S.J. Mukhopadhaya, C.J.@mdashThe writ petition has been preferred by the Gujarat State Co-operative Bank Limited (''Bank'' for short) challenging the letter dated 8-4-2004 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 15-2-1997, 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 under Sections 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 18-3-2004 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 15-3-2004 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 9-12-1998 has taken the plea that the exemption from payment of guarantee fee as was granted having been taken away by amended Circular dated 9-12-1998, the Petitioner-Bank is liable to pay 1% guarantee fee. The benefit of guarantee in favour of Petitioner-Bank under the contract, i.e. Government Resolution dated 15-2-1997 was subject to terms and conditions which were to be laid down by the Government from time to time. Thus, when condition relating to guarantee fee, which was not chargeable initially, came to be revised, and Petitioner-Bank cannot disown the guarantee fee charged by virtue of Circular dated 9-12-1998.
6. We have heard Counsel for the parties, perused the record and the guidelines issued by the State Government from time to time and also seen the terms and conditions on which default guarantee was agreed upon by Resolution dated 15-2-1997.
7. It appears that the State Government issued a Circular in order to facilitate statutory bodies, institutions, etc. to raise loans from financial institutions from open market borrowing to meet with their financial requirements and decided to give guarantee under the Gujarat State Guarantees Act, 1963, within the limit prescribed in pursuance of the provisions contained under Article 293(1) of the Constitution of India. The State Government issued various orders in this respect from time to time since 14-7-1967 onwards. The policy of sanctioning of guarantee as shown in the preamble of letter dated 31-12-1988 is quoted hereunder:
(i) Where under the provisions of any Central law or State law it is obligatory for State Government to Guarantee loans raised by Corporations, quasi-Government institutions, etc. the State Government shall guarantee shall guarantee the loans.
(ii) In other cases, where the loans are not required to be guaranteed by Government under any law, it is at the discretion of the State Government whether to guarantee the loan or not where the Bonds and Debentures raised by quasi-Govemment institutions are guaranteed by Government, they are trustee securities under Indian Trust Act or approved securities under insurance and Banking Companies Act. Government may, therefore, guarantee the Bonds and Debentures being raised by quasi-Government institutions.
(iii) When loans are obtained by Co-operative Institutions like Gujarat State Co-operative Bank from the Reserve Bank of India, the Reserve Bank insists that the repayment of loan should be guaranteed by the State Government. Similarly, when loans are obtained by bodies like the Gujarat State Co-operative Housing Finance Society from the Life Insurance Corporation, L.I.C. insists that the repayment of loans should be guaranteed by Government. In order to enable these bodies to obtain loans from Reserve Bank of India or Life Insurance Corporation, Government may guarantee the repayment of the loans.
(iv) The State Government shall not give loans to Joint Stock Companies. In exceptional cases, however, where finances are urgently required by a company which is engaged in providing essential public utility beneficial to this State, Government may guarantee loans that may be obtained by the Company from private Banks. In such cases guarantee fees as prescribed from time to time may be charged.
8. The procedure has also been laid down therein. The rate of guarantee fee was prescribed under Clause VI, and present rate on the date of issuance of Circular dated 31-12-1988 was shown at Clause VI(2). While half percent per annum was ordered to be charged as guarantee fee for Municipal Corporations, Municipalities Statutory Boards and Corporations, Government Companies and local bodies, etc., in case of public enterprises functioning on commercial basis, 1% fee was ordered to be charged per annum. In case of non-Government institutions, Joint Stock Companies and other institutions, it was ordered to charge 2% per annum on the guarantee amount. It was ordered not to charge any guarantee fee in respect of guarantees given for loans raised for non-commercial activities by Co-operative, Municipal Corporations, statutory bodies and Corporations, Government Companies and local bodies. It was shown that by various Government orders no fees are charged in respect of guarantees given for loans raised for the purpose from (i) Gujarat Electricity Board from Rural Electrification Corporation, (ii) Gujarat State Co-operative Land Development Bank Limited, (iii) Gujarat State Co-operative Bank Limited, (iv) Gujarat State Khadi Gram Udyog Board, etc. At Clause VI(3) the following stipulation was made:
3. The policy of charging the fees on Government guarantees has been introduced from the year 1966-1967 onwards with the provision that he fees should be charged and recovered on the guarantees given by Government during the financial year 1966-1967, and thereafter. In respect of guarantees given by Government prior to the financial year 1966-1967, no fees should be charged and recovered. If, however, the period of such guarantees given prior to the financial year 1966-1967 is extended further, fees should be charged and recovered at the prescribed rates.
9. When the Petitioner-Bank was granted default guarantee for the purpose of refinance facilities by letter dated 15-2-1997 for a sum of Rs. 91,84,42,500/-, at Clause 12 therein the following stipulation was made:
(12) No guarantee fee shall be charged and recovered from the Bank.
10. The Circular dated 31-12-1988 was modified subsequently on 9-12-1998. Having noticed that Banks, Financial Institutions and other lending agencies are gaining commercial orientation and that Reserve Bank of India has declared "risk weightages" on Government guaranteed papers, which may be increased for defaulting State Governments, the State Government after careful consideration considered the question of charging guarantee fee for guarantees made available to various institutions. Under Clause 3(iv), the following amended provision was made:
3(iv) When an instalment of loan is drawn under a Guarantee and repaid during a year, another instalment is drawn in the subsequent year(s) under the same Guarantee, the Guarantee fee for the subsequent year(s) will be calculated on the maximum amount of loan outstanding at any time during the previous financial year.
11. It was also mentioned that all administrative departments should reconcile issuance of fresh Guarantees and vacation of past guarantees, for all of its organisations, with the Accountant General in the month of April every year. Referring to Section V(5) the amended decision was shown that no unconditional guarantees will be given henceforth.
12. In the present case, while the Bank wants to derive the advantage of the agreement made between the parties vide letter dated 15-2-1997 with clear condition that "no guarantee fee shall be charged and recovered from the Bank", learned Counsel on behalf of the State was relying on the amended decision as contained in Resolution dated 9-12-1998, wherein it was decided that no unconditional guarantee will be given.
13. From the Circular dated 9-12-1998, it will be evident that the same is prospective, it prohibits grant of unconditional guarantee, i.e. the guarantee as may be given in future. It has no retrospective effect, and therefore, the said Circular cannot guide the guarantee already given, except where the question of renewal of such guarantee is taken up after 9th December, 1998.
14. This apart, from the factual aspect, it will be evident that default guarantee as given by the State Government by its letter dated 15-2-1997 was replaced by the Petitioner-Bank by offering F.D.Rs. lying with the State Bank of Saurashtra in lieu of default guarantee given by the State Government. NABARD has also agreed for this arrangement and had given no objection letter by its letter dated 15-3-2004, which was also communicated to the State Government by Bank''s letter dated 18-3-2004. In view of such internal arrangement made between the Bank and NABARD., the default guarantee given by the State having automatically come to an end, we hold that the State of Gujarat had no right to charge 1% guarantee fee. For the said reason, while we are not inclined to accept the ground shown by learned Counsel for the State, the impugned letter dated 8-4-2004 issued by Registrar, Co-operative Societies, State of Gujarat being illegal, the same is set aside. In the result, the writ petition is allowed, but in the facts and circumstances, there shall be no order as to costs.
