JUDGMENT - G.H. GUTTAL, J.:---In this Summons for Judgement, the defendants seek leave to defend. The question is whether the amount agreed to be underwritten under an underwriting contract represents a liquidated demand of money within the meaning of sub-rule (1) of Rule 2 of Order XXXVII of the Code of Civil Procedure. The facts out of which this Summons for Judgement arises are in paragraphs 2 and 3 below.

2. Starvox Electronics Ltd., a Joint stock Company, decided to bring out a public issue of 6,50,000 equity shares, each of Rs. 10/- aggregating to Rs. 6,50,000/-. The plaintiff, a Nationalised Bank, agreed to underwriters underwrite 50,000 equity shares of the Company. On 8th June, 1987, the plaintiffs entered into a subsidiary underwriting agreement with the defendants. Defendants are the plaintiffs sub-underwriters of the Company. The defendants agreed to “sub-underwrite 20,000 equity shares of the face value of Rs. 2,00,000 out of the public issue agreed to be underwritten by the plaintiffs. The defendants were to be discharged of their obligations under the agreement if the issue of equity shares was fully subscribed by the public on the closing date and the application money payable in respect thereof is not received by the Company before that date, the underwriters shall, after the receipt of the subscription position from the Company, inform the sub-underwriters, the defendants herein, “of the number of equity shares for which the underwriter is to subscribe in pursuance of” the agreement. The agreement goes on to record “the sub- underwriters shall, within 8 days after receipt of such intimation apply for and subscribe such unsubscribed amount of the equity shares and pay or procure to subscribe to the extent mentioned. “The sub-underwriter, the defendants shall subscribe for a number of equity shares representing the difference between the public issue and the subscription from the public. However, this obligation to subscribe to the equity shares or pay the amount of the value of unsubscribed shares is “ subject to a ceiling of Rs. 2,00,000/- ”(Clause 2(b) of the Agreement).

3. On 15th September, 1987, the plaintiffs informed the defendants that the issue “did not evoke good response with the result that there has been devolvement of the underwriters.” The plaintiffs then advised the defendants to subscribe to the shares of the above Company “to the extent of Rs. 2,00,000/- in fulfilment of “their sub-underwriting commitment (Exh. '(B)' to the plaint).

4. Rule 2(1) of Order XXXVII, of the Code of Civil Procedure, provides inter alia, that all suits in which plaintiff seeks “only to recover (i) a debt or (ii) liquidated demand in money payable by the defendant with without interest, arising on a written contract…” be instituted in the manner provided therein. (Respondent from page in the Code Civil Procedure by Sir Dinshaw Mulla Thirteenth Ed, Volume II.) The question is whether the sum of Rs. 2,00,000/- claimed by the plaintiffs in this suit under the sub- underwriting contract is “ liquidated demand ".

5. What is the nature of an underwriting contract ? What is the liability of the underwriter to the Company and of the sub-underwriter to the underwriter ? Does the contract on which this suit is based stipulate the payment of a liquidated sum ? The answers to these questions will determine whether the amount claimed in the suit is a liquidated sum. Underwriting in its simplest form consists of an undertaking by some person or persons that if the public fails to take up the issue, he or they will do so. In return for this undertaking the Company agrees to pay the underwriters a commission on all shares or debentures, whether taken by the public or by the underwriters. The underwriters themselves will usually choose to spread their risk by using sub-underwriters who agree to take a certain number of the shares for which they receive a commission. In the result, if an issue to the public is a success,

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