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Arbitration Law

Recently, the Delhi High Court refused to hold a third-party funder liable for furnishing security in enforcement of a foreign award, ruling that the funder — not being either a party to the arbitration agreement, the arbitration, or the eventual award — could not be “mulcted with liability, which they have neither undertaken nor are aware of”. 

In its judgment in Tomorrow Sales Agency Private Limited v. SBS Holdings, Inc. & Ors.[1], the Court observed that any uncertainty in holding a funder liable for an adverse award would dissuade third-party funders from funding proceedings.

The Court analysed the applicability of the Supreme Court’s (“SC”) judgments in Gemini Bay[2]on the liability of a non-signatory to an arbitration agreement under an arbitral award—and Chloro Controls[3]on the circumstances under which a non-signatory to an arbitration agreement can be joined to an arbitration proceeding. In this article, we explore the Court’s analysis of these judgments.

A summary of the proceedings in arbitration and before a single judge of the Delhi High Court

The promoters of SBS Transpole Logistics Private Limited (“Transpole”) had launched SIAC arbitration against SBS Holdings Inc. (and another company, Global Enterprise Logistics Pte Ltd.), arguing that the respondents had failed in their contractual undertaking to integrate Transpole with SBS Holdings. Behind the scenes, they obtained third-party funding (“TPF”) from Tomorrow Sales Agency Private Limited (“TSA”), on a non-recourse basis and under a bespoke funding agreement.

In its final award, the tribunal rejected the claims and ruled that the claimants were liable to pay the respondents’ legal costs on a joint and several basis.

Following the claimants’ failure to honour the award, SBS Holdings applied to the Delhi High Court for interim relief under Section 9 of the Arbitration and Conciliation Act, 1996 (“A&C Act”). Notably, it filed its petition not just against the claimants, but also TSA, arguing that TSA was equally liable for the award as it had funded the entire litigation and had an exclusive and unsevered prior right to any damages that would have been awarded to the claimants.[4]

By an order dated March 7, 2023, Justice Navin Chawla granted the interim relief requested against both the claimants and TSA. The judge rejected TSA’s argument that under Section 46 of the A&C Act, a foreign award can only be enforced against parties to the arbitration agreement, relying in this regard on Gemini Bay, where the SC had ruled that Section 46 speaks of “persons” who may therefore, be even non-signatories to the arbitration agreement (albeit under certain specific circumstances).

A third party/ funder’s liability for an arbitral award

Section 46 of the A&C Act stipulates that a foreign award shall be treated as binding for all purposes on the “persons as between whom it was made”. In Gemini Bay,the SC had ruled that Section 46 does not speak of parties, but of persons, and that could therefore also include non-signatories to the arbitration agreement. Accordingly, the SC had refused to entertain objections raised by non-signatories to the enforcement of a foreign award, ruling that they would fall within the ambit of Section 46.[5]

In Gemini Bay, the claimant had initiated arbitration against its counterparty to a contract as well as against a group of companies who were not a party to the contract, but controlled by the same individual who controlled the counterparty. The tribunal invoked the alter ego doctrine to lift the corporate veil on grounds that the total control and domination of the companies was with the same individual. It then passed orders against the non-signatories (after treating them as parties to the arbitration). Against this backdrop, the SC rejected the non-signatories’ argument that the award creditor ought to substantively prove that the non-signatories were bound by the arbitration agreement while seeking enforcement, ruling that Section 47 of the A&C Act was procedural in nature, and did not require the award creditor to undertake such substantive proof once the tribunal had come to a reasoned finding in relation thereto in its award.

In Tomorrow Sales,a division bench ruled that the Single Judge’s reliance on Gemini Bay was “misplaced”. Without engaging on the wording of Section 46, the division bench distinguished Gemini Bay, noting that in that case, the non-signatory was in fact a party to the arbitration and accordingly directions were passed against it in the award. In the present case, TSA was neither a party to the arbitration nor had any orders been passed against it (and could not have been).  As such, the factual background in Gemini Bay was different from Tomorrow Sales, where the funder did not have any nexus to the arbitration or the dispute except for the bespoke funding agreement.

SBS Holdings had also relied on the SC’s judgment in Cheran Properties Ltd. v. Kasturi & Sons Ltd.[6],wherethe SC had ruled that a non-signatory, who was not a party to the arbitration, was still bound by an adverse award, as it was a person claiming under a party who was a party to the arbitration. In its judgment, the division bench had ruled that Cheran Properties was inapplicable to the facts before it. In any case, it is unlikely for Cheran Properties to apply in the context of a third-party funder, as the funder would not be a party “claiming under” the funded party.

