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«Government of India Ministry of Finance Department of Expenditure General Financial Rules, 2005* (* Amendments issued upto March 2010 have been added as ...»

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(2) The recovery of loans should ordinarily be effected in annual equal instalments of principal together with interest due on the outstanding amount of principal from time to time. The repayment and interest instalments may be rounded off to the nearest rupee subject to final adjustment at the time of payment of last instalment of principal and/or interest.

(3) A suitable period of moratorium towards repayment might be agreed to in individual cases having regard to the projects for which the loans are to be utilized. However, no moratorium should ordinarily be allowed in respect of interest payable on loans.

Rule 223. Loans to State and Union Territory Governments, Local Bodies, Statutory Corporations, Public

Sector Undertakings, Private Institutions or Parties and Individuals, etc. :

(1) – Loans should ordinarily be sanctioned at the normal rates of interest prescribed by Government for the particular category of the loanee. In cases where the normal rate is considered too high and a concession is justified, it should take the form of direct subsidy debitable to the grants of the sanctioning authority. In such cases interest should, however, be paid by the borrower in the first instance at the normal rates and

subsidy should be claimed separately:

Provided that the provisions of this decision should not apply where the number of borrowers is very large and amount of individual loans is comparatively small (as in the case of loans to displaced persons, taccavi loans, loans for land improvement, etc.) and where the accepted policy is to lend money at rates of interest below the normal rates, or to waive the recovery of interest in whole or in part. In such cases, a token provision should be made in the budget of the Department or Office concerned for obtaining the specific approval of Parliament for the grant of the concession. No actual adjustment of accounts will, however, be necessary in such cases.

(2) Agreements and other documentation : (i) In the case of loans to parties other than State Governments and wholly owned Government Companies, a loan agreement specifying all the terms and conditions shall be executed. A clause shall invariably the inserted in all such agreements enabling Government at any time to call for accounts of the applicant relating to any accounting year with power to depute an officer specially authorized for this purpose to inspect the applicant’s books, if necessary.

(ii) A written undertaking in Form GFR 32 should be obtained from a wholly Government-owned company at the time of sanctioning the loan. The sanction should specifically state that such an undertaking would be obtained from the loanee before the drawal of the amount of loan and a certificate that the undertaking has been obtained should be recorded by the Drawing Officer of the office of the sanctioning authority in the bill for drawal of the amount of loan. The sanction in respect of loans to other organizations, where a formal agreement is required to be executed, will also be issued in the same manner.

(iii) In the case of loans sanctioned to the Departmental or Cooperative canteens or tiffins rooms in Central Government Offices, no formal agreement need be executed, but a written undertaking in Form GFR 32 suitably modified should be obtained from the loanee.

Rule 224. Undertaking to be obtained from wholly-owned Government Companies : In the case of loans to wholly-owned Government Companies, a written undertaking to the effect that the fixed assets of the company shall not be hypothecated without prior approval of the Government should be obtained in Form GFR 32.

No stamp duty need be paid on these written undertakings.

Rule 225. Loans to parties other than State Governments, wholly owned Government Companies and Local Administration of Union Territories shall be sanctioned only against adequate security.

The security to be taken shall ordinarily be at least thirty-three and one-third per cent. more than the amount of the loan. However, a competent authority may accept security of less value for adequate reasons to be recorded.

Rule 226. Submission of utilization certificate, reports, statements, etc. :

(1) In cases in which conditions are attached to the utilization of loan, either in the shape of the specification of the particular objects on or the time within which the money must be spent or otherwise, the authority competent to sanction the loan shall be primarily responsible for certifying to the Accounts Officer where necessary, the fulfillment of the conditions attaching to the loan, unless there is any special rule or order to the contrary. The loans sanctioned to the State Governments and the Local Administration of Union Territories shall not, however, come within the purview of this rule.

