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Indian Court Judgments in February 2026: LawLens Monthly Reporter

Explore 245 LawLens reports on Indian court judgments published in February 2026, with case summaries, legal issues and key holdings.

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February 2026 Judgments

245 ARTICLES · NEWEST FIRST
### Doctrine of Commercial Wisdom Reaffirmed: Judicial Review of CoC Decisions Limited to Statutory Compliance and Procedural Fairness Analysis and Findings The Supreme Court dismissed the appeals filed by unsuccessful resolution applicants challenging the approval of Sarda Energy and Minerals Limited’s (SEML) Resolution Plan. The Court held that clarifications sought by the Resolution Professional (RP) regarding bank guarantees and payment options, under the direction of the Committee of Creditors (CoC), did not constitute a "material irregularity" or a modification of the bid. The Court emphasized that the "commercial wisdom" of the CoC is paramount and non-justiciable. Judicial review by the NCLT or NCLAT is strictly confined to ensuring compliance with Section 30(2) and Section 61(3) of the IBC. The Court cautioned against "strategic litigation" by unsuccessful bidders, noting that excessive judicial interference erodes the value of the corporate debtor and undermines the IBC’s objective of time-bound insolvency resolution. Key Takeaways * Non-Justiciability: The CoC's assessment of a plan's viability, valuation, and feasibility belongs exclusively to its commercial domain; courts cannot substitute their own assessment. * RP Conduct: An RP acting on CoC instructions to seek clarifications from all applicants does not commit a material irregularity. * Predictability and Finality: Predictability in the insolvency process is essential for market stability, and finality must be protected to prevent value-destructive delays. * Appellate Limits: Appeals under Section 62 of the IBC are restricted to substantive questions of law arising from the limited grounds specified in Section 61(3).. Torrent Power Ltd. v. Ashish Arjunkumar Rathi & Others [2026 INSC 206]. Supreme Court. LawLens

Supreme Court·

### Doctrine of Commercial Wisdom Reaffirmed: Judicial Review of CoC Decisions Limited to Statutory Compliance and Procedural Fairness Analysis and Findings The Supreme Court dismissed the appeals filed by unsuccessful resolution applicants challenging the approval of Sarda Energy and Minerals Limited’s (SEML) Resolution Plan. The Court held that clarifications sought by the Resolution Professional (RP) regarding bank guarantees and payment options, under the direction of the Committee of Creditors (CoC), did not constitute a "material irregularity" or a modification of the bid. The Court emphasized that the "commercial wisdom" of the CoC is paramount and non-justiciable. Judicial review by the NCLT or NCLAT is strictly confined to ensuring compliance with Section 30(2) and Section 61(3) of the IBC. The Court cautioned against "strategic litigation" by unsuccessful bidders, noting that excessive judicial interference erodes the value of the corporate debtor and undermines the IBC’s objective of time-bound insolvency resolution. Key Takeaways * Non-Justiciability: The CoC's assessment of a plan's viability, valuation, and feasibility belongs exclusively to its commercial domain; courts cannot substitute their own assessment. * RP Conduct: An RP acting on CoC instructions to seek clarifications from all applicants does not commit a material irregularity. * Predictability and Finality: Predictability in the insolvency process is essential for market stability, and finality must be protected to prevent value-destructive delays. * Appellate Limits: Appeals under Section 62 of the IBC are restricted to substantive questions of law arising from the limited grounds specified in Section 61(3).

SKS Power Generation (Chhattisgarh) Ltd. (Corporate Debtor) underwent Corporate Insolvency Resolution Process (CIRP) initiated by Bank of Baroda

2 MIN READ

### Fabricated steel superstructure is an unspecified commodity taxable at the higher rate in works contracts. Overview: Ircon International Ltd. challenged a reassessment order under the Bihar Value Added Tax Act, 2005, for the period 2014-15. The petitioner, engaged in a rail-cum-road bridge project, argued that structural steel used in the project should be taxed as "declared goods" (Section 14 of the CST Act) at 5% and that payments to sub-contractors for fabrication should be deductible. Key Legal Issues: 1. Classification of Goods: Whether fabricated "triangulated steel girders" retain the character of "iron and steel" or transform into a distinct, unspecified commodity. 2. Taxable Event & Valuation: Determining the point of incorporation in a works contract and whether fabrication/transportation costs form part of the taxable value. 3. Jurisdiction under Section 31: Whether the authority could invoke reassessment powers without a "change of opinion" bar. Court’s Observations: * Transformation & Marketability: The Court applied the "twin tests" from *Quippo Energy Ltd.*, ruling that raw structural steel underwent a fundamental change through fabrication to become a bridge superstructure. This transformation created a commercially distinct commodity with a different functional utility. * Taxable Value: Relying on *Gannon Dunkerley*, the Court held that since the property in goods passes only at the time of incorporation into the work, the measure of tax is the value of the goods at that specific moment. Consequently, costs incurred to bring the goods to their final form (fabrication, transportation, and erection) prior to incorporation are not deductible. * Consistency vs. Res Judicata: The Court clarified that principles of *res judicata* do not strictly apply to tax proceedings. The fact that the Department taxed the petitioner at 4-5% in previous years did not prevent a correct reassessment if the fundamental legal classification was never specifically adjudicated. * Sub-Contractor Turnover: The Court distinguished *Larsen & Toubro (2008)*, noting that the assessing officer did not improperly add the sub-contractor’s turnover but rather correctly valued the final fabricated structure transferred by the main contractor. Conclusion: The High Court dismissed the writ petitions, upholding the assessment at 13.5% (as unspecified goods) and affirming that fabrication and launching costs are part of the taxable value of the processed goods in a works contract.. Ircon International Ltd. v. The State of Bihar & Others [CWJC No. 3600 of 2020 with connected matters]. Patna High Court. LawLens

