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Companies Act, 2063 (2006)

Date of Authentication: 2063.7.7 (3 November 2006)

1. Some Nepal Act (Amendment) Act, 2064 2064.5.9 (26 August 2007). Act Number 18 of the Year 2063 (2006), An Act made to amend and consolidate the law relating to companies

Preamble: Whereas, it is expedient to amend and consolidate the law relating to companies in order to bring about dynamism in the economic development of the country by promoting investment in the industry, trade and business sectors through economic liberalization and make the incorporation, operation and administration of companies much easier, simpler and more transparent; Now, therefore, be it enacted by the House of Representatives in the First Year of the issuance of the Proclamation of the House of Representatives, 2063 (2006).

Chapter 1Preliminary

1. Short title and commencement : (1) This act may be called as the “Companies Act, 2063(2006)”.(2) This Act shall be deemed to have come into force on 20 Ashwin 2063 (6 October 2006).

2. Definitions : In this Act, unless the subject or the context otherwise requires,(a) “Company” means a company incorporated under this Act.(b) “Private company” means a private company incorporated under this Act.(c) “Public company” means a company other than a private company.(d) “Holding company” means a company-having control over a subsidiary company.(e) “Subsidiary company” means a company controlled by a holding company.(f) “Foreign company” means a company incorporated outside Nepal.(g) “Listed company” means public company which has its securities listed in the stock exchange.(h) “Company not distributing profits” means company incorporated under Chapter 19

on conditions that it shall not be entitled to distribute or pay to its members any dividends or any other moneys out of the profits earned or savings made for the attainment of any objectives.(i) “Promoter” means a person who, having consented to the matters contained in the

memorandum of association and the articles of association to be furnished in the Office for the incorporation of a company, signs the same in the capacity of promoter.(j) “Officer” includes director, chief executive, manager, company secretary, liquidator

and any employee undertaking departmental responsibility of the company.(k) “Memorandum of association” means the memorandum of association of a company.(l) “Articles of Association” means the articles of association of a company.(m) “Prospectus” means a prospectus to be published by a company pursuant to Section 23.(n) “Share” means the divided portion of the share capital of a company.(o) “Preference share” means a share issued as a preference share pursuant to this Act.(p) “Ordinary share” means a share other than a preference share.(q) “Bonus share” means a share issued as an additional share to shareholders, by capitalizing the saving earned from the profits or the reserve fund of a company, and this term includes the increase of the paid up value of a share by capitalizing the saving or reserve fund.CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

(r) “Shareholder” means a person having ownership in the share of a company.(s) “Debenture” means any bond issued by accompany whether putting its assets as collateral or not.(t) “Debenture trustee” means a body corporate undertaking the responsibility for the

protection of interests of debenture-holders at the time of issuance of debentures by a company.(v) “Seal of company” means the seal of a company to be used by it.(w) “Securities Board” means the securities board established under the prevailing law to regulate and manage securities.(x) “Securities” means any shares, bonds, debentures or stocks issued by a company, and this term includes the receipt relating to deposits of securities and the rights and entitlement relating to securities.(y) “Director” means any director of a company and this term includes any alternate director.(z) “Board of directors” means the board of directors of a company.(z1) “Managing director” means a managing director of a company.(z2) “Premium share” means a share so issued by a company as to sell it for a value in excess of its face value.(z3) “Net worth” means the assets of a company remaining after deducting the paid up capital, reserve, fund or free reserve of whatever designation to which shareholders have right or all other liabilities other than goodwill, if any, of the company as well as loss provisions , if any, from the total assets of the company for the time being. (z4) “Consensus agreement” means an agreement made unanimously by all the shareholders of a private company existing for the time being in respect of the operation of the company.(z5) “Office” means the Company Registrar’s Office set up by the Government of Nepal for the administration of companies.(z6) “Register” means the Registrar of the Office.(z7) “Independent director” means any independent director appointed under Sub-

section (3) of Section 86.(z8) “Court” means the commercial bench of a court specified by the Government Nepal by a notification in the Nepal Gazette, with the consent of the Supreme Court.(z9) “Close relative” means a partition shareholder in joint family or husband, wife, father, mother, mother-in -law, father-in- law, elder brother, younger brother, elder sister, younger sister, sister-in–law ,(elder or younger brother’s wife), brother-in–law , sister–in–law, brother-in- law, (husband of elder sister), uncle, aunt, maternal uncle, maternal aunt, son, daughter, daughter-in-law ,grand–son, grand-daughter, grand-daughter in law or son-in–law.(z10) “Prescribed” or “as prescribed” means prescribed or as prescribed by the Government of Nepal by a notification in the Nepal Gazette.

CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

Chapter 2Incorporation of Company

3. Incorporation of Company:(1) Any person desirous of undertaking any enterprise with profit motive may, either singly or

jointly with others, incorporate a company for the attainment of one or more objectives set forth in the memorandum of association.

(2) There shall be a minimum of seven promoters for the incorporation of a public company.Provided, however, that seven promoters shall not be required for the incorporation of another public company by any public company.

(3) Notwithstanding anything contained elsewhere in this Section, a company not distributing profits may, subject to the provisions contained in Chapter-19, be incorporated for the attainment of one or more objectives.

4. Application to be made for incorporation of company : (1) Any person desirous of incorporating a company pursuant to Section 3 shall make an

application to the Office, in such format and accompanied by such fees as prescribed, and along with the following documents, as well:

(a) The memorandum of association of the proposed company,(b) The articles of association of the proposed company,(c) In the case of a public company, a copy of the agreement, if any, entered into between the promoters prior to the incorporation of the company,(d) In the case of a private company, a copy of the consensus agreement, if any, entered into,(e) Where prior approval or license has to be obtained from anybody under the prevailing law prior to the registration of a company carrying on any particular type of business or transaction pursuant to the prevailing law, such approval or license,(f) Where the promoter is a Nepalese citizen, a certified copy of the citizenship certificate and where a corporate body is a promoter, a certificate of registration of incorporation, decision of the Board of directors, regulating the incorporation of the company and major documents regarding incorporation.(g) Where the promoter is a foreign person or company or body, permission obtained under the prevailing law to make investment or carry on business or transaction in Nepal,(h) Where the promoters is a foreign person, a document proving the country of his/her citizenship,(i) Where the promoter is a foreign company or body, a certified copy of the incorporation of such company or body and major documents relating to such incorporation.(2) Notwithstanding anything contained in Sub-section(1), if the promoter agrees to accept the articles of association in the format prescribed for the incorporation of a company with a single promoter of single shareholder, it shall not be required to submit the articles of association of the proposed company.

5. Registration of company: (1) Where an application is made for the incorporation of a company pursuant to Section 4, the

Office shall, after making necessary inquiries, register such company within 15 days after the date of making of the application and grant the company registration certificate to the applicant, in the format as prescribed.


(2) After a company has been registered pursuant to Sub-section (1), the company shall be deemed incorporated.

(3) The office shall maintain company register in the format as prescribed, for purpose of Sub-section (1).(4) After the incorporation of a company under this Section, subject to this Act, the matters

contained in the memorandum of association and the articles of association shall be binding on the company and its shareholders as if these where the provisions contained in separate agreements between the company and every shareholder and amongst its shareholders.

(5) Without registering a company under this Act, no person shall use the name company and carry on any kind of transaction by the name of any firm or institution.

6. Power to refuse to register company : (1) The Office may refuse to register a company in any of the following circumstances:(a) If the name of the proposed company in identical with the name by which a company in existence has been previously registered or so resembles the name of that company as it might cause misleading,(b) If the name or objective of the proposed company is contrary to the prevailing law or appears to be improper or undesirable in view of public interest, morality, decency, etiquette etc. or reflects criminal motive ,(c) If the name of the proposed company is identical with the name of a company of which registration has been cancelled pursuant to this Act or that of a company which has been insolvent under the prevailing law or so resembles such name as it might cause misleading and a period of five years shall not expired after such cancellation of registration or insolvency,(d) If the requirements for the incorporation of a company under this Act are not fulfilled.(2) If the office refuses to register company in any of the circumstances as referred to in

Sub-section (1) it shall give a notice there of, accompanied by the reasons therefore, to the applicant no later than 15 days after the date of application made for the incorporation of company pursuant to Section 4.

(3) If the office refuses to register any company pursuant to Sub-section (1) Or fails to give a notice pursuant to Sub-section (2), a person who is not satisfied may file a complaint in the court within fifteen days.

7. Company to be a body corporate : (1) Any company incorporated under this Act shall be an autonomous and corporate body with

perpetual succession.(2) Subject to this Act, company like an individual, acquire, hold, sell, dispose of or otherwise deal with, any movable or immovable property.(3) A company may sue and be also sued by its own name.(4) A company may, like an individual, enter into a contract and exercise the rights and perform the

obligations as referred to in the contract.

8. Limited liability : The liability of a shareholder of a company incorporated under this Act in respect of its transactions shall be limited to the maximum value of shares which he has subscribed or undertaken to subscribe.


9. Number of shareholders : (1) The number of shareholders of a private company shall not exceed fifty.(2) Subject to the proviso to Sub-section (2) of section 3, the number of shareholders of a public company shall be seven in minimum and a maximum of any number.(3) Notwithstanding anything contained in Sub-section (1), any employee who has purchased a share of a company under scheme of selling shares to employees or any employee who has already purchased a share under such scheme but is not in service of the company for the time being shall not be counted as a shareholder.

10. Terms to be abided by company: A company incorporated under this Act shall abide by the following terms, in addition to those set forth in this Art, memorandum of association or articles of association:(a) The company shall carry on all of its activities and transactions by its name.(b) A private company shall add the words “private limited’’ to its name as the last words and a public company shall add the word “limited” to its name as the last word. Provided, however, that this provision shall not apply to a company not distributing profit.(c) A private company shall not sell its shares and debentures publicly.(d) A private company shall not pledge, or otherwise transfer title to, its securities to any person other than its shareholder without fulfilling the procedures contained in the memorandum or consensus agreement,(e) A company shall not open a partnership or private firm.(f) Except as otherwise provided in this Act, a company not distributing profits shall not distribute dividends among its members or pay, directly or indirectly, any amount to a member or his/her close relative.

11. Paid up capital of public company : (1) The paid up capital of a public company shall be a minimum of ten million rupees, except as

otherwise provided in the prevailing law or in a notification by the Government of Nepal in the Nepal Gazette that the paid up capital of any particular company shall be in excess of the said required minimum.

(2) Notwithstanding anything contained in subsection (1), a public company which does not have the paid up capital as mentioned in that Subsection at the time of commencement of this Act shall maintain the capital referred to in Sub-section (1) no later than 22 Ashwin 2065 (8 December 2008).

12. To be incorporated as public company to carry on some specific transactions : Notwithstanding anything contained elsewhere in this Act, a company carrying on the business of banking, financial transactions, insurance business related transactions, stock exchange business, pension fund or mutual fund or a company carrying on such other business or transactions as may be prescribed shall be incorporated as a public company.

13. Conversion of private company into public company : (1) In the following circumstances, a private company shall be converted into a public company under this section:(a) If the general meeting of the private company, by adopting a special resolution,

decides to convert that company into a public company,Provided, however, that no private company shall be capable of being converted into a public company unless and until it fulfills the requirements to be fulfilled under this Act for being a public company.


(b) If twenty five percent or more of the shares of a private company are subscribed by one or more than one public company, provided, however, that in computing the percentage as referred to in this Clause, the share passed by any banking or financial company as a trustee shall not be calculated.(c) If a private company subscribes twenty five percent or more of the shares of a public company.(2) In the circumstances as refer to in Clause (a) of Sub-section (1), the concerned

private company, shall for being converted into a public company, make an application as prescribed, accompanied by a copy of the resolution mentioned in that Clause and by the fees as prescribed , to the office within thirty days after the date of such resolution.(3) On receipt of an application pursuant to Sub-station (2), the office shall, if the concerned private company has fulfilled the necessary requirements for carrying on transactions as a public company, mention in the company register the contents of conversion of such company into a public company and give a company conversion certificates as prescribed within sixty days.(4) If any private company has to be converted into a public company owing into the circumstances referred to in Clause (b) or (c) of Sub-section (1), the concerned private company shall make an application, as prescribed, setting out all details, accompanied by the fees as prescribed, to the Office for being converted into a public company within seven days after the date of occurrence of such circumstances. (5) On receipt of an application pursuant to Sub-section (4), the Office shall, if such company has fulfilled the requirements to be fulfilled by a public company under this Act to carry on transactions, mention in the company register the contents of conversion of company into a public company and give a company conversion certificate as prescribed.(6) If private company is converted into a public company pursuant to this Section, any subsidiary company of that company, as well, shall, ipso facto be deemed to have been converted into a public company in the same date.(7) In the event of conversion into a public company pursuant to Subsection. (6), it shall be the obligation of the concerned company to make an application, accompanied by the required documents, to the Office to get recorded in the company register the contents of conversion of such subsidiary company into a public company and obtain the certificate.(8) In the event of conversion of any private company into a public company pursuant to this Section, the provisions applicable to the public company under this Act shall be deemed to be, ipso facto, applicable to that company after the date of such conversion.

(9) In the event of conversion of any private company into a public company pursuant to this Section, all the assets and liabilities of the private company so converted shall devolve on the successor company.

14. Conversion of public company into a private company: (1) In the following circumstance, a public company shall be converted into a private company under this Section:(a) If the number of shareholders of the public company becomes less than seven,(b) If the public company fails to maintain its paid-up capital under Section 11 or the paid-up capital as referred to in section 11 is not maintained because of reduction in capital pursuant to section 57.


Provided, however, that this provision shall not apply to the company as referred to in Sub-section (2) of Section 11.(2) In the event of occurrence of a circumstance as referred to in Subsection(1), the concerned public company shall make necessary amendments to its memorandum of association and articles of association and convert it into a private company within six months.(3) The concerned public company shall make an application, accompanied by copies of the memorandum of association and articles of association amended pursuant to subsection (2) and the prescribed fees, to the Office for being converted into a private company, within thirty days after the making of such amendment.(4) On receipt of an application pursuant to Sub-section (3), the Office shall mention in the company register the contents of conversion of such company into a private company and give a company conversion certificate, as prescribed, within sixty days.(5) In the event of conversion of any public company into a private company pursuant to sub-section (4), all the assets and liabilities of the public company to be so converted shall devolve on the successor company.

15. Service of summons, notice etc : (1) Notwithstanding anything contained in the prevailing law, if any notice, summons, letters rogatory etc. required to be served on a company, director, shareholder, debenture-holder or employee in regard to the transactions of, or any matter related with, the company, is delivered at the registered office of the company or sent by registered post or sent through the tale-fax, email, telex or similar other electronic device installed in such office, such notice, summons or letter oratory shall be deemed to have been duly served. If any notice, summons, letters rogatory etc. cannot be so served, the concerned company, director or employee may be informed thereof by broadcasting or publishing a notice pertaining there to by radio, television or in any newspaper circulating at national level. In such a case, he/ she shall be deemed to have been informed thereof.(2) Notwithstanding anything contained in the prevailing law, if any notice, summons, letter rogatory etc. is required to be served by a company or by any competent authority or court on any director, shareholder, debenture holder or employee or the company in any matter related with his/her duties of office, it may be sent to the telex, email, tele fax address, if any, given by such director, shareholder or employee and where such address has not been given, it may be sent by registered post to the address supplied by him/her for correspondences by post and where such summons, notice, letters rogatory etc. is so sent, the same shall be deemed to have been duly served.(3) Notwithstanding anything contained elsewhere in this Act, in providing a notice or information required to be sent by accompany to its shareholder debenture-holder or director under this Act or receiving any information from them, such notice or information may be sent to an electronic communication address supplied by them, by using electronic communication device as provided in the articles of association of the company or if they so agree.Provided, however, that such notice or information shall be sent by post or through other reliable means to the shareholder, debenture-holder or director who does not consent to the service of such notice or information on him/her by electronic communication device.

16. Functions and duties of Registrar : (1) It shall be the duty of the Registrar to implement this Act and carry out company administration.(2) Without prejudice to the generality of Sub-section (1), the Registrar may frame and issue necessary directives for the implementation of this Act and the carrying out of company administration related functions in an effective or systematic manner: and it shall be the duty of each company and officer to abide by such directives.


(3) The directives issued pursuant to Sub-section (2) shall be published in such a manner that such directives are available to the general public.(4) The Registrar may, as per necessity, delegate any of the powers conferred to him/ her under this Act to any officer employee subordinate to him/her.

(5) Notwithstanding anything contained elsewhere in this Section, nothing in this Section shall be deemed to limit the direction given by any regulatory body to a company under the prevailing law or the authority to be exercised by that body in respect of such company under the prevailing law.

17. Pre-incorporation contract: (1) A contract made prior to the incorporation of a company shall be a proposed contract only, and such contract shall not be binding on the company.(2) If, prior to the incorporation of a company, any person carries on any transaction or borrows money on behalf of the company, such person shall be personally liable for any contract related with the transaction so carried on, subject to Sub-section (3).(3) If, within the time mentioned in any transactions or within the reasonable time after the incorporation of a company, the company, through its act, action or conduct, accepts any act, action or conduct, accepts any act, action to borrowing done or made prior to the date of authorization to commence its transactions or endorses such act or action, that transaction shall be binding on the company and the other contracting party; and the person carrying out such act to action shall be released from the personal liability to be borne pursuant to Sub-section(2).(4) Notwithstanding anything contained elsewhere in this Section, the consensus agreement of a private company shall govern any contracts made prior to the incorporation of such company.

Chapter 3Memorandum of Association, Articles of Association and prospectus

18. Memorandum of Association : (1) The Memorandum of Association of a company shall state the following matters:

(a) The name of company,(b) The address of the registered office of the company,(c) The objectives of the company,(d) The acts to be carried out to accomplish the objectives of the company,(e) The figure of the authorized capital of the company and the figure of the share

capital to be issued by the company for time being and the figure of undertaken to be paid by the promoter of the company,

(f) Types of shares of the company, the rights and powers inherent in such shares, value of each share and number of shares of different types,

(g) Restrictions, if any, in the purchase or transfer of shares,(h) Number of shares which the promoters have undertaken to subscribe for the time

being,(i) Terms of payments of share amounts,(j) Statements that the liability of shareholders shall be limited,(k) The maximum number of shareholders in case of a private company,(l) Other necessary matters.


(2) If any of the following matters shall be done or provided, in addition to those mentioned in Sub-section(1), the memorandum of association shall also state such matters:

(a) If the promoter or any other person is entitled to subscribe shares or acquire title thereto in any manner other than by making payment in cash, such matter,(b) If the company is to acquire any property in any manner from the promoter or any

other person at the time of commencement of its transactions such matter,(c) If the company itself to bear the expenses incurred on its incorporation, such matter,(d) If the promoter or any other person is entitled to any special privilege or right from

the company, such matter.(3) In subscribing shares or acquiring title thereto by the promoter or any other person in consideration fit other than cash payment as mentioned in Clause (a) of Sub- section (2) and in acquiring any property by the company from the promoter or any other person at the time of commencement of its transactions as mentioned in cause (b), in the case if a public company, such consideration other than cash and such property shall be caused to be evaluated by an engineer or accountant holding certificate to conduct valuation work under the prevailing law.(4) The criteria for the valuation of any property pursuant to Sub-section (3) shall be as prescribed; and unless such criteria are prescribed, the person valuating such property shall mention the criteria employed by him/her to valuate the property.

(5) If the memorandum of association is inconsistent with this Act it shall ipso facto be void to the extent of such inconsistency.(6) The format of memorandum of association shall be as prescribed.

19. Signature to be affixed on memorandum of association : (1) The memorandum of association of a company shall state the full names and addresses of its promoters, indicate the number of shares which each promoter has undertaken to subscribe and be signed by each of them.(2) The memorandum of association shall clearly contain the names and address of a witness for each promoter and also bear the signature of such witness.(3) Each promoter shall undertake to subscribe the shares as mentioned in the articles of association of the company and at least one hundred shares if no provision is so mentioned.(4) No later than one year after the incorporation of a company, an application may be made, pursuant to a decision of the board of directors of the company, to the Office for the rectification of any minor mistake or printing or typing error appearing in the memorandum of association and articles of association submitted along with an application made under Section 4.(5) If an application is made pursuant Sub-section(4),the Office shall, if it deems proper after examining it, rectify such mistake or error and record the same.Provided, however, that no matter shall be rectified in a manner to alter the main objectives of the company.

20. Articles of association : (1) A company shall frame the articles of association in order to attain the objectives set forth in its memorandum of association and carry out its activities in a well–managed manner.(2) The articles of association shall state the following matters:

(a) Procedures for convening the general meeting of the company and notice to be given for such meeting,

(b) Proceedings of general meeting,(c) Number of directors, provision of alternate director, if any, and tenure of directors,


(d) Provisions relating to the minutes of decisions of the general meeting and the board of directors, and duplicate copies and inspection thereof,

(e) If a person has to subscribe shares to become a director of a company, minimum number of shares,

(f) In the case of a public company, qualifications and number of independent director,(g) Where any professional persons, other than shareholders, are to be appointed as

directors, provisions relating to the number, tenure, qualifications and procedures of appointment of such persons,

(h) Powers and duties of the board of directors and the managing director,(i) Authority of directors and delegation of authority,(j) Quorum for a meeting of the board of directors, notice of meeting and proceedings

of meeting,(k) Lien on shares,(l) Different classes of shares and the rights, powers and restrictions attached to such

shares,(m) Provisions relating to calls on shares and forfeiture of shares,(n) Provisions relating to the transfer of shares,(o) Matters on alteration in share capital,(p) Matters on buying back of shares by the company, if the company is to buy back its shares,(q) Appointment of a company secretary,(r) Provisions relating to remuneration, allowances and facilities of directors,(s) Use of the company’s seal in its transactions, if it is to be so used,(t) Accounts, books of accounts and audit of the company,(u) Provisions on powers to raise loans or debentures,(v) Amalgamation of the company,(w) Such matters, if any, as required by the prevailing law to be mentioned in the

articles of association of a company carrying on any specific business,(x) Such other necessary matters as required to be mentioned in the articles of

association.(3) If any provision contained in the articles of association of the company, inclusive of a provision on the saving of its directors or officers, is inconsistent with this Act and the memorandum of association, such provision shall be void to the extent of such inconsistency.(4) Te format of articles of association shall be as prescribed.

21. Amendment to memorandum of association and articles of association : (1) The general meeting of a company may, subject to Section 6, amend the memorandum of association or articles of association, by adopting a special resolution to that effect.(2) The company shall give information of any amendment made to the memorandum of association or articles of association pursuant to Sub-section (12) to the Office within thirty days; and the Office shall record the same and give information thereof to the concerned company, within seven days after the receipt of such information.(3) Notwithstanding anything contained in Sub-section (2), if any company has to amend its name, it shall adopt a special resolution to that effect at its general meeting and make an application, accompanied by the fees as prescribed, for prior approval of the Office: and if the Office gives approval to amend the names as per the application so received, the name of that company shall be amended.(4) If a shareholder of a public company who is not satisfied with an amendment made to the objectives of the company may, on fulfilling the following requirements, file a petition, setting out the reasons therefore, in the court to have that amendment declared null and void:


(a) A shareholder or shareholders holding at least five percent shares of the paid-up capital of the company, except the shareholders who consent to or vote for the amendment or alteration, has to make a petition,(b) A petition has to be filed within twenty one days after the adoption of the resolution to amend the objectives of the company,(c) Where anyone is to file a petition on behalf of one or more than one shareholder entitled to make petition, the petition has to be filed by a person who is authorized in writing for that purpose.(5) Unless and until the court is satisfied that the information about the contents, date, time and venue of a petition made under Sub-section (4) has also been given to the company, the petition shall not be heard. Provided, however, that if it appears from the documents submitted to the court that the concerned company has refused to acknowledge the notice, nothing shall prevent the court from hearing the petition.(6) Where a petition is filed in the court pursuant to Sub-section (4), the amendment made to the objectives of the company shall not be effective pending the final decision or order by the court in that matter.(7) On a petition as referred to in Sub-section (4), the court may issue an appropriate order, specifying the following terms and conditions: (a) Declaring the amendment made to the objectives of the company to be fully or partly valid or void,(b) Requiring the company to subscribe for a reasonable value, the shares and other rights held by the shareholders making a petition under Sub-section (4), upon being disagreed with the making of alteration in the main objectives of the company,(c) The shares have to be subscribed under Clause (b) from the moneys as referred to in Sub-section(2) of Section 61; and in the case of a company which has no such moneys, issuing an order to decrease the capital of the company as if the share capital were decreased to the extent of such subscription by adopting a special resolution by the company; and where such order is issued, the company shall amend its memorandum of association and articles of association, subject to the provisions of this Act.(8) Notwithstanding anything contained elsewhere in this Act, where an order is issued by the court to fully or partly void the decision made by the company to amend its objectives, the company shall not be entitled to amend its memorandum of association or articles of association in that matter without permission of the court or in a manner contrary to the order of the court.(9) Where the memorandum of association or articles of association of a company is altered by an order of the court or the amendment made by the company is fully or partly endorsed by the court, such alteration or endorsement shall be enforced as if such alteration or endorsement were made by the general meeting of the company on its own.

22. Memorandum of association and articles of association to be published : (1) A public company shall publish its memorandum of association and articles of association within three months after getting license to commence its business.(2) If any amendment is made to the memorandum of association and articles of association of a public company, the amended memorandum of association and articles of association shall be published within three months after such amendment.(3) A public company shall so keep the memorandum of association and articles of association published pursuant to Sub–section (1) or (2) at its registered office that such memorandum and articles can be made available as and when so demanded by the concerned.

23. Prospectus to be published : (1) A public company shall publish its prospectus prior to issuing its securities publicly.


(2) Prior to the publication of prospectus under Sub-section(1), the prospectus signed by all directors of the company has to be submitted, along with a written application made to the Securities Board for approval, under the prevailing laws on securities.(3) Unless and until the Securities Board approves and gives permission for the public issue under Sub-section (2) and a copy of such prospectus is registered with the office, no company or no person, on behalf of such company, shall publish, or cause to be published , the prospectus of such company.(4) If it appears that the prospectus submitted pursuant to Sub-section(2) omits any important matter or contains any unnecessary matter the Securities Board shall cause such prospectus to be amended or altered as required and grant approval to publish it in accordance with law.(5) If the prospectus submitted pursuant to Sub-section (2) is approved by the Securities Board, the concerned company shall give to the Office information thereof, in writing, accompanied by a copy of the approval letter of the Securities Board; and on receipt of that information and the Office shall register the prospectus pursuant to this Section. Provided, however, that if it appears that any matter contained in this Act has not been complied with, the Office may refuse to register it.(6) If any person demands for a copy of the prospectus registered pursuant to Sub-section (5), the Office shall provide such copy by collecting the prescribed fees.(7) In publishing the prospectus pursuant to Sub-section (1), the company shall also mention that the prospectus has been approved by the Securities Board and registered with the Office, and the date thereof.(8) The covering page of each prospectus shall also mention that such prospectus has been registered pursuant to this Section and that the Securities Board or the Office shall not be liable to bear any kind of responsibility in respect of the matters mentioned therein.(9) Prior to the approval by the Securities Board of the prospectus of any company, the concerned company shall make a declaration before the Securities Board that the provisions of this Act have been complied with; and the Securities Board may, if it deems necessary, seek opinion of the Office on that matter.(10) Other procedures to be fulfilled in publishing the prospectus and the matters to be set out in the prospectus shall be as mentioned in the prevailing law on securities.

24. Liability for matters contained in prospectus: (1) It shall be the duty and obligation of the concerned company to abide by the matters contained in the prospectus published under Section (23).(2) The directors who have signed the prospectus as referred to in Subsection (1) shall be liable for the matters mentioned in that prospectus.(3) If any published prospectus contains false statements made maliciously or deliberately and any person sustains any loss or damage by reason of his/her subscription of securities on the faith of that prospectus, the directors who have signed that prospectus shall be personally liable to pay compensation for the actual loss or damage so sustained .Provided, however, that a promoter who resigns before the decision made by the company to publish the prospectus or whom on becoming aware of any false statement in the prospectus, publishes a notice of that matter to the information of the general public prior to the sale or allotment of securities or who proves that he/she did not know that the prospectus contained any false statement shall not be liable to bear such compensation.

25. Duplicate copies to be issued : (1) If any shareholder or any other person concerned demands for a duplicate copy of the memorandum of association, prospectus, annual accounts and audit or directors report or any document submitted by the company to the Office the concerned company shall provide a duplicate copy of such document by collecting the fees prescribed in the articles of association.


Provided, however, that any person whoever may demand for such document in the case of a public company.(2) If the concerned company does not provide duplicates of such documents pursuant to Sub-section (1), the Office shall provide duplicates of such documents from its records by collecting the prescribed fees.

26. Seal of company and its use : (1) A company which intends to use a seal in its transactions shall make the seal in its name in clear legible letters.(2) The company using the seal as referred to in Sub-section (1), shall use it in any reports and records to be submitted on its behalf and business letters to be used in its name, statements of accounts, bills, invoices, requisition order forms, notices and official publications, negotiable instruments, bills of exchange, promissory notes, and official documents signed or issued on its behalf.(3) If any person fails to indicate the name of the company while signing, on behalf of the company, the documents mentioned in Sub-section (2), such person shall be personally liable for the same.

Chapter 4Shares and Debentures

27. Face value of shares and application : (1) The face value of shares of a private company shall be as specified in its articles of association.(2) The face value of shares of a public company shall be fifty rupees per share or shall be equivalent to such amount exceeding fifty rupees as is divisible by the figure ten as provided in the memorandum of association and articles of association.(3) In inviting an application by a public company for the subscription of its shares, no amount exceeding fifty per cent of the face value of each share shall be demanded with the application.Provided, however, that in raising capital by a company which has been in operation since at least three years ago by publishing its audited fiscal statements for its last three years, at the time of publication of its prospectus, this provision shall not be applicable.(4) A person who intends to subscribe the shares of a public company has to make an application in the format as prescribed.

28. Allotment of shares : (1) Where a public company invites the general public to apply for the subscription of its shares it shall allot the shares and give the shareholders a notice in the format as prescribed, within a maximum period of three months after the date of closure of share issue.Provided, however, that in cases where at least fifty percent of the total shares issued publicly cannot be sold failing a guarantee/underwriting agreement on the subscription of at least fifty percent of the publicly issued shares, no shares shall be allotted.(2) If the company makes an application, explaining the reasons for failure to allot shares within the time-limit set forth in Sub-section(1), owing to the circumstance mentioned in the proviso to that Sub-section within seven days after the expiration of that time-limit, the Office may extend the time limit for up to three months for the allotment of shares. If the shares cannot be allotted even within such extended time limit, the company may allot such shares through negotiations or any other methods.(3) If the allotment of shares cannot be made even within the time –limit as referred to in Sub-section (1) or (2), the amount received for the subscription of shares as well as an interest thereon, as prescribed, from the day of expiration of such time-limit to the day of refund of such amount shall be refunded.


(4) If the funds are insufficient to refund the amount required to be refunded pursuant to Sub-section (3), the shortfall amount shall be borne by the promoters personally.(5) Where the allotment of shares pursuant to Sub-section (1)or (2) is made discriminatorily or with intent to cause any loss or damage to any investor may file a petition, setting out the reasons for the same, in the court on that matter.(6) If a petition is filed pursuant to Sub-section 5), where any investor has sustained any loss or damage by reason of the deliberate violation of this Section by any officer of the company or permission given by such officer to anyone to commit such violation, the court may issue an order for realization from such officer personally of compensation for such loss or damage as well as reasonable expenses incurred in the legal action.

29. Power to issue shares at premium : (1) Any company fulfilling the following conditions may, with the prior approval of the Office, issue shares at a premium:(a) The company has been making profits and distributing dividends for three consecutive years,(b) The company’s net worth exceeds its total liabilities,(c) The company’s general meeting has decided to issue shares at a premium.(2) Where the shares are sold at a premium pursuant to Sub-section (1), a sum in excess of the face value, out of the proceeds thereof, shall be deposited in a premium account to be opened to that effect.(3) The company may use the moneys in the account as referred to in Sub-section (2) in the following acts:(a) Paying up un-issued share capital to be issued to the shareholders as fully paid bonus shares,(b) Providing for the premium payable on redemption of any redeemable preference shares,(c) Writing off the preliminary expenses made by the company,(d) Bearing or reimbursing the expenses of, or the commission paid or discount allowed on, any issue of shares of the company.(e) In making a request for approval of the Office to issue shares at a premium pursuant to Sub-section (1), the audited financial statements for three years shall be provided to the Office.

30. Shares with different rights and rights of such shareholders : (1) The company may, by making provisions to that effect in its memorandum of association and articles of association, issue various classes of shares with different rights attached thereto.(2) Except as otherwise provided in the articles of association of company, approval of the shareholders of any particular class shall be required to make any alteration in the rights of those shareholders of that class.Provided, however, that no alteration may be made in the rights of the shareholders of any particular class in a manner to adversely affect the rights of the shareholders of any other class.(3) If the shareholders representing at least ten percent share of any particular class who are not satisfied with a decision to make alteration in the rights attached to the shares of that class pursuant to Sub- section (2) file a petition in the court to have the decision to make such alteration void, the decision made to make alteration in the rights of the shareholders of such class shall not be enforced unless and until otherwise decided or ordered by the court.(4) A petition shall be made pursuant to Sub-section (3) within thirty days after the decision made to make alteration in the rights attached to the shares of any particular class; and any decision as referred to in Sub-section(2) shall not be enforced pending the expiration of that time limit.


(5) If it appears that alteration in the rights conferred to the shareholders of the class concerned is prejudicial to the rights of the petitioner shareholders, the court may quash the decision made on the alteration in the rights of the shareholders of that class.(6) The board of directors shall submit a proposed resolution on the alteration in the rights of the shareholders of any particular class pursuant to Sub-section (2) to the general meeting of the shareholders of the concerned class; and such resolution has to be adopted as a special resolution by the general meeting.(7) Notwithstanding anything contained elsewhere in this Section, in privatizing a company fully or partly owned by the Government of Nepal, as a shareholder, in accordance with the prevailing law on privatization, the Government of Nepal may have special voting right in making decision on the following matters, as provided in the articles of association, so long as the investment to the Government of Nepal is retained in such company:(a) In making decision on a resolution to relinquish the title to an undertaking pursuant to Clause (a) of Sub-section (1) of Section 105,(b) In making decision on voluntary liquidation of the company,(c) In making decision to amalgamate the company into another company.

31. Return of shares to be filed with office: (1) A company shall file with the Office a return of allotments stating the number of shares issued and allotted, total amount of the shares, the names and addresses of the allotters, and the amount paid or due and payable on each share, within thirty days after the allotment of shares.(2) if any shares have been allotted as fully or partly paid up otherwise than in cash, the company shall file with the Office a deed constituting the title of the allotter to the shares together with any contract of sale or a contract for services or other consideration in respect of which that allotment was made, and a return stating the number and nominal amount of shares so allotted and the extent to which they are to be treated as paid- up.

32. Dealing in securities: (1) While issuing its securities to the general public, a public company shall deal in the securities only through a securities dealer recognized to do securities transactions including all acts such as the sale, allotment and recovery of amounts of such securities.(2) A public company shall file with the Office a copy of an agreement made by it on the dealing of securities through any body, within seven days after the date of making of such agreement.

33. Share certificate : (1) A share certificate in the prescribed format shall be issued to every shareholder in respect of each share subscribed by him/her, within two months after the allotment of shares; the share certificate shall bear the signature of any two out of a director or chief executive of the company or the company secretary, in the case of a public company, and the signature of the person as mentioned in the articles of association or consensus agreement, in the case of a private company, and also bear the seal of the company, if any .(2) While issuing a share certificate in respect of any shares held jointly by two or more persons, the share certificate may be issued to any one of them, by mentioning their names in the certificate. Provided, however, that, the names of all shareholders shall be mentioned in the shareholder register.(3) If a share certificate is lost or destroyed because of a divine act or otherwise, the shareholder shall give information thereof to the registered office the company immediately when he/she knows that the share certificate has been so lost or destroyed because of the divine act or otherwise.(4) If any application made pursuant to Sub-section (3), the company shall, if the matter contained in the application seems to be reasonable after inquiring into all necessary matters relating thereto, issue another share certificate to the applicant, by collecting the duplicate fees for duplicate copy as CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

prescribed in the articles of association; and this matter shall also be recorded in the shareholder register.(5) Notwithstanding anything contained elsewhere in this Section, if a listed company has caused a register to be maintained, pursuant to Sub-section (6) of Section 46, by the securities registrar authorized to provide securities deposit service under the prevailing law, provision may be made to issue to the shareholder a securities deposit passbook or any other certificate certifying him/her to be a shareholder, instead of a share certificate.(6) A certificate issued by a company, signed by its competent officer and under the seal of the company, if any, to be used by it, specifying the number of shares or debentures held by any shareholder or debenture-holder shall be prima facie evidence of his/her title to such shares or debentures.(7) If any company allots any shares or debentures or transfers such shares or debentures to a representative of a body licensed under the prevailing law to carry on securities dealings, the provision of Sub-section(1) shall not apply to such shares or debentures.

34. Raising loans or issuing debentures : (1) If a public company deems necessary to raise loans or issue debentures, it may, specifying the reason therefore, a work plan to be executed from proceeds and budget necessary for that propose raise loans or issue debentures with or without pledging or mortgaging its immovable assets.Provided, however, that no debentures may be issued unless and until an approval to commence its business is obtained and it's issued capital is fully paid up.(2) Notwithstanding anything contained in the prevailing law, any company may, subject to subsection (1), raise additional loans or issue additional debentures against the security already furnished by that company with the already furnished by that company with the previous creditors as a security from such creditors, within the limit of such security, by clearly indicating the previous creditors as well as amount of loan (amount) already obtained.(3) Notwithstanding anything contained in the prevailing law, the matters relating to the terms, repayment period and interest of a loan borrowed or lent by a company shall be governed by a deed or contract concluded between the creditor and the borrower.(4) If a company is to raise loans or issue debentures pursuant to Subsection (1) or (2), the company shall give its information, along with the reasons for the same, to the office.

35. Procedures for issuing debentures: (1) A public company shall, in issuing debentures pursuant to this Act, issue debentures after making provision of a debenture trustee. Such debenture trustee has to be a debenture trustee licensed by the Securities Board.(2) The matters relating to the creditor and the borrower, in issuing debentures with a debenture trustee, shall be as mentioned in an agreement to be concluded between such trustee and the company.(3) If the memorandum of association or the articles of association shall provide that debentures can be converted into shares or such term has been specified prior to the issuance of debentures, a debentures may be converted into shares, subject to the share capital related provisions of this Act.(4) If any debentures are to be converted into shares pursuant to Subsection (3), this matter has to be clearly mentioned in the prospectus.(5) Notwithstanding anything contained in the prevailing law, the court may, if it thinks necessary, issue an order of specific performance to get performed a contract concluded between a public company and a person in respect of the subscription of the debentures issued by that company.


36. Agreement to be concluded between debenture trustee and company : (1) An agreement has to be concluded between a company issuing debentures and a debenture trustee acting as a trustee for the protection of the interest of debenture-holders, in respect of the debentures to be raised by such company.(2) An agreement to be concluded pursuant to Sub-section (1) shall set out the following matters:

(a) that the debenture trustee is entitled to carry out, or cause to be carried out, valuation of the company’s assets, project analysis or management analysis,

(b) the period of repayment of the principal and interest of debentures subscribed by the debenture-holder, interest rate, mode of repayment of the principal and interest, mode of repayment of the principal and interest, and matter of conversion of debentures into shares, if there is such provision,

(c) Matters, relating to a provision made on the lights of other creditors over the assets of the company and liabilities that may arise there from in the future.

(d) A provision that, in the case of violation or non-fulfillment of the terms mentioned in the agreement or for any other reasonable reason, if it is required to take the control of financial transactions of the company or to take possession if the security as referred to in the agreement, the debenture trustee may take in his/her possession the assets or properties of such company to the property that he has taken as the security of guarantee or hold the security of guarantee with himself/herself or sell the same by auction or in any other appropriate manner,

(e) Procedures for payment by the company of the service charges and other direct expenses of the debenture trustee,

(f) That the debenture trustee shall not be liable to any loss or damage caused to the company or the debenture-holder from any act done by the trustee in that capacity,

(g) That, in the event of occurrence of any circumstances necessitating the liquidation of the company, the debenture trustee is entitled to take such legal action as may be taken in behalf of the debenture- holder and exercise the powers of the debenture holder.

(h) Other necessary matters on the protection of interest of the debenture-holder.(3) The debenture trustee may, for the protection of interest of the debenture-holder, take security of the assets of the company and get such security registered in his/her name pursuant to the prevailing law.(4) Prior to the taking of security pursuant to Sub-section (3), the debenture trustee may, if he/she deems necessary, also carry out, or cause to be carried out, the calculation of property or assets to taken as security and the project analysis of management analysis of the company.(5)After the conclusion of an agreement between a debenture trustee and a company pursuant to this Section, such company has to obtain the approval of the debenture, trustee if any.

37. Inquiry and demand of statements by debenture trustee : Prior to concluding an agreement with a company to act as a debenture trustee, the debenture trustee may hold necessary inquiry into, and obtain or demand statements, notice or information on, the following matters; and the concerned company has to provide the same if so demanded:

(a) Whether the memorandum of association or article of association of the company has a provision that it may raise loans or debentures: and if so, whether the board of directors of the company has powers to make decision to so raise debentures,

(b)Whether the memorandum of association or articles of association of the company has a provision that debentures may be raised through a debentures trustee,

(c) Whether there is a situation that the existing assets of the company can cover the value of debentures raised,CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

(d) Matters relating to other creditors and liabilities of the company.(e) The company’s balance sheet and auditor’s report.(f) Such other necessary matters as the debenture trustee may consider being

appropriate.

38. Company to submit periodic statements to debenture trustee : (1) After an agreement has been concluded between a company and a debenture trustee under Section 36, the company has to submit its statements in financial transactions to the debenture trustee in every six months.(2) In the event of a change in the management or any kind of change in the ownership of the company after rising of debentures, the company has to give information thereof to the debenture trustee within seven days after such change.(3) In the event of necessity of any additional statement, notice or information submitted by the company pursuant to Sub-section (1) or (2), the debenture trustee may demand such statement, notice or information from the company; and it shall be the duty of the company to provide the statement, notice or information so demanded to the debenture trustee.

39. Rights and liabilities of debenture trustee : (1) If the company violates any of the terms mentioned in the agreement concluded under Section 36, the debenture trustee may instruct such company to fulfill such terms as soon as possible or to make repayment of the principals and interest of the debenture holder within a time limit as specified by him/her.(2) If it is required to take the financial transaction of the company under control or to possess the security as referred to in the agreement by reason of the repayment made under Sub-section (1) or for any other reason, the debenture trustee may, subject to the prevailing law, take the assets, properties or securities of such company under his/her control and hold the assets or properties so possessed in his/her own or sell such assets or properties by auction or otherwise or deal with the same in other manner.(3) Following the possession of the assets of the company under Subsection (2), the amount of a debenture-holder shall be repaid out of the proceeds of sale of the assets. If any amount remains surplus after repayment of the amount payable to the debenture-holder, the debenture trustee shall return that amount to the concerned company(4) Notwithstanding anything contained elsewhere in this Act, except in cases where the debenture trustee him/herself buys the assets taken by the debenture trustee as the security, if the proceeds of sale of the property which the debenture trustee has taken as security or possessed be not sufficient to repay all the amounts to debenture holders, the debenture trustee shall pay the amounts to debenture-holders on pro rata; and such shortfall amounts shall not be recovered from the debenture trustee’s property.(5) Any debenture-holder holding more than fifty percent debentures may, showing the ground of failure of a debenture trustee to act in the interest of debenture-holder, make an application to the Securities Board to remove such debenture trustee.(6) If, on examining the application made pursuant to Sub-section (5), the contents appear to be reasonable, the Securities Board may remove such debenture trustee and arrange for another debenture trustee.

40. Service charges to be collected by debenture trustee:(1) The debenture trustee may collect service charge from a company for having acted in the capacity of debenture trustee. The amount of such service charge shall be as specified in the agreement concluded between the debenture trustee and the concerned company.


(2) The debenture trustee may recover from the concerned company such actual expenses incurred in doing any act on behalf of the company or debenture-holder or in carrying out valuation, possession or auction sale of the company’s assets.

41. Debenture trustee to have rights of debenture-holder : (1) If a company raising debentures is liquidated or becomes insolvent for any other reasons, the debenture trustee shall make representation on behalf of the debenture-holder.(2) In the event of necessity to institute a lawsuit on behalf of the debenture-holder for the repayment of the principal and interest of such debenture-holder or otherwise, the debenture trustee shall have the right to institute the lawsuit on behalf of the debenture-holder.

42. Sale or pledge of shares or debentures: (1) The share or debenture of a company may be sold or pledged as good as movable property, subject to this Act, the memorandum of association and articles of association.(2) Notwithstanding anything contained in sub-section (1), the promoter of a company, other than a private company which has not borrowed loan from any other company, shall not be entitled to sell or pledge any share held by him/her until the first general meeting of that company is held and a call on the share issued in his/her name is fully paid up.(3) where a share or debenture is pledged pursuant to sub-section(1), the pledge shall make an application, in such format and along with such fees as may be prescribed, to the registered office of the company to have the matter recorded in the register. The applicant shall also submit the deed on pledge as well as the share or debenture certificate, along with the application to be so made.(4) Where an application is made pursuant to sub-section (3), the company shall record in the register the execution of such pledge and on receipt of information on the redemption of the share or debenture so pledged, the records of such pledge shall be crossed off the register.

43. Transmission of shares or debentures : (1) If any share or debenture is sold, subject to Sub-sections(1) and (2) of Section 42, the buyer thereof shall make an application to the registered office of the company , in such format and along with such fees as may be prescribed, to have such debenture or share transmitted to his/her name. The applicant shall also submit, along with such application, a copy of the deed relating to the sale and purchase of share or debenture certificate.(2) If an application is made under Sub-section (1), the company shall cross off the name of transferor shareholder or debenture holder and enter the name of the transferee shareholder in the register within fifteen days after the making of such application.(3) Notwithstanding anything contained in Sub-section (1), if the prevailing law on securities transactions provides that no deed of transfer is required to transfer the title to the share or debenture of a company such deed shall not be required to be produced along with an application to be so made. (4) If a person who transfers any securities makes an application, also accompanied by a deed of transfer of share, signed by the purchaser to get the transfer of any share or debenture recorded, the company shall register the name of share or debenture transferee in the shareholder register or debenture holder register as if such application was made by the transferee him/herself.(5) If any person acquires the title to any share or debenture by operation of any other provision contained in the prevailing law the provision contained in Sub-section(1), shall not be deemed to prevent the company from registering such person as a shareholder or debenture-holder.

44. Refusal to register share or debenture : (1) Notwithstanding anything contained in Section 42 or 43, a company may, in the following circumstances, refuse to record any pledge of a share in the register or to effect transmission of a share or debenture where it has been disposed of:CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

(a) If a call on the share has not been paid up,(b) If such transmission will be contrary to the articles of association of the company or the agreement concluded between the shareholders,(c) If the transfer fee is not furnished along with the application.(2) In refusing to record the pledge of a share or debenture in the register or to effect transmission of a share of debenture under Sub-section(1), the company shall give information thereof to both the transferor and the transferee or the ledger and pledge of the share or debenture within fifteen days from the date of making application.

45. Other circumstances where shares or debentures may be transmitted : If any person becomes entitled to the share or debenture holder by any shareholder or debenture-holder because of his/her death, being insolvent or otherwise under the prevailing law, and that person so acquiring the title or on whom the title is so devolved makes an application accompanied by an evidence thereof, to the company, in such format and accompanied by such fees as prescribed, the company shall transmit such share or debenture to him/her.Provided, however, that notwithstanding that a share has not yet been transferred to the successor so acquiring the title, if an instrument of transfer of the share held by the previous shareholder and of his/her other rights over such share is executed by his/her heir established under the prevailing law, such transfer shall be deemed to have transferred to such successor.

46. Shareholder and debenture-holder register : (1) Each company shall establish a shareholder register and debenture-holder register in the prescribed format and maintain the same at its registered office.(2) The following matters concerning each shareholder shall be mentioned in the shareholder

register as referred to in Sub-section (1), according to the serial number of shares:(a) Full name and address of the shareholder,(b) Number of shares subscribed by the shareholder,(c) Total amount paid by the shareholder and outstanding amount payable by him/her for the share,(d) Date of registration of his/her name as the shareholder,(e) Date when his/her name was struck off,(f) Name and address of the nominee after the death of the shareholder, if such nominee is appointed.(3) The following matters concerning each debenture-holder shall be mentioned in the debenture- holder register as referred to in Sub-section (1), according to the serial number of debentures:(a) Full name and address of the debenture-holder,(b) Number of debentures subscribed by the debenture-holder,(c) Total amount paid by the debenture-holder and outstanding amount payable by him/her for the debenture,(d) Date of registration of his/her name as the debenture holder,(e) Date when the name of the debenture-holder was struck off,(f) Name and address of the nominee after the death of the debenture-holder, if such nominee appointed.(4) If a shareholder or debenture-holder of a company desires to inspect the register maintained pursuant to Sub-section (1), the company shall allow him/her for the same.


Provided, however, that in the case of a public company, the company may, by publishing a seven-day advance notice in a newspaper with national circulation, and in the case of a private company, the company may, as provided in the articles of association or consensus agreement, close inspection of the register for a maximum period of thirty days at one time, not exceeding in the aggregate forty-five days in a year.(5) If any person desires to have a duplicate copy of the shareholder register, such duplicate copy shall be issued to that person by collecting the fees as prescribed, in the case of a public company, and such fees as mentioned in the memorandum of association, articles of association or consensus agreement, in the case of a private company, except in case where inspection is closed pursuant to the proviso to Sub-section (4).(6) Notwithstanding anything contained elsewhere in this Section, a listed company may cause the securities registrar recognized under the prevailing law to provide securities deposits service to establish and maintain a register. A copy of the register so maintained shall be kept at the registered office of the company, prior to giving a notice of the general meeting each year. The register shall set out the matters mentioned in Sub-sections (2) and (3).(7) If a register maintained under Sub-section (6) is found to have recorded a false matter in a manner to affect the right and interest of a person, such securities registrar, his/her director, officer and employee shall be liable to punishment as mentioned in Section 160, and the concerned person shall also be entitled to have recovered the loss and damage caused to him/her because of such false record.

47. Information on title to share : (1) If a company asks any shareholder to provide information as to what capacity one has obtained the shares with full voting rights registered in his/her name or whether any other person has investment in the shares registered in the name of such shareholder and where there is another person as a the beneficiary of such shares, as to the identity and nature of the title of that person, it shall be the duty of such shareholder to provide such information to the company within thirty days.(2) On receipt of the information sought under Sub-section (1), the company shall record opposite the name of the concerned shareholder, in the register the date of demand of such information, date of receipt of information and the contents of information received and provide the Office with information pertaining there to within seven days.

48. Address of shareholder : (1) Unless otherwise altered by a notice, the address of a shareholder mentioned in the shareholder register shall be considered to be his/her real address.(2) In the event of change of address of a shareholder, a written notice of the new address has to be given to the registered office of the company immediately after such change.(3) On receipt of the notice as referred to in Sub-section (2), the director or company secretary shall record the address so changed in the shareholder register.(4) When a notice is sent to the address supplied by a shareholder, a notice required to be sent by a company to the shareholder under this Act shall, unless otherwise proved, be deemed to have been duly sent, and received by the concerned shareholder.

49. Index of shareholders : (1) Unless the shareholder register is in such form as in itself to clearly constitute an index of the names of shareholders, every company having more than fifty shareholders shall prepare and keep a separate index of the names of its shareholders.(2) In the event of any alteration in the shareholders register, necessary alteration shall also be made in the index prepared under Sub-section (1) within thirty days after the date of such alteration in the register.CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

(3) The index of shareholders shall be kept in such a manner that necessary information in respect of each shareholder can be readily found from the shareholder register.(4) The index of shareholders shall be kept together with the shareholder register.(5) If a company fails to comply with this Section, the company shall be deemed to have failed to comply with this Act.

50. Substantial shareholders : (1) If any person subscribes ordinary shares with full voting rights that are five percent or more of the paid up capital of any public company of which shares that person has held in his/her name or through his/her agent, that person shall be deemed to have his/her substantial shareholding in such company.

Provided, however, that in the case of a company having the paid up capital of more than two hundred fifty million rupees, any person shall be deemed to have the substantial shareholding despite that such person has subscribed one percent or more of the total paid-up capital of such company.(2) A substantial shareholder of every public company shall give the company information setting out his/her name, address as well as full particulars of the shares registered in his/her or his/her agent’s name, within thirty days after the knowledge of being a substantial shareholder of that company.(3) If a person ceases to be a substantial shareholder of any public company, that person shall give the company information setting out his/her name, the date on which he ceases to possess the status of a substantial shareholder of that company and other particulars as well as the reason why he/she has ceased to be a substantial shareholder, within thirty days after the date of knowledge of that matter.(4) Every public company shall maintain a separate register for the purposes of Sub- section (1), (2) and (3).

51. Inventory of shares, debentures and loans : (1) Every company shall prepare and maintain an inventory of the existing shareholders and debenture –holders and persons who ceased to be shareholders or debenture-holders as at thirty days prior to the holding of the annual general meeting.(2) The inventory as referred to in Sub-section (1) spells outs, inter alia, the following particulars.

(a) Authorized capital and number of shares of the company,(b) Issued share capital of the company,(c) Paid-up capital of the company,(d) Calls made on every share,(e) Total amount of installments paid,(f) Total amount due and recoverable,(g) Total amount paid on share and debentures as brokerage,(h) In the event of forfeiture of any shares, total number of such shares, reasons for

forfeiture and date thereof, (i) Loans borrowed from any bank, financial institution or any other person or

guarantee furnished by the company,(j) Names and addresses of the existing directors.

(3) The inventory referred to in Sub-section (1) shall be signed by at least one director and be submitted to the Office within 30 days after the date at which the annual general meeting of the company is held and, in the case of a company not holding the annual general meeting within one year after the date at which the company has obtained permission to carry on such business as to require permission of the concerned body pursuant to the prevailing law, if the company carries on such business, and after the date of registration where such permission is not required; and if there is any alteration in the inventory once it is submitted pursuant to Sub-section (2) , only the details of such alteration can be submitted.


(4) If any alteration is made in the inventory, as referred to in sub section (1), of a company not holding the general meeting details thereof shall be sent to the Office within six months of such alteration.(5) Notwithstanding anything contained elsewhere in this Section, if any company mentions the details as referred to in Sub-section(1), as well, in the report required to be submitted pursuant to Section 78, such company shall not be required to send a separate inventory to this Office under this Section .

52. Lien on shares : A company may attach a share registered in the name of a shareholder and dividends payable thereon, as well, for all moneys due and payable by him/her to the company in respect of that share or for all moneys due and payable by him/her to the company under the prevailing law and recover such moneys by deducting the same from the dividends.

53. Payment of amount for shares:(1) An amount for a share shall be paid up within the period of a call made in accordance with the articles of association.(2) In making a call pursuant to Sub-section (1), a company shall send every shareholder a written notice, in the prescribed format, specifying a time limit of at least thirty days and the installment payable by him/her, the place and time for payment. A public company shall also publish such notice, for at least three times, in a daily newspaper with national circulation.(3) If a shareholder fails to pay the sum called and payable in respect of the share within the period as referred to in Sub-section(2), a notice shall be sent to the concerned shareholder, giving an additional period of three months after the date of expiration of that period, and specifying clearly that if payment is made within that period, it shall be accepted, along with interest at the prescribed rate and if that shareholder fails to make payment even within that period, his/her share shall be liable to be forfeited. In the case of a public company, such notice shall also be published in a daily newspaper with national circulation for at least three times. In the installment called is not paid even within the time-limit as mentioned in that notice, the company may forfeit all or the remaining shares after retaining the number of shares as fully paid up to the extent of the amount paid up on the shares in respect of which the company has given such notice or also to the extent of the amount of dividends, if any, attached in respect of such shares.Provided, however, that where the company has already undergone liquidation or insolvency prior to the forfeiture of shares, any amount due and payable in respect of the shares liable to accordance with the prevailing law.(4) Where any share is forfeited under Sub-section (3), the board of directors may refund the amount already paid up in respect of the share so forfeited and the amount equal to the dividends, if any attached in respect of such share, or issue the share to the extent covered by such amount; and where the amount is to be refunded, it has to be refunded within three months after the forfeiture of share.(5) In the event of failure to make refund within three months pursuant to subsection (4), interest chargeable on such amount after the expiration of that period shall also be paid. (6) The shares forfeited under Sub-section (3) may be sold or otherwise disposed of in such manner as the board of directors may, subject to the articles of association, thinks fit.(7) A company which has been making profits for a period of three consecutive years or more may, by a special resolution adopted at its general meeting determines that a call may not be made in respect of certain portion of its share capital not called on except in the case of liquidation or insolvency of the company.(8) After a special resolution has been adopted under Sub-section (6), a call may not be made on the amount of share capital that is yet to be called on as mentioned in that resolution except where the general meeting, by adopting another special resolution, decides to make such call and except in the case of liquidation or insolvency of the company.


54. Payment of amount of shares held jointly : (1) Every partner shall pay the amount of call on the shares held jointly in proportion to his /her ownership.(2) Except where there exists a duly executed deed indicating specific portion owned by each partner in the shares held pursuant to Sub-section (1), all the holders of such shares shall be deemed to have equal ownership there on .

55. Ownership of shares and debentures : If a dispute arises about the ownership of any share or debenture issued by any company, the person whose name is registered in the share or debenture register maintained by the company shall, unless otherwise proved be regarded as the owner of such share or debenture.

56. Power of company to alter its share capital : (1) Subject to the provisions contained in its articles of association, any company may, by adopting a special resolution at its general meeting, make alteration in its share capital as follows:(a) By increasing its authorized share capital by such amount as it thinks expedient by issuing new shares,(b) By consolidating or dividing all or any of its share capital into shares of larger or smaller amount,(c) By canceling the shares which, at the date the adopting of the resolution in that behalf, have not been taken or agreed to be taken by any person or the shares forfeited pursuant to Sub-section (3) of Section 53 and diminishing the amount of its share capital by the amount of the shares so canceled.(2) When a special resolution for altering the capital pursuant to subsection (1) is adopted, the memorandum of association and articles of association of the concerned company shall be deemed to have been amended to that extent.(3) A submission, accompanied by the prescribed fees shall be made to the Office for the record of the resolution adopted pursuant to Sub-section (1) and the amendment to the memorandum of association and articles of association; and the Office shall accordingly record the alteration made in the capital of the company and the amendment made to the memorandum of association and articles of association and give information thereof to the company within seven days after such submission.(4) A cancellation of shares, if any, made in pursuance of Clause (c) of Sub-section (1) shall not be deemed to have been made for purposes of the reduction of share capital of a company.(5) If a company is required to increase its issued capital to the extent of its authorized capital, it may increase such capital by adopting an ordinary resolution at the general meeting.(6) If a public company is required to increase its share capital under Sub-section (5) and issue its shares publicly, it shall fulfill the procedures specified in this Act and the prevailing law on securities.

Provided, however, that in so issuing bonus shares and right shares that they may be subscribed by its existing shareholders and employees only or issuing shares pursuant to Sub-section (9), such company shall not be required to fulfill such procedures.(7) A public company shall publish a notice on the issue of right shares, which may be subscribed by the existing shareholders only, in a daily newspaper of national circulation for at least three consecutive times prior to fifteen days of the issue of such shares.(8) The existing shareholders shall have the first right to subscribed the shares issued under Sub-section (7) in proportion to their respective shareholding.(9) Notwithstanding anything contained in Sub-section (8), no shareholder of a company existing for the time being shall have the first right over the following shares to be issued by the company:(a) Shares issued by the company for any consideration other than cash,


(b) Shares issued to any person under any right or facility provided in accordance with the terms of an agreement concluded with the company,(c) Shares issued under an employee share scheme,(d)Shares issued in accordance with an agreement concluded between the company and its creditors,(e) Shares existed on converting preference shares into ordinary shares or debentures into shares by the company,(f) Shares issued in accordance with an agreement between the concerned parties in the course of management of the company, restructuring of its capital or loan or in the course of implementation of a restructuring program agreed upon between the relevant parties in accordance with the prevailing law on insolvency or in the course of implementation of a program of conversion of a public company into another public company.(10) No share capital shall be increased or bonus share issued by revaluating the assets of a company other than from profits made by the company or funds created out of profits.

(11) In issuing shares under this Section, a time limit of at least thirty five days shall be given to the existing shareholders to subscribe the shares. If such shareholders fail either to subscribe the shares or to sell or transfer the right to subscribe shares to anyone else within the said time limit or, such shares may be sold in any other manner as decided by the board of directors of the company.

