The Delhi High Court propounded that a party cannot escape liability if it has funded litigation for a gain, but the result is contrary to its expectations. There has to be a balance between the need to ensure access to justice via the funding arrangement and the cost that Defendant would bear if such litigation fails.
There was a Bespoke Funding Agreement between the parties, regarding which the Court opined that prima facie the cost levied by the arbitral award would become the cost covered by the Bespoke Agreement itself as these are the cost of litigation of Respondents No.1 to 4, agreed to be funded by the Respondent No.5.
Brief Facts:
As per the Petitioner, the award was passed in the favor of the Petitioner in the arbitration proceedings conducted under the aegis of the Singapore International Arbitration Centre (“SIAC”).
Further, in another arbitration proceeding, the award was passed in favour of the Petitioner and against Respondent No.4. During enforcement of the said award, the liquidation process against Respondent No.4 commenced. The Court noted that Respondents No. 1 to 4, to negate the enforcement of the award, withdrew from the bank accounts and encumbered the fixed assets.
Hence, interim protection has been sought by the Petitioner in the present case.
Contentions of the Petitioner:
It was submitted that Respondent No.5 has been funding the entire litigation including the cost of lawyers, experts etc. for Respondents No. 1 to 4. There was a Bespoke funding Agreement between the Respondents and hence, Respondent No.5 was liable to make good the costs that have been levied on Respondents No.1 to 4 in the said award.
t was alleged that the ambit of Section 46 is wider than Section 35 of the A&C Act and hence, it would cover all the parties to the Agreement.
Contentions of the Respondent No.5:
It was argued that as per Section 46 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “A&C Act”), the foreign award can be enforced only against the person with whom it was made. Therefore, it cannot be enforced against third parties.
It was also contended that the Bespoke funding Agreement was to terminate if the claim filed by Respondents No. 1 to 4 was not a success. Hence, the agreement now stood terminated.
Observations of the Court:
It was observed that the Petitioner made a prima facie case to show that if an ad interim injunction was not granted, the award passed in favour of the Petitioner would become a paper decree. Further, it was also prima facie proved that Respondent No.5 had a vested interest in the outcome of the arbitral proceedings as he funded Respondent No.1 to 4 for a benefit of return.
The Bench propounded that a party cannot escape liability if it has funded litigation for a gain, but the result is contrary to its expectations. There has to be a balance between the need to ensure access to justice via the funding arrangement and the cost that Defendant would bear if such litigation fails. Further, it was ruled that prima facie the cost levied by the award would become the cost covered by the Bespoke Agreement itself as these are the cost of litigation of Respondents No.1 to 4.
The High Court also held that the Bespoke Agreement would continue till the passing of the arbitral award and the Petitioner sought to enforce the award in terms of the Bespoke Agreement.
The decision of the Court:
Based on the aforementioned reasons, the Delhi High Court granted interim protection to the Petitioner.
Case Title: SBS Holding INC v. Anant Kumar Choudhary & Ors.
Coram: Hon’ble Mr. Justice Navin Chawla
Case No.: O.M.P. (I) (COMM.) 71/2023
Advocates for Petitioner: Advs. Mr. Gautam Narayan, Ms. Asmita Singh, Mr. Unmukt Gera, Mr. Harshit Goel, Mr. Renjith Nair, Mr. Altamash Quereshi, Ms. Akriti Arya
Advocates for Respondents: Advs. Mr. I.P.S. Oberoi, Mr. Shashank Garg, Mr. Aman Gupta, Mr. Atharva Koppal
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