Navigating complex bond disputes: Injunction, joinder and collateral use of documents

The decision also determined whether the sharing of documents by an intermediary with bondholders amounted to a breach of the court rules, and whether it was appropriate for the bondholders to be joined to the proceedings against the Claimant's wishes.

Factual Background

Between May and August 2024, Eraaya Lifespaces Ltd (the bond issuer) ("Eraaya"), an Indian software company sought to acquire Ebix Inc. (the target) ("Ebix"). To fund the acquisition, Eraaya issued foreign currency convertible bonds in two tranches totalling US$ 120 million. Elara Capital Plc ("Elara"), an English investment banking and financial services entity, was appointed as Eraaya's financial advisor. Glas Specialist Services Ltd ("GLAS"), an English company providing debt administration services, was appointed as settlement agent.

In August 2024, the first tranche of bonds (US $60 million) was successfully issued, and the funds paid by the bondholders were transferred to Eraaya.

The second tranche of US $60 million in bonds was subscribed to by three investment funds including Selvi Capital, Multitude Growth Funds, and Bull Value (the "Bondholders").

US $20 million was released to Eraaya, but US $40 million of the proceeds remained unutilised and were held by GLAS until Eraaya produced a pledge over Ebix shares in favour of the Bondholders.

Dispute

A dispute arose when Elara refused to confirm the release of the US $40 million to Eraaya due to unmet conditions, particularly with respect to the security pledge of Ebix shares which Eraaya failed to provide – a key condition in the bond documentation. Notwithstanding this, Eraaya issued payment instructions to GLAS requesting transfer of the US $40 million.

In December 2024, the Bondholders wrote to Elara (without sending a copy of the letter to Eraaya) that they did not consent to the release of the funds, and GLAS continued to hold the proceeds.

Legal proceedings begin

In February 2025, Eraaya issued a claim against Elara alleging breach of contract for failing to provide confirmation for the release of funds. The Bondholders became aware of the proceedings and informed Elara that the Bondholders held a proprietary interest in the funds held by GLAS and the funds should not be released. A few weeks later, Eraaya served its claim, seeking, amongst other things, injunctive relief to compel Elara to provide the required confirmation and to instruct GLAS to release the funds.

The Bondholders were not named in the proceedings. However, Elara sent the Bondholders a copy of the documents on the basis that it was caught in the middle of the dispute and suggested the Bondholders join the proceedings. Elara also wrote to Eraaya and complained that the Bondholders ought to have been joined and that it was inappropriate to seek an expedited hearing.

The Bondholders duly applied to be joined, asserting proprietary claims over the funds. Eraaya strongly opposed to the joinder application. Eraaya also alleged that Elara and the Bondholders had acted in breach of the CPR rules for their improper collateral use of the documents served on Elara.

Court Decision

(i) Mandatory Injunction Application by Eraaya

The Court applied the principles for mandatory injunctions, noting that such relief is granted only in “unusually strong and clear” cases. In National Commercial Bank Jamaica Ltd v Olint Corporation Ltd [2009] 1 WLR 1405(PC) [19], Lord Hoffman held that "the court should take whichever course seems likely to cause the least irremediable prejudice to one party or the other" (emphasis added). While Eraaya demonstrated a serious issue to be tried, the Court found its case to be “confused and far from strong.”

The Court refused to grant the mandatory injunction, finding that:

Firstly, on the true construction of the agreement between Eraaya and GLAS that Elara was not a party to the Agreement and had no enforceable obligation.  Elara was simply referenced in the Agreement – specifically in a clause which required Elara to provide confirmation before GLAS can release the proceeds – however this was subject to the conditions that either the collateral has been granted (by way of pledge) or the Bondholders gave their consent. In this case, neither obligation was discharged.

Secondly, the engagement letter appointed Elara as a financial adviser on a “best efforts” basis, lacking any clear obligation to provide the confirmation.

Thirdly, applying the balance of convenience test, the Court favoured Elara and the Bondholders, given Eraaya’s financial instability and the risk of irremediable harm to the Bondholders if the funds were wrongly released. Conversely, the alleged prejudice or harm to Eraaya from not receiving the funds could be compensated in damages.

Finally, Eraaya’s claims of regulatory urgency and risk of losing control of Ebix (the target) were found to be speculative or unsubstantiated.