57. Reduction of share capital : (1) If a company intends to reduce its share capital , it may, by adopting a special resolution to that effect at its general meeting, reduce its share capital by obtaining approval of the Court and making necessary amendment to or alteration in the memorandum of association and articles of association, accordingly.(2) On receipt of approval of the Court pursuant to Sub-section (1), the company may reduce its share capital as follows:

(a) By reducing the capital to such amount as has been paid up where calls for payment of amount on shares are not fully paid up,

(b) By paying back any paid-up share capital,(c) By devaluating the face value of shares where the company has sustained a big loss

or suffered a natural calamity.(3) Notwithstanding anything contained in subsection (2), a company which has already become insolvent in accordance with the prevailing law shall not reduce its capital pursuant to this Section.

58. Procedures for obtaining approval of Court to reduce share capital : (1) Where a company has adopted a special resolution for reducing its share capital pursuant to Section 57, it shall make a petition to the Court for an order confirming the reduction.(2) Where a petition is made pursuant to Sub-section (1), the concerned company shall, prior to the hearing of such petition, publish a public notice in a daily newspaper of national circulation for at least three times, setting out the venue and date of hearing on the reduction of share capital of the company.(3) Every person who is entitled to any debt or claim under the prevailing law at the time of commencement of the winding up or insolvency of a company shall be entitled to submit his/her claim and objection to the reduction of share capital of the company.(4) The director or company secretary of a company shall, as ordered by the Court, submit to the Court a real and true list of creditors of the company, if any, setting out, inter alias, their names, addresses and amount of debt repayable to each of them, at the commencement of hearing of the petition for reducing the capital of the company.CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

(5) Irrespective of whether the creditors whose debts are yet to be discharged or determined, out of the creditors whose names are entered on the list submitted pursuant to Sub-section (4), do or do not consent to the reduction of capital in the case where the company admits the full amount of the debts or claims made by the creditors, or though not admitting it, agrees to make provision of moneys required to pay such amount and makes required provision for the same by executing a bond undertaking to pay the full amount within a certain date, then the Court may issue order confirming the reduction of the share capital .(6) In taking action for approval on a proposed reduction of share capital which involves either the diminution of any liability in respect of unpaid share capital or the paying back to an shareholder of any amount paid for shares, the Court may, if, having regard to the circumstances and available evidence, it thinks proper so to do, direct that the provisions of Sub-section (3) or (4) shall not apply to any specific creditor.(7) If the list of creditors submitted pursuant to subsection (4) is found to contain any false statement or omission, the director of the company who submits such list and the officer who signs such list shall be liable to punishment under this Act.Provided, however, that if the officer who signs such list proves that any omission or mistake was made without his/her knowledge or immediately when he/she knew such omission or mistake, he gave information to the Court for the rectification of such omission or mistake, prior to the making of an order by the Court under this Section or he exercised all reasonable care to avoid such omission or mistake, he shall not be liable to that punishment.(8) If the Court is satisfied, with respect to the creditors who under Subsection (1) are entitled to object to the resolution on reduction of capital, that either their consent to the reduction has been obtained or their debts or claim have been discharged or have been determined and are at the state of discharge, or have been secured, it may make an order confirming the reduction, specifying appropriate alters and conditions.(9) Where the Court makes an order pursuant to Sub-section (8), it may, if it thinks proper so to do, order directing that the concerned company, of which resolution to reduce capital has been co confirmed, shall, for a specified periods, add to its names the last words thereof the words “capital reduced” and publish necessary notice with a view to giving information to the general public about the reasons and causes for such reduction and other important information in regard thereto.(10) Where, pursuant to Sub-section (9) , a company is ordered to add to its name the words “capital reduced”, those words shall, until the expiration of the period specified by the Court, be deemed to be an integral part of the name of the company. (11) The contents of the terms contained in an order issued by the Court, pursuant to this Section, in the course of confirming a resolution for the reduction of capital shall be deemed to have ipso facto been incorporated in the memorandum of association and articles of association of the company; and the memorandum of association and articles of association shall be deemed to have been amended to that extent.(12) Any director who knowingly conceals, hides or holds back the name of any creditor who, under this Section, is entitled to object to the resolution for reducing capital or knowingly prepares or submits a false statement on the amount of loan or clam or liability or conceals, hides or holds back such loan or liability or prepares or causes to prepare a false statement or any officer or employee of the company who abets to such act shall be liable to punishment under this Act.(13) Where the share capital of a company is reduced pursuant to this Section, the director or company secretary of that company shall mention and authenticate that matter in each share certificate issued by such company.


59. Liability of shareholders in respect of reduced share capital: Except as otherwise provided for in this Section, a shareholder of the company, past or present, shall not be liable, in respect of any share mentioned in the order issue by the Court confirming the reduction of share capital, to pay any amount exceeding the difference between the amount actually paid on the share or the reduced amount, id any, which is deemed to have been paid thereon, as the case may be , and the fixed amount of such share.Provided, however, that where the list of creditors entitled to object to the reduction of share capital submitted to the Court omits any such creditor and, after an order confirming the reduction of capital of the company has been made, the company is unable to pay the amount of debt of such creditor, the shareholder of the company shall be bound to pay the amount as mentioned in Sub-section (3) or (4) .(2) Notwithstanding anything contained in the proviso to Sub-section (1), where the list submitted to the Court omits the name or any claim of a creditor because of a fault or negligence of his/her own, the shareholders shall not be bound to pay such amount.(3) A person who was a shareholder of a company at the date of issue by the Court of an order confirming the resolution for reducing the capital of the company shall be liable to pay an amount not exceeding the amount which he would have been liable to pay if the company had undergone insolvency and commenced insolvency proceedings on the day immediately before the said date.(4) If a company is insolvent, and where an application is made by a creditor whose name is said to be omitted from the list of creditors submitted to the Court , along with the proof of omission of his/her name, the Court may, if it thinks fit, settle a list of shareholders who are liable to pay to the company the amount required for the repayment of loan of such creditor and issue an order to make calls on shares held by the shareholders settled on such list as if they were ordinary contributors in an insolvency process of the company.(5) Notwithstanding anything contained elsewhere in this Section, no share holder shall be liable to pay an amount in excess of the face value of a share at the time of the subscription of such share by him/her.

60. Directors to be responsible in the case o f loss of net worth of company: (1) If the net worth of a public company is reduced to half the paid–up capital or less than that the directors shall prepare an appropriate strategy for the interest of the company and shareholders, as well, within thirty five days of the knowledge of this matter, and present a separate resolution thereon at the general meeting toe held immediately after the knowledge of such matter.Provided, however, that where approval of the general meeting is required to implement such strategy, the extra-ordinary general meeting shall be called promptly. (2) The directors of company who fail to prepare strategy or to present a resolution at the general meeting pursuant to Sub-section (1) or who knowingly permit the existence of the situation where such meeting is not called shall be liable to punishment under this Act.(3) If it is held that the net worth of company has been reduced as mentioned in Sub-section (1) as a result of mala fide intention or malicious recklessness of any director, the director who commits such act shall also be liable to pay compensation for the same.

61. Prohibition on purchase by company of its own shares: (1) No company shall purchase its own shares (buy-back) or lend money against security of its own shares.(2) Notwithstanding anything contained in Sub-section (1), in the following circumstances, a company may buy back its shares out of its free reserves available for being distributed as dividends, by giving information to the Office:

(a) Where the shares issued by the company are fully paid up;(b) Where the shares issued by a public company have been listed in the Securities

Board;CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

(c) Where the buy-back of shares is authorized by the articles of association of the concerned company;

(d) Where a special resolution has been adopted at the general meeting of the concerned company authorizing the buyback;

(e) Where the ratio of the debt owed by the company is not more than twice the capital and general reserve fund after buy-back of shares;

Explanation : For the purposes of this Clause, “debt” means all amounts of secured or unsecured debts borrowed by a company.

(f) where the value of shares to be bought back by a company is not more than twenty percent of the total paid up capital and general reserve fund of that company;

(g) Where the buy-back of shares is not in contravention of the directives issued by the Office in this respect.

(3) A resolution to be presented at the general meeting pursuant to Clause (d) of Sub- section (2) shall state the following matters:

(a) The reason and necessity for the buy-back of shares;(b) A statement of the evaluation of possible impacts of the financial situation of the

concerned as a result of the buyback of shares,(c) The class and number of shares intended to be bought back;(d) The maximum or minimum amount required to buy back shares as referred to in

Clause (c) and financial source of such amount;(e) The time limit for the buy-back of shares;(f) The mode of the buy-back of shares;(g) Such other necessary matters as specified by the Office and as required to be

disclosed under the prevailing law, in respect of the buy-back of shares.(4) Where a special resolution as referred to in Sub-section (3) is adopted by the general meeting, the concerned company may buy back its shares in any of the following manners within a period of twelve months of the adoption of that resolution:

(a) Purchasing from the stock exchange;(b) Purchasing from the concerned employee of the company the shares allotted to

him/her, (c) Purchasing from the existing shareholders on a proportionate basis.

(5) Where a company buys back its own shares pursuant to Sub-section (4), it shall file with the Office a return containing the number of shares bought back, amount paid for the same and other necessary details within thirty days of the date of such buy-back.(6) There shall be established a separate capital redemption reserve fund, to which a sum equal to the nominal value of the shares bought back pursuant to Sub-section (4) shall be transferred; and the amount of such fund shall be maintained as if it were the paid-up capital .(7) Where a company buys back its shares pursuant to Sub-section (4), it shall cancel the shares so bought back within one hundreds twenty days of the date of such buy-back .(8) Once a company buys back any class of shares pursuant to this Section, the company shall not re-issue the shares of that class, except for the issue of bonus shares or payment of its liability, prior to the expiration of two years after such buy-back.(9) Notwithstanding anything contained elsewhere in this Section, no public company shall buy back its shares in a manner that such minimum number of shareholders or minimum paid–up capital as required to be maintained by that company becomes less or lower.(10) Other conditions where a company cannot buy back its shares and other terms required to be complied with in the buying back of its shares shall be as prescribed.


62. Prohibition on providing loan or financial assistance by company to purchase its own shares : No company shall provide any loan or financial assistance of any kind to any person for purchasing its own shares or the shares of its holding company or getting entitlement too such shares in any manner.Provided, however, that nothing contained in this Section shall prevent a company from providing loans to any employees of the company to purchase the fully paid up shares of that company or its holding company or acquire ownership over such share s in any manner, under a scheme of selling shares to its employees.

63. To obtain approval for commencing business:(1) No public company incorporated under this Act shall commence its business without obtaining the approval to carry on its business.(2) A public company shall make an application, along with the evidence showing the full payment of calls on the shares, out of the amount of shares undertaken to be subscribed by its prompters, to the office for getting approval pursuant to Sub-section (1).(3) Where an application is made pursuant to Sub-section (2) and it so proved that calls on the shares, out of the amount of shares undertaken to the Office shall grant approval for carrying on the business.Provided, however, that if the amount paid up on shares is less than the amount mentioned in Sub-section (1) of section 11, the Office shall not grant such approval.(4) without obtaining the approval to commence business pursuant to Sub-section(2), there shall not be carried out any act of publishing the except those acts such as convening the extraordinary general meeting, meeting of the board of directors and management of the company.(5) Notwithstanding anything contained in Sub-section (2), where in the case of a company carrying on any specific business, the competent regulatory body empowered to regulate such business under the prevailing law has, while granting a license, specified any terms and conditions to be complied with prior to the commencement of such business, no approval to commence business shall be granted unless and until an evidence showing the compliance with such terms and conditions is submitted. (6) Notwithstanding anything contained elsewhere in this Section, a private company may commence its transactions immediately upon receipt of the certificate of registration with the Office. Provided, however, that where an approval is to be obtained from the concerned body pursuant to the prevailing law to carry on any specific transactions, the company shall commence its transactions only after obtaining such approval.

64. Prohibition on issue or sale of shares at a discount: (1) A company shall not issue or sell its shares at a discount.(2) Notwithstanding anything contained in Sub-section(1), a company may, on the following conditions, issue or sell shares at a discount by adopting a special resolution at the general meeting to that effect, not being less than the percentage specified in that resolution:

(a) In issuing or selling shares pursuant to a capital restructuring scheme of the company,

(b) In issuing or selling shares pursuant to a scheme of converting loans borrowed by the company into shares with the consent of creditors;

(c) In issuing or selling shares pursuant to an employee share scheme;(d) In issuing shares on such other conditions as approved by the Office.

65. Preference shares : (1) A company may issue preference shares as provided for in this Act, memorandum of association or articles of association.(2) Except as provided in the articles of association, no shares issued pursuant to Sub-section (1) shall be converted into ordinary shares.


(3) In issuing preference shares pursuant to Sub-section (1), the following maters, inter alia, shall be disclosed:

(a) Whether preference is given to receive dividends against ordinary shares; (b) Percentage of dividends receivable by preference shareholders; (c) Whether dividends get cumulated every year (cumulative) or profits are distributed only in a year wherein profit is made (non-cumulative);

(d) Whether preference is given while paying amount of share in the event of liquidation of company;

(e) Whether voting right is attached there to; and if voting right is attached, whether such right is available only in the case of preference share or also in other matters;

(f) Whether voting right is available also in other matters pursuant to Clause (e), the proportion to which such right is exercisable;

(g) Whether preference shares can be converted into ordinary shares;(h) Whether the amount of preference shares can be redeemed (redeemable) or cannot

be redeemed (irredeemable) after a certain period;(i) Whether, in redeeming preference shares, premium is payable on redemption.

(4) Where any redeemable shares are issued, the shares shall not be redeemed unless they are fully paid.(5) No amount of preference shares shall be redeemed except out of profits which would otherwise be available for dividend or out of the proceeds of a fresh issue of shares made by the company for the purposes of the redemption.(6) Where a premium is payable on the redemption of any redeemable preference shares, there shall be provided for a separate fund out of the profits of the company or out of the company’s shares premium account, for the purposes of redemption of such shares.(7) Except in cases where any redeemable preference shares are redeemed out of the proceeds of a fresh issue of shares pursuant to sun-section (5), while redeeming preference shares pursuant to this Act, a capital redemption reserve account shall be established and a sum equal to the nominal amount of the shares redeemed shall be transferred to that account, out of profits which would otherwise have been available for dividend.(8) The capital redemption reserve account established pursuant to Subsection (7) shall be maintained as if it were the paid–up capital.(9) After the completion of the redemption of any preference shares redeemed pursuant to this Section, such shares shall be deemed to have, ipso facto, been cancelled.(10) A company shall while redeeming any preference shares, follow such terms and procedures as provided by the articles of association of the company, subject to this Section; and such redemption of preference shares shall not be taken as reducing the amount of authorized share capital of the company.(11) Where a company has redeemed or is about to redeem any preference shares, it shall have power to issue new shares up to the nominal amount of the shares so redeemed or to be redeemed.(12) Where a company has redeemed any preference shares, the company shall give information thereof to the Office within one month of such redemption; and on receipt of such information, the Office shall record such information in the company register.(13) Notwithstanding anything contained elsewhere in this Section, a company may issue new shares to its shareholders as fully paid bonus shares, out of the capital redemption reserve funds established pursuant to Sub-section (7).


66. Restriction on minor and person disqualified under law to make contract to be promoter : (1) A minor who has not attained the age of sixteen years and a person who is not qualified to make contract under the law shall not be eligible to become the promoter of a company.Provided, however, that this Section shall not be deemed to prevent a minor or a person who is disqualified under the law to make contract from acquiring the title to the shares of a company subscribed by the promoter, by virtue of succession or operation of law.(2) Where any minor or any person who is disqualified under the law to make contract is to purchase or sell any shares or debentures of any company, the father, mother or husband or wife or legally appointed protector or guardian of such person shall do so.

Chapter 5Meetings of Company

67. General meetings of company : (1) The general meetings of a company shall be as follows.

(a) Annual general meeting, and(b) Extra-ordinary general meeting.

(2) A public company shall send a notice specifying the place, date and agenda of meeting to every shareholder at the address supplied by that shareholder to the company, in advance of at least twenty one days to hold the annual general meeting, and in advance of at least fifteen days to hold the extra- ordinary general meeting. A notice thereof shall also be published at least twice in a national daily newspaper.Provided, however, that while calling any general meeting which has been adjourned, if such meeting is not transacting any new agenda, a notice of that meeting published in a national daily newspaper in advance of at least seven days shall be deemed to have been duly given.(3) No decision shall be taken in any general meeting on any matter which has not been notified in advance pursuant to Sub-section (2), except in the following circumstances:

(a) Except as otherwise provided in the other sections of this Act, If the shareholders representing sixty seven per cent of the total shares of the company who are entitled to vote at the general meeting, attend in person or by proxy and vote in favor of taking a decision on any matter,

(b) If the matter was already notified for being transacted in any general meeting which has been adjourned.(4) Except in cases where the Office gives prior approval to hold the general meeting elsewhere, the general meeting of a public company shall be held either at the district where the registered office of such company is situated or at such place adjoining to the district of registered office as is convenient to most shareholders.(5) A list indicating the name, address of the existing shareholders of the company and the number of shares held by them shall be kept at the meeting venue for inspection by the shareholders.(6) The matters included in the agenda sent along with a notice of the general meeting shall be discussed and decided first at that meeting.(7) The person chairing the general meeting may adjourn the meeting as required. Any matter which is notified, pursuant to this Act, before or after the day of holding the adjourned general meeting may be discussed and decided in such adjourned meeting.(8) The original meeting and the adjourned meeting shall have the same powers. A resolution adopted at the adjourned meeting shall be deemed to be adopted on the date of holding that adjourned meeting.


(9) Where any corporate body has purchased shares in a company, a person appointed by such corporate body shall be entitled to attended and vote at the general meeting of the company, on behalf of such body.(10) The proceedings at any general meeting shall not be void or invalid merely for reason of the accidental omission to give notice to any shareholders of any listed company or the non-receipt by any shareholder of notice sent at the address which he has supplied to such company.(11) Notwithstanding anything contained elsewhere in this Section, matters pertaining to the general meeting of a private company and procedures thereof shall be as provided in the articles of association or the consensus agreement. Failing such provision, the provisions of this Act shall apply.(12) Other provisions relating to the procedures of general meeting shall be as contained in the articles of association of a company.

68. Directors required to present : Every director of a company shall be present in the general meeting as far as possible.

69. Legality of meeting : Before every general meeting commences, the shareholders present therein shall ascertain whether it has been convened in accordance with this Act and the articles of association; and a general meeting shall be deemed to have been duly called even if any other law has not been observed with respect thereto, provided a notice has been sent to all shareholders pursuant to Sub-section(2) of Section 67 and the meeting attended by the required quorum as referred to in Section 73 agrees to hold it .

70. Cases where attendance or voting in meeting is restricted: (1) No person shall be entitled to attend and vote in any general meeting, in the capacity of a shareholder, either in person or by proxy on any discussion to be held in respect of any terms and conditions entered into or to be entered into between him/herself and the company.(2) No director or his/her partner or his/her proxy shall be entitled to vote on any discussion to be held at any General Meeting in respect of the responsibility for any act done or omitted to be done or done wrongfully by him/her or in respect of his/her own appointment, dismissal, transfer or confirmation, with respect to the provision of , or reduction or increment in remuneration, allowance or bonus or in respect of any agreement, contract or arrangement regarding his/her employment or anything in which his/her interest or concern is involved.(3) Any shareholder who has not paid calls on the shares shall not be entitled to attend and vote in the general meeting.(4) Where any shareholder appoints a director of the concerned company as his/her proxy pursuant to Sub-section(2) of Section 71, such director shall not be entitled to vote in the general meeting ,as a proxy of any one , on any matter in which his/her interest or concern is involved or on the matter of his/her appointment.(5) Notwithstanding anything contained in this Act or the prevailing law, where a bank or financial institution incorporated under the prevailing law, which institutes legal action against a shareholder, who has borrowed a loan from such bank or financial institution against the pledge or security of the shares held by him/her, for his/her default in repaying the loan, writes to the concerned company to prevent him/her from exercising voting right in respect of shares, then the company shall prevent such shareholder from exercising voting right in respect of the shares held by him/her for a period until he/she repays the loan.

71. Right to vote in general meeting : (1) Except as otherwise provided in this Act or the articles of association of a company, only the person whose name is registered as a shareholder in the shareholder register shall, subject to Section 70, be


entitled to attend the general meeting and cast votes at the rate of one vote for each share held by him/her.(2) Except in cases where the articles of association of a company prohibit the proxy of a shareholder from exercising the right to vote, any shareholder may, subject to this Section, appoint another person as his/her proxy to attend the general meeting and vote instead of him/her.(3) Subject to Sub-section (1) or (2), where a shareholder who is entitled to vote is not able to personally attend the meeting, he/she may appoint a proxy to vote in his/her stead, by an instrument of proxy executed in the prescribed format and signed by him/her and the proxy so appointed shall be entitled to attend or vote in the meeting , subject to the provisions contained in Section 72.(4) where two or more persons jointly hold any shares, only the vote cast or instrument of proxy executed by the partner appointed by such partners or by the proxy appointed by that partner pursuant to Sub-section (2), and failing such appointment of any partner, by the partner whose name appears first in the serial order, out of the partners, in the shareholder register maintained pursuant to Section 46 shall be valid.

72. Provision on voting in election of director : (1) Except as otherwise provided in the articles of association, on a poll in election of directors, every shareholder shall be entitled to cast such number of votes as may be set after multiplying the number of shares held by him/her by the number of directors to be appointed; and the director who casts such votes may cast all his/her votes for a single candidate or may cast votes in a manner that his/her votes are divided for more than one candidate as indicated by him/her.(2) A corporate body entitled to appoint a director pursuant to this Act or articles of association may appoint directors in proportion to its shareholding and in such a case, it shall but be entitled to cast vote in the election.Provided, however, that a corporate body which is not able to appoint even a single director in proportion to the number of shares and the total number of directors or which fails to appoint a director in exercise of the power conferred by this Sub-section may, like other shareholder, take part in the election of directors representing shareholders, cast vote or file candidacy up to the number of directors that can be elected in proportion to the shares held by that body in such election.

73. Quorum : (1) A quorum for the general meeting of a private company shall be as specified in the articles of association of such company.(2) Unless the articles of association of a public company provides for a larger number for the quorum, no proceedings of the meeting of the public company shall be conducted unless at least three shareholders of the total shareholders, representing more than fifty per cent of the total number of allotted shares of that company, are present either in person or by proxy.(3) Where a meeting cannot be held because of quorum as referred to in Sub-section (2), and the meeting is called next time by giving a notice of at least seven days, nothing shall prevent the holding of such a meeting if at least three shareholders, representing twenty five percent of the total number of allotted shares of the company, are present either in person or by proxy.(4) Notwithstanding anything contained elsewhere in this Section, in the case of a company incorporated under the proviso to Sub-section (2), of Section 3 or a company incorporated under Sub-section (1) of Section 173, the presence of three shareholders as mentioned in Sub-section(2) or (3) shall not be mandatory.

74. Discussion and decision : (1) A general meeting shall be chaired by the Chairperson of board of directors and, in his/her absence, by the person nominated by the directors from amongst themselves.


(2) Every matter to be discussed in a general meeting shall be presented in the form of resolution. The chairperson of the meeting shall declare whether a resolution has been adopted or not.(3) The opinion of majority of the shareholders present in the meeting shall be deemed to be the decision of that meeting on every matter put to the vote. Such voting may be taken in such manner including a show of hands, voice voting, division of shareholders in groups or poll (use of ballet paper) as well as other appropriate method as prescribed by the Chairperson.Provided, however, that in the case of a special resolution, the resolution shall be deemed to have been adopted by the meeting only if the shareholders representing seventy five per cent shares out of the shareholders present in the meeting vote in favor of the resolution.(4) If the votes are evenly divided for and against at a general meeting, the Chairperson of the meeting may exercise the casting vote.Provided, however, that the Chairperson shall not be deprived of the right to vote in the capacity of shareholder.

75. Minutes to be kept : (1) Every company shall keep minutes of the proceedings of general meeting, by making entries thereof in a separate book; and the minutes shall be signed by the chairperson of the meeting concerned and by the company secretary, if any. In the case of a company which has no company secretary, the minutes shall be signed by the Chairperson of the meeting concerned and by a representative of shareholders appointed by a majority of the general meeting.(2) While keeping the minutes as referred to in Sub-section (1), matters such as the manner in which the notice of the meeting was issued, the number of shareholders present, the percentage of representation of the total shares , the result of voting, if any, shall all be set out in the minutes.(3) The minutes set down pursuant to this Section shall be sent to the shareholders within thirty days of the holding of the general meeting.Provided, however, that if any company publishes the minutes in a national daily newspaper, it need not send the same to the shareholders.(4) The minutes of proceedings of the general meeting kept pursuant to Sub-section (1) shall be kept at the registered office of the company. If any shareholder wishes to inspect such minutes during office hours, the company secretary or such other employee as designated by the company shall allow such inspection.(5) If any shareholder wishes to get a copy of any minutes of the general meeting, the company shall provide such copy by collecting such fees as specified by its articles of association.

76. Annual general meeting : (1) Every public company shall hold its first annual general meeting within one year after it is permitted to commence its business, and thereafter it shall hold the annual general meeting every year within six months after the expiry if its financial year.(2) If any public company fails to call the annual general meeting even within three months after the expiry of the time-limit referred to in Subsection(1), the office may give direction to call the annual general meeting of such company.(3) If the company fails to ca;; the annual general meeting even within three months after the receipt of the direction as referred to on Sub-section(2), any shareholder may make a petition, setting out the matter, to the court. Where such petition is made, the Court may either cause to hold the annual general meeting or issue any other appropriate order.(4) Notwithstanding anything contained in Sub-sections (1) and (2) of section 73, the shareholders present in the general meeting called pursuant to the order of the court under Sub-section (3) shall be deemed to be a quorum.


77. Matters to be presented and decided in annual general meeting : (1) The directors shall present the annual financial statements as audited, auditor’s report and director’s report at the annual general meeting of a public company.(2) If the shareholder or shareholders representing at least five per cent of the total number of votes shall so desire, he/they may, by submitting an application to the directors prior the issue of a notice under Sub-section (2) of Section 67, cause any matter to be presented at the annual general meeting for discussion and decision.(3) At least twenty one days prior to the holding of the annual general meeting, every public company shall make arrangement so that the shareholders can inspect and obtain copies of the annual financial statement, directors’ report and auditors’ report as referred to in Section 84 and publish a notice in a national daily newspapers for information thereof.(4) Information of the statements and reports as referred to in Subsection (3) may also be disseminated through electronic communication media, as per necessity.(5) If any shareholder makes a request for a copy of the annual financial statement, directors’ report and auditor’s report as referred to in Sub-section (3), the company shall provide a copy of such reports or statements to such shareholder.(6) Except as otherwise provided in this Act, matters of distribution of dividends to shareholders, appointment of directors and their remuneration, appointment of auditor and his/her remuneration of such other items as required by this Act or the articles of association to be decided by the annual general meeting of the company can be presented at the decided by the annual general meeting of the company can be presented at and decided by that meeting.Provided, however, that on the rate of dividends to be distributed to the shareholders shall be made in a manner to exceed the rate of such dividends fixed by the board of directors.

78. Report to be submitted to Office : Every public company shall prepare a report indicating the following matters and submit the same to the Office in advance of at least twenty one days before the holding of the annual general meeting. Such report has to be approved by the board of directors and certified by the auditor of the company.

(a) The total number of the shares allotted,(b) Number of fully paid up and unpaid shared out of the allotted shares out of the

allotted shares,(c) Particulars of director, managing director, auditor, executive chief and manager of

the company, and amount of remuneration, allowance and facility paid to them,(d) The names of individuals or corporate bodies subscribing five percent of more of the

paid up capital of the company, and details of shares or debentures held in their names,

(e) The total proceeds of the sale of shares, and particulars of the new shares and debentures issued and raised by the company in the financial year concerned,

(f) The amount due and payable by the director or substantial shareholder to his/her close relative to the company,

(g) The details of payment made or to be made against the sale of shares or for any other matters,

(h) The amount of loans borrowed from banks and financial institutions and of principal and interest due and payable,

(i) The amount claimed to be receivable by the company or payable by the company to any other person to details of, lawsuits, if any, ongoing in this respect,

(j) The number of expatriate employees engaged in the management of the company and at other levels, and remuneration, allowances and facilities paid to them,

(k) The number of expatriate employees engaged in the management of the company and at other levels, and remuneration, allowances and facilities paid to them,CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

(l) Where any agreement has been entered into between the company and any foreign body or person on investment, management or technical services or other matter for a period of more than one year, particulars thereof and the particulars of the dividend, commission, fee, charge and royalty, as well paid under such agreement in the financial year concerned,

(m) A statement of the management expenditures of the company in a financial year,(n) The amount of dividends yet to be claimed buy the shareholders,(o) A declaration that the company has fully observed this Act and the prevailing law,(p) Other necessary matters.

79. Preparation of documents for annual general meeting: At least twenty one days prior to the holding of the annual general meeting, every public company shall prepare the annual financial statements, directors report, auditor’s report to be discussed in the meeting, the report prepared under Section 78 and the resolutions to be presented in the meeting and arrange to so keep the same at its registered office that the shareholders can inspect them; and if any shareholder makes and application for a copy thereof, a copy thereof shall be provided to him/her.Provided, however, that the resolutions to be presented in the meeting as special resolution shall be sent, along with a notice of the meeting, at the address of the shareholder.

80. Return of annual general meeting to be forwarded to Office : (1) Every public company shall, within thirty days of the holding of the annual general meeting, forward to the Office a return indicating the number of shareholders present in the meeting, a copy of the annual financial statement, director’s report and auditor’s report and resolution adopted by the meeting.(2) Except as otherwise provided in this Act, every private company shall submit a copy of the annual financial statement certified by the auditor to the Office within six months of the completion of its financial year.

81. Fine to be imposed in case of failure to submit returns : (1) Any return, notice or information required to be provided by the company to this Office or information required to be provided by the officer or shareholder to the company pursuant to this Act shall be provided by the director of the company or the officer or shareholder who has the duty to provide such return, notice or information to the Officer or the company, as the case may be, within the time limit, if any, prescribed by this Act for the provision of such return, notice or information.(2) The following director of a company or its officer who is in default in providing the return, notice, information or reply as referred to in Section §51, 78, 80, 120, 131 or 156 within the time limit as referred to in Sub-section (1) shall be punished by the Registrar with fine, as follows:(a) A fine of one thousand rupees if the paid up capital of the company is up to two million five hundred thousand rupees, a fine of two thousand rupees if the paid up capital of the capital is up to often million rupees, and a fine of five thousand rupees if the paid up capital of the company is more than ten million rupees, for a period not exceeding three months after the expiry of the time limit;(b) A fine of one thousand five hundred rupees if the paid up capital of the company is up to two million five hundred rupees, a fine of three thousand rupees if the paid up capital of the capital is up to ten million rupees, and a fine of seen thousand rupees if the paid up capital of the company is more than ten million rupees, for and additional period not exceeding three months after the expiry of the time limit as referred to in Clause (a);(c) A fine of two thousand five hundred rupees if the paid up capital of the company is up to two million five hundred thousand rupees, a fine of five thousand rupees if the CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

paid up capital of the capital is up to ten million rupees, and a fine of ten thousand rupees if the paid up capital of th company is more than ten million rupees, for an additional period not exceeding six months after the expiry of the time limit as referred to in Clause (b);(d) A fine of five thousand rupees, for each year, if the paid up capital of the company is up to two million five hundred thousand rupees, a fine of ten thousand rupees , for each year, if the paid up capital of the capital is up to ten million rupees, and a fine of twenty thousand rupees, for each year, if the paid up capital of the company is more than ten million rupees, in cases where even the time limit as referred to in Clause (c) has also expired.(3) In the case of a company not distributing profits which is in default in providing such statement, information or notice within the time limit as referred to in Sub-section (1), the director or officer of such company shall be liable to the same fine as is imposable on a company of which paid up capital is up to ten million rupees.(4)Any director, office or shareholder who is liable to pay the fine as referred to in Sub-section (2) shall pay it to the Office and submit to the Office or the concerned company such returns as required to be forwarded.(5) In calculating the period of expiration of the time limit pursuant to Sub-section (2), it shall be calculated from the date of commencement of this Act.(6) Any director, officer or shareholder of a company who is in default in providing such other statement, notice or information as is required to be forwarded to the Office pursuant to this Act shall be punished with a fine of two hundred rupees for every month, after the expiration of one month of the date of expiry of the time limit within which such statement, notice or information is required to be provided.

82. Extra-ordinary general meeting : (1) The board of directors of a company may convene an extra-ordinary general meeting if it deems necessary.(2) If, in the course of examining the account of a company, it is deemed necessary to call an extra ordinary general meeting for any reason, the auditor may request the board of directors to call such meeting; and if the board of directors fails to call the meeting accordingly, the auditor may make an application, setting out the matter, too the Office; and if an application is so made, the Office may call the extra-ordinary general meeting of the company.(3) If the shareholders holding at least ten percent shares of the paid–up capital of a company or at least twenty five per cent shareholders of the total number of shareholders make an application, setting out the reasons therefore, to the registered office of the company for calling an extra-ordinary general meeting of the company.(4) If the board of directors does not call the extra-ordinary general meeting within thirty days from the date on which an application is made pursuant to Sub-section (3), the concerned shareholders may make a petition to the Office setting out the matter; and if such petition is made, the Office may cause to call such meeting.(5) If the Office deems necessary to call an extra-ordinary general meeting in view of the findings of any inspection or investigation or for any others reason, it any itself call or cause there board of directors to call such meeting.

83. Special resolutions to be presented : Special resolutions shall be presented in the general meeting of a company for decision on the following matters:(a) Increasing the authorized capital of the company,(b) Decreasing or altering the share capital of the company,(c) Altering the name or main objectives of the company,CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

(d) Amalgamating one company into another company,(e) Issuing bonus share,(f) Buying back of own shares by the company,(g) Selling shares at a discount,(h) Converting a private company into a public company or vice versa,(i) Such other matter in respect of which the company is required by this Act or the articles of association to adopt a special resolution.

84. Provisions on sending abstract of financial statement to shareholders : (1) Notwithstanding anything contained elsewhere in this Act, a company listed in the stock exchange shall not be required to send the annual financial statement and director’s report to its shareholders or debenture-holders. Provided, however, that an abstract of financial statement prepared pursuant to Sub-sections (2) and (3) shall be sent to every shareholder along with the notice of annual general meeting.(2) The abstract of financial statement required to be sent pursuant to the proviso to Sub-section (10) shall be prepared on the basis of the annual financial statement of the company and the director’s report. The format of such statement shall be as specified by the Office based on the suggestions of the body specified to set accounting standards under the prevailing law.(3) The abstract of financial statement shall contain, inter alia, the flowing matters:(a) Matter indicating that the abstract of annual financial statement is only an abstract of the annual financial statement of the company and their director’s report,(b) An opinion of the company’s auditor as to whether or not the abstract of annual financial statement is in consonance with the annual financial statement of the company and the director’s report and whether or not the abstract is consistent with the format specified pursuant to this Section,(c) Matter as to whether or not the auditor has made any remarks about the annual financial statement of the company and, if such remarks have been made, full details of such remarks and such materials as required to understand such remarks,(d) In cases where the auditor has mentioned in his/her report anything about the inadequacy of the accounts and accounting returns or about the company’s accounts not being verifiable with the records and returns maintained by the company or about the non-receipt of any such information and explanation as sought, full details thereof.(4) Instead of sending the abstract of annual financial statement to the shareholders at their personal addresses pursuant to Sub-section (1), the company many publish it at least twice in a national daily newspaper at the time of publishing the notice of meeting.(5) In the event of publication of the abstract of annual financial statement pursuant to Sub-section (4), there shall not be required to send the abstract at the personal addresses of shareholders.

85. Registration number to be mentioned : A company shall mention its registration number in all such reports, statements, records or other documents as required to be submitted by it to the Office for the purposes of this Act.


Chapter 6 Board of Directors

86. Board of directors and number of directors: (1) The appointment and number of directors of a private company shall be as provided in its articles of association.(2) Every public company shall have a board of directors consisting of a minimum of three and a maximum of eleven directors.(3) In forming the board of directors pursuant to Sub-section (2), at least one independent director, in the case of the number of directors not exceeding seven, and at least two independent directors, in the case of the number of directors exceeding seven, shall be appointed from amongst the persons who have the knowledge as prescribed in the articles of association of the company and gained knowledge and experience in the subject related with the business of the company concerned.(4) Any one director selected by the directors from amongst themselves shall be the Chairperson of the board of directors.

87. Appointment of directors(1) The directors of a company shall be appointed by the general meeting of the company, subject to the provisions contained in Section 89 and the articles of association. Provided however, that:(1) The directors shall be appointed by the promoters pending the holding of the first annual general meeting of the company.(2) If the office of any director appointed by the annual general meeting is vacated for any reason, the board of directors shall appoint another director in that vacancy.(2) Notwithstanding anything contained in Sub-section (1), in the case of a company any shares in which a corporate body has subscribed, the corporate body may appoint a director in proportion of the total number of directors of the company and the number of shares subscribed by such body and also an alternate director to attend and vote in a meeting of the board of instead of every such director in cases where such director will not be in a position to attend the meeting of the board for any reason.(3) Where any director appointed pursuant to Sub-section (2) is not able to attend a meeting of the board of directors, such director shall give information thereof to his/her alternate director and the board of directors. In such case, the alternate director shall be entitled to attend, and vote in, the meeting of the board of directors.(4) Except in the case referred to in Sub-section (1), any alternate director appointed pursuant to Sub-section (2) shall not be entitled to attend, and vote in , a meeting of the board of directors.

88. Shares qualification of director : If the articles of association of a company specify any number of shares required to be held by a person for his/her appointment as director of the company, the person who becomes director shall hold such number of shares. Failing any provision specifying such number of shares, any such person shall hold at least one hundred shares.Provided, however, that any director who is appointed pursuant to Subsection (3) of Section 86 and Sub-section (2) of Section 87 shall not be required to hold such shares.

89. Circumstances where one is disqualified to be appointed to, or continue to hold, office of director: (1) Any of the following persons shall not be eligible to be appointed to the office of director:(a) Who is below Twenty one years of age, in the case of a public company;(b) Who is of unsound mind or is insane;(c) Who is a declared insolvent and a period of five years has not lapsed;(d) Who is convicted of an offense of corruption or of an offense involving moral turpitude.


Provided, that in the case of a private company, a period of three years has not lapsed from the date of such sentence,(e) who is convicted of an offense of theft, fraud, forgery or embezzlement or misuse of goods or funds entrust to him/her, in an authorized manner, and sentenced in respect thereof, a period of three year has not elapsed from the expiry of the sentence;(f) who has personal interest of any kind in the business or any contract or transaction of the concerned company;(g) who is already a director, substantial shareholder, employee, auditor or adviser of another company having similar objectives or has personal interest of any kind in such company;Provided, however, that such person of a private company may become a director of another private company having similar objectives.(h) Who is a shareholder that is held to have failed to pay any amount due and payable by him/her to the concerned?(i) In the case of a person who has been sentenced to punishment pursuant to Section 160, a period of one year is not lapsed from the date of sentence, or in the case of a person who has been sentenced to punishment pursuant to Section 161, a period of six months has not lapsed after the date of sentence;(j) In the event that the prevailing laws prescribed any qualification or disqualification in the case of a company carrying on any specific business, who does not possess such qualification or suffers from such disqualification;(k) Who is already a director of any company which has not submitted such reruns and reports as required to be submitted to the Office under this Act, for any continuous three financial years;(l) Who is holding the office of director receiving from another listed company any remuneration or facility, other than a meeting allowance and actual expenses to be in curried in coming to, going from, and staying in, the place of meeting.(2) Any of the following persons shall not be eligible to be appointed to the office of in independent director:(a) Who is a person as referred to in Sub-section(1);(b) Who is a shareholder of the concerned company;(c) Who has not obtained at least bachelor degree in a subject that is related to the business to be carried on by the concerned company and gained at least ten years of experience in the related field or in the company management affairs or who has not obtained at least bachelor degree in finance, economics, management, accounts, statistics, commerce, trade or law and gained at least ten years of experience in the related field;(d) Who is an officer, auditor or employee of the concerned company or a period of three years has not lapsed after his/her retirement from any such office;(e) Who is the close relative of the office of the concerned company;(f) Who is an auditor of the concerned company or his/her partner.(3) No person shall continue to hold the office of a director in any of the following circumstances;(a) If one suffers from any disqualification for appointment to the post of director as mentioned in Sub-section (1) or (2);(b) If the general meeting passes a resolution to remove him/her from the office of director,(c) If the resignation tendered by the director is accepted by the board of directors;


(d) If one is held by a court to have done any act involving dishonesty or ulterior motive in the activities of the company;(e) If one is held by a court to have done any act prohibited by this Act from being done by a director or to have failed to do any act required to be done under this Act;(f) If one is blacklisted by a competent body pursuant to the prevailing law for his/her default in repaying a loan of any bank or financial institution, and the period of such black listing has not expired.(4) Prior to holding any person to be disqualified for being appointed to the office of a director or holding such office, the company shall give information thereof to him/her and provide him/her with a reasonable opportunity to defend him/herself.

90. Term of office of directors : (1) The tenure of office of a director of a private company shall be as provided in its articles of association(2) The tenure of office of a director of a public company shall be as specified in its articles of association, which shall not exceed four years. Provided that:(1) A director appointed by the Government of Nepal or a corporate body shall hold office so long as the Government of Nepal or the appointing body desires.(2) A director appointed pursuant to Clauses (1) and (2) of the proviso to Section 87 shall hold office only until the holding of the annual general meeting.(3) The term of office of a director appointed to the office of any director which has fallen vacant before the expiry of his/her term of office shall be only the remainder of the tenure of office of that director whose office has so fallen vacant and in whose place one is appointed.(3) Notwithstanding anything contained in the prevailing law or articles of association , a person retired from the office of director on expiry of his/her tenure of office shall be eligible for reappointment to the office of director.

91. Remuneration, allowance, reward etc. of directors: (1) The meeting allowance to be receivable by the directors for attending a meeting, their monthly remuneration, daily allowance and traveling allowance or other facility shall be as determined by the general meeting.(2) The general meeting of any company may, by adopting a special resolution, grant a reward in a sum not exceeding three per cent of the net profits after payment of income tax to the directors who work full time for the company so as to encourage them.Provided, however, that where, on final assessment of tax under the prevailing law, the company has to pay additional income tax, the company shall recover the amount of such additional tax from the directors, who have received such reward, on a proportional basis up to the extent of the amount of reward received by them.(3) Pending the holding of the first annual general meeting, the board of directors may determine the remuneration and facilities of the managing director or other directors who work full time for the company.(4) Except where the general meeting of a listed company so permits, in the event that any director of a listed company is retired from or relieves of his/her office, the company shall not make any kind of payment as compensation for such relief or retirement.

92. Disclosure by directors : (1) A director shall, no later than seven days after assuming the office of director, disclose in writing to the company the following matters:


(a) If he/she or his/her close relative has direct involvement or any kind of personal interest in any kind of sale and purchase or other kind of contract related with the transactions of the company;Explanation : For the purposes of this Clause, “direct involvement” means and includes a situation where the director or his/her close relative is a promoter of or holds more that ten per cent shares of a company or private firm or partnership firm or a director of a company involved in such transaction.(b) If he/she has any kind of interest in the appointment of the managing director, company secretary, officer of the company;(c) If he/she is a director of any other company;(d) If he/she has made any dealing in the shares or debentures of the company or of its holding or subsidiary company, about matters of such dealing.(2) In making disclosure pursuant to Sub-section(1) , a copy of the written agreement, if any, concluded between the company and the director or his/she close relative shall be submitted, and failing such agreement, substantial and necessary matters concerning the transaction or interest or involvement shall be set out.(3) The company shall submit to the Office the information as referred to in Sub-section (1) within seven days of the receipt of such information; and upon receipt of such information, the Office shall record the same in a separate register maintained for this purpose.(4) If any director has an interest directly or indirectly linked to any kind of contract, lease, transaction or agreement entered or to be entered with the concerned company or its subsidiary company or comes to his/her knowledge that such interest will be so linked, that director shall disclose that matter to the company promptly, setting out the extent and kind of such interest.(5) If any director gives written information to the company that he be considered to have his/her personal interest in a transaction with any certain person, that director shall be deemed to have disclosed his/her personal interest in any transaction or contract to be done or made with such person.

93. Transaction with company in which director is involved: (1) Except as otherwise provided this Section, no public company shall, without approval of the general meeting, do any significant transaction with its director or his/her close relative or substantial shareholder or no subsidiary company shall, without approval of the general meeting of its holding company, do any significant transaction with any director or his/her close relative or substantial shareholder of the holding company.Explanation : For the purposes of this Section, “significant transaction” means a transaction of sale, purchase, exchange and contract the value of which, at the time of doing the transaction, exceeds one hundred thousand rupees or five percent of the total assets of the company, whichever is the lesser, and this term also includes a rental transaction amounting to one hundred twenty thousand rupees or more annually.(2) If any transaction is done in contravention of Sub-section (1), any amount or benefit derived from that transaction directly or indirectly shall be returned to the company; and if any loss or damage is caused from such transaction to the company, the person deriving benefit from such transaction shall also pay compensation for such loss or damage.(3) Notwithstanding anything contained elsewhere in this Section, the provision of Sub-section (1) shall not apply to the in-kind property acquired as follows:(a) While acquiring such property by a holding company from its wholly owned subsidiary company;(b) While acquiring such property by a subsidiary company wholly owned by a holding company from another subsidiary company wholly owned by the same holding company;(c) While doing transaction at the prevailing market price in the ordinary course of business transaction of the company.CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

94. Directors to make disclosure in shares : (1) If a person, while holding the office of director, acquires title to any shares or debentures of the company or of a company which is a subsidiary or holding company of that company or of another subsidiary company of the holding company, in any manner, that person shall give information as follows on that matter to the company:(a) Details of his/her title;(b) Number of shares of each class in the concerned company or another company to or in which he/she has title or interest while holding the office of director and details of amount of debentures of each class.(2) If the following situation occurs, any director of a company shall give written information thereof to the company in which he/she is a director no later than fifteen days after such situation comes to his/her knowledge: (a) If, for any reason, he/she is going to acquire title to any shares or debentures of the company in which he/she is a director or of a company which is a subsidiary or holding company of that company or of another subsidiary company of the holding company, in any manner , or he/she is going to lose his/her title;(b) If he enters into an agreement to sell the shares or debentures, as referred to in Clause (a), held in his/her name;(c) If he/she assigns to any other person the authority granted by the company in which he is a director to him/her to subscribe the shares or debentures of such company;(d) If a company which is a subsidiary or holding company of the company in which he/she is a director or another company which is a subsidiary of such company or other subsidiary of the holding company grants authority to him/her to subscribe the shareholders or debentures of such company;(e) If he assigns to any other person the authority to subscribe the shares or debentures or the company as referred to in Clause (d).(3) While forwarding information to the company pursuant to Subsection(2) such information shall also clearly set out the number of shares or debentures, amount and class thereof.(4) The company shall maintain a separate register to record the information receive pursuant to Sub-section (2) and (3).(5) The provisions contained in this Section shall also apply to the close relative of a director as if such relative were a director.

95. Powers and duties of board of directors : (1) Subject to the provisions contained in this Act and the articles of association and the decisions of the general meeting, the directors shall manage all transaction, exercise of powers and perform duties of the company through the board of directors collectively.(2) Except in accordance with a decision of the general meeting no director of a public company shall do anything yielding personal benefit to him/her through the company.Provided, however, that a private company may make a reasonable provision on the benefit which the director may derive thought the company, as mentioned in the memorandum of association and articles of association or consensus agreement.(3) Except as otherwise provided in this Act, the memorandum of association and articles of association or the consensus agreements, the case of a private company, the board of directors may appoint any director from amongst themselves or any employee of the company as its representative and so delegate to him/her any or all of its powers, inter alia, to do any act or thing, make correspondences or sign bills of exchange or cheques etc. On behalf of the company that such powers are to be exercised individually or jointly. In so delegating the powers, at least one director and their company secretary, if any, shall certify such delegation, pursuant to a decision of the board of directors.CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

(4) A company may recover damages from a person acting in the capacity of director or representative of the company for any loss or damage caused to the company from any act or action done by such person beyond his/her jurisdiction.(5) If any person enters into any transaction with the director or with a representative as referred to in Sub-section (3) despite the knowledge or having reason to believe that such director or representative is dealing with any transaction for his/her personal interest or for causing loss or damage to the company, such person shall not be entitled to make any claim against the company in respect of such transaction.(6) Notwithstanding anything contained in Sub-section (3), the board of directors shall not delegate the following powers conferred to the company and shall exercise such powers only by means of resolutions passed at meetings of the board of directors :(a) The power to make calls on shareholders in respect of amount unpaid on their shares;(b) The power to issue debentures;(c) The power to borrow loans or amount otherwise than on debentures;(d) The power to invest the funds of the company;(e) The power to make loans.(7) The provision of Clause(e) of Sub-section(6) shall not apply to loans to be let and deposits to be received in the ordinary course of business transaction by the companies carrying on banking and financial business.(8) If the board of directors considers necessary to form a subcommittee for the discharge of any specific business, it may form one or more than one sub-committee as required and get such business discharged.

96. Appointment of managing directors, and management of company : (1) The directors may, subject to the articles of association, appoint one managing director from amongst themselves.(2) The functions, duties and powers of the managing director shall be as mentioned in the articles of association or as prescribed by the board of directors.(3) While appoint a managing director and other director talking responsibility of the management of the company pursuant to Sub-section (1), there shall be entered into an agreement in writing stipulating the terms of appointment, remuneration and facilities; and no facilities or payment other than the remuneration and facilities specified in such agreement and any other facilities receivable as specified by the general meeting shall be provided or made.(4) The term of agreement as referred to in Sub–section (3) shall not exceed four years at a time.(5) There shall be made such arrangement that the shareholders can inspect, free of charge, the agreement entered into with the directors pursuant to Sub-section (3).(6) A director who is receiving regular remuneration or facilities, other than meeting allowances, from any one listed company shall not be appointed to the post of managing director in another listed company, with entitlement to regular remuneration or facilities.

97. Meetings of board of directors : (1) Meetings of the board of directors of a private company shall be held as mentioned in the articles of association. (2) Meetings of the board of directors of a public company shall be held at least six times in a year.

Provided, however, that the interval between any two meetings shall not exceed three months.(3) The directors shall be present in personal meetings of the board of directors of a company. The presence of the proxy of a director in his/her stead shall not be held valid.


(4) No meeting of the board of directors shall be held unless it is attended by at least fifty one per cent of the total number of directors of the company.Provided, however, that any director who is not entitled to take parting any matter to be discussed in a meeting of the board of directors under this Act shall not be counted for the purposes of this subsection.(5) If a meeting of the board of directors cannot be held because of the lack of presence of directors in the number mentioned in Sub-section (4), another meeting may be called by giving a notice of at least three days. Even if such meeting is not attended by the directors in the number mentioned in Subsection(4), the proceedings and decisions conducted and made by the attending directors shall be valid.(6) The decision of a majority in a meeting of the board of directors shall be binding, and in the event of a tie, the Chairperson may exercise the casting vote, in addition to a vote cast by him/her as a director.Provided, however, that any director who has any personal concern or interest in any matter to be discussed in a meeting of the board of directors shall not be entitled to take part in such discussion and vote on the matter.(7) Minutes regarding the names of directors present in the meeting of board of directors, the subjects discussed and the decisions taken thereon shall be recorded in a separate book, and such minute book shall be signed by at least fifty one per cent of the total directors present in the meeting.

Provided, however, that, if any director puts forward any opinion opposed too or differing from the decision in the course of discussions on any subject in a meeting, he/she may mention the same in the minute book .(8) Any decision shall not be deemed invalid merely for the reason that there is no signature of any member.(9) Notwithstanding anything contained in Sub-section (3), (4), (5) and (6),except in the cases that are so expressly prohibited by them memorandum of association or articles of association, if all the members of the board of directors or a sub-committee of directors so consent in writing in regard to any act or resolution permitted to be done or adopted by the board of directors or such sub-committee, such act may be done even without holding a meeting by recording such consent in the minute book.(10) The consent referred to in Sub-section (9) shall be deemed to be a decision of a meeting of board of directors.

98. Notice of meeting of board of directors : (1) Except as otherwise provided in the articles of association of a company, the company secretary or Chairperson of the board or chief executive of the company shall call a meeting of the board of directors of the company.(2) Notwithstanding anything contained in Sub-section (1) if at least twenty five per cent directors of the total number of directors make written requisition, setting out the subject to be discussed in the meeting, for calling the meeting of the board of directors, the Chairperson shall call the meeting of the board no later than seven days of the receipt of such requisition. If the meeting of the board of directors is not called within that period, such requisition making directors themselves may call the meting of the board of directors.(3) The matters about the notice of a meeting of the board of directors shall be as provided in the articles of association of the company. Failing such provision, a written notice of the meeting of board of directors and agenda thereof shall be sent to every directors at the address supplied by him/her to the company; and such notice may also be given through any electronic means of communication.


99. Responsibilities and duties of directors : (1) No director or of a company shall do anything to derive personal benefit through the company or in the course of conducting business of the company.(2) If any person has derived personal benefit in the course of business of the company in contravention of Sub-section (1), the company shall recover the amount involved in the matter from such director as if such amount were a loan.(3) Any person appointed as a director of a public company shall, prior to assuming the duties of his/her office, take an oath of secrecy and honesty in a format as prescribed.(4) Every director and officer of a company shall, in discharging their duties, act honestly and in good faith, having regard to the interest and benefit of the company, and exercise such care, caution, wisdom, diligence and efficiency as a reasonable and prudent person exercises.(5) The company may recover damages for any loss or damage caused too the company from a director who does any act with ulterior motive, causing such loss or damage to the company, in contravention of Sub-section (4).(6) It shall be the duty of every director to comply with this Act, memorandum of association, articles of association of the company and the consensus agreement.

100. Disclosure about securities : (1) In the event that the shares or debentures of a company are listed in a body operating the stock exchange, after the director has made disclosure to the company about the shares or debentures of such company pursuant to Section 94, the company shall promptly give information thereof to such body.(2) Such body shall publish the information received pursuant to Subsection (10) in such manner as it thinks fit.

101. Prohibition on loans to officers or shareholders: (1) No company shall make any loan or provide any financial assistance to its officer, substantial shareholders or officer, shareholder of a holding company or a close relative of such person nor shall it give any guarantee or provide security in respect of any loan borrowed by such officer or shareholder or close relative from any other person.

Provided, however, that this provision shall not apply to any loan or facility to be made or provided to any employee of a company in accordance with the rules of the company or to any loan made or guarantee given by any bank or financial institution in the ordinary course of business transaction, except as prohibited by the prevailing law.(2) Any person mentioned in Sub-section (1) shall repay any loan, which was borrowed by him/her prior to the commencement of this Act, no later than 22 Ashwin 2065 (8 December 2008).

102. Prohibition on giving false statements by officers : If any officer, knowingly giving false statements in a general meeting of a company, about the actual financial situation of the company, encourage to distribute higher dividend to the shareholders of the company than that can be distributed from the profits, thereby affecting the capital of the company, the officer giving such false statements shall be personally liable for such act.

103. Transaction with other person and jurisdiction of company : (1) No transaction done by a company with another person shall be void or invalid merely on the ground that such transaction is beyond jurisdiction based on any matter contained in the memorandum of association of the company.(2) It shall be the duty of every director and officer to do such transaction within the ambit of jurisdiction specified in the memorandum of association of the company


(3) Except in the case mentioned in Sub-section (1), any act or transaction done by a director beyond the authority conferred to him/her may be rectified by the company by adopting a special resolution in its general meeting.(4) No director, officer or other person of the company shall be deemed to have been released from any liability under this Act for any act done or action taken by him/her beyond jurisdiction merely on the ground that any act or transaction has been ratified by a special resolution pursuant to Subsection(3).

104. Company to be bound : (1) Any act done or action taken by or document signed by at least one director authorized by a company or any person authorized to act for the company shall be valid and binding for the company. (2) where any person does any transaction with a company in good faith, such transaction shall be binding for the company; and nothing contained in memorandum of association, articles of association of the company or in any resolution adopted by the general meeting or in any agreement concluded between the company and its shareholder shall be deemed to have made any limitation in or restriction on the authority of the director or the authorized person to do such transaction.Provided, however, that if any officer does any act or transaction mentioned in Sub-section (1) or (2) in excess of his/her authority, such officer shall be personally liable for such act or transaction unless such authority is ratified by the general meeting pursuant to this Act; and the company may also recover from him/her the loss or damage, if any caused to the company from such act or transaction.

105. Restrictions on authority of directors : (1) The board of directors of a public company, or of a private company receiving loans from any bank or financial institution, shall not, except with a special resolution being adopted by the general meeting of shareholders, do or cause to be done the following act:(a) selling, donating, gifting, leasing or otherwise disposing of more than seventy per cent of one or more undertakings being operated by it;(b) borrowing moneys, where the moneys to be borrowed will exceed the aggregate of the paid up capital of the company and its free reserves, apart from any loans and faculties with a term of less than six months obtained by it from a bank or financial institution in the ordinary course of business transaction;(c) making a contribution, donation or gift in a sum exceeding fifty thousand rupees in one financial year or a sum exceeding one per cent of the average net profits of the company during the last three financial years, whichever is the lesser, except the contribution, donation, gift etc. made for the welfare of its employees or for the promotion of its business. Provided, however, that:(i) Nothing contained in Clause (a) shall affect the title of a buyer who buys any property or undertaking of a company on payment of the prevailing market price from a company which is solely engaged in the business of buying and selling of movable and immovable properties.(ii) The provision of Clause (b) shall not be applicable to the acceptance by a company carrying on banking or financial transaction or insurance business of deposits or insurance premium from the general public in the ordinary course of its business transaction.(2) The general meeting may specify appropriate terms and conditions while giving approval for the purposes of Sub-section (1).

106. Validity of acts already done : If it is afterwards discovered that any provision under this Act has not been complied with in respect of the appointment of any director, acts already done by such director him/her before the discovery of such fact shall not be rendered invalid by that fact.CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

107. Registers of director and company secretary(1) Every company shall maintain a separate register of director and of company secretary, if any.(2) Every company shall record the name, surname, address, citizenship, profession, occupation of its director or secretary, and the date of appointment as director or secretary as well as the date of removal, if applicable, in the register maintained pursuant to Sub-section, (1), and shall send a notice of the alteration, if any, made in such detail within fifteen days.

Chapter 7Accounts and Records of company

108. Accounts of company : (1) Every company shall duly maintain its accounts in the Nepali or the English language.(2) The accounts to be maintained under Sub-section (1) shall be maintained according to the double entry system of accounting and in consonance with the accounting standards enforced by the competent body under the prevailing law and with such other terms and provisions required to be observed pursuant to this Act, in such a manner as to clearly reflect the actual affairs of the Company.(3) The books of account of a company shall not be kept at any place other than its registered office, except with the approval of the Office.(4) The cash balance of a company, other than the amount specified by the board of directors, shall be deposited in a bank and transaction shall be done through the bank.(5) Subject to the provisions contained in this Chapter, the directors or other officers shall have the final responsibility to maintain books of account and records of the company.(6) Where there is a default in complying with the provisions made in this Act in respect of the preparation of books of account and annual financial statements of a company, the director or officer him/herself, during whose tenure the annual financial statements and other reports have been prepared, shall be responsible under this Act.

