### Unilateral Post-Closure Variation of Undersubscription Terms Statutorily Discharges Underwriter’s Liability as Surety under Contract Act.

Tommorrowland Ltd (formerly M.S. Shoes East Ltd) launched a public issue of Fully Convertible Debentures (FCDs) in 1995, which was 100% underwritten by various entities.

While the issue initially met the 90% subscription threshold and closed on 18.02.1995.

SEBI subsequently directed the company to provide investors an option to withdraw due to disclosure anomalies.

Following large-scale withdrawals, subscription fell below 90%, prompting the company to issue devolvement notices to 267 underwriters.

The dispute was referred to a Sole Arbitrator under the 1940 Arbitration Act, who awarded damages and interest against the underwriters.

On challenge, the Single Judge upheld the liability but modified the quantum of damages and interest.

Both Tommorrowland and the underwriters filed cross-appeals.

Whether an appeal under Section 39 of the 1940 Act is maintainable against a judgment modifying an award and refusing to set it aside.

Whether the court could grant a post-facto extension of time for making the award under Section 28 of the 1940 Act.

Whether the underwriters' liability stood discharged under the Indian Contract Act, 1872, following the unilateral modification of subscription terms after the successful closure of the issue.

The court applied Section 39(1)(iii) and (vi) of the Arbitration Act, 1940, regarding the maintainability of appeals against orders modifying or refusing to set aside awards.

It relied on Section 28(1) of the 1940 Act and the precedent *Hari Shankar Lal v. Shambhunath Prasad* [AIR 1962 SC 78] regarding the court's power to extend the time for an award after its expiry.

Crucially, the court applied Section 126 of the Indian Contract Act (ICA) to define the Underwriting Agreement as a contract of guarantee.

Sections 133 and 134 of the ICA, which mandate the discharge of a surety (underwriter) if the creditor (issuer) varies the contract terms without the surety's consent.

The Court first affirmed maintainability, noting that an order refusing to set aside an award is appealable under Section 39.

It upheld the post-facto extension of time given the complexity involving 260+ respondents.

On the merits, the Court held that once the public issue was successfully closed at 90% subscription, the underwriting contingency was negated.

Tommorrowland’s subsequent unilateral act—allowing withdrawals per SEBI instructions without the underwriters' consent—constituted a "material variance" of the contract between the creditor and the principal debtor (subscribers).

Under Section 133 of the ICA, this variance automatically and irrevocably discharged the underwriters as sureties.

The Court reasoned that a surety is a "favoured debtor" whose liability must be strictly construed; therefore, a liability extinguished by statute cannot be resurrected by a subsequent devolvement notice.

It held that the underwriters were statutorily discharged from all obligations under the Underwriting Agreement by operation of Sections 133 and 134 of the ICA.

Consequently, the Arbitral Awards and the Single Judge's judgments were set aside as being contrary to mandatory statutory law.

Tommorrowland’s appeals regarding the quantum of damages were dismissed as infructuous because no enforceable liability existed against the underwriters.

Using powers under Order XLI Rule 33 of the CPC, the Court extended this relief even to underwriters who had not filed appeals to ensure legal consistency.