(ii) Joinder Application by the Bondholders (against the Claimant's wish)

The judgment provides a useful analysis on whether a party be joined to proceedings as a defendant against the claimant’s wishes.

Eraaya argued it had the right to choose whom to sue and opposed the joinder of the Bondholders.

The Court rejected Eraaya's argument that its consent to joinder was needed, clarifying that CPR 19.2(2)(a) and (b) grants the Court a wide power to allow joinder if it is desirable to resolve all matters in dispute or if there is a connected issue between the new and existing parties. This proposition was supported by in the case of Shetty v Al Rushaid Petroleum Investment Company & Ors [2011] EWHC 1460 (Ch) – the fact that a claimant has chosen not to sue a particular defendant is not a barrier to joinder.

Accordingly, the Court granted the Bondholders' application to join the proceedings, finding:

Firstly, the claimant’s right to choose defendants applies only where the same claim could be brought against multiple parties. Referring to Pawley v Whitecross Dental Case Ltd and another [2021] EWCA Civ 1827, the court held that where a claimant has the same claim against a potential variety of defendants, the claimant does have a right to choose against which of these defendants will seek relief. However in this case, the Bondholders had distinct claims (e.g. proprietary rights over funds), not duplicative ones. Mrs Justice Cockerill states that "… in reality the centre of gravity of the dispute between Bondholders and Eraaya is the Bondholders' claim against Eraaya." Accordingly, joinder should be allowed.

Secondly, the Bondholders had a direct economic interest in the outcome of the proceedings (directly affected by the relief sought by Eraaya), arguable claims, and their involvement would assist the Court in resolving the dispute comprehensively. Joinder made obvious sense.

Finally, the Bondholders’ claims were intertwined with the main dispute, and their joinder was necessary to avoid inconsistent judgments and ensure a fair hearing. The absence of a draft pleading was not fatal (not required in the CPR); the application was supported by sufficient evidence.

(iii) Collateral Use of Disclosed Documents with Non-Parties

Elara had shared documents with the Bondholders before they were joined to the proceedings.

Eraaya alleged that Elara and the Bondholders breached English Civil Procedure Rules 31.22 and 32.12 by sharing and using disclosed documents outside the proceedings.

The Court found this claim was technically a breach of the collateral use rule because:

Firstly, the Bondholders were not yet parties, and the use of documents by non-parties before joinder constituted a breach of the rule, even if it is envisaged that the party may wish to apply to join the proceedings.

Secondly, the documents were used to prepare a joinder application, which is outside the scope of the original proceedings.

However, retrospective permission for use of the documents was granted due to (i) lack of prejudice to Eraaya, (ii) the claim was not based on the misused documents (they provided the "heads up" as to the existence of a need to make a claim, but not the material for the claim), (iii) the Bondholders' joinder was ultimately necessary and appropriate, not just for the parties but also for the Court to resolve the dispute, and (iv) the importance of the Bondholders’ participation in the proceedings; denying permission would be disproportionate and hinder justice.

In conclusion, collateral use rules protect against misuse of documents disclosed under compulsion.  Collateral use of documents by non-parties – even with an interest in the case – is not permitted unless the documents are read in an open court; the Court grants permission; or the disclosing party consents.

Key Takeaways

1. Contractual clarity is crucial

Engagement letters and transaction documents should clearly define the roles and obligations of financial advisers and intermediaries, and include detailed terms for fund release, investor protections, and dispute resolution mechanism.

It is important to verify counterparties' ability to meet conditions, such as pledges and board composition. 

2. Investor protections must be explicit

Where bondholders rely on collateral or escrow-like arrangements, these must be documented with precision. Side agreements may not be enforceable; it is important to avoid informal or undocumented assurances. Parties should communicate clearly about timelines and condition precedents.

3. Proprietary claims can complicate fund releases

Bondholders may assert proprietary interests in transaction funding, especially where conditions precedent  are unmet.

4. Joinder of interested parties may be necessary

It is important to identify stakeholders with proprietary or economic interests to avoid procedural delays. This is particularly relevant in multi-party financing disputes.

5. Strict compliance with disclosure rules

Collateral use restrictions under CPR 31.22 and 32.12 are strictly enforced. Firms and their legal teams must exercise caution when sharing documents with non-parties without restriction or seeking relief from the court or the issuing party.