109. Annual financial statement and report of board of directors : (1) The following annual financial statements shall be prepared by the board of directors of a public company every year at least thirty days prior to the holding of its annual general meeting, and in the case of a private company, within six months of the expiry of its financial year:(a) Balance sheet as at the last date of the financial year.(b) Profit and loss account of the financial year.(c) Description of cash flow of the financial year.(2) This annual financial statement to be prepared pursuant to Subsection(1) shall give true and fair view of the state of affairs of the company as at the last day of the financial year concerned and also state the account of profit and loss and description of cash flow made in that financial year. Such financial statements shall be prepared in the format prescribed by the prevailing law.(3) The annual financial statements as referred to in Sub-section (1)shall have to be approved by the board of directors and audited.(4) The board of directors of every public company or every private company with the paid –up capital of ten million rupees or more or with an annual turnover of ten million rupees or more shall also prepare a separate report of board of directors during that period stating the following matters, in addition to the annual financial statements required to be prepared pursuant to Sub-section (1):(a) Review of the transactions of the previous year;


(b) Impacts, if any, caused on the transactions of the company from national and international situation;(c) Achievements in the current year as at the date of report and opinions of the board of directors on matters to be done in the future;(d) Industrial or professional relations of the company;(e) Alterations in the board of directors and the reasons therefore;(f) Major things affecting the transactions;(g) If there are any remarks in the audit report, the comments of the board of directors on such remarks;(h) Amount recommended for payment by way of dividend;(i) In the event of forfeiture of shares, details regarding the number of forfeited shares, face value of such shares, total amount received by the company for such shares prior to the forfeiture thereof, proceeds of sale of such shares after the forfeiture thereof, and refund of amount ,if any, made for such forfeited shares;(j) Progress of transactions of the company and of its subsidiary company in the previous financial year and review of the situation existing at the end of that financial year;(k) Major transactions completed by the company and its subsidiary company in the financial year and any material changes taken place in the transactions of the company during that period;(l) Disclosures made by the substantial shareholders of the company to the company in the previous financial year;(m) Details of shareholding taken by the directors and officers of the company in the previous financial year and, in the event of their involvement in share transaction of the company, details of information received by the company from them in that respect;(n) Details of disclosures made about the personal interest of any director and his/her close relative in any agreements related with the company during the previous financial year;(o) In the event that the company has bought its own shares (buy-back), the reasons for such buy-back, number and face value of such shares, and amount paid by the company for such buy-back;(p) Whether there is an internal control system in place or not; and details of such system, if it is in place;(q) Details of total management expenses during the previous financial year;(r)Name-list of the members of audit committee, remuneration, allowances and facilities received by them, details of the functions performed by that committee, and details of suggestions, if any, made by that committee;(s)Amount, if any, outstanding and payable to the company by any director, managing director ,chief executive, substantial shareholder or his/her close relative or by any firm company, corporate body in which he/she is involved;(t)Amount of remuneration, allowances and faculties paid to the director, managing director, chief executive and officer;(u) Amount of dividends remaining unclaimed by the shareholders;(v) Details of sale and purchase of properties pursuant to Section 141;(w) Details of transactions carried on between the associated companies pursuant to Section 175;(x) Any other matters required to be set out in the report of board of directors under this Act and the prevailing law;(y) Other necessary matters.CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

(5) While preparing the annual financial statements pursuant to Subsection (1), such statement shall also contain, in the case of the year of incorporation of the company, the accounts from the date of its incorporation to the last day of that financial year, and thereafter, the accounts of the previous financial year.(6) The annual financial statements prepared pursuant to this Section shall be kept open for inspection by any shareholder, if he/she so desires.(7) The annual financial statements and the report of board of directors prepared pursuant to this Section shall be approved by the board of directors and signed by the Chairperson of the board of directors and at least one director.(8) The accounts and annual financial statements prepared by a company pursuant to this Chapter shall be kept safely for at least five years after the date of expiry of the financial year concerned.(9) The officers who prepare any false annual financial statements, reports of board of directors and other returns and reports required to be prepared pursuant to this Act and the directors who approve the same shall be liable to punishment under this Act.

Chapter 8Audit

110. Company to appoint auditor (1) Every company shall appoint an auditor under this Act to have its accounts audited.(2) In cases where any company has a branch office outside Nepal, the auditor appointed pursuant to sub-section (1) may also audit the accounts of that branch office except as otherwise provide in the prevailing law of the country where such branch office is situated.

111. Appointment of auditor(1) The auditor of accompany shall be appointed, from amongst the auditors licensed to carry out audit under the prevailing law, by the general meeting, subject to Chapter-18 ,in the case of a public company, and, in accordance with the provision as contained in the memorandum of association, articles of association or consensus agreement, any failing such provision, by the general meeting, in the case of a private company; and his/her name shall be forwarded to the Office within fifteen days from the date of such appointment.Provided, however, that the board of directors may appoint the auditor prior to the holding of the first annual general meeting,(2) The auditor appointed pursuant to Sub-section (1) shall hold office only until the next annual general meeting.(3) No auditor or his/her partner or ex-partner or employee or ex-employee shall be appointed as auditor for more than three consecutive terms to perform the audit of a public company.Provided, however, that this restriction shall not apply to any partner who ended partnership or any employee who left the service of such auditor three years before.

112. Disqualifications of auditor (1) None of the following persons or the firms or companies in which such persons are partners shall be qualified for appointment as auditor and shall, despite appointment as auditor, continue to hold office:(a) A director, advisor appointed with entitlement to regular remuneration or cash benefit, a person or employee or worker involved in the management of the company or a partner of any of them or an employee of any of such partners or a close relative of a director or partner, out of them, or an employee of such relative;


(b) A debtor who has borrowed moneys from the company in any manner, or a person who has failed to pay any dues payable to the company within the time limit and is in such arrears or close relative of such person;(c) A person who has been sentenced to punishment for an offense pertaining to audit and a period of Three years has not elapsed thereafter;(d) A person who has been declared insolvent;(e) A substantial shareholder of the company or a shareholder holding one percent or more of the paid up capital of the company or his/her close relative;(f) A person who has been sentenced to punishment for an offense of corruption, fraud or a criminal offense involving moral turpitude and a period of five years has not elapsed thereafter;(g) A person referred to in Sub-section (3) of Section 111;(h) In the case of a public company, any person who works, whether full time or part time, for any governmental body or anybody owned fully or partly by the Government of Nepal or any other company or a partner of such person or a person who is working as an employee of such partner or a person who is authorized to sign any documents or reports to be prepared by the management of the company;(i) A company or corporate body with limited liability;(j) A person having interest in any transaction with the company or his/her close relative or a director, officer or substantial shareholder of another company having any interest in any transaction with the company.(2) The auditor shall, prior to his/her appointment, give information in writing to the company that he/she is not disqualified pursuant to Subsection (1).(3) Where any auditor becomes disqualified to audit the accounts of a company or there arises a situation where he/she becomes disqualified for appointment or can no longer continue to act as an auditor of the company, he/she shall immediately stop performing audit which is required to be performed or is being performed by him/her and give information thereof to the company in writing.(4) The audit performed by an auditor who has been appointed in contravention of this Section shall be invalid.

113. Power of Office to appoint auditor : Where the annual general meeting of a company fails to appoint an auditor for any reason or where the annual general meeting itself cannot be held or where the auditor appointed pursuant to this Act ceases to continue his/her office for any reason, the Office may, at the request of the board of directors of the company, appoint another auditor.

114. Accounts and records to be furnished : The books of accounts and records of a company shall on his/her demand, at any time during office hours be furnished to the auditor for the purposes of audit; and the concerned director or employee shall also forthwith give oral explanations on such matter as may be asked by him/her, within a reasonable period of time.

115. Functions and duties of auditor : (1) The auditor shall, addressing the shareholders or the appointing authority, submit to the company his/her report, certifying the balance sheet, profit and loss account and cash flow statement based on the books of account, records and accounts audited by him/her.(2) The audit report shall be prepared in accordance with the prevailing law or in consonance with the audit standards prescribed by the competent body; and such report shall state the matters to be set out under this Act, as per necessity.(3) The audit report as referred to in Sub-section (2) shall also indicate the following matters, inter alia:(a) Whether such information and explanations have been made available as were required for the completion of audit;CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

(b) Whether the books of account as required by this Act have been properly maintained by the company in a manner to reflect the real affairs of its business;(c) Whether the balance sheet, profit and loss account and cash flow statements received have been prepared in compliance with the accounting standards prescribed under the prevailing law and whether such statements are in agreement with the books of account maintained by the company;(d) Whether, in the opinion of the auditor based on the explanations and information made available in the course of auditing, the present balance sheet properly reflects the financial situation of the company, and the profit and loss account and cash flow statement for the year ended on the same date properly reflect the profit and loss, cash flow of the company, respectively;(e) Whether the board of directors or any representative or any employee has acted contrary to law or misappropriated any property of the company or caused any loss or damage to the company or not;(f) Whether any accounting fraud has been committed in the company(g) Suggestion, if any.

116. Audit report to bear auditor’s signature : (1) An audit report prepared by the auditor appointed by any company this Act shall be signed and dated by the auditor him/herself.(2) Whether any company has appointed any accounting institution licensed under the prevailing law to carry out audit, the member who has been authorized by a decision of the partners of such institution shall sign and date the audit report.117. Information to be provided : The Company shall, subject to the provisions contained in this Act, send a copy of the report made by the auditor to the shareholders. Whether there is a provision of formal trade union in such company, the company shall, at the request in writing of such trade union, provide one copy of such report to that trade union.

118. Remuneration of auditor : The remuneration of an auditor shall be as prescribed by the appointing authority; and such remuneration shall be borne by the company.

119. Provision relating to removal of appointed auditor : (1) No auditor appointed pursuant to this Chapter shall be removed pending the completion of audit of accounts of any financial year for which he/she was appointed as the auditor. (2) Notwithstanding anything contained in Sub-section (1) , if any auditor breaches the code of conduct of auditors or does any act against the interest of the company which has appointed him/her as the auditor or commits any act contrary to the prevailing law, such auditor may be removed through the same process whereby he/she was appointed as auditor, by giving prior information to the Nepal Chartered Accountants Institute, and with the approval of the regulatory authority, if any authorized by the prevailing law for the regulation of business of the company concerned , and failing such authority, with the approval of the Office.(3) While removing an auditor pursuant to Sub-section (2), the auditor shall be provided with a reasonable opportunity to defend him/herself.


Chapter 9Call for Explanation and Investigation

120. Power of Office to call for explanation : (1) Where any matter is unclear in the documents submitted by a company, and such matter has to be set out or any explanation is necessary in respect of any matter, the Office may call on the company to furnish explanation on such matter within such reasonable period of time as specified by it.(2) The management of the company shall, within the specified period of time, send proper replies the specified period of time, sent proper replies to the matters with respect to which explanation has been called on pursuant to Sub-section(1).(3) If, in the course of perusing explanation, the Office notices any irregularity in the business of a company, it may give necessary directive to the company to regularize, or cause to be regularized, it, and it shall be the duty of the company to obey such directive.

121. Power of Office to depute inspector : If the shareholders representing not less than ten percent of the paid up capital or not less than one –fourth of the total number of shareholders of the company or the concerning creditors make an application, accompanied by the supporting evidence and reasonable grounds, stating that the company has acted in contravention of this Act, the memorandum of association, articles of association, prospectus, consensus agreement or prevailing law, the Office may, as per necessity, depute one or more inspectors. Such inspector shall be an expert in any of the subjects viz. accounts, law, finance, management, commerce, industry or company administration or any business which a company carries on the applicant shall deposit with the Office such amount of estimated cost required for such investigation as specified by the Office.(2) Notwithstanding anything contained in Sub-section (1), where the Office is of opinion that the following circumstance does exist, it may, as per necessity, even if no application is made pursuant to Sub-section (1), appoint an inspector in possession of the qualification referred to in Sub-section (1), to investigate the transactions or business of any company:(a) on the receipt of information that the business or transaction of the company is being carried on to defraud the shareholders or creditors of the company or otherwise for a fraudulent or illegal purpose or it is carrying out acts against public interest; or(b) any public company has not furnished such information about its transactions as is required to be furnished.

122. Functions, duties and powers of inspector : (1) The functions, duties and powers of the inspector deputed or appointed pursuant to Section 121 shall be as follows:(a) in course of investigation, to require those officers or shareholders or the company, where existing or former, whom he/she considers appropriate, or any other persons who are considered to have information relevant to the matter into which investigation is to be carried to appear before him/her and to record their statements; to obtain necessary information or other reasonable assistance;(b) to inspect the documents which are relevant for the purposes of investigation, or to seize or control any other things, or require any concerned person to produce such documents or things to him/her, or to take custody of such documents;(c) To investigate, or cause to be investigated, into whether the books of account of the company have been kept proper.


(2) Notwithstanding anything contained in the periling law, any matter or deposition expressed or made by any person before the inspector in the course of investigation pursuant to this Chapter shall be admissible as an evidence against that person.

123. Assistance to be rendered to inspector : (1) If any person makes a false deposition, fails to produce such statements or documents or other things as required to be submitted under Section 122 or fails to answer any question asked which is put to him/her by the inspector or fails to provide such information as asked by the inspector for the purposes of investigation, the inspector may file a complaint report in writing in the Court.(2) On receipt of a report under Sub-section(1), the Court may, if, on necessary inquiry made into the matter under the prevailing law, any person is found guilty, impose such punishment on that person as it considers appropriate under Section 162.

124. Report to be submitted : (1) The inspector appointed pursuant to this Chapter shall, on conclusion of the investigation, submit a report, accompanied by his/her opinions, to the Office. The Office shall give a copy of such report to the applicant if any shareholder makes an application to get a copy of such report, the office shall issue a copy thereof to him/her, by collecting the prescribed fees.(2) If, from any report made by the inspector under Sub-section (1), It appears to the Office that any directors, managing directors, managers, employees or any other officers of the company have knowingly caused any loss or damage to the company or have defrauded, cheated the shareholders or creditors or committed any other illegal acts, the Office shall, notwithstanding anything contained in the prevailing laws, order the company to file a lawsuit on behalf of the company against them.(3) Where the Office thinks that the company may suffer further loss or damage if its business is left further in the hand of directors, managing directors, managers, employees or any other officers who have committed any act as referred to in Sub-section (2), the Office may give necessary direction to the company to suspend such directors managing directors, managers, employees or officers and carry on its business through any other means.(4) Notwithstanding anything contained in the prevailing law on evidence, any matter contained in and any fact expressed in a report submitted by an inspector pursuant to Sub-section(1) shall be admissible as an evidence.

125. Expenses of investigation : (1) The expenses incurred in an investigation carried out by the Office pursuant to this Chapter shall be borne by the concerned company.Provided, however, that if, in the course of carrying out investigation, any director, managing director, manager or officer of a company appears to committed a malice, deception, fraud or cheating, such director, managing director, manager or officer shall pay the expenses of investigation no later than seven days of the completion of investigation.(2) If the concerned director, managing director, manager or officer does not pay the expenses of investigation pursuant to the expenses of investigation pursuant to the proviso to Sub-section(1), the expenses shall be recovered as governmental dues.(3) An inspector appointed pursuant to this Chapter may give suggestion in his/her report as to the payment of expenses.


Chapter 10Voluntary Liquidation of Company

126. Liquidation of company able to pay its debts : (1) Expect in case where a company has become insolvent in accordance with the prevailing law on insolvency, the shareholders of the company may liquidate the company either by adopting a special resolution in the general meeting or memorandum of association, articles of association or consensus agreement.(2) A company may be liquidated under this Act in the following circumstance:(a) If the company is able to pay its debts or other liabilities in full;(b) If there exists no situation where an application for the review of insolvency of the company is pending under the prevailing law on insolvency or where the company would be in any manner subject to an insolvency proceeding under the prevailing law on insolvency;(c) If the directors of the company, have, after due inquiry, made a declaration in writing that the company is able to pay its debts and other liabilities in full and that the debts and liabilities to be paid on behalf of such company can be paid up or can be fully settled in any other process within one year from the date of the adoption of the resolution to liquidate the company;(d) If the written declaration made by the directors pursuant to Clause (c) was presented in the general meeting called to discuss the matter of liquidation of the company or such declaration was made at the time of discussions on that matter in the general meeting.(3) A copy of the special resolution adopted with respect to the liquidation of a company pursuant to this Section and a written declaration of directors shall be submitted to the Office in later than seven days after the date of adoption of the resolution.

127. Appointment of liquidator and auditor : (1) While adopting a resolution to liquidate a company pursuant to Section 126, the company shall appoint a liquidator.(2) While appointing a liquidator pursuant to Sub-section (1), a practitioner licensed under the prevailing law on insolvency shall be appointed as liquidator to conduct the liquidation proceedings and fix remuneration receivable by such liquidator.(3) The company shall give information of the appointment of a liquidator pursuant to Sub-section (2) to the Office no later than seven days after the date of such appointment.(4) After a liquidator is appointed pursuant to Sub-section (2), the directors and officers of the company shall relieved of their office and the liquidator shall exercise all such powers with respect to the operation and management of company as may be exercisable by the directors and officers of the company.(5) The service of employees of a company shall, ipso facto, be terminated after the liquidator commences the operation and management of the company pursuant to Sub –section (4).Provided, however, that the liquidator may retain or appoint necessary employees for his/her support and assistance.(6) The liquidator appointed pursuant to this Section shall complete the liquidation proceedings of the company within the period of time specified at the time of his/her appointment.Provided, however, that in the case where the liquidation proceedings cannot be complete for any reason within the specified period of time, a reasonable time limit may be extended by following the same procedure as followed in his/her appointment.


(7) While appointing a liquidator pursuant to Sub-section (1), an auditor shall also be appointed subject to provisions contained in this Act.

128. Application of prevailing law on insolvency : While liquidating a company under this Chapter, the issue of whether any person is a creditor of a company in liquidation shall be determined in accordance with the prevailing law on insolvency.

129. Application to be made in the event of inability of company to pay liabilities: If, after the liquidator has commenced proceedings of liquidation of accompany under this Chapter, he/she is satisfied that the company is insolvent and is not able to pay debts required to be paid or discharge liabilities required to be discharged in full he/she shall make an application to have a review of insolvency of the company in accordance with the prevailing law on insolvency.

130. Power of liquidator too take into custody and under control property of company : After a liquidator has commenced his/her act, the liquidator shall take into his/her custody and under his/her control all property, accounts and all records and documents of the company.

131. Powers and duties of liquidator : (1) The liquidator appointed under this Act shall, mutatis mutandis, exercise and perform all the powers and duties which may be exercised and performed by a liquidator under the prevailing law on insolvency.(2) It shall be the duty of the liquidator to do the following acts, without prejudice to the generality of Sub-section (1):(a) To prepare and submit to the office, the statements and accounts of incomes and expenditures in the course of liquidation in every six months after the appointment of the liquidator;(b) To inform the shareholders of the company about the progress on the liquidation proceedings in every six months after the appointment of the liquidator;(c) To obtain and recover all properties or amounts required to be obtained and recovered on behalf of the company and repay and discharge the debts and other liabilities of all the creditors of the company;(d) Following the completion of the act as referred to in Clause (c) , to call the general meeting of shareholders and present therein a proposed report and return on the distribution of the remaining properties of the company to the shareholders;(e) If the shareholders holding at least seventy five per cent of the paid up share capital consent to the return as referred to in Clause (d), to make payment of amounts to the shareholders accordingly;(f) At the completion of liquidation proceedings, to prepare a report on the properties recovered, payments made to the creditors and distributions made to the shareholders, on behalf of the company, and submit such report, certifying that the company has been liquated, accompanied by the auditor’s report, to the Office.

132. Cancellation of registration of company : (1) Upon receipt by the Office of a report on the liquidation of a company pursuant to Clause (f) of Sub-section (2) of Section 131, the Office shall strike the name of the company off the company register and issue an order that the registration of the company has been canceled.(2) After the issue of an order on the cancellation of registration of a company pursuant to Sub-section (1), the Office shall strike the name of such company off the company register and publish in a national daily newspaper a notice that such company has been dissolved.


(3) Notwithstanding contained anything in this section, liquidator appointed as per Insolvency Act, 2063, shall send to the office regarding the information completion of cancellation process of the cancel such company.(4) Upon receiving the information pursuant to Sub-section (3) the office, shall keep record of cancellation such company and after such recordthe company shall deemed to be cancelled.

133. Power of creditor and shareholder to make complaint: If any creditor or shareholder of a company thinks that there is any irregularity in respect of any act or action of the liquidator, while liquidating the company pursuant to this Chapter, such creditor or shareholder may make a complaint to the court against such act or action within fifteen days of the receipt of information thereof .

134. Action to be taken in cases of fraud or deception : If a liquidator thinks that any director, employee or shareholder of a company has committed a fraud or deception against the company, the liquidator may take necessary legal action against such person in accordance with the prevailing law.

135. Right of secured creditors not to be affected : The commencement of liquidation proceedings of a company pursuant to this Chapter shall not be deemed to prejudice in any manner the right of the secured creditors who have lent moneys against the security of any property of the company to enforce or otherwise deal with such secured property under the prevailing law.

Chapter 11Cancellation of Registration of Company

136. Power of Office to cancel registration: (1) The Office may cancel the registration of a company in the following circumstance:(a) If the promoter of the company makes an application, showing a reason for the failure to commence the business of the company, and accompanied by the prescribed fees, for the cancellation of the registration of the company:(b) If the company is in default in submitting to the Office the returns as referred to in Section 80 or fails pay the fine as referred to in Section 81 for three consecutive financial years; or(c) If based on the proofs received in the course of administration of the company, the Office has a reasonable ground to believe that the company is not carrying on its business or the company is not in operation.(2) If it is required to cancel the registration of any company pursuant to Sub-section (1), the Office shall, prior to the cancellation of registration, give a notice, accompanied by the reason for such registration, to the concerned company.(3) While sending a notice to a company pursuant to Sub-section (2), the notice shall be sent to the company at its registered office or to any office or such company if the address of the registered office of such company is not registered with the Office or if the office of the company is not located at the address registered and to the memorandum of association of the company if even address of such officer is not available to the Office or is not known.(4) A notice given pursuant to Sub-section (2) shall also be published in a national daily newspaper, as per necessity.(5) If the company fails to make an application, specifying the reasons that the registration of the company should not be canceled, within two months from the date of receipt by the company of a notice pursuant to Sub-section (2) or, despite the making of such application, the reasons specified are not found reasonable, the registration of such company may be canceled.


(6) If the registration of a company is canceled pursuant to Sub-section (5), information thereof shall be given to the concerned directors and shall also be published in a national daily newspaper.(7) If the registration of a company is canceled pursuant to Sub-section (5), if there exists any kind of liability of the company, the liability of the officer or shareholder of the company shall continue to exist; and nothing contained in this Section shall be deemed to bar the instituting of necessary legal action against them to have such liability fulfilled.(8) The assets, rights, benefits or liabilities held in the name of the company at the tine of cancellation of its registration pursuant to Sub-section (5) shall devolve on its shareholders in the proportion of their shareholding.Provided, however, that the title and ownership of any property which has been held by the company as a trustee in favor of any other person shall to devolve on the shareholders.(9) If any debt to be repaid by or any liability to be performed/discharged by the company of which registration has been canceled pursuant to this Section cannot be settled from the assets, rights, or benefits devolved on the shareholders pursuant to Sub-section (8), the shareholders, directors or officers who were involved in the management of such company and responsible for giving rise to the situation as referred to in Sub-section (1) shall personally bear such remaining loan or liability.(10) A company of which registration is canceled pursuant to this Section shall not be allowed to carry on any business by the name of the same company.(11) Following the cancellation of registration of any company pursuant to this Section, the Office shall return to the shareholders only such property, if any, remaining after deducting there from the expenses incurred in the cancellation of the registration of that company.

137. Restoration of registration of company of which registration was canceled: (1) In the case of cancellation of the registration of a company pursuant to Subsection (5) of Section 136, where the company or its shareholder or creditor makes a petition, setting out the reasons, to the Court to have the company restored, no later than five years after the date of publication of the notice of cancellation of registration of the company, the Court may, if the following circumstance, order to restore the company and restore its name in the company register:(a) If it appears that the registration of the company was canceled while such company was carrying on its business;(b) If the Court considers it to be just to restore the name of the company for the proper management of the assets and liabilities of such company.(2) In the event of restoration of a company by virtue of an order of the Court pursuant to Sub-section (1), the company shall be considered to have been in existence from the date of its registration.(3) In issuing an order pursuant to Sub-section (1) , the court may issue orders and make an order to make such arrangements as it may consider appropriate and necessary for restoring the company and all other persons into the status quo ante as if the registration of the company were not canceled.(4) Where a company is restored pursuant to Sub-section (1) and any fine as referred to in Section 81 is to be paid, the company shall be restored and its name reentered in the company register only after such fine is paid to the Office.(5) Where a company of which registration has been canceled pursuant to Section 136 is restored pursuant to this Section, such company shall have the following property reverted to it:(a) Any property received by its shareholders in such capacity pursuant to Sub-section (8) of Section 136 by virtue of the cancellation of registration of the company;(b) Where the property as referred to in Clause (a) has already been sold and disposed of, the proceeds of such sale and disposal.

Provided, however, that no property or amount already employed in the payment of debt or liability of a creditor shall be returned.


Chapter 12Protection of Shareholders

138. Power to prevent directors and officers from doing unauthorized act: (1) If, on behalf of a company, any director or officer of the company does any act beyond his/her jurisdiction, any shareholder of such company may make a petition to the Court to prevent such act.

Provided, however, that no petition may be made under this Section in connection with any act or action done or taken or intended to be done or taken for the fulfillment of any liability created from any act or action already done or taken by the company.(2) If, based on the report received by the Office pursuant to Section 124 in respect of any company, the Office thinks that the business of such company could be carried on or is being carried on in such a manners to be prejudicial to the rights and interests of any of or all shareholders of the company or any specific class or group of its shareholders or that any act done or intended to be done by the company or the failure of the company to do any act required to be done has resulted in or would result in a prejudice to the interests of such shareholders, the Office may make a complaint/ petition to the Court against such company or its directors or officers.(3) On receipt of a petition as referred to in Sub-section (1) or (2), the Court may inquire into the concerned company or its directors or officers and issue an appropriate order.

139. Remedy for act done against rights and interests of shareholders: (1) Based on the ground that the business of a company is carried on or is likely to be carried on in such a manner as to be prejudicial to the rights and interests of any shareholder of the company or that any act done or intended to be done on behalf of the company or the failure of the company to do any act required to be done has resulted in or would result in a prejudice to the rights and interests of any shareholder, such shareholder may make a complaint/ petition to the Court for an appropriate order.(2) A shareholder who makes a petition pursuant to Sub-section (1) shall prove that the director, managing director, manager or any officer who manages and controls the company has done or intends to do any act with ulterior motive or made or intends to make undue discrimination, in contravention of the memorandum of association or articles of association or consensus agreement.(3) On receipt of a petition as referred to in Sub-section (1), the court may if, upon inquiring into the concerned company, director or officer, the claim set forth in the petition appears to have reasonable, issue such order in the name of the company as it thinks appropriate for providing remedy thereto.(4) In issuing an order pursuant to Sub-section (3), notwithstanding anything contained in the memorandum of association, articles of association or consensus agreement, the Court may, without prejudice to the generality of the said Sub-section, also issue the following order, namely:(a) Preventing the act and action done and taken against the rights and interests of any or all shareholders and carrying of the business of the company in the future in a due manner;(b) Preventing any act and action being done and taken or requiring to do any act not done or intended not to be done by the company;(c) Requiring to institute, on behalf of the company a civil case against any one, in pursuance of a direction given by the court;(d) Requiring to buy back the shares of any shareholder in accordance with the procedures set forth in this Act, by reducing the capital of the company, and to return the amount of such shares;(e) In the event of any loss and damage being suffered any shareholder from a discrimination made against him/her, requiring the company or the person making such discrimination to pay compensation to the shareholder for the same;(f) Liquidating the company;


(g)Requiring the company itself or any other shareholder of the company to purchase the shares held in the name of any shareholder;(h) Recovering the loss and damage caused to the company or its shareholders from the director or officer who has caused such loss and damage;(i) Where the company is to buy back its own shares, issuing an order to reduce the share capital of such company as if the share capital of such company were reduced by it by adopting a special resolution on reduction of share capital; where the memorandum and articles of association of the company is to be amended by virtue of such order, issuing other appropriate order also to make necessary amendment thereto.(5) Notwithstanding anything contained in Sub-section (1) or (2), the remedy available to a person who suffers any loss or damage because of the fact that a company or its director or any person responsible for the management or control of the company or its employee has failed to do any act required to be done or done any act required not to be done or otherwise done a discriminatory treatment shall not be deemed to be limited to this Section only; and such person may institute an action, whether individually or jointly, on behalf of him/herself or other shareholder, as well, to have any remedy available under other prevailing law.(6) Where a collective remedy is demanded pursuant to Sub-section (5), the court may issue appropriate order with or without making necessary inquiry into some or all shareholders of that class.(7) Notwithstanding anything contained elsewhere in this Act, where the court has issued an order in a manner that the company shall not make any amendment to its memorandum of association or articles of association or shall make an amendment to any specific matter for the protection of the rights and interests of any or all shareholders, in such a case, no amendment shall be made to the memorandum of association or articles of association without obtaining prior approval of the Court.(8) If a company makes any amendment to its memorandum of association or articles of association by or pursuant to an order of the Court under Sub-section (7), such amendments shall be deemed to be an amendment adopted by a special resolution in the general meeting of the company.(9) The Office shall make entry of the following orders issued by the court pursuant to this Section in the company register:(a) An order issued for the reduction of share capital of a company;(b) An order issued requiring any amendment to the memorandum of association or articles of association of the company.(10) The provisions of this Section shall also apply to any person who has not yet been registered as a shareholder of a company but the shares have already been transmitted to his/her name through legal procedures as if such person were a shareholder of the company.

140. Right to shareholder to institute case on behalf of company : (1) A company may file in the Court a case against any director, office or shareholders or any person having control over the company pursuant to the consensus agreement to have any rights and interests of the company enforced.(2) If the company concerned fails to institute a case under Sub-section (1), any share holder holding two and half percent or more of the shares in the paid-up capital of the company separately or jointly with two or more shareholders holding five percent shares may, on behalf of the company, file in the Court a case against any such director or officer or the person having control over the company or any other person.(3) While filing a case by a shareholder pursuant to Sub-section (2), he/she shall state about what sort of effort he/she has made to persuade the company to institute the case by itself.(4) Where a case is filed pursuant to Sub-section (2), the Court may decide whether it would be appropriate to keep on the case being run by the shareholder or to get the company to take over the


case, and if it is found appropriate to get the company to take over the case, it may order the company to take over the case.(5) Any case once filed pursuant to Sub-section (1) or (2) shall not be capable of being dismissed or being compromised except in cases where such compromise contains such terms ad conditions as specified by the Court.(6) Where a case file pursuant to Sub-section (2) is adjudged sustaining the claim made by the claimant shareholder, the expenses incurred by him/her in the institution of such case and reasonable expenses made for the services of legal practitioner shall be reimbursed by the company. Where such claim is not sustained, such amount out of the expenses incurred by the defendant in defending such case as the Court thinks appropriate shall be reimbursed from the complainant shareholder.

141. Acquisition or sale of property : (1) A public company or its subsidiary company shall, if the purchase or sale of any property by it results in the following situation, give information thereof to the Office:(a) If the purchase of any property results in an increase in the value of its property or the value of consolidated property mentioned in the audited latest annual financial statement, by more than fifteen per cent;(b) If the income to be earned from the property sold or intended to be sold exceeds by more than fifteen per cent of the consolidated income before making payment for tax as mentioned in the audited latest books of account of the company.(2) Any information to be given to the Office pursuant to Sub-section (1) shall set out the following matters; and where such matters are also applicable in the case of transaction of the company, such matters shall also be stated in the report of board of directors:(a) Date of, and parties involved in, the transaction;(b) Details about the nature of property, and if that property includes, wholly or partly, any shares issued by any other company, the name of company issuing such shares and the nature of business to be carried on by that company;(c) Value of the transaction, and other terms and conditions of the transaction;(d) The ground pursued for the valuation of property, while buying or selling any property;(e) In the event of sale of any property, matter whether the proceeds of such sale is more or less than the book value of such property as shown in the records thereof.


Chapter 13Holding and Subsidiary Companies

142. Control over subsidiary company: (1) A holding company may control its subsidiary company as follows:

(a) By holding direct or indirect control over the formation of the board of directors;(b) By holding majority shares of the company.

(2) If any company becomes a subsidiary company of any other subsidiary company, the former company shall also be a subsidiary company of the holding company controlling the later company.(3) Despite that the shares of a company are subscribed by any agent on behalf of the holding company or its subsidiary company or that the right to appoint directors of such company is exercised by any person nominated on behalf of the holding company or its subsidiary company, the conditions mentioned in Sub-section (1) shall be deemed to have been fulfilled.Provided, however, that while determining a holding company and a subsidiary company, the shares possessed in the following circumstances shall not be recognized for this purpose:(a) In cases where any company is entitled to exercise any power on the basis of holding debentures or a trust deed on the issue of debentures or having subscribed shares;(b) In cases where a company lending credit has accepted the shares by way of security.

143. Documents to be enclosed: (1) Any holding company shall enclose the following documents of its subsidiary company in its balance sheet:(a) One copy of the annual accounts of the subsidiary company for the immediately expired financial year and the report of its board of directors during that period;(b) Auditor’s report;(c) Details of the investment of the holding company in the subsidiary company at he end of the financial year;(d) In cases where the financial year of the holding company and that of the subsidiary company are different, the matter of change, if any, in any manner, of the right of the holding company over the subsidiary company during such different periods.(2) The details as referred to in Clause (b) of Sub-section (1) shall also contain the net profits derived after deducting the loss suffered in the concerned financial year of the subsidiary company and the profit and loss as well which has not been mentioned in the accounts of the company after it has become the subsidiary company but which may be the concern of the shareholders of the holding company.(3) In cases where the board of directors of the holding company fails to obtain the information as mentioned in Clause (b) of Sub-section (1), and Subsection (2) due to any reason, the balance sheet of the holding company shall contain a written report thereof.(4) The details as referred to in Clause (c) of Sub-section (1) shall also show the loans borrowed against the mortgage of any immovable property of the subsidiary company or the loans borrowed for any purpose other than discharging the existing liabilities.

144. Prohibition on investment in holding company : No subsidiary company; shall purchase these shares or debentures of the holding company or make investment in the holding company in any other manner.


Chapter 14Special Provisions relating to Private Companies

145. Consensus agreement: (1) Except as otherwise provided in this Act, the following matters may be provided for in a consensus agreement of a private company:

(a) Management, business and transaction of the company;(b) Restriction, if any, on the transfer of shares;(c) Power of one or more shareholders to liquidate the company owing to any specific or

incidental event or voluntarily;(d) Division or use of voting right;(e) Terms of appointment of officers, employees, workers of the company,(f) Matter as to who will be the directors, officers, or the persons bearing the ultimate

responsibility or the chief executive, of the company;(g) Mode of payment or distribution of dividends;(h) Matter that there shall be no board of directors;(i) Matter that, if there shall be no board of directors, who shall perform such functions

as required to be performed by the board of directors under this Act;(j) If the annual general meeting is not required to be held, provisions pertaining

thereto;(k) Types of shares and the provision of shares with different right, if any.

(2) The consensus agreement may be amended with the consent in writing of all parties to the agreement.(3) The shareholders who, after the conclusion of a consensus agreement, have obtained the shares as follows shall be deemed to have consented to the agreement and become party thereof:

(a) Where the shares have been obtained by way of donation or gift;(b) Where the shares have been obtained in any other manner, with the knowledge of

the existence of such agreement at the time of obtaining the shares.

146. Power of shareholder to inspect books of account : (1) Any shareholder of a private company or his/her proxy may inspect the following documents or records related with the transactions of the company during office hours:

(a) Minute books of the general meeting and board of directors;(b) Annual financial statements;(c) Share register; and(d) Accounts of the company.

(2) The director or officer of a private company shall make adequate arrangement so that the shareholders could inspect the documents and records as referred to in Sub-section (1).

147. Return of transactions : (1) Any shareholder of a private company may demand the company for a return of transactions of the company for any financial year.(2) The director, managing director or officer carrying on the transactions of the company shall provide a return accompanied by the certified annual financial statement no later than fifteen days of the demand of return pursuant to Sub-section (1).

148. Holding of annual general meeting not required : (1) Notwithstanding anything contained elsewhere in this Act, where a consensus agreement concluded between the shareholders of a private company has a provision that the annual general


meeting of the company shall not be held, such private company shall not be required to hold its annual general meeting during the period of such agreement.(2) Where a consensus agreement is concluded with a provision that the annual general meeting shall not be held pursuant to Sub-section (1), the company shall also make provisions on the procedure of making decision on such matters as required to be decided by the general meeting under this Act and on the authority of making such decision

149. Adoption of written resolution by private company : (1) Notwithstanding anything contained elsewhere in this Act, except as otherwise provided in the articles of association ,any act which can be done by adopting a resolution including a special resolution in the general meeting of a private company or by adopting a resolution in the meeting of any particular class of shareholders can be done by a written resolution executed and signed by all shareholders representing at least seventy five percent shares, who are entitled to vote in holding discussion on such resolution on the same date on which such resolution is deemed to have been adopted.(2) Where separate written resolutions have been recorded for any reason for the purposes of a Sub-section (1) and all such documents have the same contents, it shall not be necessary that all shareholders sign the same document;; and despite the fact that every shareholder has signed a separate document, such document shall be valid as if one written resolution were signed.(3) Every shareholder signing a written resolution pursuant to this Section shall date the same; and the last date on which the resolution is signed by the shareholder shall be deemed to be the date on which the resolution has been adopted.(4) Any document attached to any written resolution shall be deemed to have been presented in a meeting of shareholders signing the resolution.(5) Any resolution accepted pursuant to this section shall be recognized for any purpose whatsoever as it were a decision adopted by a general meeting of a company or a meeting of any specific class of shareholders.

150. Deemed participation in general meeting : (1) Notwithstanding anything contained elsewhere in this Act, if, except, as otherwise provided in the articles of association of a private company, any shareholder of the company makes communication contact with all shareholders through any communication means and takes part in communication contact with other shareholders in such a manner that the other shareholders can hear or read whatever is spoken by every shareholder, every shareholder who so takes part in such communication contact shall be deemed to have taken part in the general meeting along with other shareholders.(2) Notwithstanding anything contained elsewhere in this Section, where any shareholder makes a complaint/petition accompanied by the prescribed fees , to the Office no later than three months after the holding of a general meeting, mentioning that he/she has not taken part in the general meeting, the Office shall inquire into the concerned company; and, in holding such inquiry, where the company fails to prove that the complainant shareholder has taken part in such meeting, the decision made by that meeting shall not be valid.(3) A meeting of shareholders conducted pursuant to Sub-section (1) shall be deemed to have been conducted in the place where the chairperson of the meeting is present.(4) The provisions of Sub-section (1), (2) or (3) applicable to the general meeting of a company shall also apply, mutatis mutandis, to the meeting of directors or a sub-committee of directors of the company.(5) After the completion of the general meeting pursuant to Sub-section (1), the chairperson of the meeting shall prepare minutes of the proceedings and decisions conducted and taken in the meeting annually and authenticate the same.


151. Special exemption companies carrying on prescribed transaction : The Government of Nepal may, by a notification in the Nepal Gazette, exempt the private company having turnover within the prescribed limit from the provisions contained in Chapter-8.

Chapter 15Provisions relating to Single Shareholder Companies

152. Single shareholder company not required to call meeting of the board of director and general meeting : Notwithstanding anything contained elsewhere in this Act, except as otherwise provided in the articles of association of a single shareholder company, all acts and decisions required to be done and made by the board of directors or general meeting of the company shall be as decided in writing by such shareholder; and no meeting of the board of directors or general meeting shall be required to be called.

153. Transfer and transmission of shares of single shareholder company:(1) In the event of death of the shareholder of a single shareholder company, his/her heir or the person acquiring the title to his/her shares shall acquire the right of shareholder, and such heir or person shall do all such acts inclusive of the transfer and transmissions of shares as the single shareholder can do under this Act. While making a decision to transfer and transmit shares, the person so acquiring the title shall make such decision in writing.Provided, however, that if no heir to such shareholder is found, the Office shall appoint a liquidator and liquidate the company in accordance with the prevailing law.(2) A person acquiring the title to shares pursuant to Sub-section (1) shall give information thereof, accompanied by the evidence of such title, to the Office no later than one month after the acquisition of such title.(3) On receipt of the information as referred to in Sub-section (1), the Office shall record the information by collecting the prescribed fees and give information thereof to the person who acquires the title to shares.(4) Where the number of person acquiring the title to shares pursuant to Sub-section (1) is more than one, they shall be considered to be the directors of company for the time being, except where the other heirs transfer the title to only one heir, and the memorandum of association and articles of association of the company shall be amended on that basis.Provided, however, that where there arises a question of entitlement, such matter shall be governed by a judgment of the competent court.

Chapter 16Provisions relating to Foreign Companies

154. Registration of foreign company : (1) No foreign company shall carry on any business or transaction in the Nepal without having a branch office of such company registered with the office of such company registered with the office pursuant to this Section or establishes such office without having a liaison office registered.Provided, however, that making investment in shares in any company established pursuant to law, lending moneys to such company or participating in the operation or management of such company, with the approval of the competent body, shall not be deemed to be the carrying on of a business or transaction for the purposes of this Chapter .


Explanation : Where any foreign company carries on any transaction for a period of one month or more through an office established in Nepal or used there for or appoints any person for regular contact or avails its service, such company shall be deemed to have done a transaction or established an office in Nepal for the purpose of this Chapter.(2) A foreign company desiring to have its branch office registered pursuant to Sub-section (1) shall make to the Office an application, accompanied by the permission obtained from the concerned body pursuant to the prevailing law, and the prescribed fees and in such format as prescribed, for the registration of such company.(3) A foreign company desiring to have its liaison office registered pursuant to Sub-section (1) shall make to the Office an application, accompanied by the permission, if any, required to be obtained from the concerned body pursuant to the prevailing law for the registration of such office, and the prescribed fees and in such format as prescribed, for the registration of such company.Explanation : where any foreign company is selected by any competent body pursuant to the prevailing law o r enters into contract with any competent body, for any business in Nepal, the making of such selection entering into such contract shall, for the purposes of Sub-sections (1) and (2) , be deemed to be the permission given by the concerned body.(4) On receipt of an application made for the registration of a foreign company pursuant to Sub-section (2) or (3), the Office shall make necessary inquiry, register such company and give the registration certificate, as prescribed, no later than thirty days after the making of the application for carrying on a business or transaction in or establishing a liaison office in the Nepal.(5) Where a foreign company cannot be registered pursuant to an application made under Sub-section (2) or (3), the Office shall give information thereof, setting out the reasons for the same, to the concerned applicant within thirty days.(6) A foreign company registered pursuant to Sub-section (4) may open its branch office and carry on the concerned business or transaction in or open its liaison office in the Nepal.Provided, however, that a foreign company registered as a liaison office shall not be entitled to do any income earning activity in Nepal.(7) Where the name of a foreign company making application pursuant to Sub-section (2) or (3) or the objective to be implemented by such company is of such a nature that it cannot be registered pursuant to this Act, such foreign company shall not be registered in Nepal.(8) A foreign company registered pursuant to Sub-section (4) shall be deemed to have been registered to carry on only the same type of business or transaction as is being carried on by it in the country where its registered office is situated or it has been incorporated.(9) A foreign company registered pursuant to this Section shall put its name board in the place of its business in a manner conspicuous to all,, and the name of country where the company has been established and the registration number of the company registered in Nepal shall be clearly mentioned in such board and bills, receipts, invoices, etc or letter head to be used by the company.(10) The office shall maintain a separate register for the registration of foreign companies registered pursuant to this Section and make arrangements for the inspection of such register by the general public and for getting a copy thereof by paying the prescribed fees.(11) Notwithstanding anything contained elsewhere in this Act, a foreign company registered pursuant to this Section shall not issue shares or debentures within the Nepal.(12) Notwithstanding anything contained elsewhere in this Act, a foreign company which is carrying on a business or transaction or which has established its liaison office in the Nepal without having been registered at the time of commencement of this Act shall get it registered with the Office pursuant to this Act no later than six months after the date of commencement of this Act.


155. Submission of documents by foreign companies : (1) A foreign company which makes an application for its registration or for the establishment of its liaison office pursuant to Section 154 shall submit to the Office the following details, along with the application: (a) Permission obtained by the foreign company from the competent authority to carry on its business or transaction in Nepal;(b) Copies of the charter, certificate of incorporation, memorandum of association, articles of association of the company, and Nepalese translation thereof;(c) Full name, address of the registered office and principal place of business of the company, date of incorporation of the company, description of the paid up capital and major objectives of such company;(d) Names, addresses of directors, manage, company secretaries or main officers of the company and description of their citizenship;(e) Name and address of the person residing or staying in the Nepal ,who is authorized by the company to receive, on its behalf, any summons, notice etc. issued in the name of the company;(f) Full address of the principal place where the company carries on its transaction or business in Nepal and of the office of the company situated in that place;(g) Where the company is to carry on any transaction or business in the State of Nepal, details of the proposed investment and transaction;(h) Where the company is to commence its transaction in Nepal, the proposed date thereof;(i) A declaration made by a director of the company or his/her representative, on behalf of the company, that the matters contained in the returns submitted by the company are true and correct;(j) Power of attorney as referred to in Section 157.(2) Where any amendment or alteration is made to or in the contents of any document submitted by any foreign company pursuant to Sub-section (1), a notice, accompanied by the details of such amendment or alteration, shall be given to the Office no later than thirty five days.(3) While submitting any such documents issued outside Nepal or copies thereof as required to be submitted pursuant to Sub-section (1), they have to be certified pursuant to the law of the country of registration of the foreign company.

156. Books of account, audit and annual report of foreign company : (1) Every foreign company registered pursuant to Section 154 shall prepare an annual financial statement, along with the balance sheet and profit and loss account, in such a manner as to reflect the real situation of its transaction in Nepal, get it audited and submit the same to the Office no later than six months after the expiration of a financial year as if such company were a company incorporated under this Act.(2) Every foreign company shall submit to the Office a copy of the annual financial statement, audit report and report of board of directors prepared for every financial year pursuant to the law of the country where its registered office is situated no later than three months after such statement and reports have been finally prepared.(3) The annual financial statement to be prepared by a foreign company pursuant to Sub-section (1) shall include the following details:(a) Statements prepared in a manner to show classifying the particulars of the fixed, running and other properties held in the name of the foreign company within Nepal;(b) Clear details of cash held in the name of the foreign company with a bank and financial institution situated in Nepal;


(c) Clear details of cash held in the name of the foreign company with a bank and financial institution situated in Nepal;(d) Total amount of loans and liabilities, if any, due and payable by the foreign company to any person who is a resident of Nepal or a Nepalese company registered under this Act.(4) Where any report and statement required to be submitted to the Office pursuant to Sub-section (2), and any document required to be attached therewith, are in a language other than the Nepali or English language, a copy of authentic translation of such document into the Nepali or English language shall also be attached therewith.(5) A foreign company which has got its liaison office registered in Nepal pursuant to Section 154 shall get certified by an auditor the statements of salary, allowance and amounts paid to the employees, consultants or liaison persons serving in such office, statements of deduction of tax from such payment pursuant to the prevailing law, payment of rental and expenses for the operation of such office and statements of deduction of tax from such payment pursuant to the prevailing law, and submit the same to the Office no later than three months after the expiration of a financial year.

157. Power of attorney: (1) A foreign company to be registered pursuant to Section 154 shall submit office copy of a power of attorney executed in the specified format in accordance with the legal requirements of the country where the company has been incorporated or its registered office is situated, hereby appointing a person residing in Nepal as its authorized representative for the purposes of the service of any summons or notice or authorizing such person to receive any other lawful notices on a lawsuit or legal action instituted on behalf or legal against the company .(2) A power of attorney executed pursuant to Sub-section (1) shall state, inter alias that where any summons or notice on a lawsuit instituted on behalf of or against the company or other legal notice is delivered to the authorized representative, it shall be binding on the company for any purpose whatsoever.

158. Cancellation of registration and liquidation of a foreign company: (1) Where a foreign company registered pursuant to Section 54 wishes to close down the transaction which it is carrying on in Nepal and get its registration canceled or where the competent authority, acting in accordance with the prevailing law, prohibits such company from carrying on the transaction or business within Nepal, such company shall make an application, accompanied by the prescribed fees, o the Office for the cancellation of its registration.(2) A foreign company which makes an application pursuant to Subsection (1) shall also submit, along with the application, an evidence and proof confirming that there is no liability due and payable by such company too any person, organization or governmental or non-governmental body in Nepal.(3) In order to inquire whether the evidence and proof as referred to in Sub-section (2) are true or not, the Office shall publish at least twice in a national daily newspaper a notice inviting a claim, accompanied by evidence, on any liability, if any due and payable by the company to any one, within a period of twenty one days.(4) Where any person makes a claim in pursuance of the notice published pursuant to Sub-section (3), the concerned company shall submit to the Office evidence or proof showing the settlement of such claim. Where the claim made against such company pursuant to Sub-section (1) cannot be settled from the assets of such company situated in Nepal, such company shall settle the same from its assets situated outside Nepal.(5) Where no claim is made by anyone within the time limit as referred to in Sub-section (3) or a proof is submitted showing than the claim made has been settled pursuant to Sub-section (4), the Office shall strike the name of such company off the foreign company register and give information thereof to the concerned company.CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

(6) Where an insolvency process is initiated in respect of a foreign company, which has been registered in Nepal pursuant to this Chapter, in accordance with the law of any country out of the countries where such company has been carrying on its transaction, the representative authorized by such foreign company pursuant to Section 157 shall promptly give a notice in writing thereof to the Office, and he/she shall also publish such notice in a national daily newspaper to be published from Nepal for the information of the general public.Provided, however, that where an order for the cancellation of registration of such company has already been issued, such foreign company shall close its transaction or business in Nepal.(7) Where any foreign company closes its transaction or business pursuant to the proviso to Sub-section (6), the prevailing law on insolvency shall govern the transaction or business carried on by such company in the State of Nepal.

Chapter- 17Proceeding of Lawsuits and Punishments

159. Complaints and proceedings relating to cases under this Act : (1) In respect of any matter under this Act, a case may be filed and proceedings taken only with a complaint made by the Office or the director, officer, shareholder or member or creditor of a company or any other concerned person.(2) Except in cases where jurisdiction is expressly given to the Office on any matter under this Act, the Court shall have power to hear and settle the cases on offenses punishable under this Act, the mattes on which a complaint or application can be made to the Court as mentioned in various Sections of this Act and matters of compensation for amounts in controversy.(3) In hearing and settling cases under this Act, the Court shall follow the procedures as referred to in the Summary Procedure Act, 2028 (1972).(4) An appeal against any decision or order made or issued by the Office of Court under Sub-section (2) may be made to the Court as specified by the Government of Nepal with the consent of the Supreme Court, within thirty-five days.(5) Notwithstanding anything contained in Sub-section(2), pending the specification of the Court by the Government of Nepal by a notification in the Nepal Gazette for hearing cases, suits and taking other actions pursuant to this Act, the Company Board formed pursuant to Section 1691 shall assume the jurisdiction of the concerned Court.

160. Punishment with fine not exceeding fifty thousand rupees or with imprisonment for a term not exceeding two years or with both : The following person who commits the following offense shall be punished with a fine from twenty thousand rupees to fifty thousand rupees or with imprisonment for a term not exceeding two years or with both punishments:(a) Where any director or officer of a company has caused any loss or damage to the company or any person by mentioning any false matter in any document of the Company, with mala fide intention or malicious recklessness, such director or employee;(b) Where any director or officer of a company fails to maintain, or cause to be maintained, hides or conceals or damage such books of account or accounts as required to be maintained pursuant to this Act, such person;(c) Where the auditor of a company states a false matter in his/her report in the course of carrying out his/her duty or omits necessary comments while making audit, with mala fide intention or malicious recklessness, such auditor;(d) Where, a liquidator does not convene the meeting of creditors, or makes payment of loans or liabilities contrary to the order of priority or fails to maintain such books of


account and accounts as required to be maintained under this Act or fails to take over such books of accounts and documents as required to be taken over, or maintains false accounts or fails to submit any report required to be submitted or fails to hand over cash, goods in-kind or books to be handed over by him/her on the termination of his/her assignment, with ulterior motive, recklessness or mala fide intention, such liquidator;(e) Where any director or officer or employee fails to hand over the documents, accounts, cash goods in –kind in this charge on the termination of his/her office or on receipt of a order to liquidate the company, to the successor or where the successor fails to take over them pursuant to this Act, such director, officer and employee who do not hand over or take over them;(f) Any director or officer who issues the prospectus of a company prior to its being registered with the Office who gives false details in the prospectus;(g) Where any act is done beyond the jurisdiction of the board of directors or beyond the scope of work of the company, any director or officer who does or orders to do such act;(h) Any shareholder who does not provide any returns pursuant to this Act or gives false returns;(i) Any director or officer or employee who misappropriates or embezzles cash or goods in-kind of the company or uses the cash or goods in-kind of the company for his/her personal use without the approval of the board of directors or the general meeting or does not settle advances according to the rules of the company or does not abide by any order issued by the Office or fails to submit any returns of the company;(j) Where any director or officer who has the duty to give any statements or information to the company, Office, Court or other body pursuant to this Act fails to give such statements of information, such director or officer;(k) An auditor who knowingly carries out auditing of the concerned company even after that he/she is not qualified to carry out auditing of any company;(l)An director or officer who exercises the powers not conferred to him/her or acts beyond the authority conferred to him/her;(m) An director or officer who maintains account in contravention of this Act;(n) Any director of officer who fails to provide such extracts of financial statement, annual financial statement or report as required to be provided to the shareholders pursuant to this Act;(o) Any director or substantial shareholder or company who receive or give any loan facility or remuneration from the company in a manner to be contrary to the provisions contained in this Act;(p) An company, officer, employee or any other person who, in seeking approval of the Court to reduce the share capital of the company, lies or hides the name of any creditor or gives false statements as to the loans borrowed by the company;(q) An private company which sells shares or debentures in contravention of this Act, directors and shareholders of such company;(r) An foreign company which carries on business or transaction in Nepal in contravention of this Act, directors, employees or representatives of such company;(s) A debenture trustee who acts contrary to the interest of the holders of debenture, directors or officers of such trustee;(t) A person who acts contrary to Sub-section (7) of Section 26;(u) An director or officer who fails to do any act required to be done pursuant to Section 60;


(v) An person who carries on transaction by using the word “company” without getting a company registered pursuant to this Act;(w) An company, director or officer who fails to provide the information or notice as referred to in Section 141 or Section 175;(x) An shareholder of a company who does not provide such information as demanded pursuant to Section 47 or the company, director and officer who does not submit to the Office the information received from the shareholder pursuant to that Section;(y) An director or officer who acts contrary to Section 105;(z)The managing director, director or officer of a company who fails to provide the address of registered office of the company despite the issuance of written order by the Office at various times or giving of such notice through communication media, where such issuance was not possible;(z1)A company, director, substantial shareholder and officer who acts contrary to Section 50.

161. Punishment with fine not exceeding fifty thousand rupees : The following person who commits the following offense shall be punished with a fine from ten thousand rupees to fifty thousand rupees:(a) Where any shares are allotted in contravention of the provisions of this Act, the officer or person who makes such allotment;(b) Where a company purchases, out of the company’s capital in stock, its own shares or the shares of its holding company contrary to this Act or makes investment in contravention this Act, every director of that company;(c) In the event of failure to show or provide the books if account to the auditor as and when so required, the officer or person who has the duty to do so or provide the same;(d) An auditor who does not present a report as specified in the Act;(e) An director, manager and officer who does not make arrangements as referred to in Sub-section(3) of Section; 172;(f) An director and officer who violates the provisions of Section 146 or 147 or who does not maintain such records books or returns as required to be maintained pursuant to this Act;(g) An company, director, auditor, officer and employee who violate the provision contained in Chapter-18 or who fail to fulfill the duty and obligations specified in that Chapter;(h) In the event of failure to call the general meeting or a meeting of the board of directors required to be called pursuant to this Act or failure to send a notice of the general meeting or a meeting of the board of directors or failure to prepare the documents to be made available to the shareholders before the holding or the general meeting or failure to present in the general meeting such documents as required to be presented, the director, officer or person who has the duty to maintain or do such act or to call the meeting or to send such notice;(i) An officer who sets down any false deed or content of document stating that any matter which was neither done or happened to have been done or happened and vice versa in the minutes as referred to in sub-section (1) of Section 75 and Sub- section (7) of Section 97 or such other return or report as required to be prepared an submitted to the company or Officer in such notice or information as required to be provided pursuant to this Act;(j) In the event that an declaration made by the directors pursuant to Subsection (2) of Section 136 is held to be false, the director who makes such false statement;


(k) An person who does false or wrong translation of any deed or document required to be submitted by a foreign company to the Office pursuant to this Act or any person who certifies the same.

162. Punishment with fine not exceeding twenty thousand rupees : Except in matters contained in Sections 160 and 161, the Court may impose a fine of five thousand rupees to twenty thousand rupees on any company or every concerned director, managing director, manger, company secretary or employee of the company who fails to perform any act which he/she is required to perform under this Act or commits any act prohibited by this Act, or fails to perform his/her duty, or performs even any permissible act upon the expiry of the time-limit or without following the procedures, or fails to give such information to the Office as required to be given, or fails to submit such returns to the Office as required to be submitted.

163. Realization of amount of loss : If a director, officer of an company or a person causes any loss or damage to the company or shareholder or creditor or any other person by committing an offense punishable under this Act or by violating any provision contains in this Act or the memorandum of association or articles of association or consensus agreement, the aggrieved company, shareholder, creditor or any person shall be entitled to have realized the amount of such loss or damage. He /She shall personally bear the amount of such loss or damage.

Chapter 18 Audit Committee

164. Audit Committee : (1) A listed capital with paid up capital of thirty million rupees or more or a company which is fully or partly owned by the Government of Nepal shall form an audit committee under the Chairpersonship of a director who is not involved in the day-to –day operations of the company and consisting of a least three members .(2) A person who is a close relative of the chief executive of a company shall not be eligible to be a member of the audit committee formed pursuant to Sub-section (1).(3) At least one member of the audit committee shall be an experienced person having obtained professional certificate on accounting or a person having gained experience in accounting and financial field after having obtained at least bachelor’s degree in accounts, commerce, management, finance or economics.(4) The report of board of directors required to be prepared by a company shall set out a short description of the activities of the audit committee, working policies adopted by the board of directors to implement the suggestions, if any, given by the audit committee, the allowances or facilities,if any, received by the members or the audit committee and the names of the members of audit committee.(5) The audit committee may, for inquiring into any matter, notify the managing director of the company, chief executive or the company or other director, auditor, internal auditor and accounts chief involved in the day-to-day operations of the company to attend its meeting; and it shall be their duty to be present in the meeting of that committee if they are so notified.(6) The board of directors shall implement the suggestions given by the audit committee in respect of the accounts and financial management the company; and where any suggestion cannot be implemented, the board of directors shall also mention the reasons for the same in its report.(7) A company shall arrange for such means and resources as may be adequate for the fulfillment of responsibilities of the audit committee; and the audit committee may fix its internal rules of procedures on its own.


(8) The chairperson of the audit committee shall be present in the annual general meeting of the company.(9) The audit committee shall meet as per necessity.

165. Functions, duties and powers of audit committee : The functions, duties and powers of the audit committee formed pursuant to Sub-section (1) of Section 164 shall be as follows:(a) To review the accounts and financial statements of the company and ascertain the truth of the facts mentioned in such statements;(b) To review the internal financial control system and the risk management system of the company;(c) To supervise and review the internal auditing activity or the company;(d) To recommend the names of potential auditors for the appointment of the auditor of the company, fix the remuneration and terms and conditions of appointment of the auditor and present the same in the general meeting for the ratification thereof;(e) To review and supervise as to whether the auditor of the company has observed such conduct, standards and directives determined by the competent body pursuant to the prevailing law as required to be observed in the course of doing auditing work;(f) Based on the conduct, standard and directives determined by the competent body pursuant to the prevailing law, to formulate the polices required to be observed by the company in respect of the appointment and selection of the auditor;(g) To prepare the accounts related policy of the company and enforce, or cause to be enforced, the same;(h) Where any regulatory body has provided for the long term audit report to be set out in the audit report o f the company, to comply with the terms required to prepare such report;(i) To perform such other terms as prescribed by the board of directors in respect of the accounts, financial management and audit of the company.

Chapter- 19Provisions relating to Companies Not Distributing Profits

166. Establishment of company not distributing profits : (1) Notwithstanding anything contained elsewhere in this Act, any company may be incorporated to develop and promote any profession or occupation or to protect the collective rights and interests of the persons engaged in any specific profession or occupation or to carry on any enterprise for the attainment of any scientific, academic, social, benevolent or public utility or welfare objective on the condition of not distributing dividends.(2) Any person or trustee of a public trust registered pursuant to the prevailing law or any other corporate body incorporated pursuant to the prevailing law who wishes to register a company for the attainment or the objective mentioned din Sub-section(1) may make an application to the Office pursuant to Section 4.(3) The number of promoters promoting a company pursuant to subsection (1) shall be at least five; and after the incorporation such company, it may have any number of its members, with a minimum of five members.(4) The membership of a company incorporated pursuant to Sub-section (1) shall not be transferable in any manner. The membership of any person or body shall ipso facto be terminated in the event of


death, cancellation of registration or dissolution of such member or amalgamation of such member with another body or company.(5) Except with the prior approval of the Office, a company incorporated pursuant to Sub-section (1) shall not add words such "company", "limited" or "private limited" at the end of its name.(6) A company registered pursuant to Sub-section (1) shall obtain approval of the Office to expand its branch.

