India - Third Party Funding and mulcting liability on a Funder

  • 31 May 2023 31 May 2023

Recently, a Division Bench of the Hon’ble Delhi High Court in Tomorrow Sales Agency Private Limited v. SBS Holdings, Inc. and Ors. 2023 DHC 3830-DB, made encouraging observations on the role and importance of third party funders in ensuring access to justice.

Briefly, in the present case, a third party funder registered as a non-banking financial company, entered into a bespoke funding agreement with the claimant for funding arbitration proceedings before the Singapore International Arbitration Centre. The claimant did not succeed in its claims in the arbitration and suffered an arbitral award against it.

Ultimately, the successful party filed a petition under Section 9 of the Arbitration and Conciliation Act, 1996 (‘Act’) inter-alia against the third party funder, seeking urgent interim measures of protection in aid of enforcement of the award. 

The Ld. Single Judge of the Hon’ble Delhi High Court passed interim directions against the third party funder, however, this decision was assailed by the third party funder before the Division Bench of the Hon’ble Delhi High Court. 

As highlighted hereinafter, the Hon’ble Delhi High Court in no uncertain terms held that third party funding is essential to ensure access to justice. The decision underscores the pro-arbitration commitment demonstrated by the Executive and the Judiciary in recent years. 

The verdict is alive to the costs associated with pursuing claims in arbitrations which could make parties impecunious on account of the very cause for which they seek redressal. Moreover, the decision’s acknowledgement of third party funding agreements arguably resolves the uncertainty surrounding such agreements, in terms of permissibility.


Whether the third party funder could be held liable to pay amounts under an arbitral award where the funder was neither a party to the arbitral proceedings nor the arbitral award? 


The Division Bench of the Hon’ble Delhi High Court set aside the findings of the Ld. Single Judge, who had passed interim directions against the third party funder, on the principles of joinder of non-signatories to arbitration. 

In summary, the Hon’ble Division Bench has observed as follows:

  1. Arbitration is founded on the agreement between the parties to refer their disputes to arbitration and consent is the corner stone of arbitration. 
  2. The Arbitral Tribunal derives its jurisdiction to adjudicate the disputes on the basis of an agreement between the parties that the disputes would be resolved by arbitration and that they would be bound by the award. Ordinarily, absent any agreement to the said effect, any award against a person would be without jurisdiction. 
  3. Courts have, in exceptional cases, held non-signatories to be bound by the arbitration. The legal basis for holding that a non-signatory is bound by an arbitration agreement includes both purely consensual theories such as agency, assumption, assignment and non-consensual theories such as estoppels and alter ego.
  4. 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. 
  5. Even a signatory to an arbitration agreement against whom an arbitration agreement is not invoked and is not joined as a party to the arbitral proceedings, would not be bound by the arbitral award rendered pursuant to the said proceedings. In such circumstances, it may not be possible to enforce an arbitral award against a non-signatory, who is not a party to the arbitral proceedings.
  6. In the present case, the parties to the arbitration agreement had expressly agreed not to bind any third party to the arbitration. Thus, the agreement was antithesis to the principle of consent, which is fundamental to arbitration and one of the factors for binding a non-signatory to arbitration.
  7. Section 36(1) of the Act provides that the arbitral award shall be enforced in accordance with the provisions of the Code of Civil Procedure, 1908 in the same manner as if it was a decree of the court. Since, the third party funder is not a party to the arbitral award, it cannot be treated as a judgment-debtor under the arbitral award if it is enforced as a decree. 
  8. Therefore, Section 9 of the Act, which provides for interim measures of protection and is available in aid of enforcement of the arbitral award, cannot be brought into operation against the third party funder, against whom there is no arbitral award which can be enforced under Section 36 of the Act. 
  9. There are no applicable rules to proceedings before the Delhi High Court for awarding costs against third parties. There is no procedure for impleading third parties for the limited purpose of determining the costs. If a person proposes to pursue any claim against another person, it would be necessary for the said claimant to institute a substantive action in that regard. Thus, English law principles in support of the proposition cannot advance the case of the party seeking to rely on them.
  10. Third party funding is an essential tool which would enable a person, who is otherwise unable to, to pursue a valid claim that may be legitimately due. The cost for pursuing claims in arbitration are significant and includes fees paid to arbitrators and institution along with professional fees for legal counsels and experts. A person without the necessary means would have no recourse, in the absence of third party funders. Third party funders play a vital role in ensuring access to justice.
  11. At the same time, it is essential for the third-party funders to be fully aware of their exposure. They cannot be mulcted with liability, which they have neither undertaken nor are aware of. Thus, it is necessary to ensure that there is transparency and that the party funding is not exploitative.
  12. The fact that a party is funded by a third party is a relevant fact in considering whether an order for securing the other party needs to be made. However, permitting enforcement of an arbitral award against a non-party which has not accepted any such risk, is impermissible.  

Ultimately, the judgment of the Ld. Single Judge was set aside by the Hon’ble Division Bench while observing that it would be counterproductive to introduce an element of uncertainty by mulcting third party funders with a liability they have no agreed to bear.


The present judgment passed by the Hon’ble Delhi High Court makes it beyond any cavil that India as a jurisdiction is alive to the concept of litigation funding. Indeed, there should be safeguards while engaging in such arrangements and formal rules in this regard, will provide stakeholders clarity on structuring such arrangements.

For the present, this decision is a welcome one, both for parties who are cash strapped due to myriad reasons and thus, forego valid meritorious claims and, also for arbitration as a mode for dispute resolution. Going forward, it will be interesting to observe the applicability and reliance on this judgment by stakeholders.

In the times to come, the authors anticipate that this decision will provide further impetus to the Government’s initiative of making India an arbitration hub and could lead to an increase in the number of claims owing to the comfort of funding which can be provided by such third party funders.

At the same time, the third party funders should be mindful and alive to the possibility of certain issues including, the chances of being held liable for any adverse decision passed by the arbitral tribunal against the claimant, as well as potential inter-se claims with the claimant, it has sought to fund.

It is the nature of agreement between the third party funder and the beneficiary, which could largely determine the scope of liability of such third party funders and the overall profitability of such an arrangement. 


Sumeet Lall

Partner, CSL Chambers

Sidhant Kapoor

Senior Associate, CSL Chambers

**CSL Chambers, is an associated firm of Clyde & Co LLP, a Full Service Global Law Firm.

For any inquiries, please feel free to contact the authors.



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