Third-party guarantor liability: a voluntary security instrument can be enforced against the provider alongside the primary obligor.

A third party who voluntarily and knowingly provides a specific security for a claim submitted to arbitration may be treated as a guarantor for enforcement purposes; the court applied principles of enforcement under the Arbitration and Conciliation Act and held that where the security corresponds to the award amount the claimant may proceed against that security. Applying that principle to an undated cheque delivered as security for demurrage, the court permitted enforcement of the foreign arbitral award and corrective award jointly and severally against the 2nd respondent with the 1st respondent.

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Issues: Whether the appellant is entitled to enforce the Foreign Arbitral Award dated 26.03.2021 and the Corrective Award dated 17.05.2021 against the 1st and 2nd respondents jointly and severally where the 2nd respondent was not a party to the arbitration but had issued a cheque as security for the 1st respondent.

Analysis: The enforcement proceedings were governed by Sections 46 to 49 and Section 9 of the Arbitration and Conciliation Act, 1996 and the factual matrix shows the 2nd respondent voluntarily issued an undated cheque for Rs. 2,06,78,000/- expressly as security for the disputed discharge port demurrage which was the subject matter of the arbitration. The court noted that the cheque was delivered and accepted in court proceedings as security (recorded in earlier orders) and that the 2nd respondent was aware of the nature of the dispute and the possibility of an award being enforced. The court distinguished the technical objection that enforcement can only be against a party to the arbitration by recognising that a third party who voluntarily and knowingly provides security for the claimant's arbitration claim stands in the position of a guarantor; when an award in favour of the claimant is passed for the same amount, the claimant has a right to proceed against such security. The court further observed that this conclusion does not require invocation of the doctrine of lifting the corporate veil because the 2nd respondent, by issuing the cheque as security, effectively undertook liability for the specific claim.

Conclusion: The appellant is entitled to enforce the foreign arbitral award and corrective award against the 2nd respondent jointly and severally with the 1st respondent; the order of the learned Single Judge dated 16.10.2023 is set aside and the appeal is allowed. No costs.

Ratio Decidendi: A third party who knowingly and voluntarily provides a specific security (such as an undated cheque) for a claim submitted to arbitration, and whose security corresponds to the amount awarded, may be treated as a guarantor for enforcement purposes and an arbitral award in favour of the claimant can be enforced against that third party on the basis of the security provided.

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