Patna High Court·

### Fabricated steel superstructure is an unspecified commodity taxable at the higher rate in works contracts. Overview: Ircon International Ltd. challenged a reassessment order under the Bihar Value Added Tax Act, 2005, for the period 2014-15. The petitioner, engaged in a rail-cum-road bridge project, argued that structural steel used in the project should be taxed as "declared goods" (Section 14 of the CST Act) at 5% and that payments to sub-contractors for fabrication should be deductible. Key Legal Issues: 1. Classification of Goods: Whether fabricated "triangulated steel girders" retain the character of "iron and steel" or transform into a distinct, unspecified commodity. 2. Taxable Event & Valuation: Determining the point of incorporation in a works contract and whether fabrication/transportation costs form part of the taxable value. 3. Jurisdiction under Section 31: Whether the authority could invoke reassessment powers without a "change of opinion" bar. Court’s Observations: * Transformation & Marketability: The Court applied the "twin tests" from *Quippo Energy Ltd.*, ruling that raw structural steel underwent a fundamental change through fabrication to become a bridge superstructure. This transformation created a commercially distinct commodity with a different functional utility. * Taxable Value: Relying on *Gannon Dunkerley*, the Court held that since the property in goods passes only at the time of incorporation into the work, the measure of tax is the value of the goods at that specific moment. Consequently, costs incurred to bring the goods to their final form (fabrication, transportation, and erection) prior to incorporation are not deductible. * Consistency vs. Res Judicata: The Court clarified that principles of *res judicata* do not strictly apply to tax proceedings. The fact that the Department taxed the petitioner at 4-5% in previous years did not prevent a correct reassessment if the fundamental legal classification was never specifically adjudicated. * Sub-Contractor Turnover: The Court distinguished *Larsen & Toubro (2008)*, noting that the assessing officer did not improperly add the sub-contractor’s turnover but rather correctly valued the final fabricated structure transferred by the main contractor. Conclusion: The High Court dismissed the writ petitions, upholding the assessment at 13.5% (as unspecified goods) and affirming that fabrication and launching costs are part of the taxable value of the processed goods in a works contract.

The Petitioner, a Public Limited Company, was awarded a works contract by the East Central Railways for the construction of a rail-cum-road bridge across the river Ganga.

3 MIN READ

### Meritorious Candidate Cannot Be Disqualified for Clerical/Typographical Errors in EWS Certificate Committed by Issuing Authority Summary of the Judgment: The High Court of Bombay set aside an order of the Maharashtra Administrative Tribunal (MAT) which had upheld the MPSC’s decision to exclude a candidate from the merit list due to a date error in her Economically Weaker Section (EWS) certificate. The petitioner, a highly meritorious candidate (scoring 545.75 marks against a category cutoff of 532.25), submitted an EWS certificate dated May 9, 2024. Although it correctly reflected her income for the 2023-2024 financial year, the Tahsildar erroneously labeled it as "valid for 2024-2025." The MPSC disqualified her, arguing she lacked a valid certificate for the recruitment year (2023-2024). Key Legal Principles & Observations: 1. Substance Over Form: The Court held that the MPSC focused excessively on the "form" rather than the "substance" of the certificate. Since the certificate was in the prescribed format and the issuing authority (Tahsildar) later clarified that the date was a typographical error, the eligibility criteria were deemed satisfied. 2. State Error Doctrine: A candidate cannot be made to suffer for a "patent error" or "inadvertent mistake" committed by a government official (the Tahsildar) when the underlying facts (income level) qualify the candidate for the benefit. 3. Distinguishing Strict Compliance: While acknowledging Supreme Court precedents (e.g., *Divya v. UPSC*) regarding strict deadlines and formats, the Court distinguished them by noting that the petitioner *did* possess the status and the document within the timeline; the issue was merely a clerical error by the State rather than a failure of the candidate to acquire eligibility. 4. Absence of Cut-off for Submission: The Court noted that the advertisement did not prescribe a rigid cut-off date for "possession" of the certificate, stating it should be produced during document verification. Conclusion: The Court directed the MPSC to include the petitioner in the select list at the appropriate rank, emphasizing that technicalities should not defeat the rights of a meritorious candidate when eligibility is factually established.. Ms. Heena Qasim Phoplunkar v. The State of Maharashtra & Ors. [Writ Petition No. 1746 of 2026]. Bombay High Court. LawLens

Bombay High Court·

### Meritorious Candidate Cannot Be Disqualified for Clerical/Typographical Errors in EWS Certificate Committed by Issuing Authority Summary of the Judgment: The High Court of Bombay set aside an order of the Maharashtra Administrative Tribunal (MAT) which had upheld the MPSC’s decision to exclude a candidate from the merit list due to a date error in her Economically Weaker Section (EWS) certificate. The petitioner, a highly meritorious candidate (scoring 545.75 marks against a category cutoff of 532.25), submitted an EWS certificate dated May 9, 2024. Although it correctly reflected her income for the 2023-2024 financial year, the Tahsildar erroneously labeled it as "valid for 2024-2025." The MPSC disqualified her, arguing she lacked a valid certificate for the recruitment year (2023-2024). Key Legal Principles & Observations: 1. Substance Over Form: The Court held that the MPSC focused excessively on the "form" rather than the "substance" of the certificate. Since the certificate was in the prescribed format and the issuing authority (Tahsildar) later clarified that the date was a typographical error, the eligibility criteria were deemed satisfied. 2. State Error Doctrine: A candidate cannot be made to suffer for a "patent error" or "inadvertent mistake" committed by a government official (the Tahsildar) when the underlying facts (income level) qualify the candidate for the benefit. 3. Distinguishing Strict Compliance: While acknowledging Supreme Court precedents (e.g., *Divya v. UPSC*) regarding strict deadlines and formats, the Court distinguished them by noting that the petitioner *did* possess the status and the document within the timeline; the issue was merely a clerical error by the State rather than a failure of the candidate to acquire eligibility. 4. Absence of Cut-off for Submission: The Court noted that the advertisement did not prescribe a rigid cut-off date for "possession" of the certificate, stating it should be produced during document verification. Conclusion: The Court directed the MPSC to include the petitioner in the select list at the appropriate rank, emphasizing that technicalities should not defeat the rights of a meritorious candidate when eligibility is factually established.

The Petitioner, an Economically Weaker Section (EWS) candidate, applied for the Maharashtra Civil Services under an EWS (Female) category advertisement dated December 29, 2023.

2 MIN READ

### Entries in Audited Balance Sheets and Settlement Offers Constitute Valid Acknowledgment of Debt Extending Limitation Summary of the Judgment: The National Company Law Appellate Tribunal (NCLAT) upheld the admission of a Section 7 application against HIL (India) Ltd., a Government of India enterprise. The Appellant challenged the admission on the grounds of limitation, arguing that the default originated decades ago. Key Findings: * Limitation & Recovery Certificate: The Tribunal reaffirmed that the issuance of a Recovery Certificate by the Debt Recovery Tribunal (DRT) grants a fresh three-year period of limitation. * Acknowledgment under Section 18: Following the Supreme Court's ratio in *Asset Reconstruction Co. (India) Ltd. v. Bishal Jaiswal*, the NCLAT held that entries in the Corporate Debtor’s audited balance sheets (FY 2019-20 and 2020-21) acknowledging the corporate guarantee constituted a valid acknowledgment of debt under Section 18 of the Limitation Act, 1963. * Settlement Offers: Letters issued by the Corporate Debtor offering a settlement (OTS) within the extended limitation period (including the benefit of the Supreme Court's *Suo Moto* extension during COVID-19) further served as valid acknowledgments to extend limitation. * Post-Admission Settlement: While the parties reached a settlement during the appeal, the NCLAT maintained that the CIRP remains in rem and cannot be closed through a simple withdrawal of appeal. It directed the parties to follow the Section 12A procedure via the IRP for the formal withdrawal of the insolvency proceedings through the NCLT.. D.N.V. Srinivasa Raju vs. IDBI Bank Ltd. & Anr. [Company Appeal (AT) (Insolvency) No. 1189 of 2025]. NCLAT. LawLens

