Para 3.13.18 — MSO (Audit)
Original Rule Text
3.13.18 Under Articles 292 and 293 of the Constitution, the Union and the States are empowered to give guarantees in respect of loans raised by others within such limits as may be fixed from time to time by an Act of Parliament or of the State Legislature, as the case may be. Such guarantees constitute contingent liabilities of Government. It is an essential duty of Audit to maintain a close watch over guarantees given by Governments to ensure that:
(i) the ceilings prescribed by the Legislature are not exceeded;
(ii) any general or special orders of the Governments concerned prescribing the levy of a commission for giving guarantees are duly observed; and
(iii) a sound system in place to maintain proper records of the guarantees given along with their terms and conditions.
It is also necessary that the total amount of such guarantees as well as the amount involved in guarantees, if any, invoked during the year are mentioned in the Audit Report on the accounts of the Union or the State Government concerned, as the case may be.
What This Means
When the Union or State Government guarantees someone else's loan, it creates a potential future liability (called a contingent liability). Audit must keep a close watch on these guarantees to make sure the Legislature's ceiling is not breached, any commission charged for giving guarantees is properly collected, and proper records are maintained. The total amount of guarantees and any guarantees that were actually invoked during the year must be reported in the Audit Report.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Key Points
- 1Government guarantees on others' loans are contingent liabilities under Articles 292 and 293 of the Constitution
- 2Audit must verify that guarantee ceilings fixed by Parliament or State Legislature are not exceeded
- 3Commission prescribed by government for giving guarantees must be duly collected
- 4A proper record-keeping system for guarantees with their terms and conditions must be in place
- 5Total guarantees and any invoked guarantees must be disclosed in the annual Audit Report
Practical Example
A State Government guarantees a Rs 500 crore loan taken by a state-owned corporation for infrastructure development. The auditor checks whether this guarantee falls within the ceiling set by the State Legislature, whether the prescribed 0.5% guarantee commission was charged, and whether the guarantee details are properly recorded. If the corporation defaults and the government has to pay, the auditor ensures this invoked guarantee amount is highlighted in the State Audit Report.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Frequently Asked Questions
What is a contingent liability in the context of government guarantees?▼
Who sets the ceiling for government guarantees?▼
Why must invoked guarantees be mentioned in the Audit Report?▼
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.