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Issues: (i) whether section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 bars invocation or encashment of a bank guarantee by treating it as execution, distress or the like against the properties of a sick industrial company; (ii) whether the beneficiary can resist enforcement of the bank guarantee on the ground that the contractual conditions for invocation were not satisfied.
Issue (i): whether section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 bars invocation or encashment of a bank guarantee by treating it as execution, distress or the like against the properties of a sick industrial company
Analysis: The scheme under section 18 of the Act was already under implementation, but the Court held that a bank guarantee is not the property of the sick company merely because encashment may indirectly affect it financially. Proceedings to invoke or encash a bank guarantee do not amount to execution, distress or analogous proceedings against the company's properties within section 22(1).
Conclusion: Section 22(1) does not bar invocation or encashment of the bank guarantee.
Issue (ii): whether the beneficiary can resist enforcement of the bank guarantee on the ground that the contractual conditions for invocation were not satisfied
Analysis: The Court followed the settled principle that the autonomy of a bank guarantee cannot be defeated by disputing whether the underlying contractual conditions were fulfilled. Interference is confined to exceptional situations such as fraud or special equities causing irretrievable injustice, which were not shown.
Conclusion: The challenge to enforcement on the ground of non-fulfilment of contractual conditions was not maintainable.
Final Conclusion: The writ petition was dismissed and the challenge to encashment of the bank guarantee failed, while the connected writ appeal was rendered infructuous.
Ratio Decidendi: Invocation of an unconditional bank guarantee is not a proceeding against the property of a sick industrial company under section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985, and courts will not restrain enforcement except in cases of fraud or special equities amounting to irretrievable injustice.
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