NCLAT·

### Entries in Audited Balance Sheets and Settlement Offers Constitute Valid Acknowledgment of Debt Extending Limitation Summary of the Judgment: The National Company Law Appellate Tribunal (NCLAT) upheld the admission of a Section 7 application against HIL (India) Ltd., a Government of India enterprise. The Appellant challenged the admission on the grounds of limitation, arguing that the default originated decades ago. Key Findings: * Limitation & Recovery Certificate: The Tribunal reaffirmed that the issuance of a Recovery Certificate by the Debt Recovery Tribunal (DRT) grants a fresh three-year period of limitation. * Acknowledgment under Section 18: Following the Supreme Court's ratio in *Asset Reconstruction Co. (India) Ltd. v. Bishal Jaiswal*, the NCLAT held that entries in the Corporate Debtor’s audited balance sheets (FY 2019-20 and 2020-21) acknowledging the corporate guarantee constituted a valid acknowledgment of debt under Section 18 of the Limitation Act, 1963. * Settlement Offers: Letters issued by the Corporate Debtor offering a settlement (OTS) within the extended limitation period (including the benefit of the Supreme Court's *Suo Moto* extension during COVID-19) further served as valid acknowledgments to extend limitation. * Post-Admission Settlement: While the parties reached a settlement during the appeal, the NCLAT maintained that the CIRP remains in rem and cannot be closed through a simple withdrawal of appeal. It directed the parties to follow the Section 12A procedure via the IRP for the formal withdrawal of the insolvency proceedings through the NCLT.

The Appellant, a suspended director of M/s. HIL (India) Ltd. (Corporate Debtor), challenged an order dated 30.07.2025 passed by the NCLT admitting a Section 7 application under the IBC filed by IDBI Bank.

3 MIN READ

### Entries in Audited Balance Sheets and Settlement Offers Constitute Valid Acknowledgment of Debt Extending Limitation Period Summary of the Judgment: The NCLAT dismissed the appeal of a Suspended Director against the admission of a Section 7 application under the IBC. The Tribunal held that despite the original guarantee being invoked decades ago, the issuance of a Recovery Certificate by the DRT in 2018 triggered a fresh period of limitation. Crucially, the Tribunal ruled that specific entries in the Corporate Debtor’s balance sheets (Notes on Accounts acknowledging counter-guarantees) and subsequent settlement offer letters (OTS) constituted valid acknowledgments under Section 18 of the Limitation Act, 1963. These entries, combined with the benefit of the Supreme Court’s *Suo Motu* extension of limitation during the COVID-19 pandemic, ensured the application filed in 2024 was within time. Having upheld the admission order, the Tribunal permitted the withdrawal of the appeal following a settlement with the Financial Creditor, directing the parties to follow the Section 12A withdrawal process.. D.N.V. Srinivasa Raju, Suspended Director HIL (India) Ltd. vs. IDBI Bank Ltd. & Anr. [Company Appeal (AT) (Insolvency) No. 1189 of 2025]. NCLAT. LawLens

NCLAT·

### Entries in Audited Balance Sheets and Settlement Offers Constitute Valid Acknowledgment of Debt Extending Limitation Period Summary of the Judgment: The NCLAT dismissed the appeal of a Suspended Director against the admission of a Section 7 application under the IBC. The Tribunal held that despite the original guarantee being invoked decades ago, the issuance of a Recovery Certificate by the DRT in 2018 triggered a fresh period of limitation. Crucially, the Tribunal ruled that specific entries in the Corporate Debtor’s balance sheets (Notes on Accounts acknowledging counter-guarantees) and subsequent settlement offer letters (OTS) constituted valid acknowledgments under Section 18 of the Limitation Act, 1963. These entries, combined with the benefit of the Supreme Court’s *Suo Motu* extension of limitation during the COVID-19 pandemic, ensured the application filed in 2024 was within time. Having upheld the admission order, the Tribunal permitted the withdrawal of the appeal following a settlement with the Financial Creditor, directing the parties to follow the Section 12A withdrawal process.

The Corporate Debtor (HIL India Ltd.) executed a Deed of Guarantee on 21.11.1988 for loans availed by its subsidiary, SPCL, from IDBI Bank.

2 MIN READ

### Anticipatory Bail Denied to Contractors Who Allegedly Abdicated Non-Delegable Safety Duties Resulting in Fatal Public Road Accidents Facts: Two directors of a company (KKSIL) sought anticipatory bail following the death of a motorcyclist who fell into an unguarded 14-foot-deep pit. Despite an NCLT suspension and a purported sub-contract, the directors remained in operational control. Investigation revealed the pit lacked mandatory barricades, blinkers, or signage required by the Delhi Jal Board contract and traffic police permissions. Post-accident, the accused allegedly attempted to cover the site with safety gear to suppress the lack of precautions rather than assisting the victim. Key Issues: 1. Whether suspended directors could be held liable for operational negligence during a moratorium period. 2. Whether the duty to ensure public safety at an excavation site is a non-delegable contractual and constitutional obligation. 3. Whether the conduct of the accused post-incident (failing to report and planting evidence) justified custodial interrogation. Court's Reasoning: 1. Non-Delegable Duty: The Court held that safety obligations—such as signage and barricading—are core project management functions that cannot be delegated to sub-contractors. The primary contractor remains "absolutely and solely responsible" for accidents. 2. Operational Control: Despite the NCLT order, CDR analysis and witness statements proved the applicants were actively managing day-to-day operations and coordinating with the sub-contractor. 3. Knowledge of Risk: Digging a deep pit on a busy road without safeguards reflects "knowledge of a high probability of human injury," potentially attracting Section 105 BNS (Culpable Homicide not amounting to murder). 4. Post-Incident Conduct: The failure to provide medical aid and the hurried attempt to place barricades after the death indicated a reckless disregard for life and a need for custodial interrogation to prevent evidence tampering. Conclusion: The High Court dismissed the applications, emphasizing that public contractors cannot treat human life as "collateral damage" by abdicating mandatory safety protocols.. Himanshu Gupta v. The State of NCT of Delhi and Kavish Gupta v. The State of NCT of Delhi [BAIL APPLN. 765/2026, BAIL APPLN. 766/2026]. Delhi High Court. LawLens

