Bank guarantee enforcement remains valid despite sick company status unless the sanctioned scheme expressly extinguishes liability.

Enforcement of a bank guarantee furnished pursuant to a court order was held not to be barred by Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985. The liability of the bank under the guarantee was treated as distinct from the company's liability, so recovery against the bank was not a direct coercive action against the sick company. The sanctioned scheme also did not extinguish the excise duty claim; it only contemplated possible waiver, and the claim remained enforceable until waiver was actually granted. Section 18(8) made the scheme binding, but did not by itself render the guarantee unenforceable.

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Issues: Whether enforcement of the bank guarantee to recover excise duty was barred by the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 and the sanctioned scheme.

Analysis: The bank guarantee had been furnished pursuant to orders of the Supreme Court, and the petitioner had already failed in the Supreme Court. The recovery was being effected not by direct coercive action against the sick company, but by enforcing the bank guarantee against the bank, whose liability was distinct from that of the petitioner-company. Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 did not stay or prevent enforcement of the bank guarantee. Further, under the sanctioned scheme, the excise liability had not been extinguished; only waiver was to be considered. Section 18(8) of the Sick Industrial Companies (Special Provisions) Act, 1985 made the sanctioned scheme binding, but it did not render the excise claim non-existent or make the bank guarantee unenforceable until waiver was actually granted.

Conclusion: Enforcement of the bank guarantee was not barred, and the plea based on the sanctioned scheme and Section 22 was rejected.

Ratio Decidendi: Where a bank guarantee has been furnished pursuant to a court order, its enforcement is not stayed merely because the debtor company is a sick industrial company under a sanctioned scheme, unless the scheme expressly extinguishes the liability or prohibits enforcement.

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