As a result of the division bench’s ruling, a third-party funder who has not been made a party to an arbitration or against whom the award does not pass directions cannot be liable for the award.

Third-party funders and joinder

The Court also considered the judgment in Chloro Controls where the SC had ruled that a non-signatory party could be subjected to arbitration in “exceptional cases” —when the transactions in question were with a group of companies and there was a “clear intention” to bind the non-signatories.[7] The exceptions would have to be from the “touchstone of direct relationship to the party signatory to the arbitration agreement, direct commonality of the subject matter and the agreement between the parties being a composite transaction”.[8]

The lodestar of arbitration is consent and party autonomy. An arbitral tribunal has jurisdiction only over parties to the arbitration agreement, or which have submitted to its jurisdiction or otherwise been joined to the proceedings.

Guidance on applying the doctrine of implied consent or group of companies to third-party funders is available in the 2018 Report of the International Council for Commercial Arbitration-Queen Mary Task Force on Third Party Funding in International Arbitration (“ICCA Report”).[9]

The ICCA Report opined that non-signatory theories may not be tenable to join a third party funder to arbitration, given the “typical one-off and arm’s length commercial relationship and the lack of corporate links between a third-party funder and a funded party, [and the absence of] any involvement in the performance of the underlying contract or its termination.[10] The report also opined that while funders under certain circumstances might be (even actively) involved in the arbitration proceedings, “this will not usually be sufficient to establish implied consent to the arbitration agreement by conduct.[11]

In light of the unique nature of the question before it, of whether a funder is liable to pay an arbitral award, the division bench in Tomorrow Sales did not deal with Chloro Controls in detail.

Nevertheless, it is difficult to see how a party can successfully invoke Chloro Controls to join a third-party funder in arbitration for reasons discussed in the above paragraphs. As a funder is an unrelated third party, it is unlikely that by virtue of it having an interest in the successful resolution of the proceedings and recovery thereof, it would be joined as a party to the arbitration.

In fact, the division bench in Tomorrow Sales also noted that though the SIAC Arbitration Rules contain provisions for joinder, SBS Holdings did not apply to join TSA. Even if SBS Holdings had made an application, the chances of it succeeding would have been slim, given that the SIAC Rules require the additional party to prima facie be bound by the underlying arbitration agreement—which would have been difficult to show for reasons discussed in the above paragraphs. It is worth noting that in the case of ad-hoc arbitrations under the A&C Act, there is at present no provision for a party to directly apply to the tribunal for the joinder of a party.

One may ask if a funder may nevertheless be joined to an arbitration based on the level of control exercised by the funder. A funder exercising full control over the proceedings may be deemed to have, in such circumstances, the same interest as, and therefore qualify as a party liable to be joined to the proceedings (and consequently be directly liable for any adverse award). A dangerous level of control over the funded claim may also expose the funding agreement to be struck down on public policy considerations, as a court may view the arrangement as being champertous. Therefore, it is important for funders and funded parties to be careful of the level of control they exercise.


The judgment in Tomorrow Sales is a well-reasoned articulation of the contours of any third-party’s liability to an arbitral award. As we move towards more development in the jurisprudence surrounding TPF, it is important to remember that the age-old question of whether TPF is valid in arbitrations has now been answered in the positive, with the Delhi High Court ruling that third-party funders play a vital role in ensuring access to justice.

[1] FAO(OS) (Comm) 59 of 2023 and CM Nos. 14792 of 2023 & 14794 of 2023. Coram: Mr. Justice Vibhu Bakhru and Mr. Justice Amit Mahajan (“Tomorrow Sales”). Judgment available at

[2] Gemini Bay Transcription Private Limited v. Integrated Sales Service Limited & Another (2022) 1 SCC 753.

[3] Chloro Controls (India) Pvt. Ltd. v. Severn Trent Water Purification Inc. (2013) 1 SCC 641.

[4] SBS Holding Inc v. Anant Kumar Choudhary & Ors., O.M.P (I) (Comm.) 71 of 2023.

[5] Gemini Bay at ¶¶ 38 and 73.

[6] (2018) 16 SCC 413.

[7] Chloro Controls at ¶ 72.

[8] Chloro Controls at ¶ 73.

[9] Available here: (“ICCA Report”)

[10] ICCA Report at p. 161.

[11] ICCA Report at p. 161.