Delhi High Court·

### Anticipatory Bail Denied to Contractors Who Allegedly Abdicated Non-Delegable Safety Duties Resulting in Fatal Public Road Accidents Facts: Two directors of a company (KKSIL) sought anticipatory bail following the death of a motorcyclist who fell into an unguarded 14-foot-deep pit. Despite an NCLT suspension and a purported sub-contract, the directors remained in operational control. Investigation revealed the pit lacked mandatory barricades, blinkers, or signage required by the Delhi Jal Board contract and traffic police permissions. Post-accident, the accused allegedly attempted to cover the site with safety gear to suppress the lack of precautions rather than assisting the victim. Key Issues: 1. Whether suspended directors could be held liable for operational negligence during a moratorium period. 2. Whether the duty to ensure public safety at an excavation site is a non-delegable contractual and constitutional obligation. 3. Whether the conduct of the accused post-incident (failing to report and planting evidence) justified custodial interrogation. Court's Reasoning: 1. Non-Delegable Duty: The Court held that safety obligations—such as signage and barricading—are core project management functions that cannot be delegated to sub-contractors. The primary contractor remains "absolutely and solely responsible" for accidents. 2. Operational Control: Despite the NCLT order, CDR analysis and witness statements proved the applicants were actively managing day-to-day operations and coordinating with the sub-contractor. 3. Knowledge of Risk: Digging a deep pit on a busy road without safeguards reflects "knowledge of a high probability of human injury," potentially attracting Section 105 BNS (Culpable Homicide not amounting to murder). 4. Post-Incident Conduct: The failure to provide medical aid and the hurried attempt to place barricades after the death indicated a reckless disregard for life and a need for custodial interrogation to prevent evidence tampering. Conclusion: The High Court dismissed the applications, emphasizing that public contractors cannot treat human life as "collateral damage" by abdicating mandatory safety protocols.

The petitioners, Directors of M/s K.K. Spun India Limited (KKSIL), sought anticipatory bail following the registration of FIR No. 35/2026 under Sections 105, 238(b), 9(2), and 3(5) of the Bharatiya Nyaya Sanhita (BNS).

2 MIN READ

### Unilateral Variance in Terms of Underwriting Contract Discharges Surety by Operation of Law Key Takeaways: * Statutory Discharge: Underwriting agreements function as contracts of guarantee; any material variance via unilateral post-closure withdrawal options discharges the underwriter/surety under Section 133 of the Indian Contract Act. * Post-facto Extension: Courts retain discretionary power under Section 28 of the 1940 Arbitration Act to extend the time for making an award even after its pronouncement. * Appellate Scope: An order refusing to set aside an award is appealable under Section 39(1)(vi) of the 1940 Act, even if the decree is subsequently modified. * Merit of Claims: Liability cannot be resurrected once a surety is statutorily discharged, rendering subsequent devolvement notices legally inconsequential.. Tommorrowland Limited v. HDFC Bank Ltd. [FAO(OS) 38/2022 & Others, 2026:DHC]. Delhi High Court. LawLens

Delhi High Court·

### Unilateral Variance in Terms of Underwriting Contract Discharges Surety by Operation of Law Key Takeaways: * Statutory Discharge: Underwriting agreements function as contracts of guarantee; any material variance via unilateral post-closure withdrawal options discharges the underwriter/surety under Section 133 of the Indian Contract Act. * Post-facto Extension: Courts retain discretionary power under Section 28 of the 1940 Arbitration Act to extend the time for making an award even after its pronouncement. * Appellate Scope: An order refusing to set aside an award is appealable under Section 39(1)(vi) of the 1940 Act, even if the decree is subsequently modified. * Merit of Claims: Liability cannot be resurrected once a surety is statutorily discharged, rendering subsequent devolvement notices legally inconsequential.

Tommorrowland Limited (formerly M.S. Shoes East Ltd.) launched a public issue of Fully Convertible Debentures (FCDs) in 1995, which was fully underwritten by 267 underwriters.

3 MIN READ

### Unilateral variation of underlying contract terms without surety’s consent discharges underwriting liability under Section 133 of the Indian Contract Act. Summary of the Case: The High Court of Delhi adjudicated a batch of 28 appeals concerning underwriting obligations for a 1995 public issue by Tommorrowland Ltd (formerly M.S. Shoes East Ltd). After the issue was successfully closed upon 90% subscription, SEBI directed the issuer to offer subscribers a withdrawal option due to disclosure lapses. Tommorrowland complied without the underwriters' consent, causing subscription to fall below the mandatory threshold. The Court held that since an underwriting agreement is a contract of guarantee, the issuer’s unilateral act of permitting withdrawals fundamentally altered the risk and terms of the underlying contract. Under Section 133 of the Indian Contract Act, 1872, such a variance without the surety's (underwriter's) consent resulted in the automatic and irrevocable discharge of the underwriters' liability, rendering the subsequent arbitral awards unsustainable.. Tommorrowland Limited v. HDFC Bank Ltd. & Ors. [2026:DHC:1234-DB]. Delhi High Court. LawLens

Delhi High Court·

### Unilateral variation of underlying contract terms without surety’s consent discharges underwriting liability under Section 133 of the Indian Contract Act. Summary of the Case: The High Court of Delhi adjudicated a batch of 28 appeals concerning underwriting obligations for a 1995 public issue by Tommorrowland Ltd (formerly M.S. Shoes East Ltd). After the issue was successfully closed upon 90% subscription, SEBI directed the issuer to offer subscribers a withdrawal option due to disclosure lapses. Tommorrowland complied without the underwriters' consent, causing subscription to fall below the mandatory threshold. The Court held that since an underwriting agreement is a contract of guarantee, the issuer’s unilateral act of permitting withdrawals fundamentally altered the risk and terms of the underlying contract. Under Section 133 of the Indian Contract Act, 1872, such a variance without the surety's (underwriter's) consent resulted in the automatic and irrevocable discharge of the underwriters' liability, rendering the subsequent arbitral awards unsustainable.

Tommorrowland Ltd. (the Appellant) launched a public issue of Fully Convertible Debentures (FCDs) in 1995, which was fully underwritten by 267 underwriters.