(2) (i) The certificate referred to in Rule 226 (1) above should be furnished as in Form GFR 19-B and at such intervals as may be agreed to between the Audit Officer and/or the Accounts Officer, as the case may be, and the Ministry or Department concerned. Before recording the certificate, the certifying officer should take steps to satisfy himself that the conditions, on which the loan was sanctioned, have been or are being fulfilled. For this purpose, he may require the submission to him at suitable intervals of such reports, statements, etc., which will establish the utilization of loan for the purpose for which it was sanctioned. The loanee institution may also be required to furnish a certificate from its Auditors that the conditions attaching to the loan have been or are being fulfilled. The certificate should give details of the breaches, if any, of those conditions.

(ii) A certificate of utilization of the loan should be furnished to the Accounts Officer in every case of loan made for specific purposes, even if any conditions are not specifically attached to the grant. Such certificates are not, however, necessary in cases where loans are sanctioned not for any specific purpose or object but take the shape of a temporary financial aid or where the plan loans have been sanctioned to the Public Sector Undertakings intended for financing of their approved capital outlays.

The repayment of loan, however, has to be watched in the usual manner.

(iii) In respect of loans the detailed accounts of which are maintained in the Audit Offices, the authorities sanctioning the loan should furnish the utilization certificate in respect of each individual case.

(iv) Where the detailed accounts of the loans are maintained by the departmental authorities, a consolidated utilization certificate should be furnished to Audit by the Ministries/Departments sanctioning the loans to Institutions/Organisations for the total amount of the loans disbursed during each year for different purposes including the loans sanctioned by their subordinate officers. This certificate will not cover the loans to individuals for which utilization certificates need not be furnished to the Accounts Officer. The certificate should indicate the year-wise and object wise break-up of loans disbursed and the loans for which utilizations certificates are furnished. The utilization certificate should also show the loans disbursed separately for each sub-head of account to facilitate verification by the Accounts Officer.

(v) The utilization certificates should be furnished within a ‘reasonable time’ after the loan is paid to the institutions. The Department of Central Government should prescribe, in consultation with the Finance Ministry, target dates for the submission of the utilization certificates by the Department concerned to the Accounts Officer. The target date should, as far as possible, be not later than eighteen months from the date of sanction of the loan.

(vi) In respect of loans, the detailed accounts of which are maintained by Departmental Officers and where consolidated utilization certificates are to be furnished to Accounts Officer, the period of 18 months should be reckoned from the expiry of the financial year in which the loans are disbursed. The consolidated utilization certificates in respect of such loans paid each year should, therefore, be furnished not later than September of the second succeeding financial year.

(vii) The due dates for submission of the Utilization Certificates should be specified in the letter of sanction for loan. The target date as specified should be rigidly enforced and extension should only be allowed in very exceptional circumstances in consultation with the Ministry of Finance under intimation to the Audit Officer and/or the Accounts Officer, as the case may be. No further loans should be sanctioned unless the sanctioning authorities are satisfied about the proper utilization of the earlier loan sanctioned to an Institution, etc.

(viii) In respect of loans sanctioned to departmental co-operative canteens in Government Offices the Heads of Departments should furnish the utilization certificate.

Rule 227. Installments of Loans : When a loan of public money is taken out in installments, each installment of the loan so drawn shall be treated as a separate loan for purposes of repayment of principal and payment of interest thereon except where the various installments drawn during a financial year are, for this purpose, allowed to be consolidated into a single loan as at the end of that particular financial year.

In the latter event, simple interest at the prescribed rate on the various loan installments from the date of drawal of each installment to the date of their consolidation shall be separately payable by the borrower. Repayment of each loan or the consolidated loan, as the case may be, and the payment of interest thereon shall be arranged by the borrower annually on or before the anniversary date of drawal or consolidation of the loan in such number of installments as the sanctioning authority may prescribe. The sanctioning authority may allow, in deserving cases a moratorium towards repayment of principal but not for the payment of interest. Should it appear that there is an undue delay on the part of the debtor in taking out the last installment of a loan the authority sanctioning the loan may at any time declare that loan closed, and order repayment of capital to begin. The Accounts Officer shall bring to notice any delay that appears to him to require this remedy and he shall take this step whether or not there are any dates fixed for taking of installments.

NOTE 1. These instructions are applicable mutatis mutandis to loans, the repayments of which are made by other than annual installments.

NOTE 2. – It must be remembered that the calculation fixing the amount of equal periodical installments, by which a loan is repaid with interest, presupposes punctual payment of the installment and that, if any installment is not punctually repaid, the interest amount will need to be recalculated.

