funders play in ensuring that everyone has access to justice. Without third party funding, those with good claims would be unable to go after money they are rightfully owed. Third party donors must, however, be well aware of any potential obligations they may face. They shouldn't be held responsible for obligations they haven't accepted or are ignorant of. Given this situation, it is crucial to ensure that funding agreements are well written, defining the funder's responsibility in the event of a bad arbitral decision. There are now no particular laws in India that govern third party funding for lawsuits, thus this decision is a big step forward and fills a big need.
