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Saturday, February 28, 2026

Contract of Guarantee — Sections 133 and 139 — Indian Contract Act, 1872 — Overdrawing beyond sanctioned limit without surety’s consent — Extent of discharge. (Paras 3–4.4, 7–7.4) The principal debtor was sanctioned a cash-credit facility of ₹4,00,000/-. The sureties executed guarantees limited to this amount. Subsequently, the bank permitted withdrawals far exceeding the sanctioned limit without the sureties’ consent. The High Court held that the sureties must either be liable for the entire outstanding amount or not liable at all. The Supreme Court reversed this view. Under Section 133, any variance in the terms of the contract between the creditor and the principal debtor, made without the surety’s consent, discharges the surety only in respect of transactions subsequent to the variance. The discharge is not absolute. Ratio Decidendi: Where a creditor permits overdrawing beyond the sanctioned limit without the surety’s consent, the surety stands discharged only qua the excess amount constituting variance; liability continues to the extent originally guaranteed.

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Contract of Guarantee — Sections 133 and 139 — Indian Contract Act, 1872 — Overdrawing beyond sanctioned limit without surety’s consent — Ex...

Motor Vehicles Act, 1988 — Section 173 — Compensation — Deduction of financial assistance under Haryana Compassionate Assistance to Dependents of Deceased Government Employees Rules, 2006 — Overlapping pecuniary benefit — Double recovery impermissible. (Paras 5–6.3, 8) The issue was whether amounts received by the claimants under the 2006 Rules are deductible from compensation awarded under the Motor Vehicles Act, 1988. Relying upon Reliance General Insurance v. Shashi Sharma, the Court held that financial assistance under the 2006 Rules, to the extent it corresponds to “pay and allowances” substituting loss of income, must be deducted to prevent double recovery. However, benefits not overlapping with loss of income (e.g., pension, provident fund, insurance) are not deductible. The subsequent decision in National Insurance Company Ltd. v. Birender does not dilute this principle; it clarifies only the procedural stage and evidentiary requirement for deduction, namely that actual receipt or eligibility must be established before adjustment. Ratio Decidendi: Amounts received or receivable under the 2006 Rules, insofar as they represent compensation equivalent to pay and allowances lost due to death, are liable to deduction from motor accident compensation to avoid double recovery; however, deduction must be based on proof of receipt or entitlement.

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Motor Vehicles Act, 1988 — Section 173 — Compensation — Deduction of financial assistance under Haryana Compassionate Assistance to Dependen...

Insolvency and Bankruptcy Code, 2016 — Section 7 — Scope of adjudication — Financial debt and default — Pre-existing dispute irrelevant. (Paras 12, 18, 22–23) For admission of an application under Section 7, the Adjudicating Authority is required only to satisfy itself that a financial debt exists and that default has occurred. The concept of “pre-existing dispute”, relevant under Section 9 in proceedings by an operational creditor, has no application to proceedings under Section 7. The NCLT and NCLAT erred in proceeding on considerations extraneous to the limited jurisdiction under Section 7, including alleged restructuring discussions and equitable considerations. Ratio Decidendi: In proceedings under Section 7 of the Code, once existence of financial debt and default is established, admission must follow; pre-existing disputes or restructuring negotiations do not defeat a financial creditor’s statutory right unless the debt is not due in law.

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Insolvency and Bankruptcy Code, 2016 — Section 7 — Scope of adjudication — Financial debt and default — Pre-existing dispute irrelevant. (Pa...

Arbitration and Conciliation Act, 1996 — Sections 28(3), 31(7)(a) — Contractual bar on interest — Clauses 16(3) and 64(5) of GCC — Award of pre-award / pendente lite interest impermissible. (Paras 31–45, 52–53, 61(A)) Clause 16(3) of the General Conditions of Contract expressly stipulated that “no interest will be payable upon the Earnest Money and Security Deposit or amounts payable to the Contractor under the Contract.” Clause 64(5) barred payment of interest “till the date on which the award is made.” Section 31(7)(a) makes the arbitral power to award interest expressly subject to party agreement. Once the contract excludes interest on amounts payable under the contract, the Arbitral Tribunal, being a creature of the contract, cannot award pre-award or pendente lite interest, even if styled as “compensation.” The principle of ejusdem generis was held inapplicable, as the expression “amounts payable to the contractor under the contract” is disjunctive and of wide amplitude. Ratio Decidendi: Where the contract expressly prohibits payment of interest on amounts payable under the contract, Section 31(7)(a) mandates adherence to such prohibition; the Arbitral Tribunal lacks jurisdiction to award pre-award or pendente lite interest, whether termed as interest or compensation.

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Arbitration and Conciliation Act, 1996 — Sections 28(3), 31(7)(a) — Contractual bar on interest — Clauses 16(3) and 64(5) of GCC — Award of ...

Insolvency and Bankruptcy Code, 2016 — Section 7 — Section 60(2) & (3) — Simultaneous initiation of CIRP against principal borrower and corporate guarantor — Maintainability. (Paras 2–4, 73–79) The issue whether simultaneous proceedings for Corporate Insolvency Resolution Process (CIRP) may be maintained against the principal debtor and its corporate guarantor stands covered by the decision in BRS Ventures Investments Ltd. v. SREI Infrastructure Finance Ltd.. Section 60(2) of the IBC contemplates filing of proceedings relating to the corporate debtor and its guarantor before the same Adjudicating Authority. The liability of the guarantor being co-extensive with that of the principal debtor under Section 128 of the Contract Act, the IBC permits separate or simultaneous proceedings against both. Ratio Decidendi: The Insolvency and Bankruptcy Code permits initiation and continuation of simultaneous CIRP proceedings against a corporate debtor and its corporate guarantor; admission of one proceeding does not bar admission of the other for the same debt.

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Insolvency and Bankruptcy Code, 2016 — Section 7 — Section 60(2) & (3) — Simultaneous initiation of CIRP against principal borrower and ...