Supreme Court Holds That an Undertaking to Infuse Funds Does Not Constitute a Contract of Guarantee Under Section 126 of the Indian Contract Act

Case Name: UV Asset Reconstruction Company Limited v. Electrosteel Castings Limited
Citation: 2026 INSC 14
Date of Judgment/Order: 06 January 2026
Bench: Justice Sanjay Kumar and Justice Alok Aradhe

Held: The Supreme Court held that Clause 2.2 of the Deed of Undertaking, which merely obligates a promoter to arrange infusion of funds to enable the borrower to comply with financial covenants, does not satisfy the essential ingredients of a contract of guarantee under Section 126 of the Indian Contract Act, as it neither contains an undertaking to discharge the borrower’s debt nor a promise to pay the creditor upon default.

Summary: The appeal arose from dismissal of a Section 7 application under the Insolvency and Bankruptcy Code filed by the appellant ARC against Electrosteel Castings Limited, alleging liability as a corporate guarantor for loans availed by Electrosteel Steels Limited. The Court examined the sanction letter, loan documents, Deed of Undertaking dated 27.07.2011, contemporaneous records, and the resolution plan approved during CIRP. It analysed the statutory definition of guarantee under Section 126, distinguished between a promise to pay a creditor and an obligation to ensure financial discipline through fund infusion, rejected reliance on English “see to it” guarantees, and held that neither pleadings nor voluntary payments by the promoter could convert the undertaking into a guarantee.

Decision: The appeal was dismissed, the concurrent findings of the NCLT and NCLAT were affirmed, it was declared that Electrosteel Castings Limited was not a guarantor for the financial facilities availed by Electrosteel Steels Limited, and no order as to costs was made, with all pending applications disposed of.