3 MIN READ

### Unilateral Variance in Terms of Underpinning Contract Discharges Underwriting Obligations Under Section 133, Indian Contract Act Case Brief: *Tommorrowland Limited v. HDFC Bank Ltd. & Connected Matters* Court: High Court of Delhi Bench: Hon’ble Mr. Justice Anil Kshetarpal & Hon’ble Mr. Justice Harish Vaidyanathan Shankar Judgment Date: February 20, 2026 --- ### 1. Legal Point at Issue Whether an underwriter, acting as a surety, stands discharged from liability under the Indian Contract Act, 1872, if the issuer (creditor) unilaterally alters the subscription framework after a public issue is successfully closed. ### 2. Potential Impact This judgment reinforces the status of an Underwriting Agreement as a contract of guarantee governed by Chapter VIII of the Indian Contract Act. It clarifies that regulatory-driven or unilateral changes to investor terms (like offering withdrawal options) without the underwriter's consent constitute a material variance, leading to an automatic and irreversible statutory discharge of the underwriter. ### 3. Fact Summary Tommorrowland Ltd. launched a public issue of Fully Convertible Debentures (FCDs), which was fully underwritten by various entities. The issue was closed on the "earliest closing date" after exceeding the 90% subscription threshold. Subsequently, SEBI directed the company to grant subscribers an option to withdraw due to anomalies in the prospectus. Upon withdrawal, subscription fell below 90%. Tommorrowland issued devolvement notices to underwriters and initiated arbitration when they refused to pay. The Arbitrator awarded damages against the underwriters, which the Single Judge affirmed with modifications. ### 4. Decisions * The Lead Appeals: The Division Bench allowed the Underwriters' appeals and dismissed Tommorrowland’s appeals. * On Guarantee Law: The Court held that an underwriter is a surety, the issuer is the creditor, and subscribers are principal debtors. * Statutory Discharge: Applying Section 133 of the Indian Contract Act, the Court ruled that Tommorrowland’s unilateral decision to allow withdrawals (even if SEBI-mandated) fundamentally altered the risk profile without the surety's consent. * Effect of Discharge: Once the surety stood discharged by operation of law, all contractual machinery for "devolvement notices" or "damages" under the Underwriting Agreement became non-est and unenforceable. * Powers under Order XLI Rule 33: The Court exercised its power to set aside the liability even for underwriters who had not filed appeals, ensuring legal consistency. --- ### 5. Key Takeaways for Legal Professionals * Strictissimi Juris: Underwriting liabilities are to be construed strictly; the "favoured debtor" principle applies to underwriters as sureties. * Section 133 Primacy: Any material variance in the underlying contract between the issuer and the public, made without the underwriter's consent, attracts an automatic discharge. * Arbitral Finality vs. Statutory Mandate: Arbitral awards that ignore mandatory statutory provisions (like Chapter VIII of the Contract Act) suffer from patent illegality and are liable to be set aside under Section 39 of the 1940 Act (or Section 34 of the 1996 Act). * Post-Facto Extension: Under Section 28 of the 1940 Act, courts have discretionary power to enlarge time for making an award even after the award is pronounced.. Tommorrowland Limited v. HDFC Bank Ltd. [FAO(OS) 38/2022 & connected matters]. High Court of Delhi. LawLens

High Court of Delhi·

### Unilateral Variance in Terms of Underpinning Contract Discharges Underwriting Obligations Under Section 133, Indian Contract Act Case Brief: *Tommorrowland Limited v. HDFC Bank Ltd. & Connected Matters* Court: High Court of Delhi Bench: Hon’ble Mr. Justice Anil Kshetarpal & Hon’ble Mr. Justice Harish Vaidyanathan Shankar Judgment Date: February 20, 2026 --- ### 1. Legal Point at Issue Whether an underwriter, acting as a surety, stands discharged from liability under the Indian Contract Act, 1872, if the issuer (creditor) unilaterally alters the subscription framework after a public issue is successfully closed. ### 2. Potential Impact This judgment reinforces the status of an Underwriting Agreement as a contract of guarantee governed by Chapter VIII of the Indian Contract Act. It clarifies that regulatory-driven or unilateral changes to investor terms (like offering withdrawal options) without the underwriter's consent constitute a material variance, leading to an automatic and irreversible statutory discharge of the underwriter. ### 3. Fact Summary Tommorrowland Ltd. launched a public issue of Fully Convertible Debentures (FCDs), which was fully underwritten by various entities. The issue was closed on the "earliest closing date" after exceeding the 90% subscription threshold. Subsequently, SEBI directed the company to grant subscribers an option to withdraw due to anomalies in the prospectus. Upon withdrawal, subscription fell below 90%. Tommorrowland issued devolvement notices to underwriters and initiated arbitration when they refused to pay. The Arbitrator awarded damages against the underwriters, which the Single Judge affirmed with modifications. ### 4. Decisions * The Lead Appeals: The Division Bench allowed the Underwriters' appeals and dismissed Tommorrowland’s appeals. * On Guarantee Law: The Court held that an underwriter is a surety, the issuer is the creditor, and subscribers are principal debtors. * Statutory Discharge: Applying Section 133 of the Indian Contract Act, the Court ruled that Tommorrowland’s unilateral decision to allow withdrawals (even if SEBI-mandated) fundamentally altered the risk profile without the surety's consent. * Effect of Discharge: Once the surety stood discharged by operation of law, all contractual machinery for "devolvement notices" or "damages" under the Underwriting Agreement became non-est and unenforceable. * Powers under Order XLI Rule 33: The Court exercised its power to set aside the liability even for underwriters who had not filed appeals, ensuring legal consistency. --- ### 5. Key Takeaways for Legal Professionals * Strictissimi Juris: Underwriting liabilities are to be construed strictly; the "favoured debtor" principle applies to underwriters as sureties. * Section 133 Primacy: Any material variance in the underlying contract between the issuer and the public, made without the underwriter's consent, attracts an automatic discharge. * Arbitral Finality vs. Statutory Mandate: Arbitral awards that ignore mandatory statutory provisions (like Chapter VIII of the Contract Act) suffer from patent illegality and are liable to be set aside under Section 39 of the 1940 Act (or Section 34 of the 1996 Act). * Post-Facto Extension: Under Section 28 of the 1940 Act, courts have discretionary power to enlarge time for making an award even after the award is pronounced.

Tommorrowland Ltd. launched a public issue of Fully Convertible Debentures (FCDs) in 1995, which was fully underwritten by 267 entities.

3 MIN READ

### Unilateral Variance in Terms of Underpinning Contract Discharges Surety Under Section 133 of Contract Act Brief Summary: The High Court of Delhi set aside arbitral awards and decrees against underwriters, holding that if an issuer unilaterally permits subscribers to withdraw following a successful public issue, it fundamentally alters the risk profile. Under Section 133 of the Indian Contract Act, 1872, such an unauthorized variance in the tripartite relationship between the issuer (creditor), subscribers (principal debtors), and underwriters (sureties) results in the automatic and irrevocable discharge of the surety’s liability.. Tommorrowland Limited v. HDFC Bank Ltd. & Ors. [2026:DHC:Lead]. Delhi High Court. LawLens

Delhi High Court·

### Unilateral Variance in Terms of Underpinning Contract Discharges Surety Under Section 133 of Contract Act Brief Summary: The High Court of Delhi set aside arbitral awards and decrees against underwriters, holding that if an issuer unilaterally permits subscribers to withdraw following a successful public issue, it fundamentally alters the risk profile. Under Section 133 of the Indian Contract Act, 1872, such an unauthorized variance in the tripartite relationship between the issuer (creditor), subscribers (principal debtors), and underwriters (sureties) results in the automatic and irrevocable discharge of the surety’s liability.