167. Special provisions relating to company not distributing profits: (1) Notwithstanding anything contained in this Act or the prevailing law, the following matters of a company incorporated pursuant to Section 166 shall be as follows:(a) There shall not be required share capital to incorporate a company not distributing profits.Provided, however, that the company may receive membership fees from its members and receive any donation, gift pursuant to law for the accomplishment of its objectives.(b) No member of the company shall be liable for the debts and liabilities of the company except in the case where any member accepts such liability in writing the liability of the company, with specification of the limit of such liability; his/her liability shall be limited to the extent of that limit.(c) All the provisions of this Act as applicable to the listed company, other than those provisions which may be also apply to the company, its director, officer, auditor and employee.(d) The company shall not distribute dividend, bonus or any other amount, from the profits earned by it, to its members or employees; and the profits earned by the company shall be used to increase the capital of the company or for the attainment of its objectives.(e) The company shall obtain prior approval of the Office to change objectives.(f) Any company not distributing profits shall not be merged with any company distributing profits.(g) The members of a company incorporated under this Chapter shall elect the directors from amongst themselves in such number as fixed in the articles of association, on the basis of one member one vote.(h) The meeting allowance, salary, facility receivable by the officers or a company incorporated under this Chapter and the incorporation and operational expenses of the company shall not exceed the amount as specified by the Office; and in so specifying expenses, the Office shall have regard to the capital situation and profits of such company.(i) In the event of liquidation of or cancellation of registration of a company incorporated under this Chapter, the assets of the company, if any, remaining after the settlement of the debts and liabilities of the company shall be dealt with as per the provision, if any, contained in its articles of association, and failing such provision, such assets shall devolve on the Government of Nepal.Provided, however, that such asset shall, in no way, devolve on anybody or company where a promoter or member of such company or his/her close relative or close relative of such relative is a promoter or member.(2) In the event of violation of any provision contained in Sub-section (1), the Office may cancel the registration of the company committing such violation. Provided, however, that the company shall be provided with an opportunity to defend itself, prior to such cancellation of registration.


(3) A person who is not satisfied with a decision on cancellation of registration made by the Office pursuant to Sub-section (2) may file a complaint in the Court within thirty five days after the receipt of information of such decision.(4) While canceling the registration pursuant to Sub-section (2), the Office shall appoint a liquidator and an auditor to complete the liquidation proceedings of such company, specifying the period for completion of such liquidation proceedings.(5) The liquidator and auditor appointed pursuant to Sub-section (4) shall discharge their functions in accordance with the provisions contained in this Act and the prevailing law.

Chapter- 20Interim Provisions relating to Company Advisory Board and Company Board

168. Formation of Company Advisory Board : (1) The Government of Nepal shall, by a notification published in the Nepal Gazette, form a Company Advisory Board comprising a maximum of nine members consisting of one person from each of the fields of law, accounting profession, tax administration, commerce or trade administration, from amongst those who have done at least master’s degree in the respective fields and gained expertise after having served for at least seven years in such fields in the government and private sectors, as well as a representative of the Federation of Nepalese Chamber of Commerce and Industries, so as to study the practical problems coming across in the field of implementation of this Act and prevailing law relating to company administration and give advice, as required, to the Government of Nepal on timely reforms to be made in the prevailing companies law and reforms in the company administration. The Registrar shall be the member secretary of the Company Advisory Board.(2) While forming the Company Advisory Board pursuant to sub – section (1), the notification shall designate any one of the members of the Board also to act as its chairperson.(3) The Company Advisory Board shall submit to the concerned Ministry of the Government of Nepal, an annual report on the activities carried out by it pursuant to Sub-section (1).(4) The concerned Ministry shall publish the report submitted pursuant to Sub-section (3) and make arrangement so that the general public can obtain a copy of such report at a reasonable price.

169. Provisions relating to Company Board : (1) Pending the designation of a court by the Government of Nepal pursuant to the provisions contained in this Act, the Government of Nepal shall, by a notification published in the Nepal Gazette, form a three–member Company Board, consisting the Chairperson and member, as follows:(a) A person who is a District Judge or who has already been a District Judge or who is qualified for appointment as District Judge, with each such person, having done bachelor degree in law and gained experience in commercial law -Chairperson(b) A person who, after being registered as an advocate pursuant to the prevailing law, has done legal practice in the field of commercial law for a least ten years or who has served in the post of Gazetted Two Class of Nepal Judicial Service for at least four years -Member(c) A person who has done bachelor degree in management, commerce or accounting and worked in the field of company management, tax administration or accounting for at least ten years or an accounting professional who has obtained a professional certificate in accounting and gained at least five years of experience in accounting profession -Member(2) Notwithstanding anything contained in Clauses (a), (b), (c), or (d) of Sub-section (1), the Government of Nepal may, by a notification published in the Nepal Gazette,


designate any member, out of the members of the Company Advisory Board formed pursuant to Section 168, who has the qualification as mentioned in the said Clauses, also to act as the Chairperson or a member of the Company Board to be formed pursuant to this Section.(3) The Board formed pursuant to Sub-section (1) or (2) shall exercise the jurisdiction conferred to the Court pursuant to this Act.(4) The company Board formed pursuant to Sub-section (1) or (2) shall, while hearing and settling the cases pursuant to Sub-section (3) ,exercise its jurisdiction as follows:(a) Three members shall jointly exercise their jurisdiction.Provided, however, that, where the Chairperson and another one member are present, the case may be heard and settled, and where other two members except the Chairperson are present, the case may be heard.(b) In the event of the presence of all the three members, the unanimous opinion of all the three members or the majority opinion of two members shall be deemed to be the decision of the Company Board.(c) In the event of the presence of two members only, where the two members have the same opinion, that opinion shall be the decision of the Company Board.(d) In the event of the presence of two members, where they lack unanimity in opinion, the opinion of the Chairperson, where the Chairperson as well is present, and where the other members except the Chairperson are present, the opinion of the senior member shall prevail in the matters of proceedings; and in the case of judgment or final order, it shall be submitted to the member who was absent earlier on the opinion supported by him/her shall be deemed to be the decision of the Company Board.(e) Where all the three members are present and each has a different opinion or where majority cannot be established even after making submission to the member who was absent earlier pursuant to Clause (d), the opinion of the Chairperson shall prevail in the case of proceedings, and in the case of the judgment or final order, a reference shall be made to the Court hearing appeal.(5) The Company Board may, considering the workload of cases, locate itself in any other place in Nepal for any specific period and hear and settle the cases.(6) The Company Board shall follow the procedures referred to in the Summary Procedure Act, 2028 (1972) while hearing and settling the cases.(7) A party who is not satisfied with a decision made by the Company Board on any case pursuant to this Section may make an appeal to the concerned Appellate Court within thirty five days after the date of the receipt of information of such decision.(8) The remuneration, facilities and other terms and conditions of service of the Chairperson and member appointed or designated pursuant to this Section shall be as prescribed.Provided, however, that the terms and conditions of service shall not be prescribed in manner to reduce the remuneration and facilities once already provided.(9) Notwithstanding anything contained in Sub-section (1), the company board formed pursuant to the Companies Act, 2053 (1996) an existing at the time of the commencement of this Act shall continue to exist pending the formation of the Company Board as referred to in this Act.(10) The cases, and petitions related thereto, filed in and under consideration of or yet to be decided by the company board as referred to in Sub-section (9) at the time of commencement of this Act shall, after the commencement of this Act, be transferred to the Company Board as referred to in this Section; and such cases shall be heard and settled by such Board.


170. Provisions relating to secretariat and employee of Company Advisory Board and Company Board : (1) The secretariat of the Company Advisory Board to be formed pursuant to Section 168 shall be situated in the Company Register’s Office. (2) The secretariat o the Company Board to be formed pursuant to Section 169 shall be situated in the Ministry of Industries.(3) The secretariat of the Company Board shall have such number of employees as specified by the Government of Nepal.

171. Dissolution of Company Board: (1) The Company Board formed pursuant to Section 169 shall ipso facto be dissolved on the date on which the Government of Nepal designates the Court as referred to in this Act, by a Notification published in the Nepal Gazette.(2) On the dissolution of the Company Board pursuant to Sub-section (1), the appointment of the Chairperson, members and other employees serving in the Board shall ipso facto be terminated; and no compensation or additional amount shall be paid to them for such termination where any employee were deputed by other offices to the Board, their deputation shall ipso facto be terminated.(3) On the dissolution of the Company Board pursuant to Sub-section (1), all cases, and petitions related thereto, filed in and under consideration of or yet to be decided by the Board under this Act shall be transferred to the Court .

Chapter- 21Miscellaneous

172. Record of company and use of computer : (1) The records of any minute book, shareholders or debenture holders register, index of shareholders, books of account, accounts etc. required to be maintained by a company pursuant to this Act may be maintained either by making entries thereof in separate books or by recording the same by any electronic communication device and computer in a non-legible form or in any other manner, without prejudice to the provisions contained in this section.(2) In case where the records of any minute books, shareholder or debenture holder register index of shareholder, books of account, accounts etc. have not been maintained by making entries thereof in a record book but maintained in any other manner, the following provisions shall be applicable.(a) If it is easily accessible to the place where the records of such minute book shareholder or debenture register index of shareholder books of account, accounts, etc. are maintained and where such records can be inspected or copes thereof can be obtained, such records shall be deemed to have been maintained in any specific place.(b) The company shall make adequate arrangements that no one can destroy or alter the records as referred to in Clause (a) and that the matters recorded therein can be easily traced and inspected and copies thereof can be obtained.(c) Where any matter has been so recorded that it is not legible, the matter shall be capable of being reproduced in a legible form.(3) Where the records of any minute book, shareholder or debenture holder register, index of shareholders, books of account, accounts etc. are put in an web site by using any electronic communication device or computer pursuant to this section, arrangements shall be made so that the date of such preparation of documents as well as the date of amendment thereto can be easily seen.(4) Where a company has maintained the records of any minute book, register, index, books of account, accounts etc. maintained pursuant to this Act in a non-legible form and any law establishes


the obligation of the company to allow such records for inspection or to submit copies thereof, then it shall be the obligation of the company to make such arrangements that the relevant portions of such records can be inspected and that copies thereof can be submitted in a visible or legible form.

173. Conversion of corporation owned by government of Nepal into Company: (1) If the Government of Nepal wishes to convert a public corporation incorporated under the prevailing law, fully or partly owned by the Government of Nepal, or a development board formed under the Development Board Act, 2013 (1956) into a company, such corporation or board can be converted into a public company and incorporated under this Act.(2) Not withstanding anything contained elsewhere in this Act, there shall be no restriction on the number of promoter, shareholders, in the incorporation of a company as referred to in Sub-section (1).(3) The movable and the immovable properties of the corporation or board as referred to in Sub-section (1) may be evaluated and converted into the share capital of the company to be incorporate d pursuant to Sub-section (1), and where such conversion is made, all assets and liabilities of such corporation or board shall devolve on such company, except as otherwise provided in the articles of associations.(4) Not withstanding anything contained elsewhere in this Act, the number of directors of a company incorporated under this section shall be as specified in the articles of association of the company; and no such directors shall be required to subscribe any shares to become a director.(5) A company as referred to in this section may sell its shares in bulk to the private sector through the stock exchange or directly by negotiations.

174. Predecessor to handover charge to successor : Any director or any other officer or employ of a company shall, on the expiry of his/her term of office, hand over the documents in his/her charge to the successor director or officer or employ who is appointed to replace him/her to perform his/her functions, within thirty days from the date of such expiry; and if such predecessor hands over such documents, the successor shall take charge thereof accordingly.175. Transactions between associated companies : (1) Where an agreement or arrangement is made between the following companies whereby any company directly or indirectly provides loan or other kinds of financial assistance, pays any liability, provides guarantee or any other kind of security to another company or any other transactions other than an ordinary business transaction is done between them, it shall be deemed to be a transaction between the associated companies:(a) Any company and its holding company;(b) Any company and any subsidiary company of its holding company;(c) A subsidiary company of any company and the holding company of such company;(d) A subsidiary company of any company and another subsidiary company of its holding company.(2) Where any transactions as referred to in sub section (1) is carried on , the associated company shall give a notice on such transactions, also setting out a following details to its shareholders and the Office as soon as possible:(a) Date of transaction and the parties involved in the transactions;(b)Nature of transaction and where transaction such as provision of a loan, provision of financial assistance and furnishing security has taken place under such transaction, the amount or the value thereof.

176. Restriction on transaction between companies : (1) No company shall, where directly or indirectly, lend money to another company in excess of an amount that is sixty percent of its paid-up capital and free reserves or an amount to be set by hundred


percent of its free reserves, whichever is the higher, give guarantee for a loan borrowed by another company or make investment in the securities of another company in excess of the said amount.(2) Provided, however, that this provision shall not apply to a company carrying on banking or financial transaction, insurance company, company with main objective to buy and sell securities, private company which has not borrowed any loan from a bank or financial intuitions, company with objective to provide infrastructure facility, and investment made by the holding company in its fully owned subsidiary company, money lent by such holding company to such subsidiary and guarantee given by such holding company for a loan borrowed by such subsidiary and investment made in right shares issued under this Act.(3) Subject to Sub-section(1) , a company shall maintain the details, as prescribed, on the moneys lent by it to another company, investment made by it in such company or guarantee given by it for a loan borrowed by such another company.

177. Merger of a company : (1) A public company may, by adopting a special resolutions in its general meeting to that effect, be merged with another company subject to Sub-section (3).Provided, however, that, in the case of a private company it shall be as provided in its memorandum of association, articles of association or consensus agreement.(2) A public company, upon merging into a private company or a private company, upon merging into a public company shall stand as a public company.(3) If a resolution for merger is adopted pursuant to Sub-section(1),such company shall, within thirty days , make an application, setting out the following matters to the Office for approval:

(a) In the case of a public company, a copy of the decision of the general meeting as referred to in subsection (1) ,and in the case of private company , copies of the related provisions contained in the memorandum of the associations, articles of the associations, or consensus agreement authorizing the merger;

(b) Last balance sheet and auditor's report of the merging company;(c) A copy of the letter of consent in writing, of the creditors of the merging company

and of the merged company;(d) Valuation of the movable and immovable properties of, and actual details of the

assets and liabilities of, the merging company;(e) If the merging company and merged company have made a decision as to the

creditors and employees and workers of the merging company, a copy of such decision;

(f) The scheme of arrangement concluded between the companies for merger with each other.

(4) Where the information as referred to in Sub-section (3) is given to the Office, it shall study the matter given information and give its decision within three months.(5) On receipt of an approval from the Officer for merger pursuant to Sub-section (4), all the assets and liabilities of the merging company shall be deemed to have been transferred to the merged company.(6) The office shall maintain separate records of the merging company in the company registration book.(7) Except as otherwise provided in the memorandum of association, articles of association or consensus agreement of the company, a shareholder who does not express his/her consent in writing to the unification or merger or alteration in, or transfer of, shares of the company or the sale of entire assets of the company shall be entitled to get the company’s assets valuated prior to such unification, merger or alteration in or transfer of shares or sale of assets and get return of the amount in proportion to the shares held by him/her from the merging company.


(8) Notwithstanding anything contained elsewhere in this Section, the Office shall not give approval for the merger of a company if such merger appears to create a monopoly or unfair trade restriction or to be contrary to public interest.

178. Power to give directive : If the office receives information through any source that any company, its director or officer or other employee has not done any such act as required to be done pursuant to this Act or the memorandum of association or articles of association or the consensus agreement, in the case of a private company, or has committed or is going to commit any act in contravention of this Act or the articles of association of the company, the Office may ,by making or causing to be made an inquiry into the matter, give necessary directive to the concerned company , its director, officer or employee to do, or cause to be done, any act required to be done accordingly or to refrain from doing any prohibited act; and it shall be the duty of the concerned person to comply with such directive .

179. Bonus share : (1) A company may, by adopting a special resolution in the general meeting, issue bonus shares to its shareholders, out of the amount available for the distribution as dividend.(2) Where a company is to issue bonus shares pursuant to Sub-section (1), the company shall give information thereof to the Office before issuing such shares.

180. Act done or action taken in contravention of this Act or the articles of association to be void: Except as otherwise provided in this Act or the memorandum of association or articles of association, where any act or action required to be done or taken under this Act or the memorandum of association or articles of association has not been done or taken or any act or action prohibited the under has been done or taken by any company or in respect of such company, such act or action shall be void.

181. Notice on business of company : (1) Where any notice is required to be given pursuant to this Act, memorandum of association, and the person entitled to such notice expresses, before or after the specified time, in writing that the notice is not necessary, the notice shall be deemed to have been received.(2) If any shareholder is present in any Meeting in person or by proxy, he shall be deemed to have given up his/her right to receive a notice required to be given to him/her pursuant to this Act, the memorandum of association or articles of association.

182. Dividend: (1) Except in the following circumstance, dividend shall be distributed to the shareholders within forty five days of the decision made to provide dividend:(a) If any law prohibits the distribution of dividend;(b) If the right to receive dividend is subject to any dispute;(c) If, in a circumstance beyond control of the company or for any reason, dividend cannot be distributed within the said time-limit.(2) A company fully or partly owned by the Government of Nepal may distribute dividend only after obtain in prior approval of the Government of Nepal; and the Government of Nepal may give necessary directive on the matter of dividend to be distributed by such company.(3) In the event of failure to distribute a dividend within the tine limit as referred to in Sub-section(1), the dividend shall be distributed together with the interest thereon at such rate as may be prescribed.(4) The person whose name is maintained in the shareholder register at the time of declaration of a dividend or his/her legal heir shall be entitled to such dividend.CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

(5) A company shall not pay or distribute a dividend in any other manner except out of the amount of profits set aside for the distribution of dividend.(6) Before paying or declaring a dividend out of the profits for any financial year, a company shall have fully deducted the pre operation expenses, the amount required to be depreciated in accordance with the accounting standards fixed by the competent authority under the prevailing law, any amount required to be paid or set aside out of the profits under the prevailing law or the amount or accumulated loss in previous financial years.Provided, however, that if the prevailing law requires the establishment of a reserve or consolidated fund of any amount prior to distributing dividend, any company which is required to comply with such legal requirement shall not distribute divided without establishing such reserve or consolidated fund.(7) Subject to the various provisions contained in this Section, the board of directors of any company may, in the following circumstance, distribute interim dividend out of the profits for the previous financial year:

(a) where the articles of association contain a provision on the distribution of interim dividend;

(b) where the annual financial statement for the financial year out of the profits of which year interim dividend is to be distributed has already been certified by the auditor and approved by the board of directors.(8) No company shall pay or distribute any amount in cash or kind, chargeable on its funds, to its shareholders, except a dividend approved by the general meeting.(9) The amount of dividend not claimed/received by any shareholder even after the empery of a period of five years after the date of resolution adopted by the company in its general meeting to distribute dividend shall be credited to the investor protection fund to be established under Section 183.(10) In crediting the amount as referred to company shall, prior to the expiry of the period mentioned in that Sub-section, publish a notice in a national daily newspaper inviting the concerned to receive the dividend, within the tie limit of at least on month.(11) A company shall credit the amount of a dividend to be distributed to its shareholders pursuant to this Act to a separate account within forty five days after the date of approval by the general meeting and pay the amount of dividend out of that a account; and the company shall not use such amount for any other purpose.183. Investor protection fund : (1) Where any investor does not present a claim to have refunded the amount invested in the shares of a company even within five years, there shall be established an investor protection fund to which such amount shall be credited.(2) The amount credited to the fund established pursuant to Sub-section(1) may be spent for the improvement in the capital market, investment policy, companies law or law relating to trade, business and profession, training to the employees of the Office or the company or in any other activity relating to the company administration.(3) The management an operation of the fund established pursuant to Sub-section (1) shall be as decided by a committee consisting of the Registrar, the Chairperson of the Securities Board or his/her representative and one representative appointed by the Securities Board from amongst the organization operating the stock exchange.(4) The Office shall maintain the records of expenses made out of the fund established pursuant to Sub-section (1) and have the fund audited.(5) Any amount obtained from the Government of Nepal, any donor agency or any person or body may also be credited to the fund established pursuant to Sub-section (1).


(6) Where any investor does not present a claim pursuant to Subsection(1) ,prior to crediting the amount to the investor protection fund, a notice shall be published in a national daily newspaper inviting the concerned to receive such amount, within the time limit of at least one month.

184. Office of company : (1) Every company shall place a signboard containing its name and address in the Nepali language outside its registered office in a manner conspicuous to all.(2) Every company shall have the address of its registered office registered with the Office within three months of its incorporation.(3) A company may change the address of its registered office by giving a prior notice to the Office.(4) A company shall, after its registration, shall give information of its contact address such as telephone, fax, email, etc. to the Office; and where such address is changed, the changed address shall be made available to the Office promptly.(5) The Office may gradually prepare an index of addresses of the registered offices of companies and addresses as referred to in Sub-section (4) and keep such index open for inspection by the general public.

185. Appointment of company secretary : (1) A public company with the paid –up capital of ten million rupees or more shall appoint to the pot of company secretary a Nepalese citizen who has the qualification mentioned in Sub-section (2).(2) A Nepalese citizen who has worked in the related field for at least two years after obtaining the professional certificate of company secretary issued by a native or foreign body authorized to issue the professional certificate of company secretary pursuant to the prevailing law or who has worked in the related field or in the field of company management for at least three years after doing at least bachelor degree in law, management ,commerce or economics may be appointed to the post of company secretary.Provided, however, that this provision shall not apply to the company secretary who is incumbent at the time of commencement of this Act for three years after the date of commencement of this Act.(3) No director of the concerned company shall be eligible to be appointed as the company secretary of such company.(4) A person shall not be appointed to the post of company secretary of more than one company at the same time.Provided, however, that this provision shall not bar the appointing of the company secretary of any principal company to the post of company secretary of the subsidiary company of such company.(5) Where it is provided by this Act, the prevailing law or articles of association that any act has to be done by or through the company secretary, and the post of company secretary remains vacant in the company or any reason the incumbent company secretary fails to do such act or shows has inability to do such act, then any such employee of the company, who has the qualification referred to in this Act, as designated by the board of directors to do such act may perform such act in the capacity of company secretary.

186. Functions, duties and powers of company secretary : (1) It shall be the duty of the company secretary to implement, or cause to be implemented, the decisions made by the board of directors and the general meeting ad the matters directed by the Office or the concerned bodies and to submit such returns, documents, decisions etc. as required to be submitted by the company to the Office or any other body pursuant to this Act or the prevailing law within the specified period.CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

(2) Subject to this Act, the memorandum of association and articles of association, the company secretary shall perform the following functions:(a) To call the meeting of the board of directors or the general meeting;(b)To prepare the agenda to be discussed in the meeting of the board of directors or the general meeting and send it to the concerned directors or shareholders;(c) To maintain the records of, authenticate and take charge of, the decisions of the meeting of the board of directors or the general meeting;(d) To send a notice of the allotment of shares and a call on shares pursuant to the decision of the board of directors;(e) To accurately an properly maintain, take charge of, and authenticate, the shareholder register and the records of shareholders and debenture-holders;(f) To refer the matter to the board of directors or the chief executive to record the pledge or mortgage of, and execute the transfer or transmission of any shares or debentures;(g) In cases where a claim, petition, grievance, suggestion, advice etc. has been made by any shareholder or debenture-holder in writing, to transmit such matter to the board of directors or chief executive or Office or other bodies; and to inform in writing the concerned shareholder or debenture-holder of the results of any act and action done and taken in regard thereto;(h) To perform such other functions as specified to be performed by the company secretary under the prevailing law or such other functions as prescribed.(3) Except as per the decision of the general meeting, the company secretary shall not do, or cause to be done, any such act from or through the company as is to yield benefits to him/her.(4) The company secretary shall observe the code of conduct as prescribed.

187. Validity of agreement between shareholders : (1) An agreement entered into between the shareholders of a company in respect of the management, operation of the company and the use of voting right conferred to them shall be binding on them.Provided, however, that if any provision of such agreement is prejudicial to the interest of the company or its minority shareholders, such provision shall ipso facto be invalid to the extent.(2) The concerned shareholder shall submit two copies of the agreement entered into under Sub-section (1) to the company within fifteen days after the date on which such agreement was entered into. The company shall submit a copy of the agreement so received from the shareholder to the Office within fifteen days after the receipt of the same.

188. Effect of inoperativeness of the Companies Ordinance, 2062(2005) : With the Companies Ordinance, 2062 (2005) being inoperative, unless a different intention appears, the inoperativeness shall not: (a) revive anything not in force or existing at the time at which the Ordinance became inoperative;(b) affect the matter in operation as per the Ordinance or anything duly done or any punishment suffered there under.(c) affect any right, privilege, obligation or liability acquired ,accrued or incurred under the Ordinance;(d) affect any penalty, punishment or forfeiture incurred under the Ordinance;(e) affect any action or remedy made or taken in respect of any such right, privilege, obligation, liability, penalty or punishment as aforesaid; and any such legal proceeding or remedy may be instituted, continued or enforced as if the Ordinance were in force.

**********CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

SECURITIES ACT, 2063 (2007)

Date of Authentication and Publication 30 Paush 2063 (January 14, 2007)

Preamble: Whereas, it is expedient to update the laws relating to securities by amending and consolidating such laws in order to regulate and manage the activities of the securities markets and persons involved in the business of dealing in securities by regulating the issuance, purchase, sale and exchange of securities for the purpose of protecting the interests of investors in securities, by developing the capital market to mobilize necessary capital for the economic development of the country; Now, therefore, be it enacted by the House of Representatives in the First Year of the issuance of the proclamation of the House of Representatives, 2006.

Chapter-1Preliminary

1. Short title and commencement: (1) This Act may be called "Securities Act, 2063".(2) This Act shall be deemed to have been commenced from 6 Ashoj 2063 (September 22, 2006).

2. Definitions: Unless the subject or the context otherwise requires, in this Act,-(a) "Chairperson" means the Chairperson of the Board appointed under Section 7.(b) "License" means the license issued by the Board under this Act to operate the stock exchange or securities business.(c) "Company" means a company incorporated under the company laws force.(d) "Depository means a bank or financial institution that makes agreement with the scheme manager and thereby undertakes the responsibility of providing custodial services such as safe holding and operating the assets of any collective investment scheme.(e) "Prescribed" or "as prescribed" means prescribed or as prescribed in the Rules framed under this Act.(f) "Securities" means any shares, stocks, bonds, debentures, debenture stocks or collective investment scheme certificate issued by a body corporate or treasury bonds, saving bonds or bonds issued by the Government of Nepal or by a body corporate against the guarantee of the of the Government of Nepal, and this term also includes such other securities as may be specified by the Board to be transacted or transferable through the stock exchange or the instrument to purchase, sell or exchange such securities.(g) " Securities transactions" means the issue, purchase, sale or exchange of securities and other acts pertaining thereto;(h) "Registration of securities" means the registration of securities by a body corporate with the Board pursuant to Section 27.(i) "Stock exchange" means a market, place or facility performing the purchase, sale or exchange of securities on regular basis by bringing together to the purchasers and sellers of securities.(j) " Securities business" means transactions in securities to be carried on by a company or body licensed to carry on the securities business under this Act.(k) "Securities business person" means a company or body licensed under Section 58 to carry on securities business.(l) "Issuance" means an offer made by a body corporate to raise capital and acts related there to, and this term also includes the issuance of securities to promoters.(m) "Private placement" means an act to make an offer by a letter, dispatch or any electronic communication media for the sale of securities to a maximum of fifty investors.CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

(n) "Board" means the Nepal Securities Board established under Section-3.(o) "Exchange" means an act concerning purchase, sale or transfer of securities already issued pursuant to this Act.(p) "Prospectus" means a prospectus required to be published by a body corporate pursuant to Section 30 prior to the public issue of securities.(q) "Scheme manager" means a body corporate managing a collective investment scheme of participants with an object to provide an efficient investment service pursuant to this Act.(r) "Investment fund" means a fund created out of amounts deposited by participants in a collective investment scheme in accordance with a contract as has been taken in its custody by a scheme manager with object to provide an efficient investment service or assets related with such a fund, and this term also includes a fund which the scheme manager has taken in its responsibility in accordance with this Act or additional assets created from management of investment of assets and amount accumulated by way of considers anion.(s) "Participant" means a person or body that makes investment in a collective investment scheme operated by a scheme manager pursuant to this Act.(t) "Member" means a member of the Board, and this term also includes the Chairperson.(u) "Body corporate" means a body corporate established under prevailing which has the capacity of public issuance of securities. Provided that, it shall not include private companies.(v) "Public issue" means an offer made by a body corporate before the general public for the subscription of its securities by publishing a prospectus.(w)Collective investment scheme" means such an investment fund, unit trust or similar other participatory fund management program as specified by the Board, from time to time as may be operated by a scheme manager in accordance with this Act in order to distribute returns to, the participants of the concerned program proportionately, accrued from the efficient investment service on saving investment amount which has been undertaken in custody of the manager and so mobilized that various persons or bodies that have participation in it.(x)"Enlisting" means the enlisting of securities on a stock exchange for the purposes of purchasing, selling or exchanging securities through the stock exchange;(y)"Right issue" means an offer made to the existing shareholder or any person nominated by such shareholder for the subscription of any securities issued by a body corporate.

Chapter-2Provisions Relating to Board

3. Establishment of Board: (1) There shall be established a Board by the name of Nepal Securities Board in order to regulate and manage the activities of the securities markets and persons involved in securities business by regulating the issue, purchase, sale and exchange of securities in order to develop capital market and protect the interests of investors in securities.(2) The Board to be established under Sub-section (1) shall consist of the members as follows:-

(a) A person appointed by the Government of Nepal -Chairperson(b) Joint Secretary, Ministry of Finance -Member(c) Joint Secretary, Ministry of Law, Justice and Parliamentary Affairs -Member(d) Representative, Nepal Rastra Bank -Member(e) Representative, Institute of Chartered Accountants of Nepal -Member(f) Representative, Federation of Nepalese Chambers of Commerce and Industries -Member(g) A person nominated by the Government of Nepal from amongst the experts who have obtained at least master's degree in economics, management, finance, commerce or law from a


recognized university and gained at least seven years of experience in stock exchange management, capital market development, finance and economic sector -Member

(3) The concerned organization shall, in nominating its representative pursuant to Clauses (e) and (f) of Sub-section (2), nominate a person who has obtained at least bachelor's degree and gained at least seven years of experience in accounts, industry, commerce, finance, banking, economics or law matters.(4) The tenure of office of the member nominated pursuant to clause (g) of Sub-section (2) shall be three years.(5) No act or proceeding of the Board shall be affected merely on the reason of any vacancy in office of any member.(6) An officer employee designated by the Board shall act as the Secretary of the Board.(7) If the Board thinks it necessary, it may invite any native or foreign expert, adviser to attend its meeting as an observer.(8) The central office of the Board shall be situated in Kathmandu Valley; and the Board may, as required, open its branch or contact office within or outside of Nepal.

4. Board to be an autonomous and body corporate: (1) The Board shall be an autonomous body corporate having perpetual succession.(2) The Board shall have a separate seal of its own for all of its acts and proceedings.(3) The Board may, like an individual, acquire, use, purchase, sell, or otherwise deal with, any movable or immovable property.(4) The Board may, like an individual, sue by its own name and be also sued in the same name.

5. Functions, duties and powers of the Board: The functions, duties and powers of the Board shall be as follows:-(a) To offer an advice, as per necessity, to the Government of Nepal on matters incidental to the development of capital market,(b) To register the securities of any corporate body established with the authority to make a public issuance of its securities,(c) To regulate and systematize the issue, transfer, sale and exchange of registered securities,(d) To grant permission to any corporate body, which is desirous of operating a stock exchange, to operate the stock exchange subject to this Act or the Rules and bye -laws framed under this Act,(e) To regulate and monitor the activities of the stock exchange;(f) To inspect as to whether or not any stock exchange is executing its activities in accordance with this Act or the Rules and Bye-laws framed under this Act, and to suspend or revoke the license of such a stock exchange, if it is found that the same has not been done,(g) To issue a license to companies or institutions, which are desirous of carrying on the securities business subject to this Act or the Rules and Bye-laws framed under this Act,(h) To regulate and monitor the activities of securities business person,(i) To classify securities business persons and fix their standards according to their functions and capability by fulfilling such procedures as prescribed,(j) To grant a permission to operate collective investment schemes and investment fund programs, and to regulate and monitor the same,(k) To approve Bye-laws of stock exchanges and those bodies which are related with securities business and engaged in securities transactions, an d to issue orders to stock exchanges and those bodies which are related with securities business and engaged in securities transactions to make necessary amendment in their Bye-laws with a view to making necessary provisions concerning the development of capital market and protecting the interests of investors in securities,(l) To systematize the clearance of accounts related to securities transactions, CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

(m) To supervise whether or not security business persons have maintained such conduct as prescribed in this Act or the Rules, Bye-laws and Directives framed under this Act, while carrying on securities business, and suspend or revoke the license to carry on securities business where any securities business person is not found to have maintained such a conduct,(n) To make or cause to be made, such arrangements as may be necessary to regulate the volume of securities and the mode of securities transactions for the promotion, development and healthy operation of stock exchanges,(o) To make such arrangements as may be necessary to prevent insider trading or any other offense relating to securities transactions as referred to in Chapter-9 for the protection of the interests of investors in securities,(p) To review, or cause to be reviewed, financial statements submitted by corporate bodies issuing securities and securities business person, sand give such directives to the concerned corporate bodies as it deems necessary in this connection,(q) To regulate and make transparent the act of acquiring the ownership of a company there by gaining control over its(r) To maintain coordination and exchange cooperation with the concerned agencies in order to supervise and regulate matters concerning securities or company affairs,(s) To perform or cause to be performed such other functions as may be necessary in relation to securities and the development of capital market.

6. Meeting and decision of Board: (1) The Chairperson shall call the meeting of the Board as per necessity. Such a meeting shall be held at least once a month.(2) The meeting of the Board shall be held on such date, at such time and at such place as may be specified by the Chairperson.(3) The meeting of the Board shall be presided over by the Chairperson and by a member chosen by the members from amongst themselves, in the absence of the Chairperson.(4) Where at least two members request in writing to call a meeting of the Board, the Chairperson shall have to call a meeting of the Board within seven days from the date of receipt of such a notice.(5) The Secretary of the Board shall provide the agenda to be discussed at the meeting to the members, along with the notice for the meeting.(6) The presence of more than fifty percent of the total number of members of the Board shall be deemed to have been constituted a quorum for a meeting of the Board.(7) A majority opinion shall prevail at the meeting of the Board and in the event of a tie; the person presiding over the meeting shall exercise the casting vote.(8) There shall be maintained a separate minute book recording the names of members present at, matters discussed at and decisions made by each meeting of the Board, and such a book shall be signed by members present.(9) The decisions made by the Board shall be authenticated by the Secretary of the Board and shall provide to all members.(10) Other procedures relating to the meeting of the Board shall be as determined by the Board itself.

7. Appointment of Chairperson: (1) The Government of Nepal shall, subject to Sub-section (2), appoint the Chairperson to act as the administrative chief of, and perform the day-to-day business of the Board.(2) In making appointment to the office of Chairperson pursuant to Subsection (1), the Government of Nepal shall appoint to the office of Chairperson an appropriate person from amongst the renowned persons who have obtained at least master's degree and gained at least seven years of experience in the field of stock exchange management, capital market development, economics, finance, commerce, management or law.CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

(3) There shall be formed a committee under the convenorship of the member of National Planning Commission responsible for the concerned sector and consisting of the Secretary at the Ministry of Finance and an expert in the filed of securities as its members, for recommending a name for the purpose of appointment of Chairperson pursuant to Sub-section (2); and the appointment of Chairperson shall be made pursuant to this Section on recommendation of this committee.(4) The committee referred to in Sub-section (3) shall, in recommending a name, recommend the names of at least three persons who have possessed the qualification pursuant to this Act.(5) In recommending a name for the Chairperson pursuant to Subsections (3) and (4), the committee shall determine its Rules of procedures on its own.(6) The term of office of Chairperson shall be of four years, and he or she may be reappointed for a maximum period of four years.(7) Notwithstanding anything contained elsewhere in this Section, where the Chairperson commits any act or action contrary to the interests of the Board or the development of capital market and causes any loss and damage to the Board, the Government of Nepal may form an inquiry committee as prescribed and, on recommendation of such a committee, remove him or her from the office of the Chairperson. Provided that prior to so removing from his or her office, the Chairperson shall be provided with appropriate opportunity to defend himself or herself.

8. Functions, duties and powers of the Chairperson: (1) The functions, duties and powers of the Chairperson shall be as follows:(a) To perform such functions as may be necessary for the protection of the interests of investors in securities for the development of capital market,(b) To regulate and monitor, or cause to be regulated and monitored, stock exchanges and transactions of securities business persons in order to make transactions in securities strengthened, effective and reliable,(c) To act as the executive chief of the Board,(d) To submit such long-term and short-term plans and policies as be necessary to be adopted by the Board for the management of stock exchanges and development of capital market to the Board for its approval,(e) To call or cause to be called the meeting of the Board and preside over the same,(f) To prepare annual programs and budget of the Board and submit the same to the Board for its approval,(g) To implement or cause to be implemented the decisions made by the Board,(h) To inspect and supervise day-to-day business of the Board and perform the functions in accordance with the objectives of the Board,(i) To appoint the advisers and employees required for the Board as prescribed,(j) To perform or cause to be performed such other functions as may be entrusted to him or her by the Board(2) The functions, duties and powers of the Chairperson, other than those referred to in Sub-section (1) shall be as prescribed.

9. Remuneration, meeting allowance and other facilities of Chairperson and member: The remuneration, meeting allowance and facility entitled to, by the Chairperson and member and daily and traveling allowance entitled to, by the Chairperson and member while making travel within or outside Nepal shall be as prescribed.

10. Qualification of Chairperson and member: In order to be appointed as a Chairperson or a member, as the case may be, a person shall have to possess the qualification as follows:-(a) One who is a citizen of Nepal;(b) One who has maintained high moral character;CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

(c) One who has gained at least seven years of professional experience in the field of stock exchange management, capital market development, economics, finance, commerce, management or law, and(d) One who is not disqualified under Section 11.

11. Disqualification of Chairperson and member: Any of the following persons shall not be eligible to be appointed to the office of Chairperson or member, as the case may be:-(a) One who is an officer-bearer of a political party,(b) A person involved in securities business,(c) One who is adjudicated as an insolvent,(d) One who is insane,(e) One who has been convicted by the court of an offense involving moral turpitude.

12. Circumstances on which a Chairperson and a member may be removed from office: (1) Where there occurs a circumstance for removal of the Chairperson or the member referred to in subsection (2), the Government of Nepal shall remove the Chairperson and member, as the case may be. Provided that prior to making such a removal, the Government of Nepal shall not deprive the concerned person of a reasonable opportunity to defend him/herself.(2) The Chairperson and the member, as the case may be, shall be removed from the office in any of the following circumstances:-(a) If one is disqualified to be a Chairperson and a member, as the case may be, pursuant to Section 11,(b) If one commits any act contrary to the interest of investors in securities or any act that may cause loss or damage to the development of capital market,(c) If one suffers from lack of competence to implement, or cause to be implemented, such functions required to be performed by the Board to attain the objectives of the Board pursuant to this Act or the Rules framed under this Act,(d) If one has been held disqualified to carry on any occupation or business by the reason of misconduct and his or her certificate has been revoked or he or she has thus been restricted to carry on a business,(e) If one remains absent from three consecutive meetings of the Board without giving a notice.

13. Resignation of Chairperson and member: The Chairperson or the member, as the case may be, may relieve of his or her office by tendering a resignation in writing to the Government of Nepal.

14. Fulfillment of vacancy: If the office of the Chairperson or any member falls vacant prior to the completion of his/her tenure of office, the Government of Nepal shall appoint any person to that vacancy for the remaining period of tenure by fulfilling the procedures as referred to in this Act.

15. Proceeding not to be invalid: No act or proceeding of the Board shall be invalid merely by the reason of any defect in the appointment of the Chairperson or member, as the case may be, or the formation of the Board or vacancy in office of the Chairperson or any member.

16. Powers to form committee or sub-committee: (1) The Board may, form any committee or sub-committee, as per necessity, for the operation of its business. Such a member as specified by the Board shall be the coordinator of the committee or sub-committee, as the case may be, so formed.


(2) The functions, duties, powers, terms of reference, meeting allowance and procedures of the committee or subcommittee, as the case may be, formed pursuant to Sub-section (1) shall be as prescribed by the Board.

17. Delegation of powers: (1) The Board may, as per necessity, delegate any of the powers conferred to it to the Chairperson, any member or any committee or sub-committee, as the case may be, formed pursuant to Section 16.(2) The Chairperson may, as per necessity, delegate any of the powers conferred to him or her to any member, any committee or sub-committee, as the case may be, formed pursuant to Section 16 or any employee of the Board.

18. Requirement of disclosure in regard to conflict of interest: Where any proposal in which any member has direct or indirect personal interest is to be discussed at the meeting of the Board, such a member shall give information as to such interest to the Board prior to the commencement of discussion on such matter. Except so permitted by the Board, such a member shall not be entitled to participate in the discussion and decision of such a matter and cast his or her vote thereon. Provided that the presence of such a member shall be valid in order to constitute a quorum of the meeting.

19. Provisions relating to accounts experts, advisors and employees: (1)The Board shall have such numbers of accounts experts, advisors and employees as may be necessary for the efficient operation of the functions of the Board.(2) The appointment, remuneration, facilities and terms and conditions of service of the accounts experts, advisors and employees of the Board shall be as prescribed.

20. To take oath: The Chairperson, member, advisor and employee of the Board appointed for the first time in the Board shall, prior to assuming the functions of their office, take an oath of secrecy and honesty, as prescribed.

21. Secrecy: (1)No Chairperson, member, advisor, employee, auditor, agent or representative of the Board shall perform the following business:-(a) To supply or disclose any confidential information or notice obtained in the course of performing the duties of office to another person,(b) To use such information or notice for personal benefits.(2) Notwithstanding anything contained in Sub-section (1), any confidential information or notice may be disclosed on the following circumstances known to him or her in accordance with the procedures as specified by the Board:-(a) Where the disclosure of such information or notice has been made in performing one's duty publicly, rendering assistance to any law enforcing authority, carrying out an order given by a court or competent authority,(b) Where such information or notice has been supplied to the external auditor of the Board in the course of performing one's duties,(c) Where such information or notice has been disclosed in the interests of the Board in the course of legal proceedings.

22. Fund of Board: (1) The Board shall have a separate fund of its own.(2) The following amounts shall be credited to the fund as referred to in Sub-section (1):-(a) Amounts received from the Government of Nepal,CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

(b) Amounts obtained as grants, assistance or loans from any native, foreign or international organizations, institutions or bodies, Provided that prior approval of the Government of Nepal shall be obtained in receiving such grants, assistance or loans.(c) Amounts received by way of the license fees,(d) Amounts received by way of the fees for registration of securities,(e) Amounts received by way of the fees, charges, dues for transactions in securities,(f) Amounts received by way of fines imposed by the Board,(g) Amounts received from any other sources.(3) All amounts to be obtained to the fund of the Board pursuant to Sub-section (1) shall be credited to an account to be opened with any commercial bank within Nepal.(4) All the expenditures t o be made on behalf of the Board shall be chargeable on the fund as referred to in Sub-section (1). (5) In making expenditures pursuant to Sub-section (4), such expenditures shall be made subject to the budget approved by the Board for the incomes and expenditures to be made in each fiscal year.(6) The operation of the fund of the Board shall be as prescribed.

23. Provision of revolving fund: (1) The Board may establish a revolving fund to manage its source of income and such amounts as specified by the Board shall be credited to that fund each year.(2) The amounts of the revolving fund may be held in securities issued by the Government of Nepal or in such a periodic account as may be prescribed by the Board.(3) Generally, no moneys held in the revolving fund, other than income earned out of the moneys in that fund, shall be spent.(4) Provisions relating to the operation of the revolving fund shall be as prescribed.

24. Accounts of Board: (1) The Board shall have to maintain updated records of its activities.(2) The Board shall have to maintain accounts of its incomes and expenditures, balance sheet and accounting details of each fiscal year in accordance with accounting system conforming to international practice no later than six months after the expiry of such a fiscal year.

25. Auditor and audit: (1) The accounts and books of the Board shall be audited by the Auditor General or any auditor designated by him.(2) While auditing the accounts and books of the Board, by the auditor appointed pursuant to Sub-section (1), such an auditor shall mention, inter alia, the following matters in his or her audit report:(a) Whether the statements of incomes and expenditures truly reflect the incomes and expenditures of the Board in that fiscal year,(b) Whether the balance sheet of that fiscal year reflects the true economic condition of the Board.

26. Annual report: (1) The Chairperson shall have to present an annual report of the activities of the Board before the Board no later than four months after the expiry of each fiscal year and also provide a copy of such a report to the Government of Nepal.(2) The Chairperson shall in each year make public the annual report of the Board as referred to in Sub-section (1).


Chapter-3Registration and Issuance of Securities

27. Registration of securities:(1) A body corporate shall have to register securities to be issued by it with the Board prior to their issuance.(2) A body corporate shall have to make an application in the prescribed format, accompanied by its memorandum of association, articles of association, documents related with such securities, and the prescribed fees, to the Board for registering securities pursuant to Sub-section (1).(3) Where an application is received pursuant to subsection (2), the Board shall make necessary inquiry into the matter and, if it considers appropriate to register such securities, register such securities in the register as prescribed, indicating the details of such securities and issue the securities registration certificate in the prescribed format to the concerned body corporate.(4) Notwithstanding anything contained elsewhere in this Section, a body corporate which has already issued securities prior to the commencement of this Act shall register such securities with the Board in accordance with this Act within one year from the date of commencement of this Act.

28. Sale and transfer of securities:(1) Where a body corporate allots or sells securities after registering such securities, the body corporate shall have to give a notice along with the details of securities so allotted or sold to the Board within seven days.(2) Upon receipt of a notice as referred to in Sub-section (1), where it appears necessary to make the allotment and sale of such securities fair and informative for the interests of investors and the body corporate, the Board may give necessary directive to the concerned body corporate. It shall be the duty of the concerned body corporate to abide by such directive.

29. Securities to be issued publicly: (1) Where a body corporate is to sell and distribute securities to more than fifty persons at a time, it shall make public issue for the sale and distribution of such securities.(2) The period to be open for making application of the securities to be issued pursuant to Sub-section (1) shall be as prescribed.(3) The provisions relating to the value and allotment of securities for which public issue has to be made shall be as prescribed.(4) Where securities for which public issue has been made once could not be sold and have to be re-issued again within one year, the body corporate which so issues the securities may, with the approval of the Board, issue such securities by mentioning the matters which are different than the matters set forth in the previously published prospectus and the prospectus previously published.

30. Prospectus to be published: (1) A body corporate shall have to get a prospectus approved by the Board for making public issue of securities in accordance with this Act after the commencement of this Act and publish the prospectus for information to all the concerned. While publishing the prospectus in such a way, the prospectus shall also mention the place where the general public can obtain or inspect the prospectus.(2) Notwithstanding anything contained in Sub-section (1), it shall not be required to issue a prospectus to issue the following securities:(a) Securities issued by the Nepal Rastra Bank,(b) Securities issued against the full guarantee of the Government of Nepal,(c) Securities proposed to be sold to up to fifty persons at a time,(d) Securities issued to own workers or employees,(e) Securities permitted by the Board as to issue and sell without issuing a prospectus.CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

31. Approval of a prospectus: The Board shall approve only a prospectus which contains such information as may be adequate for investors to make evaluation as to the assets and liabilities, financial status, profit and loss of the issuer and matters expected in the future.32. Matters to be referred to in prospectus: Every prospectus shall contain such general matters as required to be set down in the prospectus, capital and other information of the issuer, main functions to be done by the issuer, information pertaining to legal action, economic condition, general administration, management of the issuer, information relating to the expert preparing the prospectus and the economic statements contained in the prospectus and such other matters as may be prescribed.

33. Liability for matters referred to in prospectus: (1) The concerned body corporate and the director signing a prospectus and the expert preparing such a prospectus shall be personally and collectively liable for the truth of the details and documents underpinning the information set down in the prospectus submitted to the Board for the purpose of registering securities with the Board and obtaining permission to issue such securities.(2) Where any person who subscribes for any securities on the faith of the matters set down in the prospectus subsequently sustains any loss or damage by the reason that the matters set down in the prospectus have been set down with mala fide intention or untrue or false statements have been included therein knowingly, the body, director or experts preparing the prospectus shall be liable to pay compensation for such loss or damage. Provided that no director shall be liable to pay such compensation if he or she proves that he or she has resigned prior to making a decision on the matters set down in the prospectus with ulterior motive or knowingly or that he or she did not know that the prospectus was untrue.(3) Where any investor sustains any loss or damage by the reason that the prospectus, information, statements or returns submitted by a body corporate to the Board, such an investor may make a petition to the concerned District Court for compensation within thirty five days from the date of knowledge within one year after the making of investment.

34. A body corporate to make a notice: (1)Everybody corporate issuing securities shall provide information on the following matters to the Board and its shareholders as soon as possible:(a) Such matters as may be necessary and supportive to evaluate its financial condition,(b) Such information as may be capable of affecting the transaction of stock exchanges or the value of securities.(2) Everybody corporate issuing securities shall also provide the Board and its shareholders with the notice and information as prescribed, in addition to the matters set down in Sub-section (1).

35. Compensation for revocation of enlisting, if any: Where a body corporate issuing any securities has enlisted the securities by making agreement with a stock exchange and the stock exchange revokes the enlisting of such securities by the reason of the failure of such body corporate to observe such matters as required to be observed by it under this Act or the Rules or Bye-laws framed under this Act any shareholder sustains any loss and damage by virtue of such revocation of enlisting, the directors of such a body corporate shall personally or collectively pay compensation to such a shareholder.


Chapter-4Provisions Relating to Stock Exchange

36. License to be obtained to operate stock exchange:(1) A person who desires to operate a stock exchange shall obtain from the Board the license to operate the stock exchange under this Act.(2) No person shall operate a stock exchange or purchase, sell or exchange securities without obtaining from the Board a license under this Act nor shall any person use the name of stock exchange without obtaining such a license.(3) Notwithstanding anything contained in Sub-section (2), Nepal securities exchange market which is in operation at the time of commencement of this Act shall have to make an application to the Board for the license to operate a securities exchange market pursuant to this Act within one year from the date of commencement of this Act. Nothing shall be deemed to have been hindered the operating of the securities exchange market by Nepal securities exchange market within that period.(4) Where Nepal Securities Exchange Market fails to make an application to the Board for a license to operate a securities exchange market within the period referred to in Sub-section (3), Nepal securities exchange market shall not be entitled to operate the stock exchange after the expiry of that period.(5) Notwithstanding anything contained elsewhere in this Section, while incorporating any stock exchange as a company with limited liability under the company's law in force after the commencement of this Act, the Company Registrar's Office shall incorporate it only with the recommendation of the Board.

37. Application to be made to carry on stock exchange:(1) Only a body corporate may make an application to the Board for a license to carry on a stock exchange.

(2) A body corporate shall have to make an application referred to in Sub-section (1) in such format and accompanied by such details. Documents and fee as may be prescribed.

38. Issue of a license to carry on stock exchange: (1) If an application is received pursuant to Section 37, the Board may, if it is satisfied with the following matters by making necessary inquiry into the matter, issue a license to carry on a stock exchange in such format as may be prescribed:(a) Where it considers that the issue of the license to carry on a stock exchange would serve the interests of investors and general public or the issuance of such a license is necessary for the proper operation of the stock exchange,(b) Where the applicant body corporate has fulfilled the matters referred to in Sub-section (2).(2) A body corporate which makes an application to the Board for a license to carry on a stock exchange pursuant to subsection (1) shall set out the following matters in the application:(a) Legal provisions of establishing the body corporate its memorandum of association stipulates that the body corporate has been established with object to establish and operate at stock exchange,(b) The body corporate maintains its paid up capital as prescribed by the Board that such capital is not less than fifty million rupees so long as the body corporate operates the stock exchange,(c) There are sufficient grounds to the satisfaction of the Board that the body corporate can provide such infrastructures and facilities as may be required to operate the stock exchange,(d) Matters relating to enlisting or making similar other provisions to recognize securities to be transacted through itself,(e) Matters that the interests of investors would be protected through regular operation of transactions in securities through the provisions and systems to be adopted by the body corporate in relation to the exchange and transactions proposed by the body corporate for the operation of the stock exchange,


(f) That it has appropriate provisions on settlement of transactions in the stock exchange and publication of records thereof and statements of transactions,(g) That complaints filed in relation to transactions carried on by its members can be examined in a proper manner,(h) That action can be taken as mentioned in the Bye-laws in the event of failure of its members to fulfill the liabilities under the contract.

39. The Board may specify terms: (1) In issuing the license to carry on a stock exchange, the Board may specify necessary terms taking into account the condition of capital market, healthy operation of the stock exchange and interests of investors. It shall be the duty of the concerned stock exchange to observe such terms.(2) The Board may, as per necessity, alter and modify the terms specified pursuant to Sub-section (1), having regard to the condition of capital market, healthy operation of the stock exchange and interests of investors.

40. Power to refuse to issue license to carry on stock exchange: (1) Notwithstanding anything contained in Section 38, the Board may, on any of the following conditions, refuse to issue a license to a body corporate to carry on a stock exchange:(a) Where it is not necessary to carry on the stock exchange based on the development of industry and business and feasibility of the existing transactions in securities,(b) Where it does not appear just and appropriate to allow the operation of stock exchange for the protection of interests of investors.(2) Where the Board is to refuse the issue of a license to anybody corporate to carry on the stock exchange on any condition referred to in subsection (1), the Board shall give a notice assigning the reason for such refusal to the concerned body corporate.

41. Minimum capital and financial source: The paid up capital of a body corporate carrying on a stock exchange shall be so prescribed by the Board, from time to time, as it shall not to be less than fifty million rupees; and the body corporate shall maintain such financial source as may be adequate for the provision of stock exchange that it carries on.

42. Validity period and renewal of a license to carry on stock exchange:(1) The license issued to carry on a stock exchange shall remain valid only until the last day of the fiscal year of its issue.(2) The corporate carrying on a stock exchange shall have to renew the license to carrying on a stock exchange by paying to the Board an annual fee as prescribed not later than three months after the expiry of each fiscal year.(3) In the event of failure to get renewed such a license by paying the annual fee within the time limit referred to in subsection (2), the license may be renewed by paying a fine of twenty five percent of the annual fee up to three months after the expiry of such time limit.(4) The license to operate stock exchange obtained by a body corporate which fails to renew even within the time limit referred to in Sub-section (3) shall be terminated.

43. Transactions of recognized securities: (1) A stock exchange shall manage a market only for those securities which are recognized by either enlisting in its Bye-laws, as prescribed, securities issued by bodies corporate or making similar other provisions.(2) The purchase, sale or exchange of securities not enlisted in a stock exchange shall be as prescribed.


44. Managerial responsibility of stock exchange: The board of directors of the stock exchange shall assume responsibility in relation to the management of transactions in securities carried on by such a stock exchange.

45. Functions, duties and powers of stock exchange: The functions, duties and powers of the stock exchange shall be as follows:(a) To carry on, or cause to be carried on, transactions in securities to be carried on through it in a transparent, fair and regular manner,(b) In carrying on the stock exchange, to carry on, or cause to be carried on, the same, having regard to the interest of general public investors,(c) To get its members to fully comply with this Act and the Rules and Bye-laws framed under this Act and monitor and supervise, or cause to be monitored and supervised, the matters pertaining thereto,(d) To manage such a transaction place as may be adequate and convenient for operating securities transaction,(e) To manage such employees as may be efficient in carrying on transactions,(f) To arrange for such facilities and systems as may be adequate and proper for emergency and security provisions,(g) To frame Bye-laws, with the permission of the Board, for enlisting of securities for the arrangements of the exchange, purchase or sale of securities and making provisions relating to membership,(h) To perform or cause to be performed such other functions as may be required for the operation of the stock exchange.

46. Disclosure to be made by stock exchange: Every stock exchange shall give information on the following matters to the Board immediately when it comes to its knowledge:-(a) Where it appears that any of its members has committed any financial irregularity or the economic status of such a member appears to be suspicious from any activities of such a member,(b) Where it appears that any of its members has failed to fulfill such obligation as required to be fulfilled by such a member under laws or is not capable of performing such obligation,(c) Where it appears that any of its members has failed to observe financial Rules and Bye-laws or is not capable of observing such Rules and Bye-laws,(d) Such other information as may be prescribed.

47. Stock exchange to submit a report: Stock exchange shall submit to the Board a report on the activities carried out by it in each fiscal year not later than three months after the expiration of such a fiscal year.

48. Stock exchange to issue direction: (1) The stock exchange may, where a body corporate carrying on securities transactions through a stock exchange violates the agreement entered with the stock exchange or where the stock exchange considers that it is necessary to give direction to such a body corporate in order to make securities transactions fair and regular or having regard to the interests of investors, give necessary direction to such a body corporate.(2) It shall be the duty of the concerned body corporate to observe the direction given pursuant to Sub-section (1).

49. Ceiling of securities transactions may be fixed: (1) The Board may fix the ceiling of securities that can be transacted at one time or the ceiling of securities that any one person can purchase, sell and hold at one time as prescribed.CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

(2) In fixing the ceiling pursuant to Sub-section (1), several ceilings may be determined based on the types of securities or types of transactions.(3) Without prejudice to the generality of Sub-section (1), the Board may specify or fix the maximum limit of securities of any type that one person may own at one time, in such manner as prescribed.

50. Charge to be paid by stock exchange: (1) A stock exchange shall collect such securities transaction charge as may be chargeable as prescribed for the purchase, sale and exchange of securities in the stock exchange and pay such charge to the Board. Provided that such charge shall not exceed 0.03 percent of the total turnover of securities transactions.(2) A stock exchange shall pay to the Board the amount for the charge prescribed pursuant to Sub-section (1) and collected in the previous month, not later than the last day of each month. A stock exchange that fails to observe this Section shall be deemed to have committed an offense referred to in this Act.(3) The Board shall realize and recover the amount receivable for the securities transaction charge, in addition to an interest at the rate of ten percent, from a stock exchange failing to pay to the Board the securities transaction charge within the time limit specified in Sub-section (2).

51. Stock exchange to assist Board: A stock exchange shall render necessary assistance to the Board for the performance of functions referred to in this Act. In the course of rendering such assistance, if the Board asks for any information or advice on securities transactions or on any other specific matter, such information or advice has also to be provided to the Board.

52. Information of action to be given: If a stock exchange has demanded explanation from any of its members on any action against such a member or suspended or canceled the membership of such a member or imposed any fine on such a member or taken any other action against such member, the stock exchange shall give information thereof to the Board, specifying the name of the concerned member and also description on action and the reason for taking such action, within seven days after taking such action.

53. Stock exchange to provide for compensation fund: (1) A stock exchange shall establish and operate one such compensation fund as may be prescribed by the Board in order to protect investors against possible loss or damage.(2) The funds deposited to the fund referred to in subsection (1) shall be used to bear compensation as prescribed.

54. Provisions relating to operation of compensation fund: The following provisions shall be made in the Rules in relation to the operation of the compensation fund to be established pursuant to Section 53 or 55:(a) Provisions relating to the deposit of money to the fund,(b) Maximum amount to be paid as compensation from the fund,(c) Provisions relating to the accounts and audit of the fund,(d) Conditions for making claim to obtain amount from the compensation fund and procedures from making such a claim,(e) Conditions where any claim cannot be made on the compensation fund,(f) Procedures for taking action and making decision on payment of money as claimed from the compensation fund,(g) Maximum limit of amount payable as compensation to one person,(h) Other necessary matters in relation to the examination of compensation claims,(i) Provisions to be made in the event of the revocation of the license of a stock exchange,CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

(j) Other necessary provisions in relation to compensation.

55. Board to make provisions on compensation: If a stock exchange is not able to establish and operate the compensation fund pursuant to Section 53 in order to protect investors against possible loss and damage or does not pay or fails to pay the amount of compensation to be payable as prescribed, the Board may establish and operate the compensation fund as prescribed or make necessary provisions in relation to the payment of the amount of compensation required to be paid as prescribed.

Chapter-5Provisions Relation to License to Carry on Securities Business

56. License to be obtained to carry on securities business: (1) A company or body desirous of carrying on securities business has to obtain a license to carry on securities business from the Board pursuant to this Act.(2) No one shall carry on securities business without obtaining a license to carry on securities business from the Board pursuant to this Act.

57. Application for license to carry on dealing in securities: (1) A company or body desirous of carrying on dealing in securities has to make an application to the Board for a license to carry on securities business, in such form and accompanied by such details, documents and fees as may be prescribed.(2) The application to be made pursuant to Sub-section (1) shall specify the following matters:-(a) Type of securities business and services to be provided,(b) If an agent is to be appointed to carry on securities business and if such business is to be carried on in collaboration with others, matters pertaining thereto,(c) In the case of those business persons, as prescribed, who are allowed to carry on business only upon obtaining a membership of a stock exchange, a recommendation letter of the concerned stock exchange,(d) Grounds proving the ability to carry on the proposed securities business and such other information as may be specified by the Board.