Rule 228. Defaults in Payment :

(1) The loan sanctions in favour of State or Union Territory Governments and the loan sanctions or undertakings or agreements in case of wholly Government owned companies or Public Sector Undertakings should invariably include provision for the levy of penal interest on overdue installments of interest or principal and interest. The loan sanctions and agreements in all other cases should invariably stipulate a higher rate of interest and provide for lower rate of interest in the case of punctual payments. The penal or the higher rate of interest, as the case may be, shall not, except under special orders of Government, be less than two and half per cent. per annum above the normal rate of interest prescribed by Government from time to time for the loans advanced.

(2) Any default in the payment of interest upon a loan or in the repayment of principal, shall be promptly reported by the Accounts Officer, to the authority which sanctioned the loan. The responsibility of the Accounts Officer, under this rule refers only to the loans, the detailed accounts for which are kept by him.

(3) Procedure to be followed in case of defaults in repayment of interest free loans or loans sanctioned at

concessional rates of interest :

(i) In the case of grant of interest free loans e.g., loans to technical educational institutions for construction of hostels, prompt repayment should be made a condition for the grant of interest free loans. The sanction letter in such cases should provide that in the event of any default in repayment, interest at rates prescribed by Government from time to time will be chargeable on the loans.

(ii) In the case of loans sanctioned at concessional rates of interest e.g., loans under the State Aid to Industries Act and Rules, the payment of subsidy (to cover the concession, viz., difference between the normal rate and concessional rate), should be made conditional upon prompt repayments of principal and payment of interest thereon by the party concerned.

(iii) In the cases where in addition to interest free loans, subsidy is also provided to meet running expenses e.g., loans to departmental canteens, the sanction letter should provide that in the event of any default in repayment, the defaulted dues would be recovered out of the subsidy payable.

(4) On receipt of a report of default referred to in sub-rule (2) above, the authority concerned shall immediately take steps to get the default remedied and also consider enforcement of penal or higher rate of interest on the overdue amounts. Where the sanctioning authority is satisfied, having regard to the circumstances of the case, that penal or higher interest need not be recovered, the borrower should ordinarily be asked to pay interest, at the normal rate prescribed in the loan sanction, on the overdue amount (of principal and/or interest) from the due date of payment up to the date of settlement of the default. The recovery of additional interest should not be waived except in special circumstances or where the period of defaults is very short, e.g., a few days.

Rule 229. Irrecoverable Loans : A competent authority may remit or write off any loans owing to their irrecoverability or otherwise.

Rule 230. Accounts and Control :

(1) Subject to such general or specific directions as may be given by the Comptroller and Auditor-General in this behalf, detailed accounts of loans to Institutions and Organizations, etc., shall be maintained by the Accounts Officer who shall watch their recovery and see that the conditions attached to each loan are fulfilled.

(2) In the case of loans to private individuals the detailed accounts of such loans shall be maintained by the departmental authorities concerned who shall also watch their recovery and see that the conditions attached to each loan are fulfilled. The detailed procedure to be followed for the various categories of loans to private individuals should be laid down in consultation with Finance Ministry and the Comptroller and AuditorGeneral of India.

Rule 231. The instructions contained in this Chapter relating to cost of audit of grants-in-aid are applicable mutatis mutandis in the case of loans as well.

Rule 232. Annual Returns : Each Principal Accounts Officer shall submit to the concerned Ministry or Department of Government a statement in Form GFR 20 showing the details of outstanding Central Loans borne on his books as on thirty-first March each year.

This statement should be submitted not later than the following thirtieth September and should indicate the aggregate of outstanding balance of loans, details of defaults, if any, in repayment of principal and/ or interest and the earliest period to which the default pertains, against each State or Union Territory Government, foreign Government, Railway or Department of Posts funds, public sector and private sector enterprises, Co-operative and other institutions etc. Where, however, detailed accounts are not required to be maintained by the Accounts Office, the statement should contain departmental authority-wise aggregate balances of outstanding loans.

Rule 233. Review of annual statements with a view to enforce repayments of the principal and interest due :

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