Tommorrowland Ltd. launched a public issue of Fully Convertible Debentures (FCDs) in 1995, which was fully underwritten by 267 entities.

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### Unilateral variation of subscription terms without Underwriter's consent operates as statutory discharge of surety’s liability Case Summary: In a batch of twenty-eight appeals under the Arbitration Act, 1940, the Delhi High Court set aside arbitral awards and a Single Judge's decree involving Tommorrowland Ltd. and multiple Underwriters. The core dispute arose from a 1995 public issue where, following a successful subscription, SEBI directed the issuer to grant investors a withdrawal option due to disclosure anomalies. When subsequent withdrawals caused the subscription to fall below the mandatory 90% threshold, Tommorrowland sought to enforce underwriting obligations. The Court held that an Underwriting Agreement performs the function of a contract of guarantee under Chapter VIII of the Indian Contract Act, 1872. Applying Section 133, the Court ruled that Tommorrowland's unilateral act of permitting withdrawals—without the Underwriters' consent—fundamentally altered the contractual framework and the risk originally undertaken. This material variance resulted in an automatic and irrevocable statutory discharge of the Underwriters (sureties). Consequently, the Court found that no enforceable liability subsisted once the issue had been successfully closed, rendering the subsequent devolvement notices and arbitral awards legally unsustainable.. Tommorrowland Limited v. HDFC Bank Ltd. [FAO(OS) 38/2022 & connected matters]. Delhi High Court. LawLens

Delhi High Court·

### Unilateral variation of subscription terms without Underwriter's consent operates as statutory discharge of surety’s liability Case Summary: In a batch of twenty-eight appeals under the Arbitration Act, 1940, the Delhi High Court set aside arbitral awards and a Single Judge's decree involving Tommorrowland Ltd. and multiple Underwriters. The core dispute arose from a 1995 public issue where, following a successful subscription, SEBI directed the issuer to grant investors a withdrawal option due to disclosure anomalies. When subsequent withdrawals caused the subscription to fall below the mandatory 90% threshold, Tommorrowland sought to enforce underwriting obligations. The Court held that an Underwriting Agreement performs the function of a contract of guarantee under Chapter VIII of the Indian Contract Act, 1872. Applying Section 133, the Court ruled that Tommorrowland's unilateral act of permitting withdrawals—without the Underwriters' consent—fundamentally altered the contractual framework and the risk originally undertaken. This material variance resulted in an automatic and irrevocable statutory discharge of the Underwriters (sureties). Consequently, the Court found that no enforceable liability subsisted once the issue had been successfully closed, rendering the subsequent devolvement notices and arbitral awards legally unsustainable.

Tommorrowland Limited (formerly M.S. Shoes East Limited) launched a public issue of Fully Convertible Debentures (FCDs) in 1995, which was fully underwritten by 267 underwriters.

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### Unilateral Variance in Terms of Public Issue After Successful Closure Discharges Underwriting Obligations of Surety I. CASE SUMMARY 1. Context and Objective A batch of 28 appeals was filed under Section 39 of the Arbitration Act, 1940, primarily involving Tomorrowland Ltd. (the Issuer) and various Underwriters. The core dispute centered on whether Underwriters were liable for "devolvement" (shortfall) after a public issue, which was initially fully subscribed, became undersubscribed because SEBI mandated a withdrawal option for investors due to the Issuer's misconduct. 2. Issues at Stake * Maintainability: Whether an appeal under Section 39(1)(vi) lies against an order refusing to set aside an award while modifying it. * Statutory Discharge: Whether the unilateral grant of withdrawal options to subscribers (creditors/principal debtors) by the Issuer (creditor) without the Underwriter's (surety) consent discharges the underwriter’s liability under Sections 133 and 134 of the Indian Contract Act, 1872. * Procedural: Validity of *ex-post-facto* extension of time for making an award under Section 28 of the 1940 Act. 3. Key Arguments * Issuer (Tomorrowland): Argued that underwriters are liable the moment subscription falls below 90% and that the Court cannot substantively modify an award's quantum under Section 15 of the 1940 Act. * Underwriters: Contended that their liability stood extinguished once the issue was initially fully subscribed. They argued that SEBI's withdrawal mandate was a result of the Issuer's fraud/omissions, and the Issuer's unilateral compliance with SEBI (without Underwriters' consent) discharged them as sureties. 4. Court's Reasoning and Judgment * Surety Relationship: The Court classified the Underwriting Agreement as a contract of guarantee under Section 126 of the Contract Act. The Underwriter is the 'surety', the Issuer is the 'creditor', and the public subscribers are the 'principal debtors'. * Discharge of Surety: Applying Section 133, the Court held that the Issuer's unilateral decision to allow subscribers to withdraw—post-closure of a successful issue—fundamentally altered the risk. This "variance" without the surety’s consent resulted in an automatic and irrevocable statutory discharge of the Underwriters. * Error of Law: The Arbitrator and the Single Judge erred by failing to apply the mandatory provisions of Chapter VIII (Indemnity and Guarantee) of the Contract Act. An award disregarding such statutory mandates is patently illegal. * Final Decision: The Court allowed the appeals of the Underwriters and set aside the Arbitral Awards and Impugned Judgments. The appeals by Tomorrowland were dismissed as infructuous. II. LEGAL STANDING * Doctrine of Strictissimi Juris: A surety's liability must be construed strictly and cannot be extended by implication or unilateral variance of contractual terms. * Underworking as Guarantee: Underwriting agreements are subject to the discharge provisions of the Indian Contract Act, 1872. * Section 39 (1940 Act): An appeal is maintainable against an order that "refuses to set aside an award" even if the order is styled as a decree in a suit. * Order XLI Rule 33 CPC: The High Court exercised its power to grant relief to Underwriters who had not even filed appeals, ensuring consistency across identical claims.. Tommorrowland Limited v. HDFC Bank Ltd. & Ors. [FAO(OS) 38/2022 & connected matters; 2026:DHC:XXXX]. Delhi High Court. LawLens