58. A license to carry on securities business to issue: (1) If an application is received pursuant to Section 57, the Board may hold necessary inquiry and issue a license to carry on securities business in such format as prescribed, to the applicant on the following grounds:-(a) If it thinks that, based on the conditions set forth in Sub-section (2), the applicant is able to carry on securities business subject to this Act or the Rules and Bye-laws framed under this Act,(b) Training and education qualification gained by the agent appointed to carry on securities business.(2) The following matters shall also be considered in relation to the chief executive, director, concerned officers and agents serving in the company or body making application for the license to carry on securities business:-(a) Financial status,(b) Educational qualification, training and experience in the relevant work,(c) Experience required carrying on securities business,(d) Social status and character.


(3) Notwithstanding anything contained above in this Section, a license to carry on securities business other than securities brokerage and investment consultancy service shall be issued only to a public limited company or a body corporate established under the laws in force.(4) Notwithstanding anything contained elsewhere in this Act, the Board may, having regard to the interests of capital market and investors in securities, so issue a license to any securities business person that such person is restrained from carrying on any securities, business out of the types of securities business.

59. Board to specify terms and conditions:(1) In issuing a license to carry on securities business, the Board may specify necessary terms and conditions, having regard to the condition of capital market, healthy operation of securities business and interest of investors.(2) It shall be the duty of the company or body having obtained a license to carry on securities business to comply with the terms and conditions specified by the Board pursuant to subsection (1).(3) The Board may make necessary modifications and alteration in the terms and conditions specified pursuant to Sub-section (1), having regard to the condition of capital market, healthy operation of securities business and interest of investors.

60. Power to refuse to issue a license to carry on securities business: The Board may refuse to issue a license to carry on securities business to any company or body on the following circumstances:-(a) if it is proved that such company or body has been insolvent upon being unable to repay debts to creditors,(b) if the application to be made for such a license is not accompanied by such documents and details as required to be accompanied under this Act or the Rules framed under this Act or such other matter as may be specified by the Board,(c) if, upon considering the matters set forth in subsection (2) of Section 58, it is not appropriate to issue a license to carry on securities business.

61. Validity and renewal of a license to carry on securities business: (1) The license issued to a securities business person to carry on securities business under this Act shall remain valid only until the end of that fiscal year in which it has been issued.(2) The securities business shall have to get such a license renewed by paying the annual fees as prescribed to the Board within three months from the date of expiry of each fiscal year.(3) In the event of failure to get a license renewed by paying the annual fees within the time-limit referred to in subsection (2), such license may be got renewed by paying a fine of twenty-five percent of the annual fees up to three months from the date of expiry of that time limit.(4) The Board shall revoke the license of a securities business person who has failed to get such a license renewed even within the time-limit referred to in Sub-section (3), and publish a notice thereof for information to the general public.

62. Power to prescribe for carrying on securities business through a subsidiary company: Notwithstanding anything contained elsewhere in this Act, the Government of Nepal may, on the recommendation of the Board and by notification in the Nepal Gazette, prescribe that a bank or financial institution established under the laws in force is entitled to carry on securities business only through its subsidiary company. Provided that such a subsidiary company shall not be entitled to do other acts except the dealing in securities.


63. Types of securities business: (1) For the purposes of this Act, the securities business shall be divided into the following types:-

(a) Securities brokerage,(b) Securities trade,(c) Issue and sales management,(d) Investment management,(e) Investment consultancy service,(f) Collective investment fund management,(g) Securities registration or securities central deposit service or custodial service,(h) Service relating to the settlement of the account of securities transactions,(i) Market maker,(j) Such other business as may be specified by the Board to be a securities business.

(2) The scope and other provisions of the securities business referred to in Sub-section (1) shall be as prescribed.

64. License not to be issued to carry on securities business without specifying agent: (1) No license shall be issued to anyone to carry on securities business as a securities broker without specifying at least one person to act as an agent of the securities broker.(2) No license shall be issued to anyone to carry on securities business as a securities trader without specifying at least one person to act as an agent of the securities trader.(3) No license shall be issued to anyone to carry on securities business relating to collective investment scheme and investment fund management without specifying at least one person to act as an agent of the scheme manager.(4) The procedures to be fulfilled in specifying an agent by a securities business person, qualification of the agent and provisions relating thereto shall be as prescribed.

65. Formal agent: (1) Only after the registration of the appointment of any person as an agent of a securities business person with the Board pursuant to Sub-section (3), such a person shall be deemed to be a formal agent for that securities business.(2) In making registration of the appointment of an agent with the Board pursuant to Sub-section (1), the securities business person shall inform the Board about the appointment of such agent and the person to be appointed as an agent shall also inform the Board that he or she agrees to be an agent of such a securities business person.(3) Upon receipt of the notice pursuant to Sub-section (2), the Board shall, within fifteen days, make entry in the register as prescribed, specifying the name, address and other necessary details of the agent and issue the agent registration certificate to such an agent.(4) If the agreement made between the agent and the securities business person appointing the agent is canceled, for any reason whatsoever, information thereof shall be given to the Board immediately, and the agent shall also return the certificate obtained by him or her to the Board within seven days.(5) The securities business person who appoints a formal agent shall be responsible for all acts done by such a formal agent.

66. Rights of securities business person: (1) No license to carry on securities business obtained by a securities business person shall be suspended or revoked without providing such a securities business person with a reasonable opportunity of hearing.


(2) In suspending or revoking a license to carry on securities business, information thereof shall be given in writing to the concerned securities business person, and such a notice shall indicate the reasons for such suspension or revocation, date of entry into force of such suspension or revocation and the period of suspension, in the case of suspension.(3) A securities business person who is dissatisfied with the decision made to suspend or revoke a license obtained by such a securities business person to carry on securities business person may make an appeal to the concerned Appellate Court within thirty five days from the date of such decision.

67. Minimum capital and financial source of securities business person:(1) A securities business person shall, in carrying on the securities business, maintain the minimum capital and financial source as prescribed. (2) If a securities business person fails to maintain the minimum capital and financial sources required to be maintained pursuant to Sub-section (1), information thereof shall be given to the Board immediately. (3) If the Board receives the information referred to in Sub-section (2), it may immediately order such a securities business person to maintain the minimum capital and financial source as prescribed or give other necessary directives in that regard.

68. To maintain records of securities business persons: (1) The Board shall maintain a register of all licensed securities business persons and maintain updated records in the register.(2) The following matters shall also be specified in the register to be maintained pursuant to Sub-section (1) and updated records of securities business persons maintained therein:-

(a) Names and addresses of securities business persons,(b) Date of issue of license to securities business persons,(c) Types of securities business,(d) Terms and conditions specified in the license,(e) Names and addresses of the formal agents,(f) Names and addresses of managers and officers,(g) Place where documents and records pertaining to securities business are kept,(h) Names of the directors of company or body, names of company secretaries and name of each shareholder and number of shares held by such a shareholder,(i) Such other details as the Board considers necessary and appropriate.

69. Records of formal agents: (1) The Board shall maintain a register of all formal agents and maintain updated records in the register.(2) The register to be established pursuant to Sub-section (1) shall, inter alia, contain the following matters and also updated records of formal agents shall be maintained therein:-

(a) Name and address of formal agent,(b) Date of registration as formal agent,(c) Name and address of securities business person appointing agents,(d) Such other details as the Board considers necessary and appropriate.

70. Information to be given: The securities business person shall, on any of the following circumstances, give information in writing thereof to the Board within seven days from the date of such occurrence:-(a) If the securities business person ceases to carry on the securities business specified in the license,(b) If any formal agent ceases to act in such capacity,(c) If any alteration is made in any details set forth in the register maintained pursuant to Section 68.CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

Chapter-6Collective Investment Scheme

71. No collective investment scheme shall be operated without obtaining permission: (1) No one shall operate a collective investment scheme or carry out or cause to be carried out, any of the following acts without obtaining a permission from the Board pursuant to this Act:-(a) To make an advertisement making an invitation to participate in the collective investment scheme or to make an offer containing any kind of information for participating in such a scheme whether directly or indirectly,(b) To provide opinion, advice or consultation to anyone to participate in the collective investment scheme.(2) Anyone who contravenes Sub-section (1) shall be deemed to have committed an offense referred to in this Act.

72. Board to grant permission to operate collective investment scheme: (1) A scheme manager shall, prior to operating the collective investment scheme to be managed and operated by him/her, make an application to the Board in such format and accompanied by such details and fees as may be prescribed in order to register such scheme with the Board and obtain permission to operate the same.(2) If an application is received pursuant to Sub-section (1), the Board shall, if it considers appropriate to grant permission upon conducting necessary inquiry into the matter, register the collective investment scheme and give permission to operate it within ninety days from the date of receipt of such an application.(3) If, in conducting an inquiry in relation to the registration of a collective investment scheme and granting a permission to operate it pursuant to Sub-section (1), any notice, description, information or documents appear necessary, the Board may demand such notice, description, information or documents from the concerned scheme manager. The Board shall not grant permission to operate the collective investment scheme unless it receives the notice, description, information or documents so demanded.(4) In registering a collective investment scheme and in granting permission to operate it pursuant to Sub-section (2), the Board may give permission in a manner that a certificate on participation or a proof thereof is to be given to a participant.(5) In granting permission to the scheme manager to operate the collective investment scheme pursuant to this Section, the Board may specify necessary terms and conditions in relation to the operation of the collective investment scheme and the issue of the certificate on participation. The Board may make necessary modification or alteration in the terms and conditions so specified.73. Operation of collective investment scheme: (1) The scheme manager may, with a view to operate a collective investment scheme, and upon considering the needs and interests of participants, operate the collective investment scheme of one or several types and by one or several names as prescribed.(2) The scheme manager shall, prior to operating any scheme pursuant to Sub-section (1), make an agreement with the depository as prescribed.

74. Board may revoke permission: (1) The Board may revoke the permission granted under Section 72 to operate a collective investment scheme on any of the following circumstances:-(a) In the event of failure to fulfill the necessary terms and conditions of operation in a satisfactory manner,


(b) In the event that it is not appropriate to continue such a scheme upon considering the interest of participants,(c) In the event of violation of this Act or the Rules or Bye-laws framed under this Act or provision of any false details to the Board in respect of a scheme by the scheme manager and the depository.(2) In revoking the permission pursuant to Clause (b) of Sub-section (1), the Board may hold necessary inquiry with the manager, depository, and director related with such scheme or relevant employee.(3) In revoking the permission given to operate a scheme pursuant to Sub-section (1), the Board may, having regard to the investment and return of investors, get that scheme to be operated by any other scheme manager or get accounts settled or cleared by refunding the investment and return of the investors of such scheme.(4) The procedures required to be followed in closing the operation of the scheme and settling or clearing the accounts by the order of the Board shall be as prescribed.

75. Other provisions relation to operation of collective investment schemes: (1) Other provisions and operational procedures required to be made and followed for the operation of a collective investment scheme to be operated by a scheme manager in consonance with the interests of participants shall be as prescribed.(2) The Regulation shall contain the following matters in relation to the operation of a collective investment scheme:(a) Procedures and terms relating to the registration and permission of the collective investment scheme,(b) Statute of the collective investment scheme, functions and duties of the scheme manager and depository and rights and obligations of participants,(c) Promotion of the unit, market management and distribution,(d) Issue and discount of unit,(e) Other provisions relating to depository service and scheme,(f) Regulating and managing the provisions relating to loans and advances of the collective investment scheme,(g) Provisions relating to the maintenance of records in such manner as to clearly reflect the transactions and financial situation related to the collective investment scheme and provisions relating to inspection of such accounts and other necessary accounts and records,(h) Periodic reports relating to the collective investment scheme and submission of such reports to the participants of the scheme and the Board,(i) Fees, remunerations and charges to be collected for the provision of the service referred to in Clause (e),(j) Management of investment and loan of the fund of the collective investment scheme.(3) In making the regulation incorporating the provisions referred to in Sub-section (1), in relation to the operation of the collective investment scheme, such regulation may provide for different provisions for different types of collective investment schemes.


Chapter-7Operation of Securities business

76. Business standards: Securities business person shall, in carrying on the securities business, observe the following business principles:-(a) To maintain the operation of securities business fair and of high standards,(b) To carry on the securities business with proper skills, care and hard working,(c) To keep on the higher standard of stock exchanges,(d) To obtain information from customers as to their objective to make investment and provide services accordingly,(e) To provide such information and advice as may be required for customers to make decision on investment in securities,(f) To avoid conflicts of own interests with the interests of customers and, in the event of the existence of such situation, to disclose that matter to customers and carry on the securities business having regard to the interest of customers,(g) To make such provisions as may be necessary to fulfill commitments made in relation to the securities business, (h) To properly maintain records relating to the securities business,(i) To provide for necessary training to employees in order to prepare skilled human resources for the operation of the securities business,(j) To observe such other principle as prescribed in relation to the operation of the securities business.

77. Provisions relating to identification of investors, purchase and sale order, contract note and payment of money: (1) Provisions relating to obtaining the identification of the concerned investor, opening a customer account, making transaction of money and concluding an agreement relating to transactions by any securities business person prior to carrying on the securities business shall be as prescribed.(2) Any securities business person shall, upon making a contract on the purchase, sale or exchange of securities, make a contract note before the closing of market on the following day, and where the securities business person has made such a contract as an agent, the original copy of the contract note shall be delivered to the concerned customer and where such person has made such a contract for himself, such a person shall mention that matter in the contract note and retain the note with him.(3) The contract note referred to in Sub-section (2) shall contain, inter alia, the following matters:-(a) Type of securities business and place where such business is operated,(b) Where the securities business person him/herself has acted as the principal, details thereof,(c) Name and address of the person to whom the contract note is given,(d) Date of the contract and date on which the contract note is prepared,(e) Description and quantity of securities,(f) Per unit value of securities,(g) Description relating to consideration payable under the contract,(h) Amount or rate of commission payable under the contract,(i) If any fee is chargeable, the rate of such fee and description pertaining thereto,(j) Day on which account is settled or cleared,(k) Such other matters as prescribed.


78. Accounts to be maintained by securities business person: (1) A securities business person shall, maintain accounts and records in such manner as to adequately support the transactions in securities and clearly reflect the financial condition of the transactions done by him/her. While preparing the balance sheet and profit and loss account, it shall be prepared in such manner as to reflect the actual affairs.(2) The accounts and records maintained by a securities business person pursuant to Sub-section (1) shall clearly and distinctly reflect the moneys paid by his/her customers wishing to purchase securities for the purchase of securities and distinctly reflect the accounts of securities and records, as prescribed.(3) A securities business person shall prepare and maintain the accounts and records maintained pursuant to Sub-section (1) or (2) and relevant financial statements and reports in such manner as prescribed.(4) A securities business person shall maintain the accounts and records to be maintained pursuant to this Section in such manner so that such accounts and records can subsequently be examined or inspected easily by the Board or the inspector appointed by the Board or the auditor or the concerned stock exchange if the Board or such inspector or auditor or stock exchange desires to make such an examination or inspection.

79. Insurance to be made: Each securities business person licensed to carry on the securities business, other than an agent, shall procure insurance of the business to be carried on by him/her, as prescribed by the Board.

80. Auditor to be appointed: (1) A securities business person shall appoint an auditor from amongst the auditors enlisted by the Board.(2) Any director, shareholder, officer employee or partner of a securities business company or body shall be deemed disqualified to be appointed as the auditor of that securities business company or body.(3) A securities business person shall give information, indicating the name and address also of the auditor appointed by it, to the Board within seven days from the date of such appointment.(4) If a securities business person removes any auditor from office or such an auditor resigns from office, the securities business person shall give information thereof to the Board within seven days from the date of such removal.(5) Notwithstanding anything contained elsewhere in this Act, no employee of a stock exchange shall be eligible to be appointed as an auditor of any securities business company or body.

81. To maintain roster of auditors: (1) For the purpose of appointment of auditor pursuant to Section 80, the Board shall prepare a roster of auditors having the prescribed qualification from amongst the auditors registered under the laws enforce.(2) An auditor who wishes to be enlisted in the roster referred to in Subsection (1) shall make an application to the Board, as prescribed. An auditor who is so enlisted shall submit to the Board such information as may be specified by the Board.

82. Submission of accounts and statements: (1) A securities business person shall submit the audited profit and loss account, balance sheet and cash flow statement and other necessary financial statements clearly reflecting the operational affairs of securities business carried on in the preceding financial year to the Board and the concerned stock exchange within three months from the date on which such a fiscal year is expired.


(2) If a securities business person fails to submit the accounts and statements pursuant to Sub-section (1) and makes an application, accompanied by the reasonable grounds for such failure, to the Board for the extension of time limit, the Board may extend the time limit for a period not exceeding three months. In the event of failure to submit such accounts and statements even within the period of time limit so extended, the Board may fine such securities business person with a sum of five thousand to twenty five thousand rupees.(3) Notwithstanding anything contained in Sub-section (1) or (2), a securities business person who is not able to submit accounts and statements by the reason of not having them audited within the time limit may submit unaudited accounts and statements on the condition of submission of actual accounts and statements audited subsequently.

83. Report to be made by enlisted auditor to Board: If an enlisted auditor, in auditing the accounts of a securities business person, finds that such securities business person has violated the financial Bye-laws, the auditor shall prepare a separate report thereof and submit it to the Board.

Chapter-8

Regulation, Monitoring, Inspection and Inquiry

84. To regulate and monitor: (1) The Board shall have full powers to regulate and monitor all activities relating to securities for the development of capital market and interests of investors.(2) The Board may, on its own or by delegating any of the powers conferred to it to anyone else, regulate and monitor, or cause to be regulated or monitored, the activities relating to securities to be carried out by the stock exchanges, securities business person, formal agents of the securities business person and bodies corporate which have listed their securities.

85. To inspect and inquire: (1) For the purpose of carrying out regulation and monitoring pursuant to Section 84, the Board may, on its own or by delegating any of the powers conferred to it to anyone else, as required, make, or cause to be made, inspection or inquiry in relation to whether or not the stock exchanges, securities business persons, formal agents of securities business persons and bodies corporate which have listed their securities have complied to this Act or the Rules, Bye-laws and directives framed under this Act or orders or directives issued there under, in the course of carrying out activities relating to securities.(2) In making inspection and inquiry pursuant to subsection (1), the Board or the authorized person may inspect and inquire into any information, data, documents, records and statements held by the concerned stock exchanges, securities business persons, formal agents of securities business persons and bodies corporate which have listed their securities or inquire into any concerned persons or record their statements.(3) After making inspection and inquiry pursuant to subsection (2), the Board shall prepare and retain a report thereof. Where inspection and inquiry has been made by a person authorized by the Board, such a person shall prepare a report of such an inspection and inquiry and submit it to the Board.(4) The procedures to be followed in making inspection and inquiry pursuant to Sub-section (1) and the manner to be followed in preparing a report to be submitted after such inspection and inquiry shall be as prescribed.


86. To demand information, data and statements: (1) The Board, in making inspection and inquiry pursuant to Section 85, or any person authorized to make inspection and inquiry or the investigating authority, in making investigation pursuant to Section 103, may demand the production of any such information, data and statements as deemed necessary in the course of inspection and inquired by the concerned stock exchanges, securities business person, agents of securities business person and bodies corporate which have listed their securities.(2) For the purpose of regulating and managing the transactions in securities, the Board may demand the production of any information, data and statements related with securities or securities transaction from the stock exchanges, securities business person, formal agents of securities business person, bodies corporate which have listed their securities, bodies settling and clearing transactions in securities and depositories.(3) It shall be the duty of the concerned stock exchanges, securities business person, formal agents of securities business person, bodies corporate which have listed their securities, bodies settling and clearing securities transactions and depositories to produce the notices, data and statements demanded pursuant to Sub-sections (1) and (2).(4) The Board, in making inspection and inquiry pursuant to Section 85, or any person authorized to make inspection and inquiry or the investigating authority, in making investigation pursuant to Section 103, may take the custody of any such information, data, records, statements and equipment as deemed necessary.

87. To issue orders or directions: (1) The Board may, upon considering the policies, directions of the Government of Nepal, the condition of capital market and the interests of investors, issue necessary orders or directions to the stock exchanges, securities business persons, formal agents of securities business persons and bodies corporate which have listed their securities to do any act required to be done under, or to refrain from doing any act prohibited under, this Act or the Rules and Bye-laws framed under this Act, in relation to the securities transaction.(2) Based on the inspection and inquiry report submitted pursuant to Section 85, the Board may direct the stock exchanges, securities business persons, formal agents of securities business persons, bodies corporate which have listed their securities or the directors or employees of such bodies corporate to do or refrain from doing any act under this Act or the Rules and Bye-laws framed under this Act or revoke the registration of securities or suspend or revoke the license issued by it under this Act.(3) It shall be the duty of all the concerned to observe any orders or directions issued pursuant to Sub-section (1) or (2).

88. License may be suspended: (1) If any stock exchange or securities business person does any act in contravention of this Act or the Rules and Bye-laws framed under this Act or does not observe any order or direction issued by the Board or does not perform activities required to be performed by it, the Board may, having regard to the interest of investors, suspend the license obtained by such a stock exchange or securities business person to operate the stock exchange or securities business specifying a certain period.(2) No suspension of license made pursuant to Sub-section (1) shall have any effect on any liabilities arising from any activities done by such a stock exchange or securities business person prior to the suspension of a license.

89. License may be revoked: (1) The Board may, on any of the following circumstances, revoke a license obtained by any stock exchange or securities business person to operate the stock exchange or securities business under thisAct:-(a) If one stops operating the stock exchange or securities business,CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

(b) If one operate the stock exchange or securities business in contrary to the interest of investors,(c) If one violates the terms set forth in the license,(d) If one violates this Act or the Rules and Bye -laws framed under this Act,(e) If one fails to observe any order or direction issued by the Board,(f) If one becomes insolvent being unable to repay credit to creditors,(g) If the company or body having obtained a license to operate the stock exchange or securities business is wound up,(h) If the stock exchange or securities business person having obtained a license to operate the stock exchange or securities business makes an application for the revocation of a license,(i) If the securities business person who has removed an agent appointed by it does not appoint another agent in lieu of such an agent,(j) If one fails to submit such financial and transaction related statements as required to be submitted to he Board,(k) If one fails to pay such fees as required to be paid pursuant to Section 50 to the Board within the time limit specified by such a Section.(2) No revocation of a license made pursuant to subsection (1) shall have any effect on any liabilities arising from any activities done by such a stock exchange or securities business person prior to the cancellation of license.

90. Special powers of Board: (1) The Boar may exercise the following special powers for the purpose of regulating and managing the securities transactions, having regard to the development of capital market and interests of investors:(a) In the event of the failure of anybody corporate having made public issue of securities to call its general meeting, as required to be called under the laws in force, within the specified time, to order such a body corporate to call the general meeting,(b) In the event of the failure of anybody corporate having made public issue of securities to allot its securities within the specified time, to order such a body corporate to refund the money paid for such securities,(c) To direct the concerned body corporate to enlist any securities or to stop transactions of any securities,(d) In consultation with a stock exchange, to issue an order to close the stock exchange for a maximum period of five days,(e) To issue a direction, also indicating the contents to be amended in the Bye-laws of the stock exchange and specifying a certain period, to amend the Bye-laws within such period or order toissue a new Bye-laws, as required,(f) To get the financial statements and financial reports submitted by any corporate body having issued securities and any securities business person to be reviewed or examined by accounts experts,as required,(g) To direct any corporate body having registered their securities to make correction in the management, financial arrangements and other related provisions of such a body,(h) To direct the concerned stock exchange to restructure its board of directors,(i) In the event of receipt of information on any action taken by the stock exchange against its member pursuant to Section 52, to take appropriate action against such a member or revoke theLicense of such member,(j) In the event of violation, in the course of carrying activities relating to securities, of this Act or the Rules and Bye-laws framed under this Act or orders or directions issued by the Board there under by any stock exchange, securities business person and any director or employee of any body corporate which has listed its securities, to order the concerned stock exchange, securities business person or body corporate which has listed its securities to institute necessary action against such a director or an employee,CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

(k) In the event of failure of any stock exchange, securities business person or body corporate which has listed its securities to have audit within the specified time or otherwise to appoint an auditor, to appoint an auditor to examine and audit the accounts, books, cash and in-kind properties, as well, of such stock exchange, securities business person or body corporate which has listed its securities.(2) It shall be the duty of all the concerned to comply with any order or directions issued by the Board in exercise of the special powers referred to in Sub-section (1).(3) The concerned body shall bear the remuneration of the auditor appointed under clause (k) of Sub-section (1).(4) The Board shall make public, as prescribed, the details of activities which it has carried out in relation to the regulation, monitoring, inspection and inquiry of the concerned bodies corporate and necessary details in relation to whether the concerned bodies corporate have complied with the orders or directions issued by the Board under this Act or the Rules, Bye-laws or manuals framed under this Act or not.

Chapter-9Offenses Relating to Insider Trading in Securities and Transactions of

Securities and Punishment

91. Insider trading: (1) If any person deals in securities or causes any other person to deal in securities on the basis of any insider information or notice that are unpublished or communicates any information or notice known to such a person in the course of the discharge of his or her duties in manner likely to affect the price of securities such a person shall be deemed to have been committed an insider trading in securities.

Explanation: For the purposes of this Sub-section, "insider information or notice" means any such specific kind of information or notice not published by a body corporate issuing any securities as may be capable of affecting the price of such securities if such information or notice is disclosed.(2) Notwithstanding anything contained in Sub-section (1), any transactions already carried on shall not be deemed to be affected at all merely by the reason that an insider trading has been committed.

92. Persons likely to be involved in insider trading: For the purposes of this Act, the following persons shall be deemed to be those who have access to the insider information or notice not published by anybody corporate:(a) A director, employee or a person, who can obtain any information or a notice in the capacity of a shareholder of that body corporate,(b) A person who can obtain any information or a notice in the capacity of a professional service provider to that body corporate,(c) A person who can obtain any information or a notice having a direct or indirect contact with the person or source as specified in clauses (a) and (b).

93. Information or notice deemed to have been made public: On any of the following conditions, any information or notice shall be deemed to have been made public:(a) If any matter has been published with intent to inform the investors and their business advisers in accordance with the Bye-laws of a stock exchange,(b) If there is a provision made under the law that the general public can see an information or a notice contained in any records,


(c) If there is a provision that any person desiring to deal in securities is escorted to the business room of a stock exchange so that such a person can know such an information or a notice,(d) If there is a provision that any person desiring to obtain or see such information or notice or get a copy thereof can obtain and see the same,(e) If it has been communicated to any specific class, out of the general public,(f) If there is a provision that information can be obtained only upon payment of fees or if such information or a notice has been published outside Nepal.

94. False trading: For the purposes of this Act, if the following trading is done, such a trading shall be deemed to be a fake or false trading:(a) The actual ownership is not changed, even though the purchase or sale of securities is done directly or indirectly.(b) An offer is made to purchase or sell securities on the line of same price upon knowing the price offered by another for sale or purchase.

95. Fluctuation in price: If a person causes stability, increase, decrease or frequent change in the price of securities by doing or causing to be done a fake or artificial or false trading, such a person shall be deemed to have caused fluctuation in price.

96. To affect stock exchange: If an person individually or in association with others commits any of the following acts to affect directly or indirectly the transaction in securities, such a person shall be deemed to have affected the stock exchange:(a) To increase the market price of securities issued by any company with the intent to encourage others to purchase or sell the securities or to avoid the purchase or sale of such securities,(b) To decrease the market price of securities issued by any company with the intent to encourage others to purchase or sell the securities or to avoid the purchase or sale of such securities,(c) To stabilize the market price of securities issued by any company with the intent to encourage others to purchase or sell the securities or avoid the purchase or sale of such securities.

97. To supply misleading statements: If a person intentionally commits any of the following acts to encit others to purchase or sell securities, such a person shall be deemed to have committed an act of misleading:-(a) To make or publish any statements or projection related statements with knowledge that such a statement is false, misleading or fake,(b) To hide any fact or information with malafide intention,(c) To make or publish a false or misleading statement, promise or projection with mala fide intention.

98. Fraudulent Transactions: If a person intentionally commits the following transaction with intent to purchase, sell or exchange securities from, to or with any other person, such a person shall be deemed to have committed fraudulent transaction:-(a) To make any technology, plan or commit any act to defraud others, or(b) To get a person to do any act or be engaged in any work by misrepresenting such a person.

99. Prohibition on transaction of securities by fraud or misrepresentation: If a person knowingly induces to other to purchase or sale the securities or causes to be reduced, increased or stabilized the price of securities on the basis of statement that such a statement is false or misleading or that any statement has become or misleading by the reason that any matter is omitted from or hidden or not


included in such a statement, such a person who does or causes to be done such act shall be deemed to have done transactions in securities by fraud or misrepresentation.

100. Destroy or concealment of documents, statements or records: No person shall destroy, forge, conceal any documents, statements or records demanded by the Board or the authority authorized by the Board in the course of inspection and inquiry pursuant to Section 85 or any documents, statements or records demanded by the authority designated to make investigations pursuant to Section 103 in the course of investigations or any such documents, statements or records as required to be maintained by that person under this Act or the Rules or Bye-laws framed under this Act or shall aid and abet the commission of such act.

101. Punishment: (1) A person who commits an insider trading as referred to in Section 91 shall, upon being convicted of the offense of insider trading, be liable to the punishment with a fine equal to the amount in controversy or with imprisonment for a term not exceeding one year or with both punishments.(2) A person who commits any act referred to in Sections 94, 95 and 96 shall be liable to the punishment with a fine of fifty thousand rupees to one hundred thousand rupees or with imprisonment for a term not exceeding one year or with both punishments, and where anyone has suffered any loss or damage from such an act, such loss or damage has also to be recovered.(3) A person who commits any act referred to in Sections 97, 98, 99 and 100 shall be liable to the punishment with a fine of one hundred thousand rupees to three hundred thousand rupees or with imprisonment for a term not exceeding two years or with both punishments, and where anyone has suffered any loss or damage from such transactions, such loss or damage shall also be recovered.(4) If any one knowingly or with mala fide intention, does not maintain, make, prepare or submit such accounts, books, statements, reports, notices, information or similar other documents as required to be maintained, made, prepared or submitted under this Act or the Rules or Bye-laws framed under this Act within the time specified for the maintenance, making preparation or submission of such accounts, books, statements, reports, notices or information or if one makes, prepares or retains false statements or documents, the Board may punish such a person with a fine of fifty thousand rupees to two hundred thousand rupees.(5) If any one knowingly commits any act in contravention of this Act or the Rules or Bye-laws framed under this Act or the orders or directions issued under this Act and thereby causes any loss or damage to anybody corporate, stock exchange, securities business person or investor, the Board may punish such a person with a fine of fifty thousand rupees to two hundred thousand rupees. If anyone has suffered any loss or damage from such act, the Board may also cause the recovery of compensation for actual loss or damage.(6) If any one issues securities, carries on or causes to be carried on a stock exchange or operate or causes to be operated securities transaction in the capacity of a securities business person without fulfilling such requirements as required to be fulfilled under this Act or the Rules or Bye-laws framed under this Act, the Board may punish such a person with a fine of fifty thousand rupees to one hundred fifty thousand rupees.(7) If any person violates this Act or the Rules or Bye-laws framed under this Act or any orders or directions issued there under or any terms and conditions specified by the Board or fails to do any such act as required to be done by such a person or commits any such act as required not to be done, the Board may punish such a person with a fine of twenty five thousand rupees to seventy five thousand rupees.

102. Government of Nepal to be a plaintiff: The cases relating to the offenses referred to in Sections 91, 94, 95, 96, 97, 98, 99 and 100 shall be state cases to which Government of Nepal shall be a plaintiff.


103. Investigation and filing of a case: (1) If a complaint is made by any one that any one has committed the offense referred to in Sections 91, 94, 95, 96, 97, 98, 99 and 100 or the Board receives in any manner an information relating to such an offense or the Board believes that any one has committed such an offense, the Board may designate any officer as an investigating authority to conduct investigations of the case relating to such an offense.(2) The investigating authority designated pursuant to Sub-section (1) shall conduct investigations as prescribed in relation to such an offense and file a case in the concerned District Court within thirty five days after the date of completion of investigations.(3) The investigating authority designated pursuant to Sub-section (1) may, in the course of conducting investigation, make necessary inquiry with; take depositions of, any person or body related with the offense or demand necessary documents, statements and records from such person or body.(4) The designated investigating authority shall, in conducting investigation of and filing a case pursuant to this Section, shall obtain advice of the government attorney.

104. Investigation may be conducted upon holding in detention or suspension or release on bail: (1) Notwithstanding anything contained in the prevailing laws, if, in conducting investigation of any case held to be an offense referred to in this Act, there is a reasonable ground to believe that any person against whom action is being taken on the accusation of an offense referred to in this Act may abscond and disappear or it appears that there is any loss of or damage to any assets, the Board may require such a person to furnish necessary bail or guarantee of asset and may hold such a person in custody in the event of failure to furnish such bail or guarantee.(2) If there is a reasonable ground that any person against whom action is being taken on the accusation of an offense referred to in this Act may temper with or destroy any evidence that can be produced against such a person or may obstruct or hinder the investigation of the case if such a person continues to hold office, the Board may write to the concerned body to suspend such a person.

105. Compensation to be paid: If anyone has sustained any loss or damage by the reason of effect in the price of securities purchased or sold by any one as a result of the commission of an offense punishable under this Chapter, such loss and damage may also be recovered or realized from the offender of such offense.

106. Appeal: (1) Any stock exchange, securities business person, body corporate or concerned person dissatisfied with any punishment made by the Board pursuant to Sub-sections (4), (5), (6) and (7) of Section 101 may file an appeal in the concerned Appellate Court within thirty five days after the date of imposition of such a punishment.(2) Any person dissatisfied with any order or direction issued by the Board pursuant to Chapter-8 may file an appeal in the concerned Appellate Court within thirty five days after the date of receipt of a notice of such order or direction.

107. Remedies against undue bias: If the Board receives any notice, information and statement that any enlisted company has committed any acts or transactions with undue bias and in a manner to be against the interests of its members, the Board may order such a company to do as follows:(a) To refrain from doing such transactions,(b) To determine procedures for conducting acts and transactions in a manner not to be against the interests of members,(c) To appoint a manager or trustee, specifying, inter alia, the functions and duties of such a manager or trustee, to do, on behalf of the company, all or any of the acts and transactions of the company,(d) To issue such orders as may be required to regulate and manage the activities of the company.CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

108. To be disqualified to be a director or general manager: If a director, general manager or any other person holding the equivalent office thereto is convicted and punished with the punishment referred to in Section 101, such a person shall be disqualified for becoming a director, general manager or an office equivalent thereto in any public limited company or a body or a period up to ten years from the date of such punishment.

Chapter-10Miscellaneous

109. Provisions relating to take over of a body corporate or control over a body corporate: (1) If a person or a group of persons or body corporate is to purchase the shares of anybody corporate in lump sum or at several times with an intention of taking full ownership of such a body corporate or control over the management of that body corporate, such transaction on the purchase and sell of shares shall have to be done in a transparent manner.(2) If any person or group of persons in collaboration or anybody corporate purchases or owns more than fifty percent, or more than such percent as specified by the Board, of the shares of anybody corporate, it shall be deemed to have been control over the management for the purposes of Subsection (1).(3) The manner in which an offer is to be made on the sale of shares of anybody corporate in manner to acquire the full ownership of the body corporate or have control over the management of the body corporate pursuant to Sub-section (1), process on the purchase and sale of shares and other provisions pertaining thereto shall be as prescribed.

110. A body corporate to register the transfer of the shares certified by the Stock exchange: If a stock exchange certifies the transfer in relation to any shares or debentures of anybody corporate which have been purchased, sold or exchanged at the stock exchange, the body corporate shall register such shares or debentures in its register of members in the name of the transferee of such shares or debentures.

111. Transfer of securities: Notwithstanding anything contained in the laws prevailing on companies, the provisions relating to the ownership and transfer of listed securities shall be as prescribed.

112. Liaison with Government of Nepal: The Board shall, in liaising with the Government of Nepal, do so through the Ministry of Finance.

113. Government of Nepal may issue directions: The Government of Nepal may issue necessary directions to the Board from time to time, in respect of policy matters such as the development of capital market and protection of the interests of investors, and it shall be the duty of the Board to comply with such directions.

114. To render assistance: It shall be the duty of all the concerned to render assistance as sought by the Board for the regulation and management of the transactions in securities having regard to the development of capital market and protection of the interests of investors.

115. Saving for the act done in good faith: The Board or any employee of the Board shall not be personally or collectively responsible for any act or action which is done or taken in good faith subject to this Act or the Rules framed under this Act.


116. Power to frame Rules: (1) The Board may, in order to implement the objectives of this Act, frame necessary Rules with the approval of the Government of Nepal,(2) Without prejudice to the generality of the power conferred by Subsection (1), such Rules may, in particular, provide contain following matters:-(a) Securities registration and permission for issuance,(b) Issue of a license for stock exchanges,(c) Issue of a license for securities business,(d) Operation of collective investment schemes,(e) Terms and conditions of the service of the employees of the Board,(f) Maintenance of financial operation and accounts of the Board,(g) Operation of the compensation fund,(h) Financial source required to be maintained by securities business person in relation to the operation of securities business,(i) Accounts and records of money paid by customers for the purchase of securities,(j) Suspension of listing, delisting or transfer of securities,(k) Other necessary provisions to regulate and manage the activities of the stock exchange and persons involved in the securities business by regulating the issue, purchase, sale and exchange of securities and to protect the interest of investors for development of the capital market,(l) Taking over the ownership by purchasing shares in lump sum or at several times with intent to control the management of companies.

117. Power to frame Bye-laws: The stock exchange may, with the approval of the Board, frame necessary Bye-laws on the following matters, subject to this Act and the Rules framed under this Act:(a) Listing of securities and transactions of listed securities,(b) Membership, membership fees, professional ethics of members,(c) With a view to operate the stock exchange in a fair and transparent manner, provisions relating to the service and conduct of employees and market inspection and monitoring.

118. To frame and enforce directives:(1) The Board may, subject to this Act and the Rules framed under this Act, frame and enforce directives on the following matters for regulating transactions of securities;(a) On securities registration and issuance permission,(b) On securities issuance and sales arrangements,(c) On securities allotment,(d) On professional ethics,(e) On other matters relating to the regulation of transactions of securities.(2) It shall be the duty of all the concerned to abide by the directives framed by the Board pursuant to Sub-section (1).

119. Effect of inoperativeness of the Securities Ordinance, 2005: With the Securities Ordinance, 2005 being inoperative, unless a different intention appears, the inoperativeness shall not,(a) Revive anything not in force or existing at the time, at which the Ordinance became inoperative,


(b) Affect the matter in operation as per the Ordinance or anything duly done or any punishment suffered there under,(c) Affect any right, privilege, obligation or liability acquired, accrued or incurred under the Ordinance,(d) Affect any penalty, punishment or forfeiture incurred under the Ordinance,(e) Affect any action or remedy made or taken in respect of any such right, privilege, obligation, liability, penalty or punishment as aforesaid; and any such legal proceeding or remedy may be instituted, continued or enforced as if the Ordinance were in force.

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Banks and Financial Institutions Act, 2063 (2006 ) Date of authentication and publication: 19 kartik 2063 (Sunday, 5 November 2006)

Preamble: Whereas, it is expedient to amend and consolidate forthwith the prevailing legislation relating to banks and financial institutions and make it timely in order to promote the trust of the general public in the overall banking and financial system of the country and protect and promote the rights and interests of depositors, provide quality and reliable banking and financial intermediary services to the general public through healthy competition among banks and financial institutions, minimize risks relating to the banking and financial sector, boost and consolidate the economy of the State of Nepal by liberalizing the banking and financial sectors and make necessary legal provisions relating to the establishment, operation, management and regulation of banks and financial institutions; Now, therefore, be it enacted by the House of Representatives in the First Year of the issuance of the Proclamation of the House of Representatives, 2063(2006).

CHAPTER- 1Preliminary

1. Short title, extension and commencement:(1)This Act may be called “Banks and Financial Institutions Act, 2063(2006)."(2) It shall be deemed to have come into force on 16 Shrawan 2063 (1 August 2006).(3) It shall extend to the whole of the State of Nepal and also apply to all offices opened anywhere outside the State of Nepal by banks or financial institutions.

2. Definitions: In this Act, unless the subject or the context otherwise requires,-(a) "Rastra Bank" means the Nepal Rastra Bank established under the Nepal Rastra Bank Act, 2058 (2002);(b) “Bank” means a corporate body incorporated to carry on financial transactions as referred to in Sub section (1) of Section 47;(c) “financial institution” means a corporate body incorporated to carry on the transactions as referred to in Sub-section (2), (3) or (4) of Section 47, and this term also includes a development bank, finance company or micro-finance development bank;(d) “Memorandum of association” means the memorandum of association of a bank or financial institution, and this term also includes the statute of a corporate body;(e) “Articles of association” means the articles of association of a bank or financial institution;(f) "Promoter" means a person who, having consented to subscribe at least one share, signs the memorandum of association and the articles of association for the establishment of a bank or financial institution pursuant to this Act;(g) “Share” means a division of the share capital of a bank or financial institution;(h) “Shareholder” means a person having ownership in a share of a bank or financial institution;(i) "Prospectus" means a prospectus to be published by a bank or financial institution pursuant to Section6;(j) “Board” means the Board of Directors of a bank or financial institution to be formed pursuant to Section 12;(k) “Chairperson” means the chairperson of the Board;(l) “Director” means a member of the Board, and this term also includes the chairperson and an alternate director;(m) “Officer” means the director, chief executive, secretary and employee of a bank or financial institution, and this term also includes a person who acts as an advisor, auditor and liquidator of the licensed institution;CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

(n) “License” means the license issued by the Rastra Bank to a bank or financial institution to carry on financial transactions, pursuant to this Act;(o) “Licensed institution” means a bank or financial institution which has obtained the license to carry on financial transactions pursuant to this Act;(p) “Financial transactions” means such transactions referred to in Section 47 as may be carried on by a bank or financial institution;(q) “Capital” means the authorized capital, issued capital or paid up capital of a bank or financial institution as referred to in Section 40;(r) “Capital fund” means the total of the primary and supplementary capital of a bank or financial institution, and this term includes any other fund of the institution as prescribed as such by the Nepal Rastra Bank from time to time;(s) “Primary Capital” means the funds of a bank or financial institution listed under such headings as the paid-up capital, share premium, non-redeemable preference shares, general reserve fund and accumulated profit and loss, and this term also includes such other funds listed under other headings as may be prescribed as primary capital by the Rastra Bank from time to time;(t) “Supplementary Capital” means the funds of a bank or financial institution kept under such headings as may be prescribed by the Rastra Bank from time to time;(u) “Risk-Weighted Assets” means the total assets calculated by multiplying the amounts coming under each heading of on-balance sheet and off-balance sheet operations of a bank or financial institution by the risk-weight prescribed by the Rastra Bank;(v) “Liquid Assets” means the cash balances of a bank or financial institution, the balances held by a bank or financial institution in the current account, the balances maintained by a bank or financial institution in the Rastra Bank and such assets of a bank or financial institution prescribed as liquid assets by the RastraBank from time to time;(w) “deposits” means amounts deposited in current, savings or fixed accounts of a bank or financial institution, and this term also includes such amounts as a bank or financial institution accepts through such various financial instruments as prescribed by the Rastra Bank;(x) “Current account” means an account of funds deposited with a bank or financial institution as may be withdrawn at any time on demand;(y) “Saving account” means an account of funds deposited with a bank or financial institution for purposes of saving;(z) “Fixed account” means an account of funds deposited with a bank or financial institution for a specified term;(aa) “Credit” means a direct or indirect commitment to supply funds, and in return therefor, the right to recover the invested funds, and payment of interest or other charges on such credit, refinance issued against the security of a credit or investment, restructuring and renewal of a credit, security issued for the repayment of such credit and other commitment made for such repayment, and this term also includes any credit in whatever form;(bb) “Currency” means any kind of currency notes, postal orders, postal notes, money orders, cheques, drafts, travelers cheques, letters of credit, bills of exchange, promissory notes and credit cards, and this term also includes similar other monetary instruments as may be prescribed by the Rastra Bank upon a public notification, as required;(cc) “Foreign Currency” means any currency other than the Nepalese currency, and this term also includes special rights to draw funds (Special Drawing Rights) from the International Monetary Fund, the Asian Currency Unit, the European Currency Unit and such other instruments as may be prescribed by the Rastra Bank upon a public notification, as required;(dd) “Foreign Exchange” means a foreign currency, deposits, credits and balances of all types which are paid or received in a foreign currency, foreign securities and cheques, drafts, travelers cheques, electronic fund transfers, credit cards, letters of credit, bills of exchange and promissory notes which CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

are in international circulation and are or can be paid in a foreign currency, and this term also includes any other such monetary instruments as may be prescribed by the Rastra Bank upon a public notification, as required;(ee) “Convertible Foreign Currencies” means any foreign currencies as may be designated as convertible foreign currencies by the Rastra Bank upon a public notification, as required;(ff) “Electronic Fund Transfer” means the business of accepting deposits, making payments and transferring funds through telephones, telex, computers or magnetic tapes or similar other electronic equipment; and this expression includes transactions to be carried on through automated teller machines and cash dispensing machines, as well as those to be carried on through charge cards, debit cards and credit cards; (gg) “Letter of Credit” means a letter written by one bank or financial institution to another bank Or financial institution authorizing the latter to accept cheques, drafts, hundis or bills of exchange of any specified person within the limit of the amount specified therein;(hh) “Negotiation” means the business of transferring a negotiable instrument to any person on the condition that the receiver may become the bearer thereof; (ii) “Negotiable Instrument” means promissory notes, bills of exchange or cheques;(jj) “Bill of Exchange” means a signed document issued by one person to another directing the latter to pay the specified sum of money unconditionally to any specified person mentioned in the bill or to the person designated by him or her or to the bearer, on the specified date or after the specified period or on demand;(kk) “Promissory Note” means a document containing a signed pledge to pay a specified sum of money unconditionally to any specified person mentioned in the note or to the person designated by him or her or to the bearer of the note on the specified date or after the specified date or on demand;(ll) “Off-Balance sheet transactions” means transactions relating to letters of credit, letters of guarantee, letters of acceptance, commitments, swaps, options and forward foreign exchange transactions for which a bank or financial institution may be required to bear liability and similar other transactions; (mm) “chief executive” means the executive chairperson, chief executive officer, executive director, managing director, managing manager, executive manager, or general manager of a bank or financial institution; and this expression also includes any other officer working as the chief executive of a bank or financial institution;(nn) “Office” means the central office of a bank or financial institution, and this term also includes the regional, branch, sub-branch, depot, area, representative, liaison and any other office whatsoever of a bank or financial institution;(oo) “Financial Interest” means a situation where ten per cent or more of the total paid-up capital of any firm, company or corporate body is held by any promoter or director, shareholder holding one per cent or more of the shares or the executive director or any member of his or her family or any individual, firm, company or corporate body empowered to nominate a director, whether singly or taken together; and such shall be deemed to be a situation where such promoter or director or shareholder holding one per cent or more of the shares or the chief executive or family member of such person has financial interests in such company or corporate body;(pp) “Family” means the concerned person's husband or wife, son, daughter, adopted son, adopted daughter, father, mother, stepmother and elder brother, younger brother, elder sister and younger sister to be maintained by him or her;(qq) “Prescribed” or “as prescribed” means prescribed or as prescribed in the rules or bye-laws framed under this Act.


CHAPTER 2Provisions relating to Incorporation of Banks or Financial Institutions, and Securities

Thereof

3. Incorporation of bank or financial institution:(1) A person who is desirous of incorporating a bank or financial institution to carry on financial transactions pursuant to this Act may do so by getting such bank or financial institution registered as a public limited company in accordance with the laws in force.(2) The authority empowered under the laws in force to register a company pursuant to Sub-section (1) shall register the same subject to Section 4.

4. Approval to be obtained to incorporate bank or financial institution:(1) For the purpose of incorporating a bank or financial institution under Section 3, the concerned person shall, before making an application for the registration of the bank or financial institution pursuant to the laws in force, make an application, accompanied by the following documents and the fee prescribed by the Rastra Bank, to the Rastra Bank for prior approval:(a) Memorandum of association of the proposed bank or financial institution;(b) Articles of association of the proposed bank or financial institution;(c) Feasibility study report of the proposed bank or financial institution;(d) Personal details of the promoters in the form prescribed by the Rastra Bank;(e) A certified copy of the agreement, if any, entered into between the promoters prior to the incorporation a bank or financial institution in relation to the incorporation of the bank or financial institution;(f) Evidence of tax clearance by the promoters up to the fiscal year immediately preceding the making of application pursuant to this Section;(g) Such other particulars and documents as may be prescribed by the Rastra Bank in relation to the incorporation of a bank or financial institution.(2) If an application is made for prior approval pursuant to Sub-section (1), the Rastra Bank shall, if it finds appropriate to grant approval upon the examination of the submitted documents, grant its approval to incorporate such bank or financial institution within one hundred twenty days after the making of application, with or without prescribing any conditions. If there exists a ground for refusing to grant such approval, information thereof, accompanied by the reason for such refusal, shall be given to the applicant.(3) If any foreign bank or financial institution makes an application under Sub-section (1) for the incorporation, under this Act, of a bank or financial institution in joint investment with a corporate body incorporated in the State of Nepal or with a citizen, or as a subsidiary company subscribing cent per cent shares of the foreign bank or financial institution, the Rastra Bank shall grant approval for the incorporation of such bank or financial institution pursuant to Subsection (1).

5. Power to refuse to grant approval:(1) The Rastra Bank may refuse to grant prior approval for the incorporation of a bank or financial institution in any of the following circumstances:(a) If the name of the proposed bank or financial institution is identical with the name of any bank or financial institution which has already been registered and is still in existence;(b) If the name of the proposed bank or financial institution or the financial transactions to be carried on by it appears to be improper or undesirable in view of public interest, decency, etiquette, religion, nationalities or communities;


(c) If the objectives of the proposed bank or financial institution are contrary to the laws in force;(d) If the incorporation of the bank or financial institution seems to be technically inappropriate;(e) If a study of the feasibility study report, particulars and documents and information on other infrastructures submitted by the proposed bank or financial institution does not provide a ground to believe that it can carry on financial transactions in a healthy and competitive manner;(f) If application for the registration of the memorandum of association and articles of association has not been made in the names of all promoter members of the proposed bank or financial institution;(g) If all promoters of the proposed bank or financial bank or financial institution have not signed the memorandum of association and articles of association, also setting out their names and addresses, in the presence of any one witness, and the name and address of the witness has not been set out;.(h) If every promoter of the proposed bank or financial institution has not agreed to subscribe at least one share of that bank or financial institution;(i) If every promoter of the proposed bank or financial institution has not clearly specified the number of shares to be subscribed by him or her while affixing his or her signature on the memorandum of association;(j) If the fees required to be paid and the documents to be submitted pursuant to Section 4 have not been paid or submitted;(k) If any condition prescribed by the Rastra Bank is not fulfilled.(2) If the Rastra Bank refuses to register the memorandum of association and articles of association of the proposed bank or financial institution in any of the circumstances referred to in Sub-section (1), it shall give a notice thereof to the applicant.

6. Prospectus:(1) Before publicly issuing its securities, every bank or financial institution shall obtain approval of the Securities Board in relation to the registration of the prospectus in accordance with the laws in force relating to securities and have the prospectus registered with the Rastra Bank. Until the prospectus is so registered, the bank or financial institution, or anybody acting on behalf of such bank or financial institution shall not publish the prospectus of such bank or financial institution.(2) The procedures required to be fulfilled while publishing a prospectus pursuant to Sub-section (1) and the matters to be mentioned in the prospectus shall be as mentioned in the laws in force relating to securities.(3) The bank or financial institution shall, subject to the laws in force relating to securities, make an application in writing to the Securities Board for the approval of the Securities Board for the purpose of registration of its prospectus.

(4) The Rastra Bank shall not register a prospectus until it receives information in writing that approval has been given by the Securities Board in relation to the registration of the prospectus.(5) If any person intends to inspect the prospectus, the bank or financial institution shall allow such person to inspect the prospectus, without collecting any fee or charge.

7. Allotment of shares:(1) Every bank or financial institution shall set aside at least thirty per cent of its total issued capital for subscription by the general public. The bank or financial institution may set aside a maximum of five per cent of the shares so set aside for its employees. Provided that the shares in such percentage as prescribed by the Rastra Bank in the case of a bank or financial institution incorporated in joint venture with a foreign bank or financial institution shall be sold and allotted to the general public.


(2) While inviting application from the general public for the subscription of its shares, every bank or financial institution shall demand payment of cent percent amount of the face value of its shares along with application.8. Dealing in securities:(1) While issuing its securities for subscription by the general public, every bank or financial institution do all acts such as the sale, allotment, and recovery of amounts, of such securities in accordance with the laws in force relating to securities.(2) Every bank or financial institution shall file with the Rastra Bank and the Securities Board a copy of an agreement made by it on the dealing of securities through any institution dealing in securities, within seven days after the date of making of such agreement.

9. Prohibition on selling or pledging shares and debentures:(1) Notwithstanding anything contained in the laws in force, the promoter of a bank or financial institution shall not be entitled to sell or pledge any share registered in his or her name for at least five years from the date of commencement of financial transactions. Provided that if there arises a special circumstance due to the emergence of any obstruction or hindrance in the operation of a bank or financial institution, nothing in this Sub-section shall be deemed to prevent the granting of permission by the Rastra Bank to the promoters to sell shares between or among them.(2) If the promoter of a bank or financial institution wishes to sell or pledge the shares held in his or her name after five years from the date of commencement of financial transactions by the bank or financial institution, he or she may sell or pledge such shares, subject to the conditions prescribed by the Rastra Bank.

10. Prohibition on purchase by bank or financial institution of its own shares:(1) No bank or financial institution shall purchase its own shares (buy-back) or lend moneys against security of its own shares.(2) Notwithstanding anything contained in Sub-section (1), in the following circumstances, a bank or financial institution may, with the approval of the Rastra Bank, so buy back its shares out of its free reserves available for being distributed as dividends not exceeding the percentage prescribed by the Rastra Bank:(a) If the shares issued by the bank or financial institution are fully paid up;(b) If the shares issued by the bank or financial institution have already been listed in the Securities Board;(c) If the buy-back of shares is authorized by the articles of association of the concerned bank or financial institution;(d) If a special resolution has been adopted at the general meeting of the concerned bank or financial institution authorizing the buy-back;(e) If the ratio of the debt owed by the bank or financial institution is not more than twice the capital and general reserve fund after such buy-back of shares; Explanation: For the purposes of this Clause , “debt” means all amounts of secured or unsecured debts borrowed by the bank or financial institution.(f) If the value of shares to be bought back by a bank or financial institution is not more than twenty percent of the total paid up capital and general reserve fund of that bank or financial institution;(g) If the buy-back of shares is not in contravention of the directives issued from time to time by the Rastra Bank in this respect.(3) Any bank or financial institution shall make an application, setting out the following matters, to the Rastra Bank to obtain approval of the Rastra Bank for the purposes of Sub-section (2); and if such application is made and, based on the matters received, it appears appropriate to give approval to the bank or financial institution to purchase its own shares, the Rastra Bank may give approval for the same:


(a) The reason and necessity for the buy-back of shares;(b) A statement of the evaluation of possible impacts on the financial situation of the bank or financial institution as a result of the buy-back of shares;(c) The class and number of shares intended to be bought back;(d) The maximum or minimum amount required to buy back shares as referred to in Clause (c), and source of such amount;(e) The time limit for the buy-back of shares;(f) The mode of the buy-back of shares;(g) Such other necessary matters as specified by the Rastra Bank and as required to be disclosed under the laws in force, in respect of the buy-back of shares.(4) On receipt of the approval pursuant to Sub-section (3), the concerned bank or financial institution may buy back its shares in any of the following manners, within six months after the date of receipt of such approval or twelve months of the adoption of a special resolution at the general meeting, whichever occurs later:(a) Purchasing from the stock exchange;(b) Purchasing from the concerned employees of the bank or financial institution the shares allotted to them pursuant to this Act;(c) Purchasing from the existing shareholders on a proportionate basis.(5) If a bank or financial institution buys back its own shares pursuant to Sub-section (4), it shall file with the Rastra Bank a return containing the number of shares bought back, amount paid for the same and other necessary details within thirty days of the date of such buy-back.(6) There shall be established a separate capital redemption reserve fund, to which a sum equal to the nominal value of the shares bought back pursuant to Sub-section (4) shall be transferred; and the amount of such fund shall be maintained as if it were the paid-up capital.(7) If a bank or financial institution buys back its shares pursuant to Sub-section (4), it shall cancel the shares so bought back within one hundred twenty days of the date of such buy-back.(8) Other conditions where a bank or financial institution cannot buy back its shares and other terms required to be complied with in the buying back of its shares shall be as prescribed by the Rastra Bank.

11. Restriction on dealing in securities:(1) No director, chief executive, auditor or secretary of a bank or financial institution, or any person directly involved in the management and accounting functions of a bank or financial institution shall sell, purchase or pledge, gift or exchange, or cause to be purchased, pledged, gifted or exchanged, the securities of the concerned bank or financial institution or those of its subsidiary company under his or her own name or in the name of his or her family or in the name of any firm, company or body controlled by him or her or by his or her family control while he or she holds such office or until at least one year from the date of his or her retirement from that office.Provided that this restriction shall not be applicable in the case of the newly issued shares.(2) If any person does any act in contravention of Sub-section (1), the concerned bank or financial institution shall forfeit such securities.(3) The Board may sell and dispose of the securities forfeited pursuant to Sub-section (2) in such manner as it may think appropriate.


Chapter 3Provisions Concerning Board of Directors and Chief Executive of Banks or

Financial Institutions

12. Formation of Board of Directors:(1) Every bank or financial institution shall have a Board of Directors. The Board shall consist of not less than five and not more than nine Directors.(2) Subject to Sub-section (1), there shall be appointed to the Board a professional director from the list of professional experts maintained by the Rastra Bank pursuant to Section 13. The Director to be so appointed shall not be required to have subscribed any share of the concerned bank or financial institution.(3) A director chosen by the directors from among themselves by a majority decision shall be the chairperson of the Board of Directors.

13. List of professional experts to be maintained:(1) For the purposes of Sub-section (2) of Section 12, the Rastra Bank shall maintain a list of professional experts on the basis of the following qualification and experience:(a) Having obtained at least master’s degree in management, banking, finance, money, economics, commerce, trade, administration, commercial law or having accounting or commercial law or a chartered accountancy degree and gained at least five years of experience in the executive level of the banking and finance field.Explanation: For the purposes of this Clause , “executive level” means the post of first class officer of the Government of Nepal, Rastra Bank, bank or financial institution or the post of senior manager of any bank or financial institution or the post of reader in a recognized university or a post there above.(b) Not being disqualified under Section 18.(2) The Rastra Bank shall each year update the list of professional experts maintained under Sub-section (1) and publish in a newspaper of national circulation for the public information.

14. Functions, duties and powers of Board:(1) All functions to be performed and all powers to be exercised by the bank or financial institution, other than those to be performed by the general meeting of shareholders, shall be performed and exercised by the Board, subject to this Act, laws in force and the memorandum of association and articles of association.(2) The Board may frame necessary bye-laws in order to systematically perform the functions required to be performed by it under Sub-section (1).(3) Except as otherwise provided in the memorandum of association and articles of association, the Board of Directors may appoint any director from amongst themselves or any officer of the bank or financial institution as its representative and so delegate to him or her any or all of its powers, inter alia, to make correspondences or sign negotiable instruments, cheques etc. on behalf of the bank or financial institution that such powers are to be exercised individually or jointly.

15. Delegation of authority: (1) The Board may delegate any of its powers to the chairperson, any director, a sub-committee formed pursuant to Section 16, chief executive or any person, firm, company or body acting as the chief executive on the condition that such powers shall be exercised under its supervision or direction.(2) The chairperson, director, sub-committee formed pursuant to Section 16, chief executive or any person, firm, company or body acting as the chief executive may assign the powers delegated to them pursuant to Sub-section (1) to their employees under their own responsibility.


16. Power to form sub-committees:(1) The Board may, as required, form one or more sub-committees for any specific purpose.(2) The functions, duties, powers and rules of procedure of any sub-committee formed pursuant to Sub-section (1) and the remuneration or allowances receivable for attending its meetings shall be as prescribed by the Board.

