### Unilateral Post-Closure Variation of Public Issue Terms Discharges Underwriting Obligations Under Section 133, Contract Act.

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

The issue was initially closed on February 18, 1995, after being reported as fully subscribed.

Subsequently, SEBI directed the company to provide subscribers an option to withdraw due to disclosure anomalies.

Following mass withdrawals, subscription fell below the mandatory 90% threshold, leading the company to issue devolvement notices to underwriters.

After the Delhi Stock Exchange refused arbitration, the High Court appointed a Sole Arbitrator in 2007.

The Arbitrator awarded damages against the underwriters at Rs. 80 per share plus 18% interest.

A Single Judge of the High Court affirmed the awards but reduced damages to Rs. 20 per share and lowered the interest rates.

Both Tommorrowland and the underwriters filed cross-appreals under Section 39 of the 1940 Arb Act.

1. Whether the appeals filed by the underwriters were maintainable under Section 39 of the 1940 Arb Act notwithstanding the limitations of Section 17.

2. Whether the underwriters’ liability was discharged under the Indian Contract Act, 1872, due to the unilateral variance of the subscription terms following the initial successful closure of the issue.

3. Whether the Arbitrator had jurisdiction to pass an award five years after the reference without a prior extension of time under Section 28.

The Court applied Section 39 of the Arbitration Act, 1940, which specifies appealable orders, including those refusing to set aside an award.

Regarding merits, the Court primarily applied the principles of Suretyship and Guarantee under Chapter VIII of the Indian Contract Act, 1872 (IC Act).

Specifically, Section 126 defines the tripartite relationship of surety, principal debtor, and creditor.

Section 133 provides for the discharge of a surety by variance in the terms of the contract without the surety's consent.

Section 134 provides for discharge by any act or omission of the creditor that releases the principal debtor.

The Court also relied on the principle strictissimi juris, as established in State of Maharashtra v. Dr. M.N. Kaul, holding that a guarantor cannot be made liable beyond the letter of his engagement.

The Court determined that an underwriting agreement is essentially a contract of guarantee governed by Chapter VIII of the IC Act, where the underwriter is the surety.

It found that the public issue was successfully subscribed beyond 90% and closed on 18.02.1995, at which point the underwriters' risk had ended.

The subsequent unilateral decision by Tommorrowland (acting on SEBI’s direction) to allow subscribers (principal debtors) to withdraw without the underwriters’ consent constituted a "material variance" under Section 133 of the IC Act.

The Court reasoned that the Arbitrator and the Single Judge erred by failing to apply these mandatory statutory provisions, which result in the automatic and irrevocable discharge of the surety.

Any attempt to revive liability via a devolvement notice after such discharge was held legally non-est.

Furthermore, the Court exercised its powers under Order XLI Rule 33 of the CPC to grant relief even to those underwriters who had not filed appeals, ensuring consistency across all connected matters.

It held that the Arbitral Awards and the Impugned Judgments were vitiated by a manifest error of law for failing to recognize the statutory discharge of the underwriters under Sections 133 and 134 of the IC Act.

Consequently, the Court set aside the liability of the underwriters in its entirety and declared that they bear no obligation toward Tommorrowland.

All 28 appeals were disposed of accordingly, with no order as to costs.