### 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.

The issue was initially closed on 18.02.1995 after being reportedly subscribed over 90%.

However, following SEBI directions regarding anomalies in the prospectus, investors were given an option to withdraw their applications, causing subscription to fall below the mandatory 90% threshold.

Tommorrowland issued devolvement notices to underwriters, who failed to pay, leading to arbitral proceedings under the 1940 Arb Act.

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

The learned Single Judge affirmed the liability but reduced damages to Rs. 20 per FCD and lowered the interest rates.

Tommorrowland appealed for restoration of the original award, while the Underwriters cross-appealed challenging the entire liability.

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 of the 1940 Arb Act, which permits the Court to enlarge the time for making an award even after the award has been rendered.

Crucially, the Court applied Chapter VIII of the Indian Contract Act, 1872 (IC Act), specifically Section 126 (defining guarantee), Section 128 (co-extensive liability), Section 133 (discharge of surety by variance), and Section 134 (discharge by release/omission by creditor).

It further relied on *State of Maharashtra v. Dr. M.N. Kaul* and *Pratapsing Moholalbhai v. Keshavlal Harilal Setalvad* to establish that a surety is a "favoured debtor" whose liability must be construed *strictissimi juris*.

The Court found that the Underwriting Agreement constituted a contract of guarantee where the Underwriter was the "surety" and Tommorrowland the "creditor".

While the issue was successfully closed on 18.02.1995, Tommorrowland's subsequent unilateral act—granting subscribers a withdrawal option pursuant to SEBI's letter without the Underwriters' consent—fundamentally altered the contractual risk profile.

The Court reasoned that under Section 133 of the IC Act, such a "material variance" in the underlying contract between the creditor and the principal debtor (subscribers) automatically and irrevocably discharged the surety.

The Court held that the lower forums committed a manifest error of law by ignoring the mandatory statutory discharge provisions of the IC Act, which override contractual machinery like devolvement notices once the guarantee is extinguished.

Consequently, since no enforceable liability existed, Tommorrowland's appeals for higher damages were rendered academic.

It declared that the Underwriters stood statutorily discharged under the IC Act and bore no liability toward Tommorrowland.

Consequently, all appeals filed by Tommorrowland (e.g., FAO(OS) 38/2022) were dismissed as infructuous.

In cases where Underwriters did not appeal, the Court exercised its power under Order XLI Rule 33 of the CPC to ensure legal consistency and set aside those awards as well.

No order as to costs.