Monetisation of Domestic Arbitral Claims and Awards: Assignment and Hypothecation

[Hemang is an Advocate based in New Delhi and specialises in arbitration law.]

In 2019, Hindustan Construction Company transferred its beneficial interest in a portfolio of arbitration awards and claims to a special purpose vehicle controlled by a BlackRock-led consortium, for a consideration of about INR 1,750 crore. Such transactions are no longer uncommon: parties raise finance against pending claims, lenders take security over award proceeds, and investors acquire awards outright. Whether any of this is permissible depends upon what the claimant holds at the relevant stage: a mere right to sue, an ascertained debt, or an arbitral award.

This post examines the position at each stage under the Transfer of Property Act 1882 (TPA), along with certain limitations and drafting points that arise in practice. The discussion is confined to domestic awards under Part I of the Arbitration and Conciliation Act 1996 (Arbitration Act).

The Distinction between a Debt and a Mere Right to Sue

Section 6(e) of the TPA prohibits the transfer of a mere right to sue. Section 3, by contrast, defines an ‘actionable claim’ to include ‘a claim to any debt’, whether existing, accruing, conditional or contingent, and Section 130 permits its assignment. The distinction is therefore between a debt and a claim for damages. A debt is an ascertained monetary obligation, such as an undisputed unpaid invoice, and constitutes property capable of assignment. A claim for damages does not become a debt merely because a breach is alleged; until liability is admitted or adjudicated and the claim crystallises into a receivable, it remains a mere right to sue and is non-transferable [Union of India v. Raman Iron Foundry.

Section 2(1)(n) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 defines hypothecation as a charge over existing or future movable property, created without delivery of possession, as security for financial assistance. The charge, however, is created by the contract itself; the statute only provides the machinery for enforcement. Only property capable of existing as an asset may therefore be charged, and a mere right to sue, not being property, cannot be hypothecated. The same distinction governs the creation of security as well.

The Position at Each Stage

The effect on assignability and chargeability at each stage is tabulated below:

S. No.	Assignment	Hypothecation
Pre-arbitration
1.	A standalone claim under the contract is assignable only if it is a ‘debt’ for the purposes of the TPA. The arbitration clause is not assignable on its own; being in the nature of a remedy, it travels with the substantive rights when the contract is assigned [Kotak Mahindra Bank v. S Nagabhushan].	A bare, unadjudicated right to sue cannot be hypothecated. A charge may, however, be created over existing and future receivables which are ‘debts’, for instance over ‘all amounts that may become payable to the borrower in connection with the contract, including pursuant to any award or settlement’. Such a charge attaches only when the receivable comes into existence.
Arbitration pending
2.	The contract may still be assigned, carrying the arbitration agreement with it, and the assignee may seek substitution and continue the proceedings without starting afresh [Agri Marketing Co SARL v. Imperial Exports Limited]. A standalone claim remains transferable only if it is a ‘debt’.	A charge may be created over the future or contingent proceeds of the arbitration and over amounts credited to a designated or escrow account. The position is the same as at the pre-arbitration stage; the pending damages claim itself still cannot be charged.
Award under challenge
3.	The award determines the monetary obligation, and the award-debt is treated as an ‘actionable claim’ assignable under Section 130 of the TPA. The assignee, however, takes a defeasible asset: if the award is set aside, the assigned debt is extinguished.	Same as above, except that the receivable now exists. The security remains conditional: setting aside of the award extinguishes the secured receivable, and this risk should be disclosed and priced accordingly.
Award final
4.	Section 36 of the Arbitration Act creates a legal fiction which treats the award ‘as if it were a decree’. There is, however, ambiguity whether the award is a decree only for enforcement [Paramjeet Singh Patheja v. ICDS Limited], or whether the award-debt continues to be an ‘actionable claim’ under Section 3 of the TPA, since a decree has been held to fall outside that definition [Jugalkishore Saraf v. Raw Cotton Co Limited]. A written assignment of both the award and the underlying debt, executed after the award, with notice, in compliance with Section 131 of the TPA and Order 21 Rule 16 of the Code of Civil Procedure 1908, safeguards against any future objection to the validity of the assignment.	The award-debt now exists as a receivable and is no longer defeasible. A charge may be created over the award proceeds and amounts credited to a designated or escrow account. The award may also be assigned absolutely by way of security, i.e., a transfer of title to the lender with an obligation to reassign upon repayment.

Monetization in Practice

These principles are already in application. Following its 2019 transaction, Hindustan Construction Company completed a resolution plan with its lenders in September 2022, assigning bank debt of INR 2,854 crore to a special purpose vehicle together with the beneficial economic interest in arbitration awards and claims of INR 6,508 crore, the debt being serviced out of the award proceeds. In March 2026, it separately assigned awards aggregating INR 1,979 crore to a wholly-owned subsidiary.

Claims pending adjudication are also being financed. In Tomorrow Sales Agency Private Limited v. SBS Holdings Inc, the Delhi High Court held that Tomorrow Sales Agency, a non-banking financial company which had funded a SIAC arbitration, could not be made liable under the adverse costs award passed against the parties it had funded, and in doing so upheld the legitimacy of third-party funding of arbitral claims. Awards under challenge can also be monetized: under the mechanism approved by the Cabinet Committee on Economic Affairs on NITI Aayog’s recommendation, now Rule 227A of the General Financial Rules 2017, a government entity challenging an award releases 75% of the award amount against a bank guarantee, into an escrow account. Gayatri Projects received INR 208 crore under this mechanism and applied the proceeds towards repayment of its term loans.

Limitations on Assignment

The general principles of contract law continue to apply: contracts involving personal skill cannot be assigned; rights may be assigned but obligations only with the counterparty’s consent; and an express non-assignment clause, common in government contracts, bars assignment even of rights. The instrument of assignment also attracts stamp duty, generally as a conveyance, at rates varying from State to State, and an insufficiently stamped instrument cannot be received in evidence.

Pertinently, a transfer by operation of law stands on a different footing. Where an undertaking is transferred under a scheme of arrangement sanctioned under Sections 230 to 232 of the Companies Act 2013, the whole of the transferor’s property, including rights and interests of every description, vests in the transferee by the order of the National Company Law Tribunal, without any separate instrument of assignment.

Conclusion

The ability to monetise an arbitral claim depends on the stage of the dispute. Before adjudication, the claim remains a mere right to sue, and only existing or future contractual receivables can support financing. An award converts the claim into an assignable, chargeable debt, although its value remains contingent until any challenge is finally decided. Upon finality, the award may be more readily assigned or charged, even though the law remains unsettled on whether it is a decree outside the context of enforcement. The transaction must therefore be built around the asset that actually exists at the relevant stage, after examining the underlying contract for restrictions and documenting the transfer under the TPA and, where relevant, the Code of Civil Procedure 1908.