Delhi High Court recently made a significant ruling regarding third-party funders in arbitration proceedings In the case of "Tomorrow Sales Agency Private Limited v. SBS Holding, Inc and Ors".

Division Bench of Justices Vibhu Bakhru and Amit Mahajan stated that third-party funders play a crucial role in ensuring access to justice and cannot be held liable for risks they have not undertaken or are unaware of.

The court emphasized the importance of third-party funding, particularly in cases where claimants lack the necessary financial means to pursue their claims effectively. Pursuing legal action can be costly, involving fees for arbitrators, legal counsels, experts, and other expenses. The court noted that without third-party funders, individuals without the financial resources would have limited access to justice.

The case originated from a Bespoke Funding Agreement (BFA) between Tomorrow Sales Agency (TSA), a Non-Banking Financial Company (NBFC), and SBS Transpole Logistics and its promoters. TSA provided financial assistance to pursue a claim for damages against SBS Holdings Inc and Global Enterprise Logistics (GEL), Singapore, amounting to nearly ₹250 crore. However, SBS Transpole and its promoters failed in the arbitration, and costs were awarded in favor of SBS Holdings.

When SBS Holdings sought to enforce the award, it was discovered that SBS Transpole did not have sufficient assets to satisfy the award. SBS Holdings then demanded payment from TSA, which denied any obligation, arguing that the costs imposed were against SBS Transpole and its promoters, not TSA. TSA claimed that the BFA terminated on the date of the arbitral award, and it had no further obligations.

The single-judge initially ordered TSA and SBS Transpole to disclose their assets and restrained them from encumbering their assets. However, the Division Bench overturned this order, stating that there is no basis for enforcing an arbitral award against a non-signatory (TSA) who was not party to the arbitral proceedings. The court ruled that TSA was not obligated to pay any amount under the arbitral award since the costs were awarded against SBS Transpole and its promoters, not TSA.

The court emphasized that there are no rules applicable to awarding costs against third parties in proceedings before the court. If a person wishes to pursue a claim against another party, they must institute a substantive action and provide the necessary pleadings and evidence. In this case, TSA was not a party to the arbitral proceedings and was not liable for the costs.

This ruling highlights the need for third-party funders to be fully aware of their exposure and ensures that they cannot be held liable for liabilities they have not undertaken or are unaware of. The court's decision aims to protect the role of third-party funders in promoting access to justice.

Advocates Shashank Garg, Aman Gupta, Atharva Koppal, and Nishtha Jain represented TSA, while advocates Gautam Narayan, Asmita Singh, Ranjith Nair, Altamash Qureshi, Akriti Arya, and Harshit Goel appeared for SBS Holdings and other respondents in the case.