### Unilateral Post-Subcription Variance in 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 underwritten by 267 entities.

The issue was initially closed on 18.02.1995 upon being fully subscribed.

SEBI subsequently directed the company to provide an option for withdrawal to subscribers due to anomalies in the offer price.

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

After a prolonged delay (and a refusal by the Stock Exchange to arbitrate), the disputes were referred to a Sole Arbitrator in 2007.

The Arbitrator awarded damages of Rs. 80 per FCD plus 18% interest.

On a challenge under Sections 14, 17, 30, and 33 of the Arbitration Act, 1940, the Single Judge upheld the liability but reduced damages to Rs. 20 per FCD and significantly lowered the interest rates.

Both parties appealed under Section 39 of the 1940 Act.

Whether the appeals filed by the Underwriters under Section 39 of the 1940 Arb Act were maintainable given the limitations under Section 17.

Whether the arbitral award was void for being passed beyond the statutory period without timeous extension.

Whether the underwriters were statutorily discharged from liability under the Indian Contract Act due to the unilateral post-closure withdrawal option given to subscribers.

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

It applied Section 28 of the 1840 Act regarding the Court’s power to enlarge time for making an award even ex-post-facto.

Crucially, the Court relied on Chapter VIII of the Indian Contract Act, 1872, particularly Section 126 (Definitions), Section 128 (Co-extensive liability), Section 133 (Discharge by variance), and Section 134 (Discharge by release/omission).

It followed the precedent in *State of Maharashtra v. Dr. M.N. Kaul*, holding that a surety is a "favoured debtor" whose liability must be strictly construed strictissimi juris.

The Court first dismissed the maintainability objection, holding that an order refusing to set aside an award is squarely appealable under Section 39(1)(vi).

Regarding the delay in the award, the Court held that given the complexity of 260+ claims, the Single Judge properly exercised discretion under Section 28 to grant a post-facto extension.

On the merits, the Court found a fundamental legal error: the learned Arbitrator and Single Judge failed to treat the underwriting agreement as a contract of guarantee.

The Court reasoned that once the public issue was successfully subscribed and closed, the risk the underwriters guaranteed had ceased.

The subsequent unilateral grant of withdrawal rights by Tommorrowland (even if SEBI-mandated) constituted a "material variance" in the contract between the creditor and principal debtor without the surety’s consent.

Under Section 133 of the IC Act, this variance resulted in the automatic and irrevocable statutory discharge of the Underwriters.

The appeals filed by Tommorrowland (e.g., FAO(OS) 38/2022) seeking higher damages/interest were dismissed as infructuous because the underlying liability itself was extinguished.

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.

No order as to costs.