Rule 254 — This rule explains a specific requirement when the
Original Rule Text
Rule 254 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 shall be obtained in Form GFR 32. No stamp duty need be paid on these written undertakings. Rule255 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.
What This Means
This rule explains a specific requirement when the government lends money to companies that it fully owns. Before the government gives a loan to one of its wholly-owned companies, it must get a special written promise from that company.
This promise, called an 'undertaking,' is a formal agreement where the company states that it will not use its major assets – things like land, buildings, or heavy machinery (known as 'fixed assets') – as collateral or security for any other loans or financial arrangements without first getting official permission from the government. This ensures the government, as the lender, has control over how the company manages its most valuable possessions.
The undertaking must be provided using a specific document format called Form GFR 32. An important point to remember is that you do not need to pay any stamp duty (a type of tax on legal documents) on these particular written undertakings.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Key Points
- 1Rule 254 applies when the government provides loans to companies it entirely owns.
- 2A written undertaking must be obtained from the wholly-owned Government Company receiving the loan.
- 3This undertaking commits the company not to hypothecate (pledge as security) its fixed assets without prior government approval.
- 4The undertaking must be submitted in the prescribed format, which is Form GFR 32.
- 5No stamp duty is required to be paid on these specific written undertakings.
Practical Example
Imagine the Ministry of Power decides to grant a loan of Rs. 100 crores to 'National Power Grid Corporation Ltd.', which is a 100% government-owned entity, to fund a critical infrastructure upgrade project. Before the Ministry disburses this significant amount, its finance department will refer to Rule 254.
Following the rule, the Ministry will ensure that National Power Grid Corporation Ltd. provides a duly signed undertaking in Form GFR 32. This document will explicitly state that the Corporation will not hypothecate its power transmission lines, substations, or any other major fixed assets related to the project without first securing formal approval from the Ministry of Power. The Ministry's officials will also be aware that, as per the rule, no stamp duty needs to be levied on this undertaking, simplifying the process.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Frequently Asked Questions
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This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.