Delhi High Court·

### Unilateral Variance in Terms of Public Issue After Successful Closure Discharges Underwriting Obligations of Surety I. CASE SUMMARY 1. Context and Objective A batch of 28 appeals was filed under Section 39 of the Arbitration Act, 1940, primarily involving Tomorrowland Ltd. (the Issuer) and various Underwriters. The core dispute centered on whether Underwriters were liable for "devolvement" (shortfall) after a public issue, which was initially fully subscribed, became undersubscribed because SEBI mandated a withdrawal option for investors due to the Issuer's misconduct. 2. Issues at Stake * Maintainability: Whether an appeal under Section 39(1)(vi) lies against an order refusing to set aside an award while modifying it. * Statutory Discharge: Whether the unilateral grant of withdrawal options to subscribers (creditors/principal debtors) by the Issuer (creditor) without the Underwriter's (surety) consent discharges the underwriter’s liability under Sections 133 and 134 of the Indian Contract Act, 1872. * Procedural: Validity of *ex-post-facto* extension of time for making an award under Section 28 of the 1940 Act. 3. Key Arguments * Issuer (Tomorrowland): Argued that underwriters are liable the moment subscription falls below 90% and that the Court cannot substantively modify an award's quantum under Section 15 of the 1940 Act. * Underwriters: Contended that their liability stood extinguished once the issue was initially fully subscribed. They argued that SEBI's withdrawal mandate was a result of the Issuer's fraud/omissions, and the Issuer's unilateral compliance with SEBI (without Underwriters' consent) discharged them as sureties. 4. Court's Reasoning and Judgment * Surety Relationship: The Court classified the Underwriting Agreement as a contract of guarantee under Section 126 of the Contract Act. The Underwriter is the 'surety', the Issuer is the 'creditor', and the public subscribers are the 'principal debtors'. * Discharge of Surety: Applying Section 133, the Court held that the Issuer's unilateral decision to allow subscribers to withdraw—post-closure of a successful issue—fundamentally altered the risk. This "variance" without the surety’s consent resulted in an automatic and irrevocable statutory discharge of the Underwriters. * Error of Law: The Arbitrator and the Single Judge erred by failing to apply the mandatory provisions of Chapter VIII (Indemnity and Guarantee) of the Contract Act. An award disregarding such statutory mandates is patently illegal. * Final Decision: The Court allowed the appeals of the Underwriters and set aside the Arbitral Awards and Impugned Judgments. The appeals by Tomorrowland were dismissed as infructuous. II. LEGAL STANDING * Doctrine of Strictissimi Juris: A surety's liability must be construed strictly and cannot be extended by implication or unilateral variance of contractual terms. * Underworking as Guarantee: Underwriting agreements are subject to the discharge provisions of the Indian Contract Act, 1872. * Section 39 (1940 Act): An appeal is maintainable against an order that "refuses to set aside an award" even if the order is styled as a decree in a suit. * Order XLI Rule 33 CPC: The High Court exercised its power to grant relief to Underwriters who had not even filed appeals, ensuring consistency across identical claims.

Tommorrowland Ltd. launched a public issue for Fully Convertible Debentures (FCDs) in February 1995, which was fully underwritten by 267 underwriters.

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### Acquittal in Custodial Torture Case Due to Lack of Medical Corroboration and Failure to Complain Before Magistrate Summary: The Gujarat High Court set aside the conviction of a police officer for custodial torture and grievous hurt under Sections 331, 348, 352, and 365 IPC. The Court observed that the complainant failed to prove he was in police custody on the alleged dates of torture and noted the absence of medical evidence corroborating the specific injuries described. Crucially, the Court held that the complainant’s failure to report the alleged ill-treatment to the Magistrate during his initial production in a related Arms Act case, combined with an unexplained delay in filing a private complaint, created reasonable doubt, vitiating the prosecution's case.. Shabbirhusein Shekhadam Khandvawala & Ors. v. State of Gujarat & State of Gujarat v. Shabbirhusein Shekhadam Khandvawala & Ors. [Criminal Appeal Nos. 1195 of 2003 and 1509 of 2003]. Gujarat High Court. LawLens

Gujarat High Court·

### Acquittal in Custodial Torture Case Due to Lack of Medical Corroboration and Failure to Complain Before Magistrate Summary: The Gujarat High Court set aside the conviction of a police officer for custodial torture and grievous hurt under Sections 331, 348, 352, and 365 IPC. The Court observed that the complainant failed to prove he was in police custody on the alleged dates of torture and noted the absence of medical evidence corroborating the specific injuries described. Crucially, the Court held that the complainant’s failure to report the alleged ill-treatment to the Magistrate during his initial production in a related Arms Act case, combined with an unexplained delay in filing a private complaint, created reasonable doubt, vitiating the prosecution's case.

The complainant, Merag Haja, alleged that on 07.10.1976, police officers (including the appellants) searched his house for illegal weapons but found nothing, drawing a "NIL Panchnama".

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### NCLT Lacks Jurisdiction to Challenge Benami Property Attachment Orders or Sovereign Forfeiture Actions The Supreme Court of India held that the National Company Law Tribunal (NCLT) does not have the jurisdiction under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 (IBC) to adjudicate challenges against attachment orders passed under the Prohibition of Benami Property Transactions Act, 1988 (Benami Act). The Court clarified that while the IBC is an exhaustive code for insolvency, it cannot override sovereign penal actions or determinations of title under public law. Furthermore, the moratorium under Section 14 of the IBC applies to creditor recovery actions but does not interdict proceedings for the confiscation of "tainted" assets held in a benami capacity, as such properties do not form part of the liquidation estate. Aggrieved parties, including liquidators, must exhaust the specialized appellate remedies provided under the Benami Act.. S. Rajendran v. The Deputy Commissioner of Income Tax (Benami Prohibition) & Ors. [2026 INSC 187]. Supreme Court. LawLens

Supreme Court·

### NCLT Lacks Jurisdiction to Challenge Benami Property Attachment Orders or Sovereign Forfeiture Actions The Supreme Court of India held that the National Company Law Tribunal (NCLT) does not have the jurisdiction under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 (IBC) to adjudicate challenges against attachment orders passed under the Prohibition of Benami Property Transactions Act, 1988 (Benami Act). The Court clarified that while the IBC is an exhaustive code for insolvency, it cannot override sovereign penal actions or determinations of title under public law. Furthermore, the moratorium under Section 14 of the IBC applies to creditor recovery actions but does not interdict proceedings for the confiscation of "tainted" assets held in a benami capacity, as such properties do not form part of the liquidation estate. Aggrieved parties, including liquidators, must exhaust the specialized appellate remedies provided under the Benami Act.

The Appellant-Liquidators challenged provisional attachment orders issued by authorities under the Prohibition of Benami Property Transactions Act, 1988 ("Benami Act").

