Per : HONOURABLE THE CHIEF JUSTICE MR. S.J. MUKHOPADHAYA

The writ petition has been preferred by the Gujarat State Co-operative Bank Limited (`Bank' for short) challenging the letter dated 08.04.2004 issued by the respondent Registrar, Co-operative Societies, State of Gujarat. By the said order, the Bank has been intimated that it will have to pay 1% guarantee fee on default guarantee instituted by the State for obtaining a loan of Rs.91,84,42,500/- (Rupees Ninety One Crore Eighty Four Lakh Forty Two Thousand Five Hundred only) from the National Bank for Agriculture and Rural Development (NABARD).

2. The only question requires to be determined is as to whether the Bank is liable to pay guarantee fee, and thereby the State can recover 1% guarantee fee from the Bank having accorded default guarantee in facilitating the Bank to obtain loan from NABARD.

3. The brief facts of the case not disputed by the parties are that the Bank applied for a loan of Rs.91,84,42,500/- from NABARD for the purpose of financing agriculture for schematic projects lending and rural development in the rural areas of the State of Gujarat. In order to secure such loan, the petitioner-Bank had applied for default guarantee from the State of Gujarat to the Registrar, Co-operative Societies. Such request was accepted by the State of Gujarat and had accorded default guarantee for the loan amount of Rs.91,84,42,500/- from NABARD by letter dated 15.02.1997, which was for the purpose of refinance facilities for agriculture and schematic projects lending and rural development. On such grant of the default guarantee by the State, the petitioner-Bank could obtain loan from NABARD for financing u/Sec.23 and 25(1)(a) of the NABARD Act. On release of the amount, the Bank utilised the same for schematic projects lending for which the loan was given. Thereby, the State Government having accepted to pay the liability of loan amount by issuing default guarantee the Bank, the Bank could use it for refinancing.

4. According to the petitioner-Bank, it has arrived at an arrangement with NABARD so as to release the State Government from its obligation of default guarantee. As per the arrangement, the petitioner-Bank had released its Fixed Deposit Receipts (F.D.Rs.) lying in State Bank of Saurashtra in lieu of Government's default guarantee. NABARD had agreed to the aforesaid arrangement and given No Objection Certificate by its letter dated 18.03.2004 to accept F.D.Rs. in lieu of default guarantee of the State Government. The petitioner-Bank had also given the aforesaid information to the Registrar, Co-operative Societies, by its letter dated 15.03.2004 that NABARD had agreed to accept F.D.Rs. lying with the State Bank of Saurashtra in lieu of the default guarantee given by the State. In the aforesaid letter, there is also a reference to `Conversion Guarantee' of Rs.26,30,46,000/-, but the same is not subject matter of this writ petition. We are not concerned with this.

5. On behalf of the Bank the question has been raised whether the State Government can charge 1% guarantee fee in view of the agreement reached between the parties and the development has taken place after the same and referred to above that NABARD has accepted the F.D.Rs. in lieu of default guarantee issued by the State. Learned counsel for the petitioner-Bank submits that the State Government having no liability and the default guarantee having been vacated, they cannot charge 1% guarantee fee. Further, in view of the agreement reached between the parties, the petitioner-Bank is not supposed to pay guarantee fee to the State. Respondent-State referring to a Circular dated 31.12.1988 as amended by Circular dated 09.12.1998 has taken the plea that the exemption from payment of guarantee fee as was granted having been taken away by amended Circular dated 09.12.1998, the petitioner-Bank is liable to pay 1% guarantee fee. The benefit of guarantee in favour of petitioner-Bank under the contract, i.e. Governm