17. Appointment of directors:(1) The directors of a bank or financial institution shall be appointed by the general meeting of the bank or financial institution, subject to Section 18 and the articles of association. Provided that,-(a) Until the first annual general meeting of the bank or financial institution is held, directors shall be appointed by the promoters.(b) In the event of any vacancy in the post of a director prior to the holding of the annual general meeting, the Board may appoint a director for the remainder of term.(c) In the case of a bank or financial institution in which a corporate body holds shares, the concerned corporate body may appoint director(s) in a number proportionate to the value of the shares held by it.(2) While appointing director in proportion to the shares of the bank or financial institution held by it, a body corporate, foreign bank or financial institution may also appoint alternate director authorizing him/her or them to work during the absence of the director.(3) The professional expert director as referred to in Subsection (2) of Section 12 shall be appointed by the Board of Directors.

18. Disqualification of directors:(1) Any of the following persons shall not be eligible to be elected or nominated to the office of, or to continue to hold the office of, a director:(a) Who is below 21 years of age;(b) Who is of unsound mind or insane;(c) Who is a declared insolvent;(d) Who has been blacklisted in connection with any transaction with any bank or financial institution, and a period of at least three years has not lapsed after his or her name has been removed from that list;(e) Who is a director of any bank or financial institution or any financial institution carrying on the transactions relating to any kind of deposits or an employee serving in such institution or a serving auditor or advisor of any other bank or financial institution;(f) Who is a partner in any kind of contract agreement with the concerned bank or financial institution;(g) Who has acquired membership of the Stock Exchange to act as a securities dealer;(h) Who has not subscribed the minimum number of shares required to be subscribed to be eligible for appointment as a director pursuant to the articles of association of the bank or financial institution;(i) Who is a serving employee of the Government of Nepal, Rastra Bank or bank or financial institution;Provided that this provision shall not be applicable to the nomination of any person made by the Government of Nepal as a director of any bank or financial institution of which shares have been purchased by it, or to the nomination of any person made by any bank or financial institution as a director of any other bank or financial institution of which shares have been purchased by it;(j) In the case of a person who has been relieved of or retired from the service of the Rastra Bank after serving in the post of Governor, Deputy-Governor or Special Class employee, at least one year from the date of such relief or retirement from the service has not elapsed;(k) Who, having a liability to pay tax pursuant to the laws in force, has failed to pay the same;


(l) Who is convicted by a court of an offense involving moral turpitude and sentenced in respect thereof, and a period of five years has not elapsed from the expiry of the sentence;(n) Who is convicted by a court of an offense of corruption or cheating;(o) A period of five years has not lapsed after the date on which the Rastra Bank has taken action against him or her for failure to observe a direction of the Rastra Bank or the date of suspension or dissolution after taking management by the Rastra Bank under its control.(2) No person shall continue to hold the office of a director in any of the following circumstances:(a) If he or she suffers from any disqualification for appointment to the post of director as mentioned in subsection (1);(b) If the general meeting passes a resolution to remove him or her from the office of director;(c) If the resignation tendered by the director is accepted;(d) If he or she is held by a court to have done any act involving dishonesty or ulterior motive in the activities of the bank or financial institution;(e) If he or she does any act prohibited by this Act from being done by a director.

19. Qualification of Director: A person has to possess the following qualification in order to be eligible for appointment as director:(a) Not being disqualified under Section 18;(b) Having acquired at least a bachelor's degree in any subject or having gained at least five years of experience in any institution relating to governmental or banking or financial or corporate sector. Provided that:(a) The said qualification shall not be necessary for a director who is elected from amongst the general public shareholders.(b) The qualification of the directors of Class “D” licensed institutions shall be as prescribed by the Rastra Bank from time to time.

20. Tenure of office of Director:(1) The tenure of office of a director of a bank or financial institution shall be as provided in its Articles of Association, but not exceeding four years. Provided that:(a) The Director appointed pursuant to Clause s (a) and (b) of the proviso to Section 17 shall hold his or her office only until the annual general meeting is held.(b) The tenure of office of a director appointed to the office of any director which has fallen vacant before the expiry of his/her tenure of office shall be only the remainder of the tenure of office of that director whose office has so fallen vacant and in whose place he or she is appointed.(2) A person retired from the office of director on expiry of his or her tenure of office shall be eligible for reappointment to the office of director.

21. Remuneration and facilities of directors:(1) The meeting allowance to be receivable by the directors for attending a meeting, their remuneration and remuneration and other facilities to be paid to them while carrying on the transactions of the bank or financial institution shall be as specified in the articles of association.(2) If any director is found to have obtained any facility other than that mentioned in Sub-section (1), that director shall be deemed to have committed an offense under this Act, and the amount obtained by him or her in consideration of such facility shall be recovered from him or her.

22. Disclosure by directors:(1) Every director shall, no later than seven days after assuming the office of director, disclose in writing to the bank or financial institution the following matters:CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

(a) If he or she or any of his or her family members has entered into or going to enter into any kind of contract with the concerned bank or financial institution, details thereof;(b) If he or she has any kind of interest in the appointment of the chief executive, managing director, secretary, auditor and general manager, details thereof;(c) Particulars of such shares or debentures in the concerned bank or financial institution or in its holding or subsidiary company as subscribed by him or her or by his or her family;(d) If he or she is a director of any company, details thereof;(e) If any member of his or her family is working as an officer of the bank or financial institution, details thereof;(f) Such other details prescribed by the Rastra Bank as required to be disclosed by the director to the Board.(2) In making disclosure pursuant to Sub-section (1), a copy of the written agreement, if any, concluded between the directors or his or her family member shall be submitted, and failing such agreement, substantial and necessary matters concerning the transaction or financial interest or involvement shall be set out.(3) The information provided by a director pursuant to Subsection (1) shall be forwarded to the Rastra Bank within seven days; and upon receipt of such information, the Rastra Bank shall record the same in a separate register maintained for this purpose.

23. Meetings of Board:(1) Meetings of the Board shall be held at least 12 times in a year. Provided that the interval between any two meetings shall not exceed two months.(2) The chairperson shall call a meeting at any time when at least two-third of the directors request for the same in writing.(3) Meetings of the Board shall be presided over by the chairperson. In the absence of the chairperson, the meeting shall be presided over by a director selected by a majority of the directors from amongst themselves.(4) No meeting of the Board shall be held unless it is attended by at least fifty one percent of the total number of directors who are entitled to attend and vote in a meeting.(5) The decision of a majority in the meeting of the Board shall be binding, and, only in the event of a tie, the chairperson may exercise the casting vote.(6) A director who has any personal interest in any resolution to be discussed at a meeting shall not be entitled to take part in that meeting.(7) Minutes regarding the names of directors present in the meeting of board of directors, the subjects discussed and the decisions taken thereon shall be recorded in a separate book, and such minute book shall be signed by all directors present in the meeting. Provided that, if any director puts forward any opinion opposed to or differing from the decision in the course of discussions on any subject in a meeting, he or she may mention the same in the minute book.

24. Responsibilities and duties of directors:(1) No director shall do anything to derive personal benefit through the bank or financial institution or in the course of performing the functions of the bank or financial institution.(2) If any person who is appointed as a director has any personal or financial interest in the business of the bank or financial institution or in an agreement or involvement with the bank or financial institution, such person shall, prior to assuming the duties of his or her office, disclose such matter to the Board.(3) If any director is found to have derived a personal benefit in the course of business of the bank or financial institution, the bank or financial institution shall recover that amount from such director.


(4) The bank or financial institution shall not be responsible for any action taken or function performed by any person working as its director by acting beyond his or her jurisdiction.(5) If any person carries on any transaction with any director or representative even while knowing or having reasons to believe that the director or representative is carrying on the transaction to serve hisor her personal interests or to cause any loss or damage to the bank or financial institution, such person shall not be entitled to make any claim against the bank or financial institution in relation to such transaction.(6) No director shall interfere with the routine business relating to the management of the bank or financial institution.(7) Every director of the bank or financial institution shall comply with such directives issued by the Rastra Bank from time to time as required to be complied with by the directors of the bank or financial institution.

25. Register of directors: Every bank or financial institution shall maintain a separate register recording the personal details of its directors, and forward details thereof and alteration of directors, if any, to the Rastra Bank no later than fifteen days.

26. Appointment and conditions of service of chief executive:(1) The Board shall appoint the chief executive of the bank or financial institution, subject to this Act and the memorandum of association and articles of association.(2) While making appointment of the chief executive, a qualified person shall be appointed from amongst the persons who have done at least bachelor’s degree in any subject and have gained at least five years of experience of the office of director or of the executive level in banking, financial or corporate sector.Explanation: For the purposes of this sub-section, the expression “executive level” means any officer level post of any governmental, banking, financial, corporate sector or of any international financial institution, organization or any post which is equivalent to or higher than such officer level post.(3) The chief executive shall be the chief administrator of the bank or financial institution.(4) The tenure of office of the chief executive shall be a maximum of four years; and he or she may be re appointed.(5) The remuneration and other conditions of service of the chief executive shall be as prescribed by the Board.

27. Functions, duties and powers of chief executive:(1)The functions, duties and powers of the chief executive shall be as follows:(a) To implement the decisions of the Board and supervise and control the activities and transactions of the bank or financial institution, subject to this Act and the memorandum of association and articles of association;(b) To prepare annual budgets and action plans of the bank or financial institution and present them before the Board for approval;(c) To manage necessary human resources, subject to the personnel bye-laws of the bank or financial institution;(d) To implement, or cause to be implemented, the decisions of the Board and the General Meeting, and the directives of the Rastra Bank;(e) To present on time all such particulars, documents, decisions, etc. as are required to be submitted by the bank or financial institution to the Rastra Bank or any other body, subject to this Act and the memorandum of association and articles of association;(f) To perform such other functions as may be prescribed in relation to the operation of the bank or financial institution.(2) The Executive Chief shall be accountable to the Board for all of his or her functions.CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

Chapter 4Provisions relating to License

28. Prohibition on carrying on financial transactions by anyone other than bank or financial institution: No one other than a bank or financial institution incorporated pursuant to this Act shall carry on the financial transactions referred to in this Act. Provided that nothing herein shall be deemed to prevent any body corporate, other than a bank or financial institution, which has been established under the laws in force and licensed under the Nepal Rastra Bank Act, 2058 (2002) to accept deposits and extend credit, from carrying on such transaction.(2) No person shall use the name of a bank or financial institution for the purpose of carrying on the financial transactions, without obtaining the approval of the Rastra Bank.(3) Notwithstanding anything contained in Sub-section (1) or (2), any bank or financial institution which has obtained approval to carry on the financial transactions pursuant to the laws in force at the commencement of this Act may carry on the financial transactions using the name existing at the time of obtaining the approval to carry on such transactions.(4) Notwithstanding anything contained elsewhere in this Act, class “B”, class “C” and class “D” licensed institutions shall be entitled to use the names development bank, finance company and microfinance development bank, respectively.(5) The conditions required to be observed by the banks and financial institutions which have obtained approval pursuant to Subsection (3) in the course of carrying financial transactions shall be as prescribed by the Rastra Bank.

29. Application to be made for license to carry on financial transactions:(1) A bank or financial institution desirous of carrying on financial transactions pursuant to this Act shall make an application to the Rastra Bank for a license, in the format prescribed by the Rastra Bank.(2) The bank or financial institution shall also attach the following particulars and documents and the license fee prescribed by the Rastra Bank with the application to be made pursuant to Subsection (1):

(a) A copy of the memorandum of association, articles of association of the bank or financial institution and the certificate of registration of the bank or financial institution;(b) Particulars of an office building equipped with all infrastructures required by the bank or financial institution to carry on financial transactions, or, if such building is to rented, a copy of the lease agreement and the particulars of the building to be rented;(c) Personal details of the chief executive and other executive level officers of the bank or financial institution, and the organizational structure of the bank or financial institution;(d) Bye-laws relating to conditions of service and facilities of the employees of the bank or financial institution;(e) Credit policy of the bank or financial institution;(f) Financial administration bye-laws of the bank or financial institution;(g) By-laws relating to write-off of loans;(h) Document proving that the amount of shares which the promoter of the bank or financial institution has undertaken to subscribe has been paid and deposited with the Rastra Bank;(i) Such other particulars and documents as may be prescribed by the Rastra Bank from time to time.

(3) A bank or financial institution which makes an application to the Rastra Bank for a license to carry on financial transactions shall also mention the following matters in the application:

(a) Matter that the minimum capital as prescribed by the Rastra Bank from time to time shall be maintained until the financial transactions is carried on;


(b) Matter that there have been prepared infrastructures required for the operation of the bank or financial institution and there exist adequate grounds for providing services and facilities in a manner satisfactory to the Rastra Bank;(c) Matter that the rights and interests of depositors shall be protected as a result of the carry on of financial transactions on a regular basis pursuant to the bye-laws and provisions relating to the carry on of transactions proposed by the bank or financial institution for carrying on the financial transactions;(d) Consent given to comply with the terms and conditions prescribed by the Rastra Bank for carrying on the financial transactions.

30. License to be issued to carry on financial transactions:(1) If an application is received pursuant to Section 29, the Rastra Bank may, if it is satisfied after making necessary enquiries and investigations into the following matters, in addition to the physical infrastructures required for the operation of the bank or financial institution, issue to the bank or financial institution a license of any one of the classes to carry on financial transactions, on the basis of the classification of banks or financial institutions as referred to in Section 31:(a) If it considers that the issuance of the license to carry on financial transactions shall ensure a healthy competition and make effective the transactions relating to financial intermediation and thus serve the interests of depositors;(b) If it considers that the bank or financial institution is competent to carry on financial transactions, subject to this Act or the rules or bye-laws framed under this Act or the orders or directives issued there under, and the memorandum of association and articles of association;(c) If, based on the application and the attached particulars and documents attached with the application made for the license pursuant to Sub-section (2) of Section 29, there are adequate grounds to believe that the bank or financial institution is competent to carry on the financial transactions.

31. Classification of licensed institutions:(1) The Rastra Bank shall classify the licensed institutions into “A”, “B”, “C” and “D” classes on the basis of the minimum paid-up capital required for the license to be issued pursuant to Section 30 to carry on the financial transactions pursuant to Section 47, and issue the license to the concerned bank or financial institution accordingly.(2) The minimum paid-up capital of the licensed institutions classified under Sub-section (1) shall be as prescribed by the Rastra Bank.

32. Power to refuse to issue license to carry on financial transactions:(1)Notwithstanding anything contained in Section 30, the Rastra Bank may, in any of the following circumstances, refuse to issue a license to any bank or financial institution to carry on the financial transactions:(a) If, in view of the existing condition and potentiality of the banking or financial sector, it does not appear appropriate to grant a license to additional bank or financial institution to carry on the financial transactions;(b) If, in the light of the situation mentioned in Clause (a), for the protection of the interests of depositors, it does not appear just and appropriate to issue a license to carry on the financial transactions;(c) If it does not appear that the details or requirements referred to in Sections 29 and 30 have been completed.(2) If there exists a situation where the license to carry on the financial transactions cannot be issued to any bank or financial institution pursuant to Sub-section (1), the Rastra Bank shall give a notice thereof, accompanied by the reason for the same, to the concerned bank or financial institution within one hundred twenty days from the date of application. If the Rastra Bank has requested for any additional CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

details within that period, such notice shall be given within ninety days from the date of receipt of such details.

33. Power of Rastra Bank to prescribe conditions:(1) While issuing a license to carry on the financial transactions pursuant to Section 30, the Rastra Bank may prescribe necessary conditions, in view of the condition of the existing banks and financial institutions, healthy operation of the financial transactions and the interests of depositors. It shall be the duty of the concerned bank or financial institution to comply with such conditions.(2) The Rastra Bank may make necessary changes and alterations in the conditions prescribed pursuant to Sub-section (1), in view of the condition of the banks and financial institutions, healthy operation of the financial transactions and the interests of depositors.

34. Special provisions relating to opening of office by foreign bank or financial institution:(1) If any foreign bank or financial institution intends to open its office in the State of Nepal, it shall makean application to the Rastra Bank, along with the fee and details as prescribed by the Rastra Bank.(2) Notwithstanding anything contained elsewhere in this Act, also taking into account the existing competition in the banking sector, contribution that the foreign bank or financial institution can make tothe banking development of the State of Nepal and the prestige and reputation of the concerned foreign bank or financial institution, the Rastra Bank may, on receipt of an application under Sub-section (1), issue a license to such foreign bank or financial institution to establish its office and carry on the financial transactions in the State of Nepal.(3) While issuing a license pursuant Sub-section (2), the Rastra Bank may prescribe necessary conditions, and it shall be the duty of the concerned foreign bank or financial institution to comply with the conditions so prescribed.(4) The provisions of this Act shall be applicable to the foreign banks or financial institutions, which are incorporated by obtaining the license pursuant to Sub-section (2), in relation to the financial transactions. Provided that the functions and activities of a representative or liaison office of a foreign bank or financial institution shall be as prescribed by the Rastra Bank.(5) No foreign bank or financial institution which has obtained approval to open its office and carry on the financial transactions in the State of Nepal pursuant to this Section shall be granted approval to open another bank or financial institution in joint venture in the State of Nepal.

35. Suspension and cancellation of license:(1) If any licensed institution does an act in contravention of the Nepal Rastra Bank Act, 2058 (2002) or this Act or the rules or bye-laws framed there under or fails to comply with the orders or directives issued by the Rastra Bank or fails to do any act required to be done by it taking into account the interests of depositors, the Rastra Bank may, specifying a certain period, suspend the license obtained by the licensed institution to carry on the financial transactions pursuant to this Act, or fully or partiallyWith hold or freeze the business of the bank or financial institution or of any of its offices.(2) The Rastra Bank may cancel the license obtained by a licensed institution to carry on the financial transactions pursuant to this Act in any of the following circumstances:

(a) If the concerned licensed bank or financial institution requests for the cancellation of its license;(b) If it fail to carry on the financial transactions within six months from the date of receipt of the license;(c) If it stops carrying on the financial transactions since more than one month ago continuously;


(d) If it carries on the financial transactions in such a manner as to be contrary to the rights and interests of depositors;(e) If it violates the Nepal Rastra Bank Act, 2058 (2002) or this Act or the rules and bye-laws framed there under;(f) If it violates the conditions prescribed by the Rastra Bank;(g) If it fails to comply with the orders or directives issued by the Rastra Bank;(h) If it becomes insolvent;(i) If the bank or financial institution is found to have obtained the license by submitting false details;(j) If the licensed institution is amalgamated with another bank or financial institution.

(3) If any bank or financial institution duly makes an application for the cancellation of its license pursuant to Clause (a) of Sub-section (2), the Rastra Bank shall make a decision thereon within forty-five days from the date of such application.(4) A notice in writing of the decision referred to in Subsection (3) and the grounds of such decision shall be provided to the concerned bank or financial institution.(5) If a decision is made to cancel a license pursuant to this Section, the Rastra Bank shall publish a public notice thereof.

36. Conversion of licensed institution of lower class into licensed institution of higher class:(1) Any licensed institution of a lower class which meets the following conditions may, with the approval of the Rastra Bank, be converted into a licensed institution of a higher class:(a) If it has the capital prescribed by the Rastra Bank for a licensed institution of such higher class;(b) If it has been able to earn profits since five consecutive years;(c) If its total non-performing loan is within the limit prescribed by the Rastra Bank;(d) If it has met all conditions as prescribed by the Rastra Bank.(2) If, on receipt of the approval referred to in Sub-section (1), the concerned licensed institution is required to amend its memorandum of association and articles of association to carry on the financial transactions of higher class, it shall amend the same in accordance with the laws in force and make an application to the Rastra Bank under this Act to obtain the license of higher class.

37. Conversion of licensed institution of higher class into licensed institution of lower class:(1) If any licensed institution fails to meet any of the following conditions, the Rastra Bank may make a decision to convert it into a Class “B” licensed institution if it is a Class “A” licensed institution, and into a Class “C” licensed institution if it is a Class “B” licensed institution:(a) If it has failed to raise the capital as prescribed within the period prescribed by the Rastra Bank;(b) If it has been incurring loss since five consecutive years;(c) If it has been subjected to action for frequent violations of the directives issued by the Rastra Bank;(d) If it has failed to maintain a risk-bearing fund as prescribed by the Rastra Bank.(2) The Rastra Bank shall, prior to taking action against any bank or financial institution pursuant to Sub-section (1), give a reasonable opportunity to the concerned bank or financial institution to furnish its explanations against such action.(3) If any licensed bank or financial institution of a higher class intends to be converted into a licensed bank or financial institution of a lower class and makes an application to the Rastra Bank for approval, and if the Rastra Bank gives its approval after making necessary inquiries, such bank or financial institution shall be converted into a licensed bank or financial institution of a lower class.


38. Liquid assets required to be maintained: A licensed institution which collects deposits or supplies credits shall maintain the liquid assets as prescribed by the Rastra Bank.

39. List of licensed Institutions to be published:(1) The Rastra Bank shall publish a list of the licensed institutions carrying on the financial transactions in a newspaper of national circulation in every three months of a fiscal year.(2) The list referred to in Sub-section (1) shall be published in such a manner as to show separately, inter alia, the date of commencement of the financial transactions by such institutions and the particulars of the paid-up capital of each institution.

Chapter 5Provisions relating to Capital

40. Capital to be maintained:(1) The minimum authorized capital, issued capital and paid-up capital of the licensed institutions shall be as prescribed by the Rastra Bank from time to time.(2) Every licensed institution existing at the time of commencement of this Act shall maintain the capital structure referred to in Sub-section (1) within the period prescribed by the Rastra Bank.(3) No licensed institution which fails to maintain the capital structure referred to in Sub-section (1) within the period mentioned in Sub-section (2) shall declare or distribute dividends until it maintains such capital.41. Capital to be increased:(1) The Rastra Bank may, if it so deems appropriate, gives a directive to any licensed institution to increase its authorized capital, issued capital and paid-up capital existing for the time being.(2) If the Rastra Bank gives a directive pursuant to Subsection (1), the concerned licensed institution shall increase its authorized capital, issued capital and paid-up capital.

42. Capital Fund:(1) Every licensed institution shall maintain a capital fund in the ratio prescribed by the Rastra Bank on the basis of its total assets or total risk-weighted assets.(2) If any bank or financial institution fails to maintain the capital fund as referred to in Sub-section (1), the Board shall give information thereof to the Rastra Bank within thirty five days. The information so given shall also be accompanied by, inter alia, the reasons for the failure to maintain the capital fund and the plan or program prepared by the Board to increase the capital fund and restore it to its previous condition.(3) On receipt of the information referred to in Sub-section (2), if the Rastra Bank considers the plan or program submitted by the Board to be reasonable, it may give a directive to the concerned bank or financial institution to implement such plan or program; and if any amendment or alteration is to be made in the proposed plan or program, it may give a directive, accompanied by the reasons for such amendment or alteration, to the concerned bank or financial institution to amend or alter such plan or program and implement the same.(4) If any bank or financial institution fails to meet the obligation referred to in this Section or if it does not appear that it can do so immediately, the Rastra Bank may take action referred to in Section 37 against such bank or financial institution.(5) Notwithstanding anything contained elsewhere in this Section, if it is found that the concerned bank or financial institution has failed to maintain its capital fund as provided for in Sub-section (1) by the reason of the failure of the Board of Directors to comply with the directives given by the Rastra Bank from time to time or by the reason of malice recklessness or mala fide intention of the director or chief executive, the Rastra Bank may punish such director or chief executive with a fine equal to the amount involved; and if such act of the director or chief executive is found to have caused any loss or


damage as a result of the failure to maintain the capital fund, the Rastra Bank, the concerned bank or financial institution or any shareholder holding up to five per cent of the paid-up capital of such bank or financial institution may either individually or collectively file a petition with the court against such director or chief executive for the recovery of that amount, in accordance with laws in force.

43. Risk-Bearing Fund: A licensed institution shall maintain a risk bearing fund in the proportion prescribed by the Rastra Bank in such a manner that it can cover the liability relating to its total assets and off-balance sheet transactions.

44. General Reserve Fund:(1) A licensed institution must maintain a general reserve fund. At least twenty per cent of the net profits of each year shall be kept on being credited to such fund until the amount of such fund doubles the paid-up capital.(2) The amount credited to the reserve fund of a licensed institution under Sub-section (1) may not be invested or transferred to any other head without the prior approval of the Rastra Bank.

45. Exchange Equalization Fund:(1) A licensed institution which has obtained the license to carry on foreign exchange transactions shall make necessary accounts adjustments in the profit and loss account of the revaluation profits earned as a result of fluctuations in the exchange rates of foreign currencies, other than the Indian currency, every year at the end of the same fiscal year. While making such accounts adjustment in the profit and loss account, if revaluation earning has been made in any fiscal year, at least twenty five per cent of such profits shall be credited to the exchange equalization fund.Provided that in the case of revaluation profit-loss resulting from fluctuation in the exchange rate of the Indian currency, it shall be as prescribed by the Rastra Bank.(2) No amount credited to the exchange equalization fund pursuant to Sub-section (1) shall, without the approval of the Rastra Bank, be spent or transferred for any purpose other than the adjustment of loss resulting from the devaluation of foreign currencies.46. Restriction on Distribution of Dividends:(1) No licensed institution shall declare or distribute dividends to its shareholders until it has recovered all of its preliminary expenses and the losses sustained by it until the previous year, it sets aside such amount as required to be set aside for the capital fund, risk-bearing fund and general reserve fund pursuant to Section 44 and the shares set aside for subscription by the general public are sold and fully paid-up.(2) A licensed institution shall obtain the approval of the Rastra Bank prior to declaring and distributing dividends.

Chapter 6Provisions relating to Operation of Financial Transactions

47. Financial Transactions which licensed institutions may carry on:(1)Subject to this Act and the memorandum of association and articles of association, a Class “A” licensed institution may carry on the following financial transactions:(a) Accepting deposits with or without interest, and refund such deposits;(b) Supplying credit as prescribed by the Rastra Bank;(c) Dealing in foreign exchange, subject to the laws in force;(d) Supplying credit for hire-purchase, hypothecation, leasing, housing and service business;(e) Engaging in merchant banking business, subject to the directives of the Rastra Bank;


(f) Making arrangements for jointly supplying credits on the basis of co-financing in collaboration with other licensed institutions in accordance with the mutual agreement entered into for the division of the collateral pari passu;(g) Issuing guarantees on behalf of its customers, having such customers execute necessary bonds in consideration thereof, obtaining security, and acquire their movable or immovable assets as collateral or on mortgage, or the assets of third persons as collateral;(h) Supplying credit against the guarantee provided by any native or foreign bank or financial institution;(i) Issuing, accepting, paying, discounting or purchasing and selling letters of credit, bills of exchange, promissory notes, cheques, travelers cheques, drafts or other financial instruments;(j) Accepting deposits, making payments and transfer funds through telephones, telex, fax, computers or magnetic tapes or similar other electronic means or equipment, subject to the directives issued by the Rastra Bank;(k) Issuing and accepting credit cards, debit cards, charge cards and other financial instruments, as well, and appointing agents to discharge functions relating thereto, subject to the directives issued by the Rastra Bank;(l) Accepting, making payments and supplying credit through automated teller machines and cash dispensing machines;(m) Providing overdraft to persons whom it trusts;(n) Supplying a fresh credit in lump sum or by installment against the security of the same movable or immovable assets which have already been furnished with it or with any other licensed institution as security, to the extent covered by the total value of such security;(o) Acting as an agent of the Rastra Bank on the conditions prescribed by the Rastra Bank, and carrying on governmental and other transactions on behalf of the Government of Nepal;(p) Remitting or transmitting funds to different places within or outside the State of Nepal through bills of exchange, cheques or other financial instruments, purchasing and selling gold and silver bullion, shares, debentures, bonds, etc., and recovering dividends accruing on shares and interest on promissory notes, debentures, bonds, etc.;(q) Acting as a commission agent of its customers, taking custody of and arranging for the sale or purchase of shares, debentures or securities, collecting interest, dividends etc. accruing from shares, debentures or securities, remitting or transmitting such interests or dividends to places within or outside the State of Nepal;(r) Purchasing, selling or accepting bonds issued by the Government of Nepal or the Rastra Bank;(s) Arranging for safe deposit vaults;(t) Carrying on off-balance sheet transactions on such conditions as may be prescribed by the Rastra Bank;(u) Supplying credits not exceeding the amount prescribed by the Rastra Bank, against individual or collective guarantee, for the economic upliftment of the destitute class, low-income families, victims of natural calamities and inhabitants in any area of the country;(v) Exchanging with the Rastra Bank or any other licensed institutions particulars of, information or notices on debtors or customers who have obtained credits from it or other licensed institutions;(w) Providing guarantee for the supply of credit to its customers by any other licensed institution;(x) Mobilizing capital through shares, debentures, bonds, loan-bonds, saving-bonds or other financial instruments within the limit prescribed by the Rastra Bank;(y) Obtaining refinance credit from the Rastra Bank as per necessity, or obtaining or supplying credits to or from other licensed institutions;(z) Doing, or causing to be done, study, research and survey work relating to the establishment, operation and evaluation of projects, and providing training, consultancy and other information;(aa) Supplying funds received from the Government of Nepal or other native or foreign agencies as credits for the promotion of projects, or managing such credits;CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

(bb) Prescribing conditions, as required, in order to protect its interests while supplying credits to any persons or institutions or doing any transaction with them;(cc) Obtaining credits by pledging its movable or immovable assets as collateral;(dd) Writing off credits, subject to the bye-laws framed by theBoard;(ee) Properly managing or selling its assets;(ff) Performing such other functions as may be prescribed bythe Rastra Bank.(2) Subject to this Act and the memorandum of association and articles of association, a Class “B” licensed institution may carry on the following financial transactions:(a) Subject to the limit prescribed by the Rastra Bank, accepting deposits with or without interest, and refund such deposits;(b) Supplying credit, other than hypothecation credit, as prescribed;(c) Dealing in foreign exchange, subject to the laws in force and the directives given by the Rastra Bank;(d) Supplying credit for hire-purchase, leasing, housing and service business;(e) Engaging in merchant banking business, subject to the directives given by the Rastra Bank;(f) Making arrangements for jointly supplying credits on the basis of co-financing in collaboration with other licensed institutions in accordance with the mutual agreement entered into for the division of the collateral pari passu;(g) Supplying credits against the guarantee of any native bank or financial institution;(h) Issuing guarantees on behalf of its customers, having such customers execute necessary bonds in consideration thereof, obtaining security, and acquiring their movable or immovable assets as collateral or on mortgage, or the assets of third persons as collateral;(i) Issuing, accepting, paying, discounting or purchasing and selling bills of exchange, promissory notes, cheques, travelers cheques, drafts or hundies;(j) Accepting deposits, making payments and supplying credit through automated teller machines and cash dispensing machines;(k) Providing overdraft to persons whom it trusts;(l) Obtaining credit against the security of its movable and immovable property;(m) Supplying a fresh credit in lump sum or by installment against the security of the same movable or immovable property which has already been furnished with, it to the extent covered by the total value of such security or supplying a fresh credit in lump sum or by installment against the security of the same movable or immovable property which has already been furnished with any other licensed institution as security, to the extent covered by the total value of such security;(n) To issue and accept letters of credit, subject to the conditions prescribed by the Rastra Bank;(o) Transmitting funds within the State of Nepal through bills of exchange, cheques or other financial instruments, purchasing and selling shares, debentures, bonds, etc., and recovering dividends accruing on shares and interest on promissory notes, debentures, bonds, etc.;(p) Acting as a commission agent of its customers, taking custody of and arranging for the sale or purchase of shares, debentures or securities, collecting interests, dividends, profits etc. accruing from shares, debentures or securities;(q) Purchasing, selling or accepting bonds issued by the Government of Nepal or the Rastra Bank;(r) Arranging for safe deposit vaults;(s) Carrying on off-balance sheet transactions on such conditions as may be prescribed by the Rastra Bank;(t) Supplying credits not exceeding the amount prescribed by the Rastra Bank, against individual or collective guarantee, for the economic upliftment of the destitute class, low-income families, victims of natural calamities and inhabitants in any area of the country;(u) Exchanging with the Rastra Bank or any other licensed institutions particulars of, information or notices on debtors or customers who have obtained credits from it or other licensed institutions;(v) Providing guarantee for the supply of credit to its customers by any other licensed institution;


(w) Mobilizing capital through shares, debentures, bonds, loan-bonds, saving-bonds or other financial instruments within the limit prescribed by the Rastra Bank;(x) Obtaining refinance credit from the Rastra Bank as per necessity, or obtaining or supplying credits to or from other licensed institutions;(y) Supplying funds received from the Government of Nepal or other native or foreign agencies as credits for the promotion of projects, or managing such credits;(z) Doing, or causing to be done, study, research and survey work relating to the establishment, operation and evaluation of projects, and providing training, consultancy and other information;(aa) Writing off credits, subject to the bye-laws framed by the Board;(bb) Prescribing conditions, as required, in order to protect its interests while supplying credits to any persons or institutions or doing any transaction with them;(cc) Supplying installment or hire-purchase credit to any person, firm, company or institution for motor vehicles, machinery, tools, equipment, durable household goods or similar other movable property;(dd) Operating projects such as purchase of lands and construction of buildings for land development andresidential purposes, and selling and managing, or cause to be sold and managed, such lands and buildings;(ee) Performing such other functions as may be prescribed by the Rastra Bank.(3) Subject to this Act and the memorandum of association and articles of association, a Class “C” licensed institution may carry on the following financial transactions:(a) Subject to the limit prescribed by the Rastra Bank, accepting deposits with or without interest, and refund such deposits;(b) Supplying credit, other than hypothecation credit, as prescribed;(c) Supplying credit for hire-purchase, leasing, housing and service business;(d) Carrying on merchant banking business;(e) Writing off credit, subject to the bye-laws made by the Board;(f) Supplying credits jointly, on the basis of co-financing in collaboration with other licensed institutions in accordance with the mutual agreement entered into for the division of the collateral pari passu;(g) Supplying credits against the guarantee of any native bank or financial institution;(h) Obtaining credit against the security of its movable and immovable assets;(i) Supplying a fresh credit in lump sum or by installment against the security of the same movable or immovable property which has already been furnished with, it to the extent covered by the total value of such security or supplying a fresh credit in lump sum or by installment against the security of the same movable or immovable property which has already been furnished with any other licensed institution as security, to the extent covered by the total value of such security;(j) Making proper arrangements of its assets, sell or rent the same;(k) Issuing, accepting, paying, discounting or purchasing and selling bills of exchange, promissory notes, cheques, travelers cheques, drafts or other financial instruments;(l) Purchasing and selling the Indian rupees;(m) Supplying credits not exceeding the amount prescribed by the Rastra Bank, against individual or collective guarantee, for the economic up liftment of the destitute class, low-income families, victims of natural calamities and inhabitants in any area of the country;(n) Exchanging with the Rastra Bank or any other licensed institutions particulars of, information or notices on debtors or customers who have obtained credit or any kind of facility from it and other licensed institutions;(o) Supplying installment or hire-purchase credit to any person, firm, company or institution for motor vehicles, machinery, tools, equipment, durable household goods or similar other movable property;(p) Supplying credit to any person, firm, company or institution for purchasing a residential building orwarehouse or purchasing land for constructing such residential building or warehouse;


(q) Supplying credit (leasing finance) to any person, firm, company or institution for hiring a motor vehicle, machine, tools, equipment, durable household good or similar movable property, or renting such movable property;(r) Prescribing conditions, as required, in order to protect its interests while supplying credits to any persons or institutions or doing any transaction with them;(s) Issuing guarantees on behalf of its customers, having such customers execute necessary bonds in consideration thereof, obtaining security, and acquiring their movable or immovable properties as collateral or on mortgage, or the assets of third persons as collateral;(t) Acting as a commission agent of its customers, taking custody of, and arranging for the sale or purchase of, shares, debentures or securities, and collecting interests, dividends, profits, etc. accruing from shares, debentures or securities;(u) Operating projects such as purchase of lands and construction of buildings for land development and residential purposes, and selling and managing, or causing to be sold and managed, such lands and buildings;(v) Performing such other functions as may be prescribed by the Rastra Bank.(4) Subject to the directives given by the Rastra Bank, a Class “D” licensed institution may carry on the following transactions:(a) Supplying credit as prescribed;(b) Supplying micro-credit, with or without any movable or immovable property as the collateral or security, for operating any micro-enterprise to any group or members thereof who have regularly saved for the period prescribed by the Rastra Bank and maintained the prescribed saving;(c) Obtaining loans or grants from any licensed institution or native or foreign organization, and use such loans or grants for the supply of micro-credit or for making the same effective; Provided that approval of the Rastra Bank shall be obtained prior to obtaining loans or grants from any foreign organization.(d) Prior to supplying micro-credits, evaluating the schemes for which micro-credits have been requested and determining whether they are feasible;(e) Engaging in micro-enterprises of such type as may improve the economic condition of low-income persons;(f) Holding symposia on micro-enterprises, providing assistance and training in the formulation of schemes, providing technical know-how and mobilizing technical assistance, as required;(g) Providing necessary services to a group in respect of the mobilization of micro-credit;(h) Taking necessary action towards the timely realization of micro-credits;(i) Monitoring whether micro-credits have been properly utilized, and, if they are found not to have been properly utilized, issuing necessary directives;(j) Subject to the limit prescribed by the Rastra Bank, accepting deposits with or without interest, and refund such deposits;(k) Obtaining credits by pledging its movable and immovable assets as collateral, and properly managing the assets;(l) Writing off credits, subject to the bye-laws framed by the Board;(m) Exchanging with the Rastra Bank or any other licensed institutions particulars of, information or notices on debtors or customers who have obtained credit or any kind of facility from it and other licensed institutions;(n) Performing such other functions as may be prescribed by the Rastra Bank.

48. Activities prohibited for being carried out by licensed institutions:(1) No licensed institution shall carry out, or cause to be carried out, the following activities:(a) Purchasing or selling goods for commercial purpose, or purchasing any immovable property except when it is required for its own use; Provided that this Clause shall not be deemed to prevent the


licensed institutions of Classes “B” and “D” from purchasing, selling, distributing and managing lands and buildings in connection with carrying on their business transactions subject to Section 47.(b) Advancing credit against the security of its own shares;(c) Supplying credit or facility to any promoters, directors, persons who have subscribed one per cent or more of its shares, chief executive or any family member of such persons or to any firms, companies or institutions which are entitled to nominate or appoint directors;(d) Supplying any type of credit or facility to any promoters, directors, persons who have subscribed one per cent or more of its shares, chief executive or any family member of such persons or managing agent or any firms, companies or institutions which are entitled to nominate or appoint directors or any firms, companies or institutions in which the institution has a financial interest;(e) Supplying credit or facility in an amount exceeding such percentage of its capital fund as may be prescribed by the Rastra Bank to a single customer, company and companies or partnership firms of a single group;Explanation: The expression "companies or partnership firms of a single group" means a group of such companies or partnership firms as may be prescribed by the Rastra Bank from time to time.(f) Supplying any type of credit to any person, firm, company or institution against the guarantee given by the promoters, directors or chief executive;(g) Making investment in the securities of those licensed institutions which have obtained permission from the Rastra Bank to carry on the financial transactions of Classes “A”, “B” and “C”;(h) Making investment of an amount exceeding the limit prescribed by the Rastra Bank in the share capital of any other institution;(i) Indulging with other licensed institutions to mutually create any type of monopoly or any other type of controlled practice in the financial transactions;(j) Doing any kind of act which is capable of creating an artificial obstruction in the competitive environment of the financial sector, with the intention of deriving undue advantage;(k) Doing such other acts prohibited from being done by a licensed institution as may be prescribed by the Rastra Bank.(2) Notwithstanding anything contained in Clause s (c) and (d) of Sub-section (1) or elsewhere in this Act, nothing shall be deemed to bar the supplying of credit against loan-bonds or fixed deposit receipts issued by the Government of Nepal or the Rastra Bank or the providing of credit facility or advance under the provisions made the employee facilities to any promoter, director, chief executive or shareholder holding more than one percent of its shares in cases if such chief executive or shareholder is holding any post of such licensed institution.(3) No licensed institution shall, for the purpose of saving any person who makes deposits in an account of the funds earned by that in an illegal manner from legal action, provide any kind of assistance to such person to hide, convert, pay or transfer such funds or to hide or lie about the origin or source thereof or to do anything for that purpose. If any licensed institution receives information about the commission of such act or suspects that any such act has been done, it shall forthwith provide particulars thereof to the Rastra Bank or to any other concerned body responsible for controlling deflection of currency.


Chapter-7Regulation, Inspection and Supervision

49. Power of Rastra Bank to Regulate:(1) The Rastra Bank shall have full powers to regulate and systematize the functions and activities of licensed institutions.(2) The Rastra Bank may frame Rules and Bye-laws on such matters it may consider necessary and issue necessary orders, directives, notices and circulars in connection with carrying out regulation operations pursuant to Sub-section (1); and it shall be the duty of the licensed institutions concerned to comply with such Rules, orders, directives, notices and circulars.

50. Banking or financial system and credit control: The Rastra Bank may issue directives to the licensed institutions from time to time in relation to the banking or financial system, currency and credit. It shall be the duty of the licensed institutions to comply with such directives.

51. Power of Rastra Bank to issue directives in relation to interest rates:(1) The rates of interest to be paid on deposits and to be charged on credits by the licensed institutions shall be as prescribed by the Rastra Bank.(2) Notwithstanding anything contained in Sub-section (1), the Rastra Bank may, if it so deems necessary in order to carry on, or cause to be carried on, the financial transactions in a competitive manner, delegate the power to fix such interest rates to the licensed institutions.

52. Power of Rastra Bank to inspect and supervise:(1) The Rastra Bank may inspect and supervise, or cause to be inspected and supervised, any office of a licensed institution at any time. The Rastra Bank may carry out such inspection and supervision operations by deputing any of its officers or any expert designated by it to the concerned office (on-site) or by requisitioning detailed statements and information to be furnished to it (off-site).(2) It shall be the duty of the licensed institution concerned or the concerned officer of such licensed institution to provide, and allow inspection or examination of, such records, data, particulars, information, programs created through electronic media, statements and financial control system or any other necessary document as demanded by the officer or expert or the Rastra Bank carrying out inspection and supervision pursuant to Sub-section (1) to, and by, such officer, expert or the Rastra Bank within such time as specified by such officer, expert or the Rastra Bank.(3) The Rastra Bank or the officer carrying out inspection and supervision pursuant to this Section may cause any officer or employee of the licensed institution concerned to make deposition in writing in respect of any acts and actions considered necessary in the course of such inspection and supervision.(4) If the officer carrying out inspection and supervision pursuant to this Section so deems necessary in the course of such inspection and supervision, he or she may affix his or her seal on the treasuries, accounts, records, books, ledgers and other documents of the licensed institution concerned as well as on the warehouses pledged to it as security and cause the licensed institution concerned to hold the same under its custody.(5) The Rastra Bank or the officer carrying out inspection and supervision may give necessary directives to the licensed institution concerned in respect of the matters considered necessary in the course of carrying out inspection and supervision. It shall be the duty of the licensed institution concerned to comply with the directives so given by the Rastra Bank or the officer carrying out inspection and supervision. The officer carrying out inspection and supervision shall, as soon as possible, provide the Rastra Bank with the information of the directives so given.


53. Inspections to be made by foreign banks or financial institutions:(1) A foreign bank or financial institution may, with the approval of the Rastra Bank under this Act, inspect its office established in the State of Nepal, subject to such conditions as may be prescribed by the Rastra Bank.(2) A copy of the report of inspection made by a foreign bank or financial institution pursuant to Sub-section (1) shall be submitted to the Rastra Bank.

54. Control over licensed institutions:(1) Notwithstanding anything contained elsewhere in this Act, if the Rastra Bank is satisfied that a licensed institution has violated the Nepal Rastra Bank Act, 2058 (2002), this Act or the rules or bye-laws framed hereunder or the orders or directives issued hereunder or is satisfied, on the basis of the inspection and supervision report of the Rastra Bank, that a licensed institution has failed or is likely to fail to perform the obligations required to be performed by the licensed institution or that a bank or financial institution has not been operated smoothly or has done anything contrary to the interests of its shareholders or depositors, the Rastra Bank may suspend the Board of Directors of such licensed institution and take such licensed institution under its control.(2) After taking any licensed institution under its control pursuant to Sub-section (1), the Rastra Bank may either itself carry out the management of such licensed institution or cause such management to be carried out by any appropriate person, firm, company or institution appointed by it.(3) The Rastra Bank shall, within one year after the management of a licensed institution has been carried out by itself or through any other person, firm, company or institution pursuant to Sub-section (2), perform, or cause to be performed, a financial and management audit, of such institution and publicly publish a report thereof.(4) If the Rastra Bank is satisfied, from the report referred to in Sub-section (3), that the financial institution concerned has become incapable of performing the liabilities required to be performed by it or that such institution has reached a stage if it cannot be operated smoothly, the Rastra Bank may make an application to the Appellate Court for the cancellation of registration of such licensed institution.(5) If the Rastra Bank is satisfied, from the report referred to in Sub-section (3), that the financial institution concerned has become capable of performing the liabilities required to be performed by it or that such institution has reached a stage if it can be operated smoothly, the Rastra Bank may take the following action:(a) To remove the suspension of the Board of Directors of the licensed institution made pursuant to Sub-section (1) and again hand over the management of the institution to that Board, or(b) To dismiss the Board of Directors of the licensed institution which has been suspended pursuant to Subsection (1), form a new Board of Directors from amongst the shareholders of the licensed institution, and hand over the management of that institution to the new Board, or(c) To call a general meeting of the licensed institution, get a new Board of Directors formed by the meeting, and hand over the management of the licensed to the Board , or(d) To take any such other action as the Rastra Bank thinks proper.(6) Prior to taking a licensed institution under its control pursuant to Sub-section (1), the Rastra Bank shall give an opportunity to the concerned licensed institution to defend itself, by providing it with a time-limit not exceeding 15 days, according to the situation.(7) The licensed institution concerned shall bear all expenses incurred by the Rastra Bank in every act and action done and taken by it after taking such institution under its control pursuant to this Section.(8) The Rastra Bank shall give information on having taken any licensed institution under its control pursuant to Sub-section (1) to the Government of Nepal.


55. Returns to be submitted: A licensed institution shall submit to the Rastra Bank the following particulars as prescribed by the Rastra Bank on a regular basis:(a) On-balance sheet and off-balance sheet transactions, and the accounts and statements of income and expenditure related thereto;(b) Particulars relating the conditions or restrictions imposed in relation to all types of on-balance sheet and off-balance sheet transactions;(c) Particulars concerning the situation in relation to foreign currencies, exchange rates (SPOT), forward exchange rates or similar other instruments and other processes of electronic or other payment systems;(d) Such other particulars and documents as may be prescribed by the Rastra Bank.

Chapter 8Provisions Relating to Supply and Recovery of Credits

56. Credit to be supplied:(1) A licensed institution shall supply credit as prescribed by the Rastra Bank, subject to the directives given by the Rastra Bank and the credit policy determined by the Board.(2) While supplying credit, a licensed institution shall obtain any movable or immovable property acceptable to it as a security or an appropriate guarantee in a manner to safeguard its interests.(3) A licensed institution shall write to the concerned office to so withhold any property which it has taken up as the security against a credit pursuant to this Section that such property cannot be registered in the name of or transferred to any person in any manner whatsoever.(4) When requested by a licensed institution to withhold registration or transmission pursuant to Sub-section (3), the concerned office shall withhold the registration or transmission thereof.(5) The Rastra Bank may give necessary directive to the licensed institution to disburse credits for such class and in such area as prioritized for the economic upliftment of the persons belonging to a low-income and indigent class and of the inhabitants residing in any specific geographical region.

57. Provisions relating to recovery of credit:(1) If any person, firm, company or institution fails to abide by the terms of the credit agreement or any terms and covenants made with a licensed institution or fails to repay credit to the licensed institution within the time-limit stipulated in the deed, or if the licensed institution finds through investigations that the borrower has not used the credit amount for the purpose for which it has been supplied or has misappropriated or misused it, the licensed institution may, notwithstanding anything contained in the concerned deed or in the laws in force, recover its principal and interest by auctioning or otherwise disposing of any property pledged to it, or any collateral or security deposited with it, by the borrower.(2) If a person, firm, company or institution borrowing credit relinquishes in any manner the title to the property pledged to the licensed institution as a collateral or security or if the value of such collateral or security declines for any other reason, the licensed institution may, notwithstanding anything contained in the laws in force, ask the concerned person, firm, company or institution to furnish additional collateral or security within a period as prescribed by it. If the concerned person, firm, company or institution fails to furnish additional collateral or security within the time-limit prescribed by the licensed institution or if the principal and interest cannot be recovered from the collateral or security pledged, the licensed institution may, in accordance with the laws in force, recover its principal and interest from any other movable and immovable property owned by the borrower or to which the borrower has title.(3) The amount of principal and interest due to the licensed institution and the expenses incurred in auction or other disposal of a property made pursuant to this Section shall be deducted from the


proceeds of such auction or disposal, and the balance, if any, shall be refunded to the concerned person, firm, company or institution.(4) The licensed institution shall write to the concerned office for registration or transmission of the assets auctioned by it pursuant to this Section in the name of the person who has taken over it on such auction in accordance with the laws in force.(5) When so requested by the licensed institution for registration or transmission pursuant to Sub-section (4), the concerned office shall make registration or transmission notwithstanding anything contained in the laws in force.(6) If no one offers a bid in an auction sale, by a licensed institution under this Section, of the movable and immovable property pledged as the collateral or security, the licensed institution shall take over the ownership of such property as prescribed.(7) The licensed institution shall write to the concerned office for registration or transmission of the property of which ownership has been taken over by such institution pursuant to Sub-section in its name.When so requested, the concerned office shall make registration or transmission of such property in the name of such licensed institution notwithstanding anything contained in the laws in force.(8) If the previous owner of the property taken over by a licensed institution or any person in an auction refuses to allow its possession and use and the licensed institution or that person requests to have the same available for possession and use according to the laws in force, the appropriate body of the Government of Nepal shall render necessary assistance.(9) No licensed institution shall hold up action for the recovery of credit which has not been written off pursuant to Clause (dd) of Sub-section (1) of, Clause (aa) of Sub-section (2) of, Clause (e) of Sub-section (3) of, and Clause (l) of Sub-section (4) of, Section (10) If any person, firm, company or institution has failed to repay the credit borrowed from a licensed institution within the repayment period of the credit deed, and while taking action pursuant to this Section for the recovery of such credit, the licensed institution concerned shall write to the Credit Information Center Limited to include such person, firm, company or institution in the black list in accordance with the laws in force.(11) If a credit cannot be recovered even while taking action for the recovery of such credit against any person, firm, company or institution pursuant to this Section, the licensed institution concerned may, for the purpose of recovering such credit also from any other property of the borrowing person, firm, company or institution situated abroad, institute action for the recovery of credit including the withholding of property in accordance with the laws in force.(12) If a credit cannot be recovered even upon taking all actions on recovery of credit pursuant to Clauses (1) to (8), the licensed institution may make a request to the Rastra Bank for necessary provision to withhold and seize the passport of the borrower person and to deprive such borrower from any facilities to be provided by the State. On receipt of such request, the Rastra Bank shall forward the matter, accompanied by its opinion, to the Government of Nepal for necessary action.

Chapter- 9Provisions Relating to Accounts, Records, Returns and Reports

58. Accounts and records to be maintained accurately: (1) A licensed institution shall maintain its accounts, ledgers, records, and books of accounts truly and correctly.(2) The accounts to be maintained pursuant to Sub-section (1) shall be so maintained according to the universally accepted principles based upon the double entry system as to clearly reflect the actual condition of the transactions of the licensed institution.


(3) Save as otherwise permitted by the Rastra Bank, the accounts to be maintained pursuant to Sub-section (1) shall be maintained at its registered office.

59. Balance sheet, profit and loss account and audit: (1) A licensed institution shall prepare its balance sheet, profit and loss account, cash flow statement and other financial statements, as well, in such format and in accordance with such procedure as may be prescribed by the Rastra Bank.(2) A licensed institution shall, no later than five months after the expiry of a financial year, prepare its balance sheet, profit and loss account, cash flow statement and other financial statements, as well, in such format and in accordance with such procedure as may be prescribed by the Rastra Bank and have them audited. Such financial statements shall be signed by at least two directors, the chief executive and the auditor.(3) If any licensed institution which has failed to have its accounts audited within the period referred to in Sub-section (2) makes a request, accompanied by a reasonable reason, for an extension of the period for audit, the Rastra Bank may extend a period of not more than three months.(4) The Rastra Bank may appoint an auditor to audit the accounts of a licensed institution which fails to have its accounts audited even within the period referred to in Sub-section (3).(5) The auditor appointed pursuant to Sub-section (4) shall submit a report of audit performed by him or her to the concerned licensed institution and the Rastra Bank.(6) The auditor appointed pursuant to Sub-section (4) shall receive such remuneration as prescribed by the Rastra Bank. It shall be the duty of the concerned licensed institution to pay to the auditor so appointed the remuneration prescribed by the Rastra Bank.

60. Appointment of auditor: (1) The general meeting of a bank or financial institution shall appoint an auditor. (2) The general meeting shall appoint an auditor pursuant to Sub-section (1) from amongst the auditors included in the list of auditors approved by the Rastra Bank.Provided that the general meeting shall not appoint the same auditor for more than three consecutive times.(3) While appointing an auditor from amongst the auditors included in the list of auditors approved by the Rastra Bank, the general meeting shall appoint a chartered accountant in the case of a licensed institution of Class “A” or “B” or “C”, and a chartered accountant or a registered auditor in the case of a licensed institution of Class “D”.(4) The Rastra Bank may, at any time, remove any auditor who fails to fulfill his or her duty from the list of auditors entitled to audit the accounts of licensed institutions.

61. Disqualification for appointment as auditor: Any of the following persons or any firm or company in which such person is a promoter or partner shall not be eligible to be appointed as an auditor of a licensed institution and shall cease to hold the office of auditor even though such person is already appointed:(a) A director of the licensed institution or his or her family member;(b) An employee of the licensed institution;(c) A person working as a partner of any director or employee of the licensed institution;(d) A debtor of the licensed institution;(e) A person who has been punished in an offense relating to audit, and a period of five years has not lapsed after he or she has served the punishment;(f) A person who is insolvent;(g) A person, firm, company or institution having subscribed one percent or more of the shares in the licensed institution;


(h) A person who has been punished by the court for a criminal offense involving moral turpitude, and a period of five years has not lapsed after he or she has served the punishment;(i) A person who has been punished by a court for an offense relating to corruption or cheating;(j) A person who is not included in the list of auditors approved by the Rastra Bank.

62. Returns to be submitted: A licensed institution shall, at all times, provide all such accounts, records, books, ledgers and other statements as demanded by the auditor in the course of performing audit. In addition, the officer responsible for providing such returns shall also furnish forthwith accurate replies to the queries made by the auditor

63. Functions, duties and powers of auditor: (1) The functions, duties and powers of an auditor appointed pursuant to Section 60 shall be as provided in the laws in force.(2) In addition to the matters prescribed by the laws in force, the auditor shall clearly mention the following matters in his or her report:(a) Whether or not replies to the queries asked by him or her were given;(b) Whether or not the balance sheet, profit and loss account, cash flow statement and other financial statements, as well, have been prepared in such format and in accordance with such procedure as prescribed by the Rastra Bank, and whether or not they correspond to the accounts, records, books and ledgers maintained by the institution;(c) Whether or not the accounts, records, books and ledgers have been maintained accurately in accordance with the laws in force;(d) Whether or not any officer of the licensed institution has done any act contrary to the laws in force or committed any irregularity or caused any loss or damage to the licensed institution;(e) Whether or not the transactions of the licensed institution have been carried on in a satisfactory manner;(f) Whether or not the capital fund and the risk-bearing fund have been maintained adequately;(g) Whether or not credits have been written off as prescribed;(h) Whether or not action has been taken in accordance with the directives given by the Rastra Bank;(i) Whether or not action has been taken to protect the interests of depositors and investors;(j) Whether or not the returns received from the offices of the licensed institution were adequate for the purpose of audit;(k) Other matters, which, in his or her opinion, should be made known to the shareholders;(l) Such other matters prescribed by the Rastra Bank as required to be mentioned by an auditor in his or her report, and(m) Necessary suggestions.

64. Report to be forwarded: (1) The auditor shall forward a report of audit performed by him or her to the concerned licensed institution and the Rastra Bank.(2) While forwarding the audit report to the Rastra Bank pursuant to Sub-section (1), the auditor shall also attach therewith other reports related with the audit of the licensed institution as well as such documents as prescribed by the Rastra Bank.


65. In the event of vacancy in office of auditor: If the office of an auditor appointed pursuant to Section 60 falls vacant because of his or her death or resignation or for any other reason, the Board may appoint another auditor to the vacant office for the remainder of term of the predecessor by fulfilling the procedures laid down in the said Section. The appointment of an auditor so made shall be endorsed by the annual general meeting to be held immediately thereafter.

66. Auditor to certify: The auditor shall mark the accounts, records, books and ledgers audited by him or her by affixing his or her signature thereon and also mentioning therein the date on which he or she audited them.

67. Remuneration of auditor: The remuneration of the auditor shall be as prescribed by the general meeting if he or she has been appointed by the general meeting and by the Board if he or she has been appointed by the Board.

Chapter-10Provisions Relating to Merger of Licensed Institutions

68. Merger of licensed institutions: A licensed institution may, by fulfilling the procedures referred to in this Act, be merged with another licensed institution in accordance with the laws in force.

69. Application to be made for merger of licensed institutions with each other: (1) If any licensed institution wishes to be merged with or merging another licensed institution, both the merging and merged licensed institutions shall adopt a special resolution to that effect in their respective general meetings and make a joint application, setting out the following matters, to the Rastra Bank for approval:(a) Audit report of the last fiscal year of the merging licensed institution, along with its audited balance sheet, profit and loss account, cash flow statement and other financial statements;(b) A copy of the written consent of the creditors of both the merging and merged licensed institutions to merge or to be merged;(c) Valuation of the movable and immovable properties of, and actual details of the assets and liabilities of, the merging licensed institution;(d) A copy of the decision as to the employees of the merging licensed institution;(e) Such other necessary matters as prescribed by the Rastra Bank in relation to the merger of the licensed institutions.(2) If an application is made for approval pursuant to Subsection (1), the Rastra Bank shall examine the documents and returns attached with the application and decide whether or not to grant approval for the merger of the licensed institutions with each other and give information thereof to the concerned licensed institutions within forty five days, and within a period of additional fifteen days if the Rastra Bank has demanded any returns or documents in the course of making decision.(3) Notwithstanding anything contained elsewhere in this Act, the Rastra Bank shall not grant approval for the merger of any two or more than two licensed institutions if it sees that the merger of such licensed institutions is likely to create an environment of unhealthy competition or to give rise to the monopoly or controlled practices of any licensed institution in the financial sector.(4) On receipt of an approval from the Rastra Bank for merger pursuant to Sub-section (2), all the assets and liabilities of the merging licensed institution shall be transferred to the merged licensed institution.(5) The Rastra Bank shall maintain records of the merged licensed institutions.(6) The Rastra Bank may issue necessary directives in relation to other procedures relating to the merger of licensed institutions.


(7) The Rastra Bank shall publish in a newspaper of national circulation at least once within thirty days after the date of decision a notice containing the particulars of the decision made by it in relation to the merger of any licensed institution for the information of the general public.

Chapter-11Provisions Relating to Offenses and Punishment

70. Acts to be deemed as offenses: Commission of any of the following acts shall be deemed to be a commission of an offense under this Act:(a) Carrying on the financial transactions without obtaining a license under this Act or in contravention of the conditions of the license or accepting deposits or supplying credit or issuing debentures or other financial instruments in violation of this Act or the orders or directives issued under this Act or paying or obtaining interest in contravention of the term prescribed by the Rastra Bank or dealing in foreign exchange in contravention of this Act or the laws in force or the orders or directives issued under this Act;(b) Failure of any officer who is responsible for maintaining the secrecy of the financial transactions, accounts, records, ledgers, books and other accounts related documents of the licensed institution pursuant to this Act or the orders or directives issued under this Act to maintain such secrecy;(c) Violation by any one of this Act or any order or directive issued under this Act, other than that mentioned in Clause (a) or (b).

71. Punishment: (1) Any person who commits any of the following offenses shall be punished as follows:(a) Any person who carries on the financial transactions without obtaining a license under this Act shall be punished with a fine not exceeding three hundred per cent of the amount involved in the transactions or with imprisonment for a term not exceeding three years or with both punishments, along with the confiscation of the amount involved in the said transactions.(b) Any person who deals in foreign exchange in contravention of this Act or any other laws in force shall be punished with a fine not exceeding three hundred per cent of the amount involved in the offense or with imprisonment for a term not exceeding three years or with both punishments.(c) Any person who accepts deposits or supplies credit or issues debentures or other financial instruments in contravention of this Act or the order or directive issued under this Act or pays or obtains interest in contravention of the term prescribed by the Rastra Bank shall be punished with a fine not exceeding two hundred per cent of the amount involved in the offense or with imprisonment for a term not exceeding two years or with both punishments.(d) If any officer who is responsible for maintaining the secrecy of the financial transactions, accounts, records, ledgers, books and other accounts related documents of a licensed institution pursuant to this Act or the order or directive issued under this Act fails to maintain such secrecy, such officer shall be punished with a fine not exceeding five hundred thousand rupees or with imprisonment for a term not exceeding one year or with both punishments.(e) Any person who commits the offense referred to in Clause (c) of Section 70 shall be punished with a fine equal to the amount involved in the offense or with imprisonment for a term not exceeding one year or with both punishment, along with the confiscation of the amount involved in the offense.(f) If it is not possible to confiscate, and determine the figure of, the amount involved in an act and action done and taken by any person in contravention of this Act, such person shall be punished with a fine not exceeding one million rupees or with imprisonment for a term not exceeding one year or with both punishment, according to the gravity of the offense.


