Distinction between an undertaking to infuse funds and a contract of guarantee

A contractual undertaking whereby a promoter or corporate entity agrees to arrange for the infusion of funds into a borrower company to enable it to adhere to financial covenants does not constitute a contract of guarantee under Section 126 of the Indian Contract Act, 1872. To establish a statutory guarantee, there must be a direct, unambiguous promise made to the creditor to discharge the borrower's liability upon default. A clause that merely obligates an entity to inject funds into the debtor company creates a duty towards the debtor to facilitate financial compliance, rather than an enforceable commitment to pay the creditor directly upon default. An undertaking to supply liquidity so that a borrower may meet its debt obligations cannot be equated with a legal promise to answer for the debtor's default. (UV Asset Reconstruction Company Limited Vs Electrosteel Castings Limited | 2026 INSC 14)