New Delhi, Jan. 14 -- The Supreme Court ruled that a contractual clause requiring a promoter to arrange funds for a borrower to meet financial covenants does not constitute a guarantee under Section 126 of the Indian Contract Act, 1872.

It also clarified that approval of a resolution plan under the IBC does not automatically discharge unsustainable debt of third-party security providers unless the plan explicitly states so.

'See to It' Guarantees Do Not Cover Third-Party Obligations The Court, interpreting Section 126, held that for an obligation to qualify as a guarantee, the surety must have a direct and unequivocal duty to discharge the principal debtor's obligation.

It clarified that a 'see-to-it' guarantee under English law, where...