(2) If any licensed institution or any other person, firm, company, or institution commits any offense referred to in Section 70, the concerned officer of such licensed person, firm, company or institution who commits such offense shall be subjected to the punishment as referred to in this Section.(3) Any licensed institution or any other person, firm, company or institution that attempts to commit any offense referred to in Section 70 or aids and abets in the commission of such offense in any manner shall be subjected to punishment which is not more than half the punishment referred to in Sub-section (1).

72. Government of Nepal to be plaintiff: Any case relating to the offense referred to in Section 70 shall be filed, with the Government of Nepal being the plaintiff, and such case shall be deemed to have been included in Schedule 1 of the Government Cases Act, 2049 (1993).

73. Rastra Bank to give information: If the Rastra Bank learns from any source that any person has committed any of the offenses referred to in Section 70, the Rastra Bank shall write to the Government of Nepal or concerned body for necessary action.

74. Punishment for violation of regulation of Rastra Bank: (1)If any licensed institution violates any order or directive issued by the Rastra Bank under the Nepal Rastra Bank Act, 2058 (2002) or this Act or the Rules or Bye-laws framed there under the Rastra Bank may impose the following punishment on such licensed institution, according to the gravity of the violation of regulation:(a) To warn, or give warning in writing;(b) To get the Board of Directors to sign a bond for taking reformative measures;(c) To issue written order to end repeated violations, remain away there from and take reformative measures;(d) To restrain the licensed institution from distributing dividends to its shareholders or issuing bonus shares or from doing both of these acts;(e) To restrain the licensed institution from accepting deposits or advancing credits or from doing both of these acts;(f) To impose a full or partial restriction on the transactions of the licensed institution;(g) To suspend or cancel the license of the licensed institution;(h) To file an application with the Appellate Court for the dissolution of the licensed institution.(2) Notwithstanding anything contained in Sub-section (1), in the event of the failure of a licensed institution to submit such documents, returns, data or records as demanded by the Rastra Bank or its officer carrying out inspection and supervision under the Nepal Rastra Bank Act, (2002) or this Act or the Rules or Bye-laws framed there under, within the time prescribed by the Rastra Bank or its officer carrying out such inspection and supervision, the Rastra Bank may punish such licensed institution with a fine ranging from ten thousand rupees to fifty thousand rupees, based on the classification of the licensed institution.(3) If the licensed institution fails to pay the fine imposed under Sub-section (2) within three days, the Rastra Bank may realize it by debiting it from the account of such licensed institution with the Rastra Bank.(4) If any officer of a licensed institution violates the Nepal Rastra Bank Act, 2058(2002) or this Act or the Rules or Bye-laws framed there under or any order or directive issued by the Rastra Bank thereunder or acts contrary to the interests of depositors or investors or fails to submit such documents, returns, data or records as demanded by the Rastra Bank or its officer carrying out inspection and supervision, within the time prescribed by the Rastra Bank or its officer carrying out such inspection and supervision, the Rastra Bank may punish such officer with punishment as follows, according to the gravity of the violation of such order or directive:(a) To warn or admonish him or her.CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

(b) To suspend him or her.(c) To impose on him or her a fine not exceeding five hundred thousand rupees.(d) To order the Board of Directors of the concerned licensed institution to withhold all facilities including his or her salary and allowances.(e) To order the Board of Directors of the concerned licensed institution to remove him or her from the office of director if he or she is a director or to retire him or her from the service if he or she is an officer, notwithstanding anything contained in the laws relating to the conditions of service of such employee.(5) While imposing punishment on any person under this Section, such person shall not be deprived of a reasonable opportunity to defend him or her. Provided that while imposing punishment under Clause s (a), (b), (c) and (d) of Sub-section (1), Sub-section (2) and Clause s (a) and (b) of Sub-section (4), it shall not be necessary to provide an opportunity for defense.

75. Appeal: (1) Any licensed institution or any officer of that institution who is not satisfied with any punishment imposed by the Rastra Bank under Section 74 may make an appeal to the Appellate Court within thirty five days from the date of receipt of the order of such punishment.(2) While making an appeal pursuant to Sub-section (1), a deposit in a sum that is fifty per cent of the fine, if any, imposed, shall be furnished with the Rastra Bank.


76. Permission to be obtained for voluntary liquidation: (1) A licensed institution shall not voluntarily liquidate itself without obtaining prior approval of the Rastra Bank.(2) If an application for voluntary liquidation is made by a licensed institution pursuant to Sub-section (1), the Rastra Bank may, if, upon making necessary inquiries, it is satisfied that the licensed institution is in a position to fully settle its loans and liabilities, give permission to the licensed institution to undergo voluntary liquidation, subject to the conditions prescribed by the Rastra Bank.

77. Order of priority in settlement of liabilities on liquidation of licensed institution: Notwithstanding anything contained in the laws in force, liabilities shall be settled according to the following order of priority in the course of carrying out liquidation or insolvency of a licensed institution in any manner:(a) Expenses incurred in liquidation.(b) Payments outstanding to depositors on saving accounts.(c) Payments outstanding to depositors on fixed accounts.(d) Payments outstanding to other depositors.(e) Taxes, fees and other charges payable according to the laws in force.(f) Credit obtained from the Rastra Bank.(g) Salary, allowances, provident fund, gratuity and other amounts outstanding to employees.(h) Other credits obtained by the licensed institution.(i) Shareholders.

78. Arbitration/mediation: In the event of any dispute between the licensed institutions, the Rastra Bank shall arbitrate/mediate the same. A decision given by the Rastra Bank in respect of such arbitration/mediation shall be final.CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

79. Secrecy to be maintained: (1) Notwithstanding anything contained in the laws in force, the relationship between a licensed institution and its customers and information pertaining to its accounts, records, books, ledgers and statements shall not be disclosed to any person other than the concerned person.(2) Notwithstanding anything contained in Sub-section (1), if such information is provided in any of the following circumstances, the secrecy shall not be deemed to have been violated:(a) If it is provided to the Rastra Bank pursuant to the Nepal Rastra Bank Act, 2058 (2002) or this Act or the Rules or Bye-laws framed there under or the orders or directives issued there under;(b) If it is provided to a court in connection with any lawsuit or any other legal action;(c) If it is provided to the legally authorized official making inquiries and investigations or prosecution, in connection with such inquiries and investigations or prosecution;(d) If it is provided to the auditor in connection with audit;(e) If it is mentioned in the audit report by the auditor;(f) If it is provided to the enquiry committee or the investigation officer authorized by the laws in force, in the course of enquiries;(g) If banking information is exchanged between two or more countries on the basis of a bilateral or multilateral treaty;(h) If it is provided in the course of exchanging credit between the licensed institutions;(i) If, in the course of investigation of any case of specific nature, the Government of Nepal, Ministry of Finance, has made a request, accompanied by the reason there for, for providing the details of the account of the licensed institution or any details of the account of any person, firm, company or institution maintained with the licensed institution, and if the Rastra Bank has given direction for the same.(3) The Government of Nepal, court, Rastra Bank, enquiry committee, investigating or prosecuting official, auditor or inspector or any other person appointed under this Act shall not divulge the secrecy of any information or particulars received under Sub-section (2).(4) The directors, chief executive, employees, auditor and advisors of a licensed institution shall not divulge the secrecy of the accounts, records, books, ledgers and any other information of the licensed institution the secrecy of which is required to be maintained in such a manner as to undermine the relationship between the licensed institution and its customers.

80. Power to give directive to freeze accounts: (1)In the course of carrying out the investigation of any type of crime or maintaining the national interests by controlling national or international terrorist activities or organized crimes, the Rastra Bank may, at any time, give directive to a licensed institution to freeze any account opened with the licensed institution in the name of any person, firm, company or institution in such a manner as to prevent the withdrawal or transfer of funds in any way from that account.(2) It shall be the duty of the concerned licensed institution to comply with the directive given by the Rastra Bank pursuant to Subsection (1).

81. Claim or title to deposits: (1) Claims of any person other than the actual depositor to deposits made with a licensed institution shallnot be entertained. In the event of the death of the depositor, the person willed by him or her, if any, and if such beneficiary also dies or if no person has been willed by the depositor, the surviving person from amongst his or her relatives, in the following order, shall have first title to such deposits:(a) Husband or wife living in a joint family;(b) Son or daughter, or adopted son or adopted daughter, living in a joint family;CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

(c) Father, mother, grand-son, or grand-daughter from the son's side living in a joint family;(d) Husband or wife, son, unmarried daughter, father or mother who is living separately;(e) Grand-father or grand-mother of the father's side, brother or unmarried sister, living in a joint family;(f) Nephew, niece, or step-mother living in an undivided family, or a grand-son or unmarried grand-daughter from the son's side who is living separately;(g) Uncle, widowed aunt, sister-in-law (elder or younger brother's wife), or grand-daughter-in-law living in a joint family;(h) Brothers living separately;(i) Married sisters, grand-father, grand-mother, widowed daughter-in-law, grand-daughter-in-law, or nephew who are living separately.(2) If there is no one in the order of priority referred to in Sub-section (1), the heir shall have the title to such deposit, and if there is not even an heir, the deposit shall accrue to the Government of Nepal.(3) Notwithstanding anything contained in the laws in force, no amount deposited with a licensed institution shall be handed over to anyone without the approval of the person who has the title thereto under Sub-section (1).

82. Particulars of unclaimed deposits or dividends: (1)A licensed institution shall submit to the Rastra Bank particulars of deposit accounts which have remained in operated, and of those the title to which have not been claimed under this Act for ten years, within the first month of each fiscal year.(2) A licensed institution shall submit to the Rastra Bank particulars of dividends payable to shareholders or their heirs who have failed to claim payment thereof even within five years from the date of declaration of the dividends, within the first month of each fiscal year.(3) A licensed institution shall publish at least one time in a newspaper of national circulation particulars of the accounts which have remained in operated or deposits or dividends which have not been claimed or distributed as mentioned in Sub-section (1) or (2).

83. Recovery from or confiscation of deposits: If any business or transaction is carried on by pledging as collateral or security the amount deposited with a licensed institution, or if amounts are deposited with a licensed institution with misappropriated funds belonging to the governmental body or anybody fully owned by the Government of Nepal, or with funds obtained by committing any action which is deemed to be an offense under the laws in force, or with funds collected through any activity relating to terrorism or organized crime, the such deposits may be confiscated or such collateral or security or misappropriated or other funds may be recovered from such deposits in accordance with the laws in force.

84. Management expenses: The management and establishment expenses of a bank or financial institution shall not exceed the limit prescribed by the Rastra Bank.

85. Power to remove difficulties: If there arises any difficulty in the enforcement of any provision contained in this Act, the Rastra Bank may, with the approval of the Government of Nepal, issue necessary orders to remove such difficulty.

86. Exemptions and facilities: (1) Notwithstanding anything contained in the laws in force, any deed of credit not exceeding one million rupees supplied by a licensed institution to any citizen of Nepal or any institution established in accordance with the laws in force for agriculture, cottage and small scale industry, irrigation, hydro-


power generation and for any other enterprise as specified by the Government of Nepal shall not be required to be registered.(2) Subject to Sub-section (2) of Section 51, the rates of interest payable to and chargeable by a licensed institution on credits or deposits and the procedures of collecting such interest shall be as prescribed by the licensed institution.Provided that the licensed institution shall comply with the directives issued by the Rastra Bank from time to time in respect of such rates of interest and the procedures of collecting such interest.(3) The repayment period of the credit to be supplied or obtained by and of deposits to be accepted by a licensed institution shall be as prescribed by the licensed institution.(4) No revenue stamp fee shall be charged on any kind of document related with the licensed institution.

87. Not to be liable for act done in good faith: (1) The officers of a licensed institution shall not be held individually or collectively liable for any act or action done or taken in good faith under the Nepal Rastra Bank Act, 2058(2002), this Act or the Rules or Bye-laws framed hereunder or the orders or directives issued there under. Provided that they shall be held individually liable for any consequence of any act done with malicious recklessness or mala fide intention.(2) If any kind of lawsuit is filed against a licensed institution in relation to any loss or damage caused or likely to be caused by any act done or purported to be done in good faith for the compliance with the Nepal Rastra Bank Act, 2058(2002), this Act or the Rules or Byelaws framed hereunder or the orders or directives issued there under, the concerned licensed institution shall bear the expenses of such lawsuit. Provided that no licensed institution shall bear the expenses of any lawsuit filed in connection with the consequence of any act done with malicious recklessness or mala fide intention.

88. Oath-taking:(1) Any officer appointed for the first time in a licensed institution shall, prior to assuming the duties of his or her office, take an oath of secrecy and honesty as prescribed.(2) No officer of a licensed institution shall disclose to any unauthorized person any information or notice known to him or her in the course of discharging his or her duties.

89. Acts and actions not to be invalidated: No act and action done and taken by a director or the Board shall be invalidated only for the reason that there has been any irregularity in the appointment of the director or in the formation of the Board or any vacancy in the office of director.

90. Power to frame Rules: The Rastra Bank may frame necessary Rules for implementing the objectives of this Act; and such Rules shall come into force after being approved by the Government of Nepal.

91. Power to frame Bye-laws: (1)A licensed institution may frame Byelaws for systematically operating its business and implementing the objectives of this Act. Such bye-laws shall come into force after being approved by the Rastra Bank.(2) Without prejudice to the generality of the powers conferred by Sub-section (1), a licensed institution may frame Byelaws on any or all of the following matters:(a) Rules of procedure of the meetings of Board and the general meeting;(b) Delegation of powers by the Board to any director or employee;(c) Appointment, promotion, transfer, dismissal, salary, allowance, gratuity, pension, leave, carry on, discipline and conditions of service of the employees of the licensed institution, and formation of such service;


(d) Conditions of contracts to be made on behalf of the licensed institution;(e) Matters relating to financial administration of the licensed institution;(f) Procedures for using the seal of the licensed institution;(g) Such other functions as required to be performed by the licensed institution pursuant to this Act.

92. Laws in force to govern: The matters contained in this Act and the Rules, Bye-laws, orders or directives issued hereunder shall be governed by this Act and the Rules or directives, and the other matters shall be governed by the laws in force. Provided that the matters contained the Nepal Rastra Bank Act, 2058(2002) shall be governed by that Act.

93. Repeal and saving: (1) The following Acts are hereby repealed:(a) The Agricultural Development Bank Act, 2024 (1967);(b) The Commercial Bank Act, 2031 (1974);(c) The Finance Company Act, 2042 (1985);(d) The Nepal Industrial Development Corporation Act, 2046 (1990); and(e) The Development Bank Act, 2052 (1996).(2) Any acts done and actions taken under the Acts repealed pursuant to Sub-section (1) shall be deemed to have been done and taken under this Act.(3) Notwithstanding anything contained in the Act Relating to Recovery of Loans of Banks and Financial Institutions, 2058 (2001), the provisions contained in Section 3 of that Act shall apply to the cases on the recovery of loans of banks of financial institutions incorporated pursuant to this Act.94. Effect of inoperativeness of the Banks and Financial Institutions Ordinance, 2062(2005): With the Banks and Financial Institutions Ordinance, 2062 (2005) being inoperative, unless a different intention appears, the inoperativeness shall not:(a) Revive anything not in force or existing at the time at which the Ordinance became inoperative;(b) Affect the matter in operation as per the Ordinance or anything duly done or any punishment suffered there under;(c) Affect any right, privilege, obligation or liability acquired, accrued or incurred under the Ordinance;(d) Affect any penalty, punishment or forfeiture incurred under the Ordinance;(e) Affect any action or remedy made or taken in respect of any such right, privilege, obligation, liability, penalty or punishment as aforesaid; and any such legal proceeding or remedy may be instituted, continued or enforced as if the Ordinance were in force.

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THE INDUSTRIAL ENTERPRISES ACT, 2049 (1992)Date of Authentication and publication:27 kartik 049 (12Nov.1992)

AN ACT MADE TO PROVIDE FOR THE INDUSTRIAL DEVELOPMENT1. Industrial Enterprises (First amendment) Act, 2054 (1997) 2054/5/62. The Act Amending Some Nepal Acts, 2055 (1998) 2055.10.73. The Act Amending Some Nepal Acts, 2057 (1999) 2057.4.264. Income tax Act, 2058 (2000) 2058.12.195. The Act Amending Some Nepal Acts, 2064 2064.5.96. Financial Act, 2065 2065.6.3

Preamble: Whereas, for the overall economic development of the country, it is expedient to make arrangements for fostering industrial enterprises in a competitive manner through the increment in the productivity by making the environment of industrial investment more congenial, straightforward and encouraging, Be it enacted by Parliament in the twenty first year of the reign of His Majesty King Birendra Bir Bikram Shah Dev.

1. Short Title and Commencement: (1) This Act may be called “The Industrial Enterprises Act, 1992.(2) It shall come into force immediately.2. Definitions: In this Act, unless the subject or the context otherwise requires,(a) “Industry” means any industry as referred to in Section 3.(b) “Cottage Industry” means any industry as referred to in Section 4.(c) “Small Industry” means any industry as referred to in Section 5.(d) “Medium Industry” means any industry as referred to in Section 6.(e) “Large Industry” means any industry as referred to in Section 7.(e1) “Export Promotion Industry” means any prescribed industry established with the objective of exporting eighty or more than eighty percent of its product.(e2) “Export Processing Zone” means a zone prescribed by Government of Nepal where an export

promotion industry is to be situated.(f) “Fixed Asset” means movable and immovable properties of any industry as referred to in Section 8.(g) “Board” means the Industrial Promotion Board constituted under Section 12.(h) “Committee” means the One Window committee constituted under Section 17.(i) “Operation Date” means the date from which the concerned industry either starts its commercial

production or provides its service.(j) “Department” means the Department of Industries or the Department of Cottage and Small

Industries or any other department or office as Government of Nepal may, by notification published in the Nepal Gazette, specify,

(k) “Prescribed” or “As prescribed” means prescribed or as prescribed in rules make under this Act or in an order issued by Government of Nepal by notification published in the Nepal Gazette.

3. Classification of Industries: For the purpose of this Act, industries are classified as follows:(a) Manufacturing Industries: Industries which produce goods by utilizing or processing raw materials, semi-processed materials, by products or waste products or any other goods. (b) Energy-Based Industries: Industries generating energy from water resources, wind, solar, coal, natural oil, gas, bio-gas or any other sources.CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

(c) Agro and forest-Based Industries: Business mainly based on agriculture or forest products such as integrated sericulture and silk production, horticulture and fruit processing, animal husbandry, dairy industry, poultry farming, fishery, tea gardening and processing, vegetable seed farming, mushroom, vegetable farming or vegetable processing, tissue culture, green house, bee-keeping, honey production, rubber farming, floriculture and production, and forestry related business such as leasehold forests, agro-forestry, etc.(d) Mineral Industries: Mineral excavation or processing thereof.(e) Tourism Industries: Tourist lodging, motel, hotel, restaurant, resort, travel agency, skiing, gliding, water rafting, cable car complex, pony trekking, hot air ballooning, Para sailing, golf-course, polo, horse riding, etc.(f) Service Industries: Workshop, printing press, consultancy service, ginning and bailing business, cinematography, construction business, public transportation business, photography, hospital, nursing home, educational and training institution, laboratory, air services, cold storage etc.(g) Construction Industries: Road, bridge, ropeway, railway, trolley bus, tunnel, flying bridge and industrial, commercial and residential complex construction and operation.

4. Cottage Industries: The traditional industries utilizing specific skill or local raw materials and resources, and labor intensive and related with national tradition, art and culture as mentioned in Annex I shall be named as cottage industries.

5. Small Industries: Industries with a fixed asset of up to an amount of thirty million rupees shall be named as small industries.

6. Medium Industries: Industries with a fixed asset between thirty million rupees and one hundred million rupees shall be named as medium industries.

7. Large Industries: Industries with a fixed asset of more than one hundred million rupees shall be named as large industries.

8. Fixed Assets of Industries: (1) The fixed asset of an industry shall consist of the following movable and immovable assets:-(a) Land and land improvement (works such as land leveling, filling and fencing),(b) Physical infrastructures (such as sewerage, internal road),(c)Office, factory building, go-down, electric distribution, water distribution system and residential buildings,(d) Machinery, equipment and tools,(e) Means of transportation,(f) Electrical equipment and office equipment,(g) Furniture, fixture, communication system and equipment.

(2) In addition to the assets referred to in sub-section (1) above, expenses incurred or to be incurred in connection with technical consultancy and supervision prior to the making of investment in any industry or during different stages of construction and which is to be capitalized, pre-investment and pre-operation costs as well as the amount of interest during the construction period, which is to be capitalized, shall be considered as the fixed assets of any industry.


9. Permission: (1) Industries other than those as set forth in Annex 2 which may significantly cause adverse effect on the security, public health and the environment shall not be required to obtain permission for their establishment, extension and diversification.(2) Whoever desires to establish an industry for which a license is required to be obtained by virtue of sub-section (1) shall, for obtaining permission, be required to make an application to the Department in the prescribed form along with the prescribed particulars, (3) If an application is made pursuant to sub-section (2) above, the Department shall, as per the decision of the Board, grant permission in the prescribed format within thirty days from the date of application. If the Board decides not to grant permission for the establishment of the industry, the Department shall inform the application of such decision.

10. Industry to be registered: (1) In establishing any industry which requires permission to that effect pursuant to this Act, registration in the Department as prescribed shall be required to be made. (1a) In establishing any industry not requiring permission under the Act, an application shall required to be made to the Department for its registration setting out the nature, the classification of the industry, the place where the industry is to be situated, the machinery to be employed by the industry, raw materials, auxiliary raw materials, chemicals, packaging goods and the name of the industrialist.(2) Notwithstanding anything contained in sub-section (1a) above, a Cottage Industry shall be required to get registered within 6 months from the date of operation.(3) The Department shall, within twenty one days from the date of application for registration pursuant to Sub-section (1), (1a) or (2) above register such industry and issue an industry registration certificate to the applicant as prescribed.(4) The registration of a Cottage and Small Industry shall be made in the Department of Cottage and Small Industries or any district level office under the Department or any office designated by the Department on its behalf and the registration of a medium and Large Industry shall be made in the Department of Industries or at such office as may be designated by the Department.

11. Matters to be contained in a License or Registration Certificate: A License or Registration Certificate shall clearly contain matters relating to the facilities and concessions to be enjoyed by the industry and the prescribed terms and condition to be observed by the industry.

12. Constitution of Industrial Promotion Board: (1) Government of Nepal shall constitute an Industrial Promotion Board consisting of the following members:(a) The Minister or State Minister for Industries -Chairman(b) The Assistant Minister for Industries -Member(c) Member (looking after industries), National Planning commission -Member(d) The Governor, Nepal Rastra Bank -Member(e) The Secretary, Ministry of Industry -Member(f) The Secretary, Ministry of Finance -Member(g) The Secretary, Ministry of commerce -Member(h) The Secretary, Ministry of Tourism -Member(i) The Director General, Department of Cottage and Small Industries - Member(j) Representative, Federation of Nepal Chamber of Commerce and Industry -MemberCIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

(k) To persons nominated by Government of Nepal, either from among the industry, commerce and tourism sector organizations or from among the persons of high distinction in the same field -Member(l) The Director General, Depart of Industries -Member Secretary(2) Government of Nepal may, by notification published in the Nepal Gazette, make necessary alteration or change in the membership of the Board.(3) The Board may, if it deems necessary, invite any national or foreign expert or consultant at any meeting of the Board to participate therein as an observer.(4) The procedures relating to the meetings of the Board shall be as determined by the Board.

13. Functions, Duties and Power of the Board: The function, duties and powers of the Board shall be as follows:-(a) To render necessary cooperation in formulating and implementing policies, laws and regulations pertaining to the industrialization of the country.(b) To give guidelines in attaining the objectives of liberal, open and competitive economic policies pursued by the country so as to make the industrial sector competitive.(c) To maintain coordination between the policy level and the implementation level of the industrial policy.(d) To cause to follow the ways and means for the prevention of the environmental pollution by putting more emphasis on the avoidance of effects on the environment and the public health.(e) To make recommendation to Government of Nepal for the inclusion of any industry in the classification of industries.(f) To make recommendation to Government of Nepal to introduce changes in the Areas mentioned in Annex-3 by making evaluation thereof from time to time.(g) To give directives to the concerned body after making enquiries into the application submitted by any industry complaining that the industry has not received the facilities and concessions to be made available by the committee.(h) Other functions, duties and power of the board shall be as prescribed.

14. Change in the Classification and Areas: Government of Nepal may, on the recommendation of the Board and by notification published in the Nepal Gazette, include any industry in the classification of industries or make timely changes in the Areas mentioned in Annex-3.

15. Facilities and Concessions to be accorded to Industries:Notwithstanding anything contained in the laws relating to income tax, sales tax, excise duty and customs duties and in any other existing laws, an industry shall be entitled to receive the following facilities and concessions:-(h) While calculation depreciation on the fixed assets, industries shall be entitled to add on third to the rate or depreciation allowed under the existing income tax laws.(z) An industry will be entitled, for the purpose of the income tax, to deduct the amount of expenses incurred by it for the long-term benefit provided to its workers and employees including housing, life, insurance, health facilities, education and training.(z1) The rate of customs to be levied on the basic raw materials which are not produced in Nepal and are required for the production of industrial machinery or of any other goods may not be more that the rate of import duty that may be levied on the import of industrial machinery or ready made goods as produced with the use of such raw materials.

16. Other Facilities and concessions: The following industries, in addition to the facilities and concessions as set forth in section 15, may be granted further facilities and concessions as below:(a) Forest-based industry may be made available any forest on a leasehold basis.CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

(b) No royalty shall be imposed if any industry generates electricity for its use.(c) Government of Nepal may, by notification published in the Nepal Gazette, grant additional facilities to the Export Promotion Industry and prescribed industries established in the Export Processing Zone and in the government of non-government industrial estate.(d) On the recommendation of and with the decision of the Council of Ministers, and by notification published in the Nepal Gazette, additional facilities may be granted to any National Priority Industry or any industry established in Nepal by the way of invention therein.

17. Constitution of the One-Window committee: (1) Government of Nepal shall, for the purpose of making available the facilities and concessions to be enjoyed by any industry under this Act in time from a single place constitute a One-Window Committee consisting of the following: (a) The Director General, Department of Industries -Coordinator(b) The Director General, Department of Customs -Member(c) The Director General, Department of Excise Duty - Member(d) The Director General, Tax Department - Member(e) The Director General, Sales Tax Department - Member(f) The Director General, Department of Commerce - Member(g) The Director General, Nepal Rastra Bank -Member(h) Representative, Federation of Nepal Chamber of Commerce and Industries -Member(i) One expert in the field of industry and commerce as designated by Government of Nepal or one representative from the Federation -Member(J) The Director General, Department of cottage and small Industry -Member(k) Representative (Gazette first class) Ministry of Tourism and civil Aviation -Member(l) The Deputy General Director, Department of Industries (facilitated branch) -Member secretary(2) Government of Nepal may, by notification published in the Nepal Gazette, make alteration or changes in the members of the Committee.(3) The committee may, if it deems necessary, invite any national or foreign expert or consultant to participate in the meeting of the committee as an observer.(4) The procedures relation to the meeting of the committee shall be as determined by the Committee.

18. Functions, Duties and powers of the Committee: (1) The functions, duties and power of the committee shall be as follows:-(a) To make necessary decisions for making available the facilities and concessions to be enjoyed by any industry under this Act,(b) To perform such functions as may be delegated by the Board under its functions, duties and powers.(b1) To make recommendations as may be required for making time bound provisions on making available infrastructural services such as electricity, water, means of telecommunications, land, road and so on required for the industries.(c) Other functions, duties and powers of the Committee shall be as prescribed.(2) Any decision made by the Committee in pursuance with clause (a) of sub-section (1) above, shall be required to be implemented by the concerned body.(3) The committee may, as required, delegate some of its powers to the sub-committee constituted under sub-section


(4)Provided that the powers specified in clause (b) of sub-section (1) of Section (18) will not be delegated.(4) The committee may constitute sub-committees as may be required for the transportation of its business and the function, duties and powers of the sub-committees so constituted shall be as fixed by the Committee.

19. Prohibition on the Misuse of Facilities and Concessions: No Misuse of the facilities and concessions to be enjoyed by any industry under this Act shall be allowed.

20. Guarantee of Facilities: (1) An industry which is operated by obtaining permission or by getting registered under the Industrial Enterprises Act, 1981 shall continue to enjoy the time bound facilities and concessions under the Act and with regard to the facilities and concessions for which no time has been fixed, it shall enjoy the facilities and concessions under this Act.(2) An industry which has been registered or has obtained permission before the commencement of this Act, but which has started its commercial production only after the commencement of this Act shall enjoy the facilities under this Act. Provided that if the time bound facilities and concessions to be enjoyed under the Industrial Enterprises Act prevailing at the time registration or obtaining permission by such industry are for more than the period as granted by this Act or if the facilities and concession are not to be made available under this Act, nothing shall prevent from enjoying the facilities and concessions under the prevailing Industrial Enterprises Act.(3) An industry which has been registered or has obtained permission before the commencement of this sub-section shall be entitled to enjoy such time-bound facilities and concessions as are being enjoyed by it at the time of registration of obtaining permission in accordance with the law and with regard to the facilities and concessions for which no time has been fixed, it shall enjoy the facilities and concessions under this Act.

21. Industries not to be nationalized: No Industry shall be nationalized.

22. Industrial Manpower: (1) The human resource required for any industry shall have to be recruited from among Nepali citizens.(2) Notwithstanding anything contained in sub-section (1) above, if any industry cannot be operated without person living outside his/her own country expatriate human resource, foreign nationals may be appointed in such industry with the prior approval of the Department of Labor for a maximum period of five years. If a person so appointed happens to be a technician of special category but not available within Nepal, such person may, with the approval of the Department of Labor, be appointed for up to an additional period of five years.(3) A foreign national who is working in any industry pursuant to Sub-section (2) above and who is from a country wherein convertible foreign currency is in circulation, may repatriate his salaries, allowances, emoluments, etc., in convertible foreign currency in an amount not exceeding seventy five percent of such salaries, allowances and emoluments.23 Duty of Furnish Particulars: It shall be the duty of the concerned industry to furnish the industry related particulars as prescribed to the concerned department on a regular basis.

24. Duty to Inform in case of Closing down of Industry: If an industry is closed down after fulfilling the formalities as envisaged in the existing laws, information thereof shall have to be provided to the concerned department within seven days from the date of closing down.


25. Power of Government of Nepal: (1) Government of Nepal shall take any of the following actions against any person for establishing any industry without obtaining permission required to be obtained under this Act or for noncompliance with the terms and conditions set forth in the license or certificate of registration or for violating any other provision of this Act:(a) To impose a fine in an amount not exceeding five hundred thousand rupees,(b) To cancel the registration or permission of the industry,(c) To cause to close down the industry;(2) Before taking any action under sub-section (1), the concerned industry shall be given a reasonable time either to submit the explanation or to correct the mistake.(3) If any industry is not satisfied with the decision make by Government of Nepal under sub-section (1) above, it may file an appeal to an Appellate Court within thirty five days of the notification thereof.

25A. Provisions relating to Sick Industries:(1) If any industry is being operated in loss for a consecutive period of five years and its production level is twenty percent or less than twenty percent of the total production capacity, Government of Nepal may, if it deems necessary, declare it a sick industry by notification published in the Nepal Gazette.(2) No duty, fee and tax of any kind shall be levied on the machinery imported by any industry as referred to in Sub-section (1) for the extension and diversification of such industry.

26. Delegation of Power: (1) The Board may delegate any or all of its power conferred upon it by this Act or Rules made there under to the concerned Department, Office, officer, Committee, any member of the Board or any other committees or sub-committees constituted by the Board as necessary.(2) The Department may delegate any or all of its power conferred upon it by this Act or Rules make there under to any other department, office or official as necessary.

27. Power to Frame Rules: Government of Nepal may frame necessary Rules to carry out the objectives of this Act.

28. Power to Remove Difficulties: If any difficulty arises in connection with the implementation of this Act, Government of Nepal may issue orders to remove such difficulty by notification published in the Nepal Gazette.

29. This Act to Prevail: Notwithstanding anything contained in the existing laws, the matters stipulated in this Act and rules made there under shall be dealt with accordingly.

30. Repeal and Savings: (1) The Industrial Enterprises Act, 1981 is hereby repealed.(2) All acts performed or action taken under the Industrial Enterprises Act, 1981 shall be deemed to have been performed or taken under this Act.


COTTAGE INDUSTRIES

With the exception of cigarette, bidi, cigar, chewing tobacco, khaini industries and industries producing other goods of a similar nature utilizing tobacco as the basic raw material, alcohol and beer producing industries,* Handloom, Pedalloom, Semiautomatic loom, Warping, Dyeing and printing, Tailoring (Other than Readymade Garments), Knitting, Handknitted Woolen Mat and Blanket (Radi, Pakhi), Woolen Carpet, Pashmina, Wollen Garments, Carpentry, Wooden Artistic product, Cane and Bamboo Works, Natural Fiber Products, Hand Made paper and Goods made up thereof, Gold, Philigiree Products including Silver, Brass, Copper Precious and Semi-Precious Stones, Ornaments, Sculptures and Pottery, Honey, chyuri, Cardamom Processing, Clay or Ceramic Pottery, Leather Cutting and Tanning, Rural Tanning and Leather Goods producing Works, Jute, Sabai Grass, Babio, Choya, Cotton Thread Products, Artistic Products made up of Bones and Horns, Stone Carving, Ceramic Fine Arts, Pauwa, Boutique, Incense Stick (Dhup), Dolls and Toys industries and cottage industries with the fixed asset of up to two hundred thousand rupees.*

Notes:-1. Unless otherwise mentioned specifically, machines of the above mentioned industries should not employ through electric motors of diesel or petrol or crude oil engine more than a total of five kilowatt. Power looms shall not be included under Cottage Industries.2. Permission shall be required for the establishment of mechanized woolen spinning and mechanized woolen carpet manufacturing.

INDUSTRIES REQUIRING PERMISSION1. Industries producing explosives including arms and ammunition and gunpowder, security printing, bank notes and coin industries.2. Cigarette, bidi, cigar, chewing tobacco, khaini industries and industries producing other goods of a similar nature utilizing tobacco as the basic raw material, alcohol and beer producing industries.

CLASSIFICATION OF AREAS

Remote Area1. Darchula 2. Bajhang 3. Bajura 4. Humla 5. Jumla 6. Mugu 7. Kalikot 8. Dolpa 9. Mustang 10. Manang 11. Solukhumbu 12. Sankhuwasabha 13. Khotang 14. Bhojpur 15. Achham 16. Dailekh 17. Jajarkot 18. Rukum 19. Okhaldhunga 20. Myagdi 21. Terathum 22. Ramechaap

Undeveloped Area1. Taplejung 2. Rolpa 3. Baitadi 4. Rasuwa 5. Gulmi 6. Parbat 7. Dadeldhura 8. Pyuthan 9. Doti 10. Salyan 11. Panchathar 12. Baglung 13. Sindhupalchok

Underdeveloped Area1. Kailali 2. Surkhet 3. Argahkhnachi 4. Palpa 5. Syanja 6. Dhandding 7. Lamjung 8. Tanahu 9.

Gorkha 10. Sindhuli 11. Udayapur 12. Dhankuta 13. Ilam 14. Kanchanpur 15. Bardia 16. Dang 17. Nuwakot 18. Kavrepalanchowk 19. Dolakha


NATIONAL PRIORITY INDUSTRIES1. Agro and Forestry –based Industries.2. Engineering Industry (Producing Agricultural and Industrial machine).3. Industry manufacturing Fuel Saving or Pollution Control Devices.4. Solid Waste Processing Industry.5. Road, Bridge, Tunnel, Ropeway, Flying Bridge, constructing and Operating Industry, and Trolley Bus and Tram Manufacturing and Operating Industry.6. Hospital and Nursing Home (Only outside the Kathmandu Valley).7. Industries Producing Ayurvedic, Homeopathic and other Traditional Medicine, andIndustries Producing Crutch, Seat Belt, Wheel chair, Stretcher and Stick and so on to be used in aid of the disabled and orthopedic.8. Cold Storage installed for the storage of Fruits and Vegetables.


THE FOREIGN INVESTMENT AND TECHNOLOGY TRANSFER ACT, 2049 (1992)

Date of Authentication and publication, Amendment Acts, 27 kartik 2049 (12 Nov. 1992)

1. The Foreign Investment and Technology Transfer(First Amendment) Act, 2052 2052/10/10 (24 Jan. 1996)2. Some Nepal Laws Amendment Act, 20572057/4/26 (10 Aug. 2000)3. Income tax Acts, 2058 2058.12.19 (1 April 2002)4. Republic Strengthening and Some Nepal 2066-10-7 (21 Jan. 2010)Laws Amendment Act, 2066 (2010)Act Number 34 of the Year 2049 (1992)

Preamble: Whereas, in the process of industrialization of the country, it is expedient to promote foreign investment and technology transfer for making the economy viable, dynamic and competitive through the maximum mobilization of the limited capital, human and the other natural resources. Be it enacted by Parliament in the twenty first year of the reign of His Majesty's King Birendra Bir Birkram Shah Dev.

1. Short Title and Commencement: (1) This Act may be called "The Foreign Investment and Technology Transfer Act, 2049 (1992)"(2) This Act shall come into force immediately.

2. Definitions: Unless the subject or context otherwise requires, in this Act:-(a) "Industry" means any industry as referred to in Section 3 of the Industrial Enterprises Act, 2049 (1992). (b) "Foreign Investment" means the following investment made by a foreign investor in any industry"

(1) Investment in Share (Equity)(2) Reinvestment of the earnings derived from the investment as referred to in Sub-section (1) above,(3) Investment made in the form of loan or loan facilities.

(c) "Technology Transfer" means any transfer of technology to be made under an agreement between an industry and a foreign investor on the following matters:

(1) Use of any technological right, specialization, formula, process, patent or technical know-how of foreign origin.(2) Use of any trademark of foreign ownership.(3) Acquiring any foreign technical, consultancy, management and marketing service.

(d) "Foreign Investor" means any foreign individual, firm, company or corporate body involved in foreign investment or technology transfer including foreign government or international agency.(e) "Board" means the Industrial Promotion Board Constituted under Section 12 of the Industrial Enterprises Act, 1992.(f) "Department" means the Department of Industries or Department of cottage and Small Industries of Government of Nepal or any other department office or agency as specified by Government of Nepal. (g) "Prescribed" or "As prescribed" means prescribed or as prescribed in the Rules made under this Act or in an order issued by the Government of Nepal by notification published in Nepal Gazette.


3. Permission to be obtained: (1) Permission of the Department shall be required to be obtained for foreign investment or technology transfer.(2) A person desiring to avail the foreign investment or technology transfer shall be required to make an application to the Department in the prescribed form along with the prescribed particulars for obtaining permission in that behalf.(3) If an application is made pursuant to Sub-section (2) the Department shall, in the case of an industry with fixed assists up to five hundred million rupees, itself, and in the case of an industry with fixed assets in excess thereof, in accordance with the decision of the Board, grant permission within thirty days from the date of application. The Department shall communicate the decision made in regard to such permission to the applicant.(4) Notwithstanding anything contained in Sub-section (1) and (2) no permission shall be granted for making foreign investment in the industries set forth in the Annex. Provided that permission may be granted for the transfer of technology in such industries.

5. Facilities and Concessions: (2) A foreign investor making investment in foreign currency shall be entitled to repatriate the following amount outside Nepal:-a) The amount received by the sale of the share of foreign investment as a whole or any part thereof.b) The amount received as profit or divided in lieu of the foreign investment.c) The amount received as the payment of the principal of and interest on any foreign loan.

(3) A foreign investor shall be entitled to repatriate outside Nepal the amount received under an agreement for the transfer of technology in such currency as set forth in the concerned agreement.

6. Provisions Relating to Visa: (1) A foreign national visiting Nepal in connection with undertaking any study or carrying out any research with the objective of making investment in Nepal shall be provided a non tourist visa for up to six months.(2) A foreign investor or dependent family or authorized representative of such a foreign investor and department family of such authorized representative shall for the purpose of stay in Nepal be provided a business visa until the foreign investment is retained. Provided that a foreign investor who, at a time, makes investment in an amount no less than one hundred thousand United States dollar or in convertible foreign currency equivalent thereto, and his/her dependent family shall be granted a residential visa until such investment is retained.

7. Settlement of Disputes: (1) If any dispute arises between a foreign investor, national investor or the concerned industry, the concerned parties shall be required to settle the dispute by mutual consultations in the presence of the Department.(2) If the dispute could not be settled in the manner as referred to in Sub-section (1) it shall be settled by arbitration in accordance with the prevailing arbitration Rules of the United Nations commission on International Trade Law (UNCITRAL).(3) The arbitration shall be held in Kathmandu. The laws of Nepal shall be applicable in the arbitration.(4) Notwithstanding anything contained in Sub-sections (1), (2) and (3) above, disputes arising in regard to foreign investment made in the industries with investment as prescribed may be settled as mentioned in the foreign investment agreement.


8. Power to Frame Rules: Government of Nepal may frame necessary Rules for carrying out the objectives of this Act.

9. This Act to Prevail: Notwithstanding anything contained in the existing laws, matters stipulated under this Act and Rules made there under shall be dealt accordingly.

9A. Power to Make Alternation or Amendment in Annex: Government of Nepal may, by notification in the Nepal Gazette, make necessary alterations or amendments in Part (B) of the Annex.

10. Repeal and Savings: (1) The Foreign Investment and Technology Act, 1981 is hereby repealed.(2) All acts performed or action taken under the Foreign Investment and Technology Act, 1981 shall deem to have been performed or taken under this Act.

Annex(Relating to Sub-section (4) of Section (3) Industries not to be granted permission for making foreign investment)

Part (A)1. Cottage Industries.2. Personal Service Business (Business such as Hair Cutting, Beauty Parlor, Tailoring, Driving Training etc.)3. Arms and Ammunition Industries.4. Explosives, Gunpowder5. Industries related to Radio-Active Materials.6. Real Estate Business (Excluding Construction Industries)7. Motion Pictures Business (Produced in ........... the language of the nation)8. Security Printing9. Currencies and Coinage Business

Part (B)1. Other Retail Business except the Retail Business instantly conducted more than two countries as International transaction.2......................3.........................4. ........................5.........................6....................7. Bidi (Tobacco), (Excluding those exporting more that 90%)8. Internal Courier Service9. Atomic Energy10..................11. Poultry Farming12. Fisheries13. Bee-Keeping14. Other Consultancy Services such as Management, Accounting, Engineering and Legal Services besides Consultancy Services having the foreign investment up to Fifty One percent.15. Beauty paler16. Domestic food processing methods in rent.17. Local catering Service18. Rural tourism

**********CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

Labour Act, 2048 (1992)

Date of Authentication 2 Jestha 2053 (May 15, 1996)

Amendment Acts1. Labour (first Amendment) Act, 2054 15 Magh 2054 (Jan.28, 1989)2. Child Labor (Prohibition and Regulation) Act, 2056

Preamble: Whereas it is expedient to make timely provisions relating to labor by making provisions for the rights, interests, facilities and safety of workers and employees working in enterprises of various sectors. Now, therefore, the Parliament has made this Act on the twenty first year of the reign of His Majesty King Birendra Bir Bikram Shah Dev.

Chapter 1Preliminary

1. Short title and commencement: (1)This Act may be called as the "Labour Act, 2048 (1992)"(2) It shall come into force immediately.

2. Definitions . In this Act, unless the subject or context otherwise requires:-(a) "Production process" means any of the following processes:

(i) works relating to making, altering, repairing, ornamenting, engraving, finishing, packing, oiling, washing, cleaning, breaking-up, dismantling or other kinds of activities given to any article or substance with a view of bringing it to its use, sale, distribution, transportation, or disposal.

(ii) Pumping of oil, water, or sewage;(iii) Generating, transforming, and transmitting energy; or(iv)Printing, lithography, photography, book-binding and other similar work.

(b)"Enterprise" means any factory, company, organisation, association, firm, or group thereof, established under the prevailing laws for the purpose of operating any industry, profession or service, where ten or more workers or employees are engaged and this expression also includes:

(1) Tea estates, established under the law for commercial purpose;(2) Enterprise operating within the industrial districts established by Government of Nepal

where less than ten workers or employees are engaged.(c) "Employee" means persons engaged in the administrative functions of the enterprise.(d) "Worker" means a person employed on the basis of remuneration to work in any building, premises, machinery or any part thereof used for any productions process or providing service, or any act relating to such work or for any unscheduled works and this expression also includes any worker working at piece-rate, contract or agreement.(e) "Manager" means a person appointed for performing the functions in the Enterprise.(f) "Entrepreneur" means the person having final authority on the activities of the Enterprise and this expression also includes any person appointed as the Chief of any branch or unit of the Enterprise with powers to exercise final responsibility or authority in respect thereof.(g) "Factory Inspector" means a factory inspector appointed by Government of Nepal and this expression also includes the Senior Factory Inspector. (i) "Minor" means a person who has attained the age of sixteen years but has not completed the age of eighteen years.CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

(j) "Adult" means a person who has completed the age of eighteen years.(k) "Energy" means electrical or mechanical energy. Provided that, this word shall not include any

energy generated from human or animal sources.(l) "Seasonal Enterprise" means an Enterprise which cannot be operated or which is not feasible to operate in any season other than the specific season and this expression also includes a Seasonal enterprise which cannot operate more than one hundred and eighty days in one year.(m) "Day" means period of twenty-four hours starting from any midnight and ending at another midnight.(n) "Week" means a period of seven days starting from midnight on Saturday or from midnight of such other day as prescribed by the Department of Labour.(o) "Welfare Officer" means the welfare officer appointed under this Act.(p) "Labour Officer" means the Labour Office appointed under this Act and this expression also includes the Senior Labour Officer.(q) "Labour Court" means the Labour Court under this Act.(r) "Remuneration" means the remuneration or wage to be received in cash or kind from the Enterprise by the worker or employee for the works performed in the Enterprise and this expression also includes any amount to be received in cash or kind for the works done under piece-rate or contract.

Provided that, this expression does not include any kind of allowance or facility.

(s) "Prescribed" or "as prescribed" means prescribed or as prescribed in the Rules framed under this Act.

CHAPTER - 2Employment and Security of Service

3. Classification of Job: (1) The Proprietor shall classify the job of the workers and employees of the Enterprise according to the nature of production process, service or functions of the Enterprise and shall provide the information thereof to the concerned Labour Office.(2) If the classification done pursuant to Sub-section (1) requires any amendment, the Labour Officer may, stating the reasons thereof, issue a directive to the Proprietor and it shall be the duty of the Proprietor to abide by such directive.

4. Appointment of Worker and Employee: (1) In cases where it is required to appoint a worker or employee in any post classified pursuant to

Section 3, the Manager Shall have to advertise in order to select such a worker or employee and the worker or employee so selected shall have to be provided with appointment letter and be engaged at work..

(2) The worker and employee appointed under Sub-section (1), shall be kept on probation period unless he/she completes the continuous service period of one year and, based on, his/her efficiency, sincerity discipline, diligence towards works, punctuality, etc in this period he/she shall be appointed permanently. An appointment letter shall be provided with the name of the post of the worker or employee and his/her remuneration and conditions of service while making such appointment. Information thereof shall also be provided to the Labour Office.


Clarification: For the purpose of this Sub-section, the words " the continuous service period of one year" means the period of two hundred forty days engaged at work during a period of twelve months in an Enterprise, or the period served continuously in a Seasonal Enterprise during the period of such a running season, by a worker or employee and, while calculating the said two hundred forty days, public and weekly holidays shall also be counted.

(3) The worker or employee engaged on piece-rate or contract in the works of permanent nature of an Enterprise shall also be appointed permanently under Sub-section (2).(4) The workers or employee engaged under Sub-section (3) shall be entitled to facilities provided in this Act according to the scale of his/her post.

4A. Prohibition of Engaging Non-Nepalese Citizens at Work: (1) Non-Nepalese citizens shall not be permitted to be engaged at work in any of the posts

classified pursuant to Section 3.(2) Notwithstanding anything contained in Sub-section (1), if a Nepalese citizen could not be

available for any skilled technical post even after publishing an advertisement in national level public newspapers and journals, the Manager may submit an application to the Department of Labour along with the evidence of such fact for the approval to appoint a non-Nepalese citizen.

(3) If it is found, in conduction of an inquiry upon the submission of any application pursuant to Sub-section (2), that a Nepalese citizen would not be available for the skilled technical post mentioned in the application, the Department of Labour may, on the recommendation of the Labour Office, grant approval to engage a non-Nepalese citizen at work years for a maximum period of upto five years not exceeding two years at a time and, in the specialized kind of skilled technical post, for a period upto seven years.

(4) The Manager, who engages non-Nepalese citizens at work pursuant to Sub-section (3), shall have to make arrangements for making the Nepalese citizens skilled and for replacing the non-Nepalese citizens gradually by them. "

5. Engagement in Work: (2) Minors and females may be engaged in the works normally from six o'clock in the morning till six o clock in the evening, except in the prescribed conditions.(3) By making an appropriate arrangement with mutual consent between the proprietor and the worker or employee, the females may also be engaged in the works similar to the males.(4) The Manager may transfer a worker or employee to any branch or unit of the Enterprise without causing any difference in the nature or standard of work. .

6. Computation of period of Works: For the purpose of computing the period of works performed in the Enterprise by any worker or employee, the following period shall also be counted.

(a) the period remained in reserve under Section 11; and(b) the period stayed with remuneration leave.

7. Appointment in Contract Service: If an Enterprise needs to increase in production or service immediately, any person may be appointed in contract, by fixing a time period and setting forth the remuneration to be received by him/her and the terms of service, for any specified work other than the works of the Enterprise which are permanent in nature.

8. Change of Ownership shall not Adversely Affect: Any change in the ownership of the Enterprise shall not be deemed to have affected on the terms and conditions of service of the workers and employees of the Enterprise.CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

9. Separate Registers of the Workers and Employee to be Kept: (1) In each Enterprise, the Proprietor shall maintain separate registers of the workers and

employees mentioning the following particulars –(a) Name of the worker or employee,(b) Nature of job,(c) Remuneration and method of its payment,(d) Other prescribed particulars.

(2) The register maintained under Sub-section (1) shall have to be submitted when demanded by the Labour Officer, Factory Inspector or any other person designated by the Labour Office.

10. Security of Service: The service of any permanent worker or employee may not be terminated without following the procedures prescribed by this Act or the Rules or Bylaws made under this Act.

11. Keeping on Reserve: (1) In case where the curtailment of production or service in any Enterprise for some period is necessary or where operation of the Enterprise cannot be continued for some special circumstance, the Proprietor, under Subsection (2), may curtail its production or service or may close the Enterprise or a part of thereof.(2) Permission from the Labour Office in case of a period up to fifteen days and from the Department of Labour in case of a period for more than that shall have to be taken while curtailing the production or service or closing the Enterprise or any part thereof as mentioned in Sub-section (1). The Labour Office shall, inform the Department of Labour of such permission in case it has given permission.(3) While doing curtailment in the production or service pursuant to Subsection (1), any worker working on shifts or on wages or permanent worker or employee of the Enterprise except the employee shall be kept reserve on the condition of receiving half of his/her remuneration.Provided that, such worker or employee shall continue to receive the appropriate facilities which he/she is receiving.(4) If any worker or employee kept in reserve pursuant to Sub-section (3) refuse to work on another assignment or similar nature equal on remuneration offered by the proprietor in the same Enterprise or another Enterprise under his/her control or if he/her does not come in the Enterprise once a day during office hours or on other situations as prescribed, the Proprietor may withheld the remuneration and facility of such worker and employee.

12. Retrenchment and reinstatement:(1) If, for any special circumstances, the production or service of the Enterprise had to be curtailed or the Enterprise has to be closed party or wholly for more than three months, the Proprietor may, with the approval of Government of Nepal through the Department of Labour, retrench in the number of the workers and employees, partly or wholly, of the Enterprise.(1A) If the Manager makes a demand to Government of Nepal for approval in respect of the retrenchment of workers or employees pursuant to Sub-section (1), Government of Nepal shall have to make decision within two months on whether such retrenchment of employees to be made or not.(2) While retrenching the workers or employees under Sub-section (1), engaged in similar type of works, those permanent workers or employees who \were appointed in the last shall be retrenched first.Provided that, if it is required to retrench some of the workers or employees appointed earlier, not following the prescribed order of retrenchment such retrenchment may be made by specifying the reasons thereof.(3) While doing retrenchment as per Sub-section (2), it shall be done as follows –


(a) By providing a notice with the reasons or retrenchment either one month in advance or paying the remuneration of one month in case of worker or employee who is permanent and(b) By paying a lump sum compensation to each worker or employee of the amount of remuneration calculated by multiplying the number of each year of service performed at the Enterprise by the amount of his/her present remuneration for 30 days.

Explanation: For the purposes of this Clause, the work performed for at least six months in any year shall be counted as one year of service.(4) The provisions of Sub-section (3) shall not applicable to any worker or employee appointed under contract service.(5) If anybody has to be engaged in the job of worker or employee retrenched earlier, priority shall be given to the retrenched workers or employees.

Explanation: For the purposes of Section 11 and 12 the "Special Circumstance" shall mean damage, break down or failure of machines or the Enterprise and thereby causing stoppage in the production or failure in the supply of fuel, electricity, coal or similar energy or due to any kind of force majeure or insufficient supply of raw materials or stock piling of the produced goods due to loss of sale or other similar situations.

13. Seasonal Enterprise : (1) The workers or employees of a seasonal Enterprise shall not be deemed to be on reserve during off-season period.(2) The beginning and closure of operation of seasonal Enterprise shall be informed to the Labour Office.(3) The permanent worker of employee shall have to be paid with at least twenty five percent of his/her remuneration as retaining allowance for the period of closure of a seasonal Enterprise during off-season..(4) The decision of the Department of Labour shall be final in relation to any dispute as to whether any Enterprise is a seasonal or not.

Explanation: While computing the period of two hundred and forty days, the public Holidays and weekly holidays shall also be counted.15. Compulsory Retirement: The Proprietor may compulsorily retire any worker or employee who has crossed the age of fifty five years.Provided that he/she may extend the period of service of any worker of employee by five years, in case the worker or employee is indispensable for the operation of the functions Enterprise.

CHAPTER – 3WORKING HOURS

16. Working Hours: No worker or employee shall be deployed in work for more than eight hours per day or forty eight hours per week and they shall be provided one day as weekly holiday for every week.

17. Computation of Commencement of Working Hour: The time for starting of work by worker or employee shall be as prescribed by the Proprietor.

18. Intervals for Refreshment and Rest: In any Enterprise where work may be interrupt, no worker or employee shall be deployed in work for more than five hours continuously without providing an interval of half an hour for tiffin. In any Enterprise where works have to be carried out continuously CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

without interruption, such intervals shall be provided on rotation basis. Such interval of half an hour shallbe deemed to have been included within the daily working hours.

19. Extra Wages for overtime to be provided: (1) Where any worker or employee is engaged to work for more than eight hours in a day or forty eight hours in a week, he/she shall be paid overtime wages at the rate of one and one-half time of his/her ordinary rate of wages.Provided that, no worker or employee shall be compelled to work overtime.

(2) While deploying any worker or employee to work overtime, generally the duration shall not exceed four hours per day and twenty hours per week.

20. Attendance Register to be Kept: Each Enterprise shall keep attendance register of its workers and employees.

CHAPTER – 4Remuneration

21. Minimum Remuneration Fixation Committee: (1) Government of Nepal may fix the minimum remuneration, dearness allowances and facilities of workers or employees or Enterprises on the recommendation of the Minimum Remuneration Fixation Committee and the notification on rates so fixed shall be published in the Nepal Gazette.(2) Government of Nepal shall, in order to fix the minimum remuneration, dearness allowances and facilities, constitute a Minimum Remuneration Fixation Committee consisting of the equal number of representatives of workers or employees, Managers and Government of Nepal.(3) While making recommendation in regard to dearness allowances and facilities of workers or employees, the Minimum Remuneration Fixation Committee constituted under Sub-section (2) may do so on the basis of geographical areas.(4) The rates of minimum remuneration, dearness allowances and facilities fixed pursuant to Sub-section (1) shall be effective only from the date of publication of a notification to that effect in the Nepal Gazette.(5) In cases where the Minimum Remuneration Fixation Committee could not be constituted or even if it is constituted, it could not make recommendation, nothing contained in the foregoing Sub-sections shall be deemed to have barred fixing the minimum remuneration, dearness allowances and facilities of workers and employees of Enterprises by Government of Nepal.(6) No agreement may be entered into between the manager and workers or employees in a way to make the minimum remuneration, dearness allowances and facilities lesser than those fixed pursuant to Sub-section (1).(7) The other functions, duties and powers of the Minimum Remuneration fixation Committee shall be as prescribed.

21A. Annual Increment in Remuneration: (1) The worker and employee appointed permanently pursuant to Sub-section (2) of Section 4 shall receive an increment in remuneration each year.(2) The amount of increment in remuneration to be received pursuant to Sub-section (1) shall be equal to the half day's remuneration of the concerned worker or employee.(3) Notwithstanding anything contained in Sub-section (1) above, such increment in remuneration shall not be provided in cases where the remuneration is withheld pursuant to subsection (2) of Section 52.


22. Payment of Remuneration, Allowances and Facilities: It shall be the responsibility of the concerned Manager to provide the remuneration, allowances and facilities to be received by a worker or employee of the Enterprise.

23. Period of Remuneration: The Proprietor may fix the period of payment of remuneration to the workers or employees on weekly, fortnightly or monthly basis in way not exceeding the period of one month.Provided that, this provision shall not apply in respect of the persons who are working on daily wages, piece-rate or contract basis.

24. Prohibition on Deduction of Remuneration: (1) The remuneration of workers or employees shall not be deducted expect under the following circumstances –

(a) In case it is required to realize any fine.(b) In case it is required to deduct against absence;(c) In case it is required to deduct against loss or damage of cash or kind of the Enterprise

caused intentionally or negligently;(d) In case it is required deduct in respect of providing prescribed facilities;(e) In case it is required to deduct in respect of advance or over payment of remuneration;(f) In case it is required to deduct in respect of the period of suspension;(g) In case it is required to deduct under the order of government office or court'(h) In case it is required to deduct as per the notification of Government of Nepal published

in the Nepal Gazette; or(i) In case it is required to deduct in respect of income tax or any other tax levied under

prevailing laws.(2) The limit of amount to be deducted pursuant to Sub-section (1) the method of deduction, the period of deduction and other related matters shall be as prescribed.

25. Petition to be Filed in cases a Deduction in Remuneration Made or Delay Caused in Payment or other Facilities not provided or Delay Caused in providing such Facilities in an Undue Manner: (1) Except in cases of happening of a mistake or failure to fix the remuneration amount or inability to pay the remuneration due to the occurrence of an unforeseen incident or of special circumstance or failure on part of the concerned worker or employee to come to receive his/her remuneration or his/her refusal to receive the same; if, in an undue manner, a deduction in remuneration is made or a delay is caused in payment or in case of release from suspension or annulment of expulsion by a judgment of a court, the remuneration for the period of such expulsion or suspension is not paid or a delay is caused in such payment or the allowance, gratuity or the amount of provident fund or compensation to be received by a worker or employee is not paid or delay is caused in such payment, the concerned worker or employee him/herself or through his/her attorney may file a petition in the Labour Office .