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### Committee of Creditors possesses locus to litigate in its name but is not a necessary party regarding membership disputes. SUMMARY: Facts: The Resolution Professional (RP) of Think and Learn Pvt. Ltd. reconstituted the Committee of Creditors (CoC) by removing GLAS Trust LLC and Aditya Birla Capital Ltd. The NCLT later restored these members. Subsequently, a suspended director filed an application (IA 466/2025) to remove GLAS Trust from the CoC. The CoC sought to implead itself in this proceeding, which the NCLT denied, ruling that the CoC lacks legal character and can only be represented by the RP. Issues: 1. Whether the CoC has the legal character or juristic personality to litigate in its own name under the IBC. 2. Whether the RP is the sole authorized representative of the CoC in legal proceedings. 3. Whether the CoC is a necessary or proper party in a dispute concerning the removal of an individual member. Ruling: The NCLAT held that while the CoC is not a "juristic person" in the classical sense, it is a statutory entity under Section 3(23)(g) of the IBC. For functional efficacy, the CoC may litigate in its own name, provided that in multi-member setups, all individual members are arrayed as respondents to prevent procedural prejudice. The Court rejected the view that only the RP can represent the CoC, noting they are distinct entities with separate statutory roles. However, the appeal was dismissed because the CoC is neither a necessary nor a proper party to a dispute regarding the validity of a specific financial creditor's claim; such disputes are personal to the individual member and the Corporate Debtor.. Committee of Creditors of Think and Learn Pvt. Ltd. v. Riju Ravindran & Ors. [Company Appeal (AT) (CH) (Ins) No.475/2025]. NCLAT. LawLens

NCLAT·

### Committee of Creditors possesses locus to litigate in its name but is not a necessary party regarding membership disputes. SUMMARY: Facts: The Resolution Professional (RP) of Think and Learn Pvt. Ltd. reconstituted the Committee of Creditors (CoC) by removing GLAS Trust LLC and Aditya Birla Capital Ltd. The NCLT later restored these members. Subsequently, a suspended director filed an application (IA 466/2025) to remove GLAS Trust from the CoC. The CoC sought to implead itself in this proceeding, which the NCLT denied, ruling that the CoC lacks legal character and can only be represented by the RP. Issues: 1. Whether the CoC has the legal character or juristic personality to litigate in its own name under the IBC. 2. Whether the RP is the sole authorized representative of the CoC in legal proceedings. 3. Whether the CoC is a necessary or proper party in a dispute concerning the removal of an individual member. Ruling: The NCLAT held that while the CoC is not a "juristic person" in the classical sense, it is a statutory entity under Section 3(23)(g) of the IBC. For functional efficacy, the CoC may litigate in its own name, provided that in multi-member setups, all individual members are arrayed as respondents to prevent procedural prejudice. The Court rejected the view that only the RP can represent the CoC, noting they are distinct entities with separate statutory roles. However, the appeal was dismissed because the CoC is neither a necessary nor a proper party to a dispute regarding the validity of a specific financial creditor's claim; such disputes are personal to the individual member and the Corporate Debtor.

The Corporate Debtor (CD), M/s. Think and Learn Pvt. Ltd., was admitted into CIRP under Section 9 of the IBC.

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### Direct Covenant to Pay in Third-Party Mortgage Constitutes a Guarantee and Qualifies as Financial Debt Case Summary: 1. Context: The Appellant (Debenture Trustee) filed a claim against the Corporate Debtor (CD) after it failed to satisfy obligations under a Debenture Trust Deed (DTD). Although the CD was not a signatory to the original DTD, it executed Supplemental Indentures of Mortgage containing a "Covenant to Pay." The Resolution Professional and the NCLT classified the Appellant as an "Other Secured Creditor," arguing that no funds were disbursed directly to the CD. 2. Key Legal Issues: * Whether direct disbursement to the Corporate Debtor is a prerequisite for "Financial Debt" under Section 5(8) of the IBC. * Whether a "Covenant to Pay" in a mortgage deed transforms a security interest into a contract of guarantee. 3. Tribunal’s Holding: * Disbursement: Direct disbursement to the CD is not a *sine qua non* for financial debt; it is sufficient if money is disbursed against the time value of money for the CD's benefit or via a guarantee. * Covenant to Pay: The "Covenant to Pay" in the Supplemental Mortgages created a primary, unconditional obligation to discharge "Secured Obligations." This transformed the CD into a surety under Section 126 of the Indian Contract Act. * Classification: Relying on the Supreme Court’s ruling in *China Development Bank v. Doha Bank*, the Tribunal held that a mortgage containing an express covenant to pay shortfall or debt constitutes a guarantee. Consequently, the Appellant is a Secured Financial Creditor, not merely an "other" secured creditor. 4. Conclusion: The Appellate Tribunal set aside the NCLT order and directed the claim to be admitted as a Secured Financial Debt.. Vistra ITCL (India) Limited v. Vithal Madhukar Dahake & Ors., Comp. App. (AT) (Ins) No. 1110 of 2024. NCLAT. LawLens

NCLAT·

### Direct Covenant to Pay in Third-Party Mortgage Constitutes a Guarantee and Qualifies as Financial Debt Case Summary: 1. Context: The Appellant (Debenture Trustee) filed a claim against the Corporate Debtor (CD) after it failed to satisfy obligations under a Debenture Trust Deed (DTD). Although the CD was not a signatory to the original DTD, it executed Supplemental Indentures of Mortgage containing a "Covenant to Pay." The Resolution Professional and the NCLT classified the Appellant as an "Other Secured Creditor," arguing that no funds were disbursed directly to the CD. 2. Key Legal Issues: * Whether direct disbursement to the Corporate Debtor is a prerequisite for "Financial Debt" under Section 5(8) of the IBC. * Whether a "Covenant to Pay" in a mortgage deed transforms a security interest into a contract of guarantee. 3. Tribunal’s Holding: * Disbursement: Direct disbursement to the CD is not a *sine qua non* for financial debt; it is sufficient if money is disbursed against the time value of money for the CD's benefit or via a guarantee. * Covenant to Pay: The "Covenant to Pay" in the Supplemental Mortgages created a primary, unconditional obligation to discharge "Secured Obligations." This transformed the CD into a surety under Section 126 of the Indian Contract Act. * Classification: Relying on the Supreme Court’s ruling in *China Development Bank v. Doha Bank*, the Tribunal held that a mortgage containing an express covenant to pay shortfall or debt constitutes a guarantee. Consequently, the Appellant is a Secured Financial Creditor, not merely an "other" secured creditor. 4. Conclusion: The Appellate Tribunal set aside the NCLT order and directed the claim to be admitted as a Secured Financial Debt.

The Appellant, acting as a debenture trustee, entered into a Debenture Trust Deed (DTD) dated 03.08.2018 with Aaditri Constructions Pvt. Ltd. (ACPL/Borrower) for the issuance of debentures worth Rs. 395 crores.

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