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

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

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

Subsequently, SEBI directed the Appellant to offer a withdrawal option to subscribers due to anomalies in the prospectus.

Following mass withdrawals, subscription fell below the mandatory 90% threshold, and the Appellant issued devolvement notices to the Underwriters.

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

The Arbitrator awarded damages in 2012 at Rs. 80 per FCD plus 18% interest.

The Single Judge modified the award, reducing damages to Rs. 20 per FCD and slashing interest rates.

Tommorrowland appealed the reduction, while Underwriters cross-appealed challenging the finding of liability.

The Court primarily applied the Indian Contract Act, 1872, specifically Sections 126, 128, 133, and 134.

It held that an underwriting agreement is a contract of guarantee where the Underwriter is a "surety".

Under Section 133, any variance made without the surety’s consent in the terms of the contract between the principal debtor and the creditor discharges the surety.

The Court also applied Section 28 of the Arbitration Act, 1940, which grants the Court discretionary power to enlarge time for making an award even after the award is rendered.

Order XLI Rule 33 of the CPC, allowing the appellate court to pass orders in favor of non-appealing parties to ensure substantive justice.

The Court reasoned that the Underwriters’ liability was contingent upon the failure of the public to subscribe within the original ten-day period.

Once the issue was successfully closed on Feb 18, 1995, the original risk was negated.

The subsequent SEBI-mandated withdrawal option, facilitated unilaterally by the Appellant without the Underwriters’ consent, constituted a "material variance" under Section 133 of the Contract Act.

Per the doctrine of *strictissimi juris*, a surety is a "favoured debtor" whose liability cannot be extended beyond the letter of the engagement.

Therefore, the statutory discharge was automatic and irrevocable, rendering the subsequent devolvement notices legally void.

Regarding procedural issues, the Court upheld the *post-facto* time extension given the complexity of 260+ claims and found the service of notice valid as the Underwriters' counsel continued to appear post-merger.

It held that the Underwriters bore no liability as they stood statutorily discharged by operation of law under Section 133 of the Indian Contract Act.

The Court exercised its power under Order XLI Rule 33 of the CPC to extend this relief even to those Underwriters who had not filed appeals, to prevent the perpetuation of a manifest legal error.

The Arbitral Awards and the Impugned Judgments were set aside insofar as they fastened liability on the Underwriters.

No order as to costs.