(2) The petition as referred to in Sub-section (1) shall have to be filed within six months from the date of deduction in remuneration or causing delay in payment or non- payment of allowance, gratuity, amount of provident fund or compensation or causing delay in such payment.(3) While conducting necessary inquiry and examination on the petition filed pursuant to Sub-section (1), if it is proven that the remuneration has been deducted in an undue manner or a delay has been caused in payment or the amount of allowance, gratuity, provident fund or compensation has not been paid or a delay has been caused in such payment, the Labour Office may give order requiring to make CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

payment of such remuneration, allowance, gratuity, amount of provident fund or compensation to the concerned worker or employee and to pay the concerned worker or employee amount upto three times of such amount in default for atonement thereof.(4) If it is proven that the petition under Sub-section (1) has been filed with a malicious motive or with an intention of causing unnecessary trouble or distress to the Manager, the Labour Office may give order requiring the petitioner to pay not exceeding one thousand rupees for compensation to the Manager.(5) The Labour Office shall make available to the concerned party the amount to be paid or handed over in accordance with the order issued under Subsection (3) or (4) by getting recovered and realized the same by taking all or any of the following action:-(a) By keeping withheld the movable and immovable properties of the concerned Enterprise, worker or employee in accordance with the prevailing law,(b) By keeping withheld the deposit amount of the concerned Enterprise, worker or employee being kept in any Government Office or in any Corporate body with the ownership of Government of Nepal or the amount to be paid or handed over the concerned Enterprise, worker or employee by such Office or corporate body,(c) By keeping withheld the import or export of the concerned Enterprise, worker or employee.(d) By keeping withheld the discount, facilities or concessions of the concerned Enterprise, worker or employee to be obtained under the prevailing law.

26. Appeal: The party dissatisfied with the Order issued pursuant to Sub-section (3) or (4) may file an appeal to the Labour Court within thirty five days of the receipt of information of such order and the decision of the Labour Court shall be final.

CHAPTER – 5Health and Safety

27. Provisions Relating to Health and Safety: The Proprietor shall make the arrangements in the Enterprise as mentioned below –(a) To Keep each Enterprise clean and tidy by cleaning daily including with germicidal medicines, necessary arrangements of proper drainage and coloring from time to time and preventing from odor;(b) To make arrangements for adequate supply of fresh air and light as well as proper temperature in the working rooms;(c) To make arrangements of removal and disposal of solid waste during production process,(d) To make arrangements of prevention of accumulation of dust, fume, vapor and other impure materials in working rooms this would adversely affect the health;(e) To make arrangements of necessary preventive personal devices for protection of health from adverse any other source, and make provisions this would produce less noise during the work process;(f) To avoid any congestion in the work-room or work place leading to injurious to the health of workers or employees and to avail working space to each worker or employee, according to the nature of the job, or normally fifteen cubic meters and, the height above four meters from the floor surface shall not be counted for such purposes.(g) To make provisions for sufficient supply of pure potable water during the working hours, and to make arrangement for sufficient water in the Enterprise where chemical


substances, are used or produced which may be injurious to the health, for the purpose of extinguishing fire or washing and cleansing during emergency situations;(h) To make provisions for separate modern type toilets for male and female workers or employees at convenient place;(i) To declare as non-smoking zone in all or some parts of the Enterprise, according to the nature of its works; and(j) Too cause to conduct compulsory health check-ups of the workers or employees once every year in the Enterprises where the nature of works is likely to affect the health adversely.

28. Protection of Eyes:(1) Necessary protective means shall have to be arranged for the protection of eyes of the workers

and employees from injuries likely to be caused by dust or pieces while working in the Enterprise using glass, mercury, magnet, pallets, iron, concrete, cement, lime, stone and explosive substances.

(2) Necessary protective devices shall have to be arranged to protect the eyes from harmful rays coming from during the process of welding or gas-cutting, or other similar works.

29. Protection from Chemical Substance: The Proprietor shall have to make provisions for necessary personal protective devices for the protection of workers or employees handling chemical substances.

30. Provision for Safety Against Fire:(1) The Proprietor shall have to make arrangements of necessary modern equipment for safety

against fire in each Enterprise.(2) Provision shall have to be made for easy exit from the Enterprise during emergency.(3) Other provisions to be made by the Enterprise in relation to safety from fire including fire-fighting devices shall be as prescribed.

31. Hazardous Machines to be fenced: (1) Strong fences shall have to be placed around every part of hazardous machines, instruments

and equipment operated by energy.(2) In case it is required to do inspecting, lubrication or adjusting any part of hazardous machines

during its running condition only experienced and well trained adult worker or employee shall have to be engaged to perform such works.

32. In relation to Lifting of Heavy Weight:(1) No worker or employee shall be engaged in the works of lifting, loading or transporting any load

likely to cause physical injury or harm to the health.(2) The maximum load to be lifted, loaded or transported by an adult, minor, male or female

workers or employees shall be as prescribed.32A. Minor not to be engaged in Works without Adequate Guidelines or of Vocational Training:(1) No minor shall be engaged in works without adequate directives about the concerned working

areas or vocational training.(2) Provisions with regard to adequate directives about the concerned working areas or vocational

training to be given to minors pursuant to Sub-section (1) shall be as prescribed.(3) The entrepreneur engaging a minor in work against Sub-section (1) shall be liable to a

punishment of imprisonment up to three months in maximum or a fine of ten thousand rupees in maximum or the both.


32B. Disputes Relating to Age : (1) In case a dispute arises with regard to age of a minor engaged in an enterprise, the age

mentioned in the date of birth certificate of the minor shall be deemed to be his/her actual age.(2) In case a minor does not have birth registration certificate after having carried out medical tests

the age determined by a medical practitioner prescribed by the Department of Labor shall be deemed to be his/her actual age.

33. Pressure Plants: (1) In case a machine has to be operated at a pressure more than the atmospheric pressure in

course of the production process of any Enterprise, necessary effective measures shall have to be adopted in a way that such machine will not be operated at a pressure heavier than safe working pressure.

(2) Provisions in relation to testing, certifying and licensing for operation of the machines mentioned in Sub-section (1) shall be as prescribed.

34. Orders to Provide for Safety:(1) In the situation where provision of safety has not been made which was required to be done

pursuant to this Act, in any Enterprise, the Labour Office may issue a written order to the Enterprise giving a reasonable time limit in order to provide and make necessary arrangements thereon within such period.

(2) If the order issued as per Sub-section (1) has not been followed, the Labour Office may, order the closure of such unsafe portion, plant or machinery or the Enterprise and it shall be the duty of the Enterprise to abide by such order.

35. Notice to be Provided:(1) Each Enterprise shall have to inform the Labour Office within three days if any worker or

employee dies or is injured making him/her disabled to work for more than forty eight hours, from an accident occurred in the Enterprise or for any other reason, and within seven days if such worker or employee has been caught by any disease resulting from the profession.

(2) The authority empowered to investigate the accident or disease mentioned in the information given pursuant subsection (1), his/her powers, functions, duties, and the procedures relating thereto shall be as prescribed.

36. Powers to Determine the Standards:(1) Government of Nepal may prescribe the standards of safety required under this Chapter as per

necessity by publishing a notice in Nepal Gazette.(2) Except those mentioned in Sub-section (1), other provisions relating to health and safety to be

adopted while using machinery, instruments or equipment in the Enterprise shall be as prescribed.

CHAPER – 6Welfare Provision

37. Welfare Fund: The Enterprise shall have to establish a Welfare Fund, as prescribed for the welfare and benefit of the workers or employees.

38. Compensation: In case any worker or employee of the Enterprise is physically wounded or seriously hurt or dies in course of his/her work, the compensation shall be paid to him/her or to his/her family, as prescribed.


39. Gratuity, Provident Fund and Medical Expenses: The gratuity, provident fund and facilities relating to medical expenses to be provided to the workers and employees shall be as prescribed.

40. Leave: The public holidays, sick leave, annual leave, maternity leave, obsequies leave, special leave, with remuneration or without remuneration leave, etc. to be enjoyed by the workers and employees of each Enterprise shall be as prescribed.

41. Provision of Quarters: (1) The proprietor shall each year allocate not less than five percent of the gross profit of the

Enterprise to provide healthy quarters for the workers and employees and shall gradually build such quarters.

(2) A separate fund shall have to be maintained for depositing such amount allocated pursuant to Sub-section (1).

(3) The operation of the fund as mentioned in Sub-section (2) shall be as prescribed.

42. Provisions Relating to Children: (1) Where fifty or more female workers and employees are engaged in the work, the Proprietor of

the Enterprise shall have to make provisions of a healthy room for the use of children of such female workers and employees.

(2) A trained nurse, including some necessary toys, shall also be arranged for the children as mentioned in Sub-section (1).

(3) The female workers and employees shall be provided time, as necessitated, to feed their suckling babies.

43. Relaxing Room: Where fifty or more workers and employees are engaged at work, the Proprietor of the Enterprise shall have to make provisions for relaxing room with minimum amenities.

44. Canteen: Where fifty or more workers and employees are engaged in work at one time, the Proprietor of the Enterprise shall have to make provisions for a canteen.

CHAPTER – 7Special Provisions Applicable to Special Type of Enterprises

45. Tea-Estate: (1) The Special provision mentioned as below shall be applicable in respect of the tea estates

(a) Formation of Committee : Government of Nepal may constitute, as prescribed, a Committee to provide necessary advice on promotion, policy formulation and other related matters in respect of the tea estates.

(b) Provision for Quarter: The Proprietor shall have to make arrangements for appropriate quarters within the tea-estate for the workers who do not have their residence nearby.

(c) Provisions of Primary Health Care : The Proprietor shall have establish a primary Health Care Center under the responsibility of a trained employee in order to provide free primary treatment of minor injuries to the workers and employees engaged within the tea-estate and to the members of their family.

(d) Safety Devices: The Proprietor shall have to provide safety devices and equipment required for personal protection of the workers of the tea-estate.

(e) Provisions of Primary School: The Proprietor of a Tea-estate shall run a primary school if there are fifty or more children of the age between five and fourteen years, receiving primary


education, of the workers residing in the quarters provided by the tea-estate and in case there is no school within a distance of one kilometer from the tea-state.

(f) Daily Consumer Good s : The Proprietor shall have to arrange to make the daily consumer goods easily available to the workers and employees, if there is no market near the tea-estate.

(g) Provision for Entertainment : The Proprietor shall have to make necessary arrangements for appropriate sports facilities within the tea-estate for physical and mental development of the workers of the tea-estate.

(h) To get the works done on contract : This Section shall not be deemed to prevent from entering into agreement between the Proprietor and the workers of the tea-estate in respect of doing certain specified works of the tea-estate under contract.

(2) For the purpose of this Section (a) "Tea-estate" means tea-estate registered under prevailing laws with commercial objective and this expression also includes the factory established therein.(b) "Worker of tea-estate" means any person engaged in the tea-estate for digging, plugging, leveling, picking, spraying, sowing, cutting, reaping, plucking, de rooting and doing other similar works and this expression also include any person engaged for cleaning any house, land or machinery or its parts inside the tea-estate or any person doing any other works related to the tea- estate.

46. Construction Business: The following special provisions shall apply in respect of the construction business –(a) Provisions for Construction Tools: The Proprietor shall have to avail from its own side all

necessary tools and material in sufficient quantity for the workers engaged in the construction works at construction site.Explanation: For the purpose of this Section, "construction work" means the construction work of building, road, bridge, canal, tunnel, internal or interstate waterways or railways, or installing of telecommunication equipment or machine including those of electricity, telephone or telegraph or other works relating to construction.

(b) Special Arrangements at Temporary Construction Site s: At the temporary construction work sites, where fifty or more workers are engaged, the Proprietor shall have to make arrangements for quarters, food stuffs, drinking water, etc. for the workers who do not have residence nearby.

(c) Accident Insurance : The Proprietor shall have to insure all workers engaged in the construction site against accident in the way as prescribed.

(d) Safety Arrangements:(1) The Proprietor shall have to make necessary and adequate arrangements of safety at the sites of construction works.(2) The Proprietor shall have to arrange of personal protective equipment necessary for the workers engaged in construction works.

47. Transportation Business : (1) The following special provisions shall apply in Respect of the Transportation Business

(a) Working Hours : (1) The worker and employee of the transport vehicle may be deployed in work till reaching the destination.Provided that, in a passenger transport vehicle operating in long route, at least two drivers shall be engaged to drive it alternately. "Explanation : for the purpose of this Section, "long route" means the long route as referred to in Clause (aa) of Section 2 of the Motor Vehicle Transport Management Act, 2049 (1992)."


(2) The driver of a vehicle transporting animals or goods and operating in the long distance route shall be allowed to take rest at several places before reaching the destination.

(b) Trip Allowance: In case worker or employee of the transportation service is engaged for more than eight hours, he/she shall be paid overtime at the rate of one and one-half times of his/her present amount of remuneration.Provided that, if the worker or employee engaged in a operating vehicle is paid with any trip allowance, fooding allowance or any such other allowance, he shall receive such allowance or one and half of the amount of remuneration to be received by him/her, which one is greater.

(C) Fifty percent Allowance to be received during Breakage or Waiting Period:In case any worker or employee engaged in operating vehicle has been stayed idle due to breakage of the vehicle before reaching destination or while the vehicle had been in waiting for its return, such person shall receive fifty percent of the allowance payable during the operating time of the vehicle.

(d) Accident Insurance: The proprietor shall insure all workers and employee engaged in the vehicle operating against accident in the manner as prescribed.

(e) First Aid Materials: The operator of transportation business shall keep sufficient medicines and materials of first-aid treatment in each vehicle.

(f) Prohibition of Consumption of Alcoholic Drinks:(1) No worker or employee in any vehicle used for transportation of passengers, animas or goods shall consume alcoholic drinks before driving of the vehicle till reaching to the destination.(2) In case a vehicle is operated by any worker or employee after consuming alcoholic drink, the Proprietor may, on charge of misconduct, dismiss him/her from the service.Provided that, the concerned worker or employee shall be provided with and opportunity to defend him/herself before dismissing him/her from service.(3) Any person aggrieved by the order issued under Sub- clause (ii) may appeal in the Labour Court within thirty five days from the receipt of notice of dismissal from service.

(g) Commission Agent: The facilities under this Act shall not be provided to Commission Agent engaged in bookings or carriage of goods who is not registered in the Register of the transportation Enterprise.

(h) Change in Ownership: In case the transport vehicle is sold or there is change in ownership and if it is deemed necessary to terminate the services of any permanent worker or employee who has completed one year continuous service, the transportation businessperson, may terminate the service on payment of compensation and facilities payable under this Act, including such additional compensation as may be available pursuant to mutual agreement entered into or understanding reach between the Proprietor and the worker of employee.

(2) For the purposes of this Section, "Transportation business" means a transport service engaged in carriage of passengers, animals or goods from one place to another taking rents in a vehicle operated by means of mechanical device.

(3) The Provision set forth in this Section and the provisions of Section 4,10,72,73 and Chapters 4 and 8 shall be applicable in respect of the Enterprise related with transportation business where less than ten workers or employee are engaged at work.

48. Business of Hotel, Travel, Trekking, Adventure, Rafting, Jungle Safari etc: The following special provisions shall apply in respect of the business of hotel, travel, trekking, adventure, rafting, jungle safari, etc:-(a) Females may be engaged in work: Females may be deployed in works in a hotel or travel

agency at any time by making special arrangements of safety according to the nature of works.


(b) Safety of Workers or Employees engaged in Trekking or Rafting:(I) The Proprietor shall compulsorily have to make arrangement, as per necessity, for personal protective equipment and necessary clothing, shoes and other articles for protection of health of the workers or employees engaged in trekking rafting or other adventures sports.(II) It shall be the responsibility of the concerned Proprietor to rescue or cause to rescue

operation as may be required.(c) Accident Insurance: The Proprietor shall insure all workers and employees engaged in trekking,

rafting jungle safari or other adventure sport against accident in the way as prescribed.(d) Payment of Field allowance etc: The Proprietor shall have to provide field allowance, fooding

allowance or other similar allowance while sending workers or employees engaged in trekking, rafting or other similar adventure sport to the working place and in case such allowance have been provided no additional overtime shall be paid as provided in this Act.

(e) Provisions for First Aid: The Proprietor shall have to avail adequate supply of medicines and materials of first-aid while sending the workers or employees engaged in trekking rafting or other adventures sport to the work-sites.

49. Applicability of other Provisions : The provisions of this Act and the Rules made hereunder shall also be applicable in respect of the Enterprises mentioned in Sections 45, 46, 47 and 48, in addition to the provisions specified in this chapter.

CHAPTER – 8Conduct and Punishments

50. Type of Punishment: The Proprietor may punish any worker or employee performing misconduct with any of the following punishments.(a) To reprimand,(b) To withheld annual grade increments,(c) To suspend, or(d) To dismiss from service.51. Misconduct: For the purpose of Section 50, the following conduct of the worker or employee shall be deemed as misconduct:(a) In case of any bodily harm or injury or fetters or detains to the Proprietor, Manager or Employee of the Enterprise with or without use of arms or injury or causes any violence or destruction or assault within the Enterprise in connection with the labour dispute or on any other matter;(b) In case creates or causes to create any stir within the Enterprise with an intention or affecting the production process or service works of the Enterprise, or prevents the supply of food and water, or connection of telephone and electricity, or obstructs the entry into or movement within the Enterprise;(c) In case steals the property of enterprise;(C1) If commits embezzlement in the transactions of the Enterprise,(C2) If absents in the Enterprise more than a consecutive period of thirty days without notices.(d) In case accepts or offers brides;(e) In case imprisoned on being convicted on a criminal offence Involving moral turpitude.(f) In case participates or compels any other person to participate in any authorized strike or in a strike which is declared illegal;(g) In case strikes without fulfilling the legal requirements or intentionally slow down the work against interests of the Enterprise;(h) In case intentionally destroys any property of the Enterprise, or causes damage thereon or takes and uses it outside the Enterprise or. gives its use to unauthorized person without permission of the competent person;


(i) In case intentionally violates intentionally the orders or directives issued under this Act or the Rules made hereunder frequently, 0r the Bylaws made by the Enterprise, or misbehaves with the customers of the Enterprise;(j) In case remains absent from the work frequently without obtaining permission or comes late after the regular time;(k) If it is certified by a doctor that one has come to the duty after consuming or has consumed alcoholic substances during the working time.(l) In case performs any activity with a motive of causing damage to secrecy relating to special technology of the Enterprise, Production Formula or;(m) In case abuses any items which has been kept for the interest, Health and safety of the workers or employees or causes damage to them intentionally;

52. Punishment: (1) Any worker or employee, who commits any misconduct as mentioned in Clauses (i), (j) or (m) of Section 51 may be reprimanded.(2) Anyone who commits any misconduct as mentioned in Clause (C1), (f), (g) or (n) of Section 51, may be punished withholding the annual grade of remuneration.(3) Anyone who commits any misconduct mentioned in Clause (b), (d) or (k) of Section 51 may be suspended for up to three months. (4) Anyone who commits any misconduct mentioned in Clauses (a), (c), (c2) (e) or (l) of Section 51 may be dismissed from service.(5) Any workers or employee, who has been punished twice for any offence of misconduct according to Sub-section (1), (2) or (3) commits again the same offence, may be dismissed from service.Provided that the punishment received under Sub-section (1) shall not be counted after the expiry of three years.(6) Nothing contained in this Section shall be deemed to have barred the Manager from imposing a punishment lesser than those prescribed under this Section.

53. Procedures: (1) Before imposing punishments under Section 52 upon a permanent worker or employee, a notice of at least seven days with setting forth in a obvious manner the fact of the misconduct and the punishment as may be imposed if such fact is proven, shall have to be given to such a worker or employee to submit his/her clarification thereof. Provided that, after the expiry of two months from the date of such misbehavior, no action may be taken in this respect.(2) If the worker or employee does not submit his/her clarification within the time limit as referred to in Sub-section (1) or the clarification so submitted is not satisfactory, he/she may be punished under Section 52 for the misconduct . Provided that, in making decision in respect of imposing such punishment, it shall have to be made within two months from the date of seeking clarification.(3) If the notice send to the concerned worker or employee is not accepted by him/her or, in case of his/her absence, if the notice is sent by post under registered post at his/her address and a copy of such notice is kept in the public notice board of the Enterprise, and the service document is prepared on the witness of at lease three person and if a copy of such notice is also provided to the concerned Labour Office, the concerned worker or employee shall be deemed to have been duly provided of such notice.

54. Department of Labour may dismiss from service:(1) The Department of Labour may impose any punishment pursuant to Section 52 to any worker or employee who causes violence illegally in any Enterprise, other than his/her Enterprises or in any government office, or if he/she directly or indirectly encourages others to do so.


(2) In case any worker or employee has to punish, the procedures as laid down in Section 52 shall have to be followed.

55. Misconduct of Proprietor or Manager: (1) If the Proprietor or Manager commits any of the following acts, it shall be deemed as misconduct:(a) In case contravenes or disobeys this Act or the Rules made hereunder or any order or directive issued there under.(b) In case the Enterprise is closed or the workers or employees are retrenched in contravention of this Act;(c) In case a lock-out declared illegal is continued;(d) In case any worker or employee is assaulted or manhandled; or(e) In case performs any activity to incite or provoke the workers or employees in order to create dissension or enmity among the workers or employees.(2) The concerned Labour Office may fine the Manager or proprietor, who conducts any

misbehavior under Sub-section (1) above, up-to ten thousand rupees, may make available proper compensation if any damage or loss is caused to any worker or employee and may give an order to reinstate the worker or employee retrenched pursuant to Clause (b) of Sub-section (1) above.

56. Punishment for Obstruction to Government Employee: In case any person obstructs to any government employee engaged in any function under this Act, or refuses to submit any Register Book or any document required to be submitted to him/her, or fails to produce or presents to the examination of any worker or employee ordered to be produced or examined by him/her, the Labour Office may punish such person with a fine up to Five Thousand Rupees.

57. Other Penalties: Except those punishments as provided in other Sections of this Act, any person contravening any other matter mentioned in this Act or the Rules made hereunder or the written order or directives issued there under, the Department of Labour may punish, for each offence and according to the gravity of such offence, a fine from up to Ten Thousand Rupees, and if such offence is committed (continued) again after it is proven, he/she may be punished with an additional One Hundred Rupees for each day, except those punishment as mentioned in other sections of this Act.

58. Quashing of Illegal Acts: Except as provided to the contrary in this Act or in the Rules made hereunder, if any activity contrary to this Act or the Rules made hereunder has been performed such activity shall be quashed by the order of the Department of Labour.59. Instituting of case and Limitation: (1) Any case relating to the offence punishable under this Act may be instituted only on the complaint lodged by the Labour Office or a person authorized by such office or by the aggrieved or the concerned person or the concerned Trade Union.(2) Any case relating to the offenses punishable under this Act shall have to be instituted within three months thereof.(3) In case any particular authority of punishment has been specified under various Section of this Act in respect of trail of any offence committed under this Act, the case relating to such offence shall be lodged before such authority and, excepting thereto, all other cases relating to other offence lodged before Labour Court.

60. Appeal: Any party not satisfied with any punishment awarded under this Chapter may file an appeal within thirty five days from the date of such punishment or receipt of order in the following manner -CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

(a) At the Court of Appeal against the orders of Government of Nepal or Department of Labour;(b) At the Court of Appeal in respect of the case tried and decided in original jurisdiction by the Labour Court;(c) At the concerned Labour Court in respect of the punishment or order given by the Proprietor or other office or Authority.

61. Realizations of Fines: Fines, Punishments awarded under this Act shall be realized in the manner as governmental dues under prevailing laws.

CHAPTER – 9Committee, Officers and Other Provisions

62. Central Labour Advisory Board: (1) Government of Nepal may constitute a Central Labour Advisory Board consisting of

representatives from workers or employees, Proprietors and Government of Nepal to receive necessary opinion and advice in relation to formulating policies and drafting of laws with regards to labour.

(2) The method of composition of Board pursuant to Sub-section (1) its powers, functions and duties shall be as prescribed.

(3) The Board may regulate the procedures of the meeting itself

63. Labour Relation Committee: (1) The Proprietor shall have to constitute a Labour Relation Committee in each Enterprise in order

to create amicable atmosphere between the workers or employees and the management and to develop healthy labour or industrial relation on the basis of mutual participation and co-ordination.

(2) The method of composition of the Committee pursuant to Sub-section (1), its powers, functions and duties shall be ad prescribed.

(3) The committee constituted as per Sub-section (1) may regulate its own procedures.

64. Appointment of Labour Officer: Government of Nepal by publishing a notice in the Nepal Gazette may appoint one or more Labour Officers, as per necessity or designate any other officer to perform the functions of a Labour Officer for one region/sector.

65. Powers of Labour Officer :(1) The Labour Officer shall have the following powers –(a) To enter into the premises of the Enterprise as per necessity;(b) To examine the documents and registers of the Enterprise relating to workers and employees;(c) To function or advice as per necessity for improving labour relations;(d) To attempt for solving disputes arising between workers or employees and the Proprietor;(e) To implement welfare provisions, if it does not exit and where if exist, to supervise whether or not it is operated property;(f) To supervise the implementation of minimum remuneration prescribed by Government of Nepal;(g) To record statement, of anybody to fulfill the objectives of this Act, as per necessity;(h) To Performs tasks of the Factory Inspector in his/her absence, except technical tasks; and


(i) To perform other tasks as per the directives of Government of Nepal and Department of Labour.(2) Other powers, functions, and duties of the Labour Officer shall be as prescribed.

66. Appointment of Factory Inspector: Government of Nepal may, by a publishing a notice in Nepal Gazette, appoint one or more Factory Inspector, as per necessity for one region or may appoint one Chief Factory Inspector for whole of Nepal.

67. Powers of the Factory Inspector: (1) The Factory Inspector shall have the following powers –(a) To enter into the premises of the factory as per necessity;(b) To examine building, land, plant, machine, health and safety features of the factory, to collect the samples of finished or semi-finished materials used in the factory and to examine them or caused to be examined, to inspect the registers and document relating to the factory and, if necessary, to record statements of any person, as per necessity;(c) To examine the boilers and pressure vessels and to permit the operations thereof;(d) To provide necessary advice and assistance to the Proprietor on making arrangements of training of workers or employees;(e) To exercise the powers, functions and duties to the Labour Officer during this absence; and(f) To perform other tasks as per the directives of Government of Nepal and Department of Labour.(2) Other powers, functions and duties of the Factory Inspector shall be as prescribed.

68. Welfare Officer: (1) One welfare Officer shall have to be appointed in Enterprise where two hundred fifty or more

workers or employees are engaged and one additional Assistant Welfare Officer shall have to be appointed where there are more than one thousand workers or employee.

(2) In the enterprise where there are less than two hundred fifty workers or employees, the Proprietor may designate or appoint any officer of the Enterprise as the Welfare Officer.

(3) Where the Welfare Officer and Assistant Welfare Officer are appointed pursuant to Sub-section (1) the Department of Labour shall be informed of such appointment.

(4) The powers, functions and duties of the Welfare Officer and Assistant Welfare Officer appointed or designated, pursuant to Sub-section (1) of (2) shall be as prescribed.

69. Notice to be provided of establishment of Enterprise: (1) If any Enterprise is to be established or constructed or expanded in any building or land, the

Proprietor shall submit the particulars to that effect as prescribed, to the Labour Office.(2) The concerned Labour Office may after examination of the particulars received pursuant to Sub-

section (1), if deemed necessary to make certain changes on the particulars in view of health, safety and environment, direct the enterprise to do so and it shall be the duty of the concerned Proprietor to follow such directive.

70. Information to be provided by Proprietor: (1) The Proprietor shall inform in writing the concerned Labour Office including with the prescribed particulars, fifteen days in advance where any new house or land has to be possessed or used by an Enterprise.(2) The Proprietor Manager shall inform the Labour office within seven days, from the date of assuming his/her office for the first time.


71. Notices and Posters: The Labour Officer or Factory Inspector may issue directives to the Proprietor or Manager of the Enterprise to display the notices and posters relating to health, safety and welfare provisions of the workers as provided in this Act or Rules made hereunder at places in an easily readable and understandable manner.

CHAPTER – 10Settlement of Labour Dispute

72. Establishment of Labour Court: (1) Government of Nepal shall, establish Labour Court by publishing a notice in Nepal Gazette. The Jurisdiction and the location of such court shall be as prescribed in such notice.(2) The Procedure of the Labour Court constituted under Sub-section (1) shall be as prescribed.(3) Notwithstanding anything contained in Sub-section (1) and (2) until the constitution of the Labour Court, all functions to be performed by the Court of Appeal.

72A. Proceedings May Be Initiated in Contempt: The Labour Court may initiate proceedings against its contempt and, if it holds that contempt has been committed, may punish the accused with a fine of upto Five Thousand Rupees or imprisonment of up to two months or both punishments.Provided that, if the accused submits an apology to the satisfaction of the Court, the Court may either pardon him/her or, if a sentence is already imposed, remit or commute the sentence or hold the execution of the sentence on condition fixed by the Court and may issue order not to execute the sentence if such condition is fulfilled.

73. Procedures Relating to Personal Claims or Complaints: (1) If any one or more workers or employees have any personal claim or complaint against

Proprietor relating to the service, the concerned worker or employee may file it in writing with the concerned Proprietor.

(2) Upon receipt of the claim or complaint as per Sub-section (1), the Proprietor shall have to discuss on it with the concerned worker or employee within a fifteen days and settle the problem.

(3) If the Problem could not be solved through the discussion held as per Sub-section (2), the worker or employee may file a petition at the concerned Labour Office specifying clearly their claims.

(4) The Labour Office shall held a discussion between the Proprietor and the worker or employees and solve the dispute, within fifteen days of the receipt of a claim pursuant to Sub-section (3).

(5) The Chief of concerned Labour Office shall have to dedide on the dispute within seven days in case the problem could not be solved as pre Sub-section (4).

(6) Any of the parties may, appeal to the Labour Court within thirty five days from the date of receipt of notice of the decision in case not being satisfied with the decision made pursuant to Sub-section (5).

74. Procedures Relating to Submission of Claims of Collective Dispute:(1) The claim relating to collective right, interest or privilege shall have to be presented in writing

to the concerned Proprietors signed by at least fifty one percent of the concerned workers or employees and in the claims their representatives shall have to be nominated and the claim shall be presented through such representatives.

(2) Upon receipt of the claim relating to the dispute as per Sub-section (1), the Proprietor shall hold bilateral discussion with the representatives as mentioned in the same Sub-section and solve the dispute within twenty-one days and shall enter into an agreement.


(3) If the dispute could not be solved as per Sub-section (2), the dispute shall be solved within fifteen days by holding bilateral discussion in the presence of Labour Office.

(4) If the dispute could not be solved through the bilateral discussion held as per Sub-section (3), the dispute may be referred to a mediator appointed, with mutual consent of proprietor and the workers and employees, or if no such mediator could be appointed, with mutual consent of proprietor and the workers and employees, or if no such mediator could be appointed, to a tripartite committee constituted, with consent of both parties, by Government of Nepal having equal representation from the workers or employees, the Proprietor and the government.

(5) The mediator or the committee appointed as per Sub-section (4) shall decide the dispute within fifteen days.

(6) Any parties if not satisfied with the decision made pursuant to Subsection (5), may appeal to Government of Nepal within thirty five days from the date of receipt of notice of the decision.

(7) If the mediator or the Committee does not make a decision within the time-limit as referred to in Sub-section (5) or, in case where an appeal is filed before Government of Nepal pursuant to Sub-section (6), a decision thereon is not made by Government of Nepal within sixty days from the date of filing such appeal, the workers or employees may strike by following the procedures set forth in Section 76.

75. Prohibition to Claim: Notwithstanding anything mentioned here above, the following demand or claim shall not be allowed to submit –(a) Which is contrary to the Constitution of Nepal;(b) Which would affect other's interest due to being based on untestified or baseless allegation;(c) Matter which is prejudicial to the personal conduct of any worker or employee;(d) Matters unrelated to the Enterprise; and(e) Where a period of two years has not elapsed since the date of last collective agreement.

76. Notice of Strike to be Provided: In case the demands are not solved through the process mentioned in Sub-section (3) of Section 73 the workers and employees wish to strike in the Enterprise, a notice in writing stating the claims and their rationale, including with a resolution passed by at least sixty percent of the total workers and employees through secret ballot, shall have to be provided to the concerned Proprietor thirty days in advance and an information thereof shall also be given to the Department of Labour, concerned Labour Office and the local administration and a strike may be started thereafter only.

77. Lock Out: (1) If a strike has been started or continued without giving prior notice as mentioned in Section 75

or if the collective dispute is not solved through the process mentioned in Sub-section (3) of Section 73, the Proprietor may declare a lock-out of the Enterprise after submitting the justifications with its rationale and obtaining the approval of Government of Nepal.

(2) Before declaring a lock-out as per Sub-section (1), the Proprietor shall issue a notice for the information of workers and employees seven days in advance specifying the date of effecting the lock-out and announcing that the Enterprise shall be locked-out if the strike is not called off.

(3) If there is a situation with possibility of damage to the Enterprise through riot, violence, destruction, etc from the workers and employees during the strike the Proprietor may cause lock-out even without following the process of Subsection (1) and (2). If a lockout is made in the Enterprise in such situation, the Labour office and the Department of Labour shall be informed about the lock-out with reasons within three days.


(4) Government of Nepal may at any time declare the lock-out of an enterprise as void, in case it appears irrational or it is likely to cause a breach in law and order conditions of the country or it is contrary to the economic interests of country.

78. Prohibition to Strike: (1) Notwithstanding anything mentioned hereinabove in this Act, if any existing law has prohibited

the strike to be done by workers or employees the workers or employees of such Enterprise shall not be entitled to go on strike.

(2) Any employee appointed or deputed on the duty of control, security and guard of any Enterprise shall also not be entitled to go in a strike.

(3) The employees prohibited to strike as per Sub-section (1) and (2) may submit their genuine demands to the Proprietor. If such demands are not fulfilled and a dispute has been created Government of Nepal shall constitute a tribunal for solving it. The decision of the Tribunal shall be final and binding upon both of the parties.

(4) No strike or lock-out may be done during the proceeding under Section 73.

79. Legal Validity of Collective Agreement: (1) Any agreement entered into between the workers or employees and the Proprietor in respect

solving the dispute shall be deemed to be of status equal to law upon the concerned parties and such agreement shall have to be registered in the Labour Office.

(2) An agreement registered as per Sub-section (1) shall come to force from the date of mentioned in the agreement, if such date is mentioned therein, and if no such date is mentioned in the Agreement, it shall come into force from the date in which it is registered in Labour Office. No demand in relation to the provisions mentioned in such agreement shall be permitted to put again for two years from the date of its commencement.

79A. Implementation of Collective Agreement: (1) In case the collective agreement entered into pursuant to this Act is not implemented, the

concerned party may lodge a complaint in the Labour Office.(2) If any complaint is lodged under Sub-section (1) above, the Labour Office may implement the

collective agreement by following, as required the procedures set-forth in Sub-section (5) of Section 25 as well.

80. Order may be issued to End the Strike: If any strike announced to be commenced or already commenced as per this Act or the Rules made hereunder has created an extraordinary situation, which is likely to cause a breach in the law and order situation of the country or would be contrary to the economic interest of the country, Government of Nepal may issue an order at any time to end such strike or any strike commenced in the essential services prescribed by the prevailing law.

81. Termination of Lock-out Period: Where any Enterprise has been locked-out, if the workers or employees are present for work or here the Proprietor has declared the ending of lock-out or where Government of Nepal has declared such lock-out as illegal as per Section 76 or has order to end the strike under Section 79, such lockout shall be deemed to have been ended from the date of the declaration making it illegal or from the date so ordered.

82. Remuneration for the Period of Lock-out: The remuneration for the period of lock-out declared illegal shall have to be paid to the workers or employees.


83. Special Provisions for Settlement of Dispute:(1) If Government of Nepal deems that a dispute between workers or employers and the

Proprietor has arisen or there is possibility of arising, Government of Nepal may constitute a committee of one of more persons, or tripartite committee consisting of representatives of the Proprietor, the workers or employees and Government of Nepal in order to resolve the dispute. Such committee may regulate its own procedures.

(2) The decision of Government of Nepal made on the report of the committee constituted pursuant to Sub-section (1) shall be final and binding to both of the parties.

(3) The committee constituted pursuant to Sub-section (1) shall have the powers of examining the evidence and witnesses, of requiring the presence of witnesses and requiring the production of documents as per prevailing laws similar to a court, in relation to the dispute.

CHAPTER – 11Miscellaneous

84. Special Powers of Government of Nepal: (1) Notwithstanding anything contained elsewhere in this Act, Government of Nepal may, in consultations with the Central Labour Advisory Board and by publishing a notification to that effect in the Nepal gazette, grant exemption from application of any matter provided for in this Act in respect of any Enterprise.(2) Government of Nepal may, by publication of a notice in the Nepal Gazette, fix the minimum remuneration and certain facilities prescribed in this Act in relation to the Enterprises where less than ten workers or employees are working.

84A.Special provisions respect of the Workers and Employees Engaged Outside the Enterprises:(1) The person or institution, who engages the workers and employees of outside the Enterprises at work, must pay the remuneration for the day engaged at work in accordance with the agreement if such agreement in writing has been concluded between the two parties and within seven days if there is no such agreement.(2) If any person or institution does not make payment of remuneration to any worker or employee or a delay is caused in such payment, the worker or employee who is aggrieved by such act may file a complaint before the Labour Office, in the districts where Labour Offices are located, and before the Chief District Officer, in the districts where Labour Offices are not located, in order to get the remuneration to be received by him/her.(3) If any complaint is filed under Sub-section (2) above, the concerned Labour Office or Chief District Officer shall have to require such person or institution who has not paid the remuneration to be present at Office within fifteen days except the time period required for journey and shall have to recover and make available the remuneration to be received by such worker or employee by following the procedures as set-forth in Sub-section (5) of Section 25.

85. Powers to Remove Obstacles: In case any difficulty arises while executing this Act Government of Nepal by publishing an order in Nepal Gazette may remove such difficulties.

86. Powers to Frame Rules: (1) Government of Nepal may frame Rules to implement the objectives of this act.(2) Without prejudice to the generality of the powers conferred by Subsection (1), such rules particularly, may provide for any of the following matters –


(a) Matters relating to the safety of the workers;(b) Conducting of operation of employment service;(c) Condition relating to overtime works;(d) Conducting of operation of training in order to enhance the efficiency of workers and employees;(e) Procedures relating to Labour Court;(f) Compensation to be paid to workers and employees;(g) Compilation of statistics of workers and employees;(h) Compilation of information to labour market.

87. Bylaws to be availed: Each Enterprise shall have to send to the concerned Labour Office a copy of Bylaws framed by its in respect of conditions of service of its workers and employees.

88. Provisions Relating to Enterprise owned by Government of Nepal: With respect to the terms and conditions of service of the employees of the Enterprises owned wholly or partly by Government of Nepal, the provisions of the Rules or Bylaws relating to the terms and conditions of services of the concerned Enterprises shall apply and in respect of the workers thereof, the provisions of this Act shall apply.

89. Directive of Government of Nepal: (1) Government of Nepal may issue necessary directives to the Proprietor for implementing the objectives of this Act.(2) Government of Nepal may impose a fine of up to twenty thousand rupees in each time on the Manager who does not comply with the directions issued under Sub-section (1) above.

90. Delegation of Authority: Government of Nepal may delegate the powers conferred to it by this Act to any Officer by publishing a notice in the Nepal Gazette.

91. Prevalence of this Act : This Act shall apply on matters mentioned herein and in other the prevailing laws shall apply.

92. Repeal and Saving : (1) The Factory and Factory Workers Act, 2016 (1959) is, hereby, repealed.(2) All acts and proceedings performed or executed under The Factory and Factory Workers Act, 2016 shall be deemed to have been performed or executed under this Act.

Note:The following word has been changed by first Amendment- ''Remuneration'' instead of ''salary''

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Bonus Act, 2030 (1974)

Date of Authentication and Publication: 2030-12-1 (March 14, 1974)

Amendments1. Bonus (First Amendment) Act, 2034 2034-6-6 (Sept. 22, 1977)2. Bonus (Second Amendment)Act, 2039 2039-7-3 (Oct. 20,1982 )3. Bonus (Third Amendment)Act,2048 2045-6-26 (Oct. 12,1988 )4. Administration of Justice Act, 2048 2048-2-16 (May 30,1991)5. Bonus (Fourth amendment) Act, 2049 2049-7-21 (Nov. 6,1992)6. Amending Some Nepal Acts to Maintain Gender Equality Act, 2063 2063-7-17 (Nov. 3, 2006)7. Republic Strengthening and Some Nepal Laws Amendments Act, 2066 (2010), 2066-10-7 (Jan.

21, 2010) Act No. 20 of the year 2030 (1973/74) An Act made to Provide for Distribution of Bonus

Preamble: Whereas, it is expedient to provide for the legal provisions for distribution of bonus to the workers and the personnel working in the Enterprises, Now, therefore, be it enacted by His Majesty the King Birendra Bir Bikram Shah Dev on the advice and with the consent of the Rastriya Panchayat.

1. Short Title, Extension and Commencement:(1) This Act may be called the "Bonus Act, 2030 (1974)".(2) It shall extend all over the Nepal.(3) This Act shall come into force in relation to the following enterprises, in such area and on such

date as Government of Nepal, by a Notification in the Nepal Gazette may appoint:(a) Where ten or more persons are working on the date of commencement of this Act or on any

other date of twelve months period prior to such date.

2. Definition: Unless the subject or context otherwise requires, in this Act,-(b) "Enterprise" means an enterprise under Clause (b) of Section 2 of Labour Act, 2048 (1991).(b1) "Enterprise owned by Government of Nepal" means the enterprise of which whole or most of

shares are owned by Government of Nepal and this term also includes the enterprise where whole or majority of shares are owned by such an enterprise.

(c) "Fiscal Year" means a period of one year of any enterprise commencing from any particular day of the year for the purpose of final audit of its income and expenditure. Provided that, if it is not so prescribed, it means a period of year commencing from first day of Shrawan (about mid July) and ending by last day of Ashad (about mid July) of the next year.

(d) "Employee" means a person working in an enterprise on salary or wage for the supervisory, administrative, and technical or any other works carried out by him/her and this term also includes the workers working in the enterprise.

(e) "Salary or wage" means any kind of remuneration payable to an employee in cash for the work done in an enterprise. Provided that, this term does not include any other amounts to be obtained by an employee for electricity, water supply, medicine, travel, bonus, provident fund or subsidies.

(f) "Management" means the management under Clause 9(f) of Section 2 of Labour Act, 2048( 1991).

(g) "Department of Labour" means the Department of Labour of Government of Nepal.(h) "Labour Office" means the Labour Office established by Government of Nepal.


(h1) "Labour Court" means the Labour Court constituted pursuant to Section 72 of (the) Labour Act, 2048 ( 1991).

(I) "Prescribed" or "As prescribed" means prescribed or as prescribed in the Rules framed under this Act.

3. For the Purpose of Computation of Bonus, Branches and Sub-branches shall be treated as the Parts of the Enterprise: For the purpose of computation of bonus under to this Act the branches or sub-branches of any enterprise situated in various places shall be treated as the parts of the Enterprise.

4. Submission of the Balance-sheet to the Department of Labour: (1) The management of each enterprise shall prepare the balance-sheet and the statement of profit and loss of such enterprise pursuant to Company Act, 2063 (2006) and submit it to the Labour Office within six months of the completion of fiscal year.(2) If a complaint is registered along with the evidence that the balance-sheet and the statement of profit and loss submitted pursuant to Subsection (1) is false, the Labour Office may exercise all remarking and checking powers conferred to the concerned department pursuant to Company Act, 2063 (2006) as if such powers were conferred to it equally.5. Bonus to be distributed by the Profit Making Enterprise: (1) Each profit making enterprise shall have to allocate an amount equivalent to Ten percent of its net income of one fiscal year for bonus to the employees.(2) While assessing the net income of any enterprise derived in any one fiscal year pursuant to Sub section (1), the following amounts shall have to deduct from the net income assessed ‽pursuant to Income Tax Act, 2058 ( 19):-(a) Any amount allocated to manage the quarter for personnel pursuant to Sub-section (1) of Section 41 of the Labour Act, 2048 B.S. (1991 A.D.).(b)..... ..... ....(c) The bonus amount distributed excessively under subsection (3) of Section 11.(3) Notwithstanding anything contained in Sub-section (1), the percentage of bonus and other matter relating to bonus which is to be distributed by the Government owned enterprises shall be as determined by Government of Nepal.

6. Eligibility for Bonus: (1) An employee who has worked for of a half period to be worked in a fiscal year shall be entitled to obtain bonus under to this Act.Provided that, no employee shall be entitled to obtain Bonus who has worked casually or in a shift basis.(2) For the purpose of Sub-section (1), the following periods shall also be computed as a period where an employee has worked.(a) A period kept on reserve under any contract or under Section 11 of the Labour Act, 2048 (1991).(b) A period under which an employee is on any leave with salary.(c) A period of disablement caused by accident arising in course of business of the enterprise.7. Amount to be obtained for Bonus and its Assessment:(1) The management shall assess the percentage of bonus amount to be obtained by any employee in a fiscal year pursuant to Sub-section (2).(2) While computing bonus amount to be received by the employee pursuant to Sub-section (1), the amount so separated for the distribution of bonus by the enterprise for the particular fiscal year shall be multiplied by a sum of One Hundred and the amount so deducted shall be divided by the pay or


wage amount of the employee so entitled to receive the bonus and the amount so deducted shall be the percentage of the bonus amount.(3) Notwithstanding anything contained in Sub-section (2), the bonus to be obtained by an employee shall not exceed the following amounts:(a) An amount equivalent to the salary or wage of Six months, to an employee, who obtains up to Five Thousand Rupees as salary or wage.(b) An amount equivalent to the salary or wage of Four months to an employee, who obtains Five thousand One Rupees to Fifteen Thousand Rupees as salary or wage.(c) An amount equivalent to the or wage salary of Three months to an employee who obtains more than Fifteen Thousand rupees as salary or wage.(4) The minimum bonus amount to be obtained under Clause (b) and (c) of Sub-section (3) shall not be less than the maximum bonus amount to be obtained under Clause (a) and (b) respectively.

8. Restriction to Obtain Bonus: Notwithstanding anything contained in Section 6, an employee shall not be entitled to obtain bonus under this Act, if he/she is punished or dismissed from service for committing any act as follows: Provided that, this Section shall not be deemed to be prejudiced to obtain in the case of the bonus for a period before committing such a punishable act.(a) Theft of the property of the enterprise or any damage to such property.(b) Illegal strike or abetment to other for such strike,(c) Riots or breaching of discipline.

9. Types of Bonus and Period of Distribution Thereof:(1) The bonus, to be distributed pursuant to this Act shall be paid in cash.(2) The bonus shall have to distribute within a period of eight months from the close of the fiscal year.

(3) If an application, specifying reasons of not being able to distribute the bonus within the period of Section 2 is submitted to the Labour Office by any Management, the Labour Office may, if the reasons are found genuine, extend the time for a period of three months at maximum for distribution of bonus or may allow to distribute the bonuses of two years at a time in the next fiscal year.

10. Bonus to be given to the agent or to a Member of the Family:(1) An employee who cannot be present to receive bonus may authorize any person, with a letter

of consent to receive the bonus payable to him/her.(2) If any employees dies, the bonus to be obtained by him/her shall be given to his/her nominee

and one or more relatives are prescribed in the same priority order, all relatives prescribed in such a order shall obtain the bonus of deceased employee in equal ratio, if any, and if there is no such a nominee or even such a nominee is not alive a person from among the following relatives of such an employee, who is alive shall be entitled to bonus in accordance with the priority order as follows:-(a) Husband or wife living jointly,(b) Son, daughter, widow daughter- in-law (son) living jointly,(c) Father, Mother living jointly (Father-in-law and Mother-in- law for a married woman)(d) Paternal grand-father, grand-mother and grand-son and grand-daughter to be taken care by him/herself.(e) Husband or wife living separately,(f) Unmarried daughter, Son, widow daughter-in-law (son) living separately,


(g) Father, mother living separately,(h) Step mother living jointly,(i) Steps son and daughter living jointly,(j) Elder and younger brother, elder and younger sister living jointly,(k) Father-in-law and Mother-in-law for a married woman living separately(l) Grandson from the son, unmarried grand-daughter from the son living separately,(m) Step mother living separately,(n) Steps son and unmarried steps daughter living separately,(o) Brother-in-law (elder brother of husband), Jethani, Brother- in-law (young brother of

husband), Dewarani for a married woman living jointly,(p) Nephew, niece living jointly,(q) Uncle, widow aunt, sister-in-law (wife of elder brother), sister-in-law (wife of young

brother) living jointly,(r) Elder and younger brother, elder and younger sister living separately,(s) Paternal grand-father, grand-mother, grand-daughter-in law, Nephew, niece living

separately,(t) A person who live with employee taking care till the end.

Explanation: In a case, there are more than one relative nominated in the same order, all of them shall receive the bonus of the deceased employee equally.(3) A person who dissatisfied with the bonus distributed pursuant to Sub-section (2), may file a complaint in the Labour Court within thirty five days of such distribution and in such a case, the decision of the Labour Court shall be final.

11. Bonus may be distributed as Advance:(1) If any enterprise fails not submit the balance-sheet and statement of profit and loss of such enterprise within the time limit as provided in Sub-section (1) of Section 4, or if bonus could not be distributed within the time limit of Section 9 by the reasons of inquiry or examination conducted by the concerned Labour Office on the balance sheet and statement of profit and loss submitted pursuant to Sub-section (2) of Section 4, the management of such enterprise, after making tentative computation, shall have to distribute at least five percent of the net, income as bonus.(2) After preparation of balance-sheet and statement of profit and loss or after final assessment is made in this matter. if the amount of bonus distributed pursuant to the Sub-section (1) is found less than the amount to be distributed as bonus, the difference amount shall have to be redistributed to the employees proportionately having considered previously distributed amount.(3) If the amount, distributed as bonus is found excess to the amount assessed for distribution of bonus under Sub-section (2), the excess amount, whatever may be, shall be deducted for recovery it, while assessing the net income of the enterprise in the next fiscal year.

12. Deduction of Bonus: In the case of the bonus to be obtained by an employee who has not worked the required days in any fiscal year, such an employee shall, subject to Section 6, be entitled to the bonus by deducting proportionally from his/her total bonus, for the days on which he/she has not worked.


12A Bonus of the Time Period of Illegal Strike: Where any employee has strike illegally in any factory or enterprise, such an employee shall be entitled to the bonus of other days only, by deducting proportionately from the bonus of striking days.13. Welfare Fund: Seventy percent of the residuary amount after distribution of bonus from the allocated amount for bonus pursuant to Section 5 shall be deposited with the Welfare Fund Established in accordance with Section 37 of the Labour Act, 2048 (1991) and remaining thirty percent shall be deposited with the National Level Welfare Fund, established by Government of Nepal for the interest of the employees of the enterprises.(2) The operation of the welfare funds as provided for in Sub-section (1) shall be in participation of employees as prescribed.14. Details to submit in the Department of Labour: The management of each factory and Enterprise shall have to submit details in the form of the format as prescribed to the Labour Office within Seven days from the date of completion of bonus distribution.15. Records and Statement of accounts to be maintained: The record of the bonus distributed pursuant to this Act and other statement of accounts shall have to maintain in such manner as may be prescribed.16. Settlement of Dispute of Bonus: (1) If any dispute arises between employee and management with respect to the bonus to be payable under this Act, the Labour Office shall resolve such dispute by negotiations having invited both the parties. (2) If the dispute could not be resolved by negotiations pursuant to Subsection (1), the Labour Office shall ask to the concerned Enterprise and employees to produce necessary documents and statements of accounts and shall give a decision on the basis of such documents and statements.(3) The party who is dissatisfied with the decision of Labour Office made pursuant to Sub-section (2), may appeal to the Labour Court, within thirty five days of receipt of such notice and the decision made by the Labour Court shall be final.

20. Penalties: The Department of Labour may fine with up to Five Thousand Rupees to a person who contravenes this Act or the order issued pursuant to the Rules framed hereunder.

21.Appeal: The party who is dissatisfied with the order of fine made by the Labour Department pursuant to Section 20 of this Act may appeal in the District Court within Thirty Five days of receipt of the notice of such order.

23. Liability of the Manager: If any enterprise commits any offence punishable under this Act, a person working in the capacity of a manager of such enterprise at that time shall be liable to the punishment under this Act. Provided that, if a manager who proves that such an offence took place without his knowledge or consent, shall not be liable to the punishment under this Section.

24. Protection of the Acts Done in Good Faith: No legal actions shall be taken against Government of Nepal or any employee of Government of Nepal in relation to any act done or intended to be done pursuant to this Act or Rules framed under this Act.

25. Power of Government of Nepal to Remove Difficulties: If any hindrance or obstruction arises while implementing this Act, Government of Nepal may remove such hindrance or obstruction by issuing necessary order published an order in Nepal Gazette without prejudice to the objectives of this Act.27. Power to Frame Rules: Government of Nepal may frame Rules to execute the objectives of this Act.

28. Saving: In matters specifically provided for in this Act or Rules framed hereunder such Act or Rules shall apply and in other matters the provisions of prevailing Nepal laws shall apply.

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CONTRACT ACT 2056 (2000)

Date of Authentication and publish: Ashad 3, 2057 (june 17, 2000) 2064.5.91. The Act Amending Some Nepal Acts, 2064

An Act Made to Provide for legal provisions on contract

Preamble: Whereas it is expedient to update legal provisions concerning contract; Be it enacted by the Parliament in the 20th year of the reign of His Majesty the King Birendra Bir Bikram Shah Dev.

Chapter -1Preliminary

1. Short Title and Commencement:(1) This Act may be called Contract Act, 2056 (2000) '.(2) It shall come into force immediately.

2. Definitions: Unless the context otherwise requires; in this Act; (a) 'Contract' means an agreement enforceable by law concluded between two or more parties for

performing or not performing any work.(b) 'Proposal' means a proposal presented by one person to another with the intent of obtaining his/her consent to do or not to do any work.(c) 'Consent' means the consent given by the person to whom a proposal has been presented in the same meaning of that offer.(d) 'Consideration' means the promise made to do or not to do any work in return of doing or not doing of any work mentioned in the proposal.

Chapter- 2Contracting Parties and Proposal and Consent

3. Person competent to conclude Contracts: (1) Any person other than those mentioned below may be competent for concluding a contract;

(a) Those who have not attained 16 years of age.(b) Those who are of unsound mind.

(2) Notwithstanding anything contained in Sub-section (I) any person not qualified to enter into a specific contract under the prevailing law shall be deemed to be incompetent to conclude that contract. ,(3) The guardian of a person who is incompetent to conclude a contract under Section 1 may conclude a contract on his/her behalf in his interest.(4) Notwithstanding anything contained elsewhere in this Section, in case the prevailing law provides for a provision even to persons who are incompetent under this Act to conclude a contract on any specific matter, they shall be deemed to be qualified to conclude a contract on such that matter accordingly.


4. Parties to be autonomous : The parties to contract, subject to this Act shall be free to choose the form and content of contract and to determine consideration and its quantum, the terms and conditions of the contract and the nature of the remedy in the event of its violation, as well as to determine the measures for resolving disputes under the contract.

5. Contract to be deemed to have been concluded : A contract shall be deemed to have been concluded once the person to whom a proposal has been presented by another person communicates his/her consent thereto.

6. Place of contract : (1) The place where the person advances a proposal expecting to receive consent shall be deemed to be the place where the contract has been concluded. (2) In case the place has not been specified under Sub-section (1), the place where the offerer received consent shall be deemed to be the place where the contract has been concluded.

7. Processes of proposal and consent to be deemed completed: (1) The communication of a proposal shall be deemed to be completed when it comes to the knowledge of the person to whom it is made. (2) In case the offerer receives a notice of consent to the sent to him/her by the person to whom he/she had sent a proposal, the process of receiving consent shall be deemed to have been completed in the case of the offerer, and in case the offerer is noticed that the consent has been given in the proposal the process of giving consent shall be deemed to have been completed in the case of the proposed person. (3) The person who has been presented with a proposal shall be deemed to have given his/her consent to it even if he/she has not done it directly to the offer in case he/she compiles with the term and conditions mentioned in the proposal, or accepts any consideration, benefit or service mentioned in the proposal or expresses his/her consent in any other form. (4) In case the offerer has mentioned in the proposal that he/she would deem the proposal to have been accepted unless he receives a notice of refusal within a specified period, the proposal shall not be deemed to have been accepted in case a notice of refusal has been sent within that period.

8. Proposal or Consent may be cancelled : (1)The offerer may cancel his/her proposal through a notice. Provided that, in case the offerer has received from the person whom he has presented a proposal a notice to the effect that he/she has approved the proposal before receiving a notice of the cancellation of the proposal, the proposal shall not be deemed to be cancelled.(2) The person to whom, a proposal has been presented may cancel proposal through a notice. Provided that, the consent shall not be cancelled in case the offerer has received the notice of consent before receiving the notice of cancellation of consent. (3) The person who has sent a notice expressing his/her refusal of a proposal may again send a notice expressing his/her consent to the proposal. Provided that, in case the notice of refusal reaches first out of the notices of refusal or consent the contract shall not be deemed to have been concluded. In case the notice of consent reaches first; the contract shall be deemed to have been concluded.(4) In case the notice mentioned in Sub-section (1) has been sent after sending the proposal, or the notice mentioned in Sub-section (2) has been sent after sending a notice of consent, or in case a notice has been sent under Sub-section (3) after sending a notice of refusal


shall not be deemed to have been concluded if the concerned person receives such notices at the same time.

9. Proposal to be deemed cancelled: A proposal shall be deemed to be cancelled in any of the following circumstances:(a) In case the offerer has proposed that the notice of consent to the proposal be given to him/her within a specified period, and the offerer does not receive the notice of consent given by the person to whom the proposal has been presented within the period.(b) In case the period for sending a notice of consent is not specified as mentioned in Clause (a), and the person to whom the proposal has been presented does not furnish a notice to the proposer within a reasonable period.(c) In case the offerer dies or loses his senses before receiving consent after presenting the proposal.(d) In case the proposal is cancelled as mentioned in Section 8.(e) In case the person to whom a proposal has been presented dies or loses his/her senses after giving his/her consent but before the offerer receives the consent.(f) In case the person to whom a proposal has been presented accepts it after altering any particular contained in the proposal or attaching any condition thereto.(g) In case a proposal has been presented subject to the condition that the person to whom the proposal has been presented has to do anything or fulfill any condition before accepting the proposal, and her/she accepts the proposal without doing that work or fulfilling that condition.

10. Contract according to proposal presented before the public : (1) In case any person, by means of an advertisement, advances a proposal in public to the effect that he/she will pay a specific prize or any person for performing any work specified in the advertisement, and in case any person performs the work as mentioned in the advertisement, the advertiser shall pay the specific remuneration to that person.(2) In case the work mentioned in Sub-section (2) is performed by one or more persons, only the person who has performed the work first shall be paid prize. Provided that, in case two or more persons have performed the work mentioned in the proposal at the same time, all of them may share the prize among themselves. In case the prize cannot be shared, the proceeds of the sale of the same shall be equally distributed among them.(3) In case a specific period has been prescribed for performing the work as per the advertisement published under Sub-section (1), the proposal, mentioned in the advertisement shall be deemed to have been cancelled immediately after the expiry of that period.(4) A proposal advanced under Sub-section (2) may be cancelled through the medium through which it was published.(5) Notwithstanding anything contained in Sub-section (4), in case anyone has, performed the work mentioned in the advertisement published under Sub - section (1) before the publication of a notice of cancellation of the proposal, he/she shall be paid the prize mentioned in the advertisement.Provided that, the person who has performed the work as mentioned in the advertisement must have notified the advertiser about the completion of the work by the quickest possible means.(6) In case any person has begun the work according to the advertisement published under Sub-section (1) and furnished a notice thereof to the advertise, he/she shall be paid an


appropriate remuneration for the work, performed by him/her before the cancellation of the advertisement.

11. Indirect contract : Notwithstanding anything contained elsewhere in this act, a contract shall be deemed to have been concluded as follows in the following circumstances:(a) In case a person who is incompetent to conclude a contract under this Act or other prevailing Nepal law, or any other person who is to be maintained by him/her is provided with any material, commodity or service which material commodity service paid from the property of such he/she needs and that is consistent with his social status, to have the cost of such person to the person so meeting his/her need.(b) In case any person, who is concerned with the payment or nonpayment of any amount to be paid by another person under the prevailing Nepal law makes such payment him/herself, to have that payment repaid to him/her from the property of the person who is actually under obligation to make the payment.(c) In case any person gives anything to another person, or employs him/her in any work, to pay the appropriate cost or remuneration.(d) In case any person keeps under his/her personal possession any property belonging to another person that may be kept as such under the law, to keep that property as a bailment property.(e) In case any person pays any amount (to any person) by mistake, to refund the same.

12. Contingent contracts : (1) In case a contract has been concluded to performing or not to perform any work if any event happens in the future, the contract shall not create any liability until such event happens. (2) In case a contract has been concluded subject to the condition that it shall be deemed to have been concluded in case person performs any specified work in the future, no liability shall be deemed to have emerged from that contract if such person does anything in such a manner as not to perform that work or acts in such a manner that the work cannot be performed. (3) In case a contract has been concluded to perform or not to perform any work if any uncertain event does not happen in the future, liability under that contract shall emerge only after the happening of that event becomes impossible. (4) In case a contract has been concluded with a provision to perform or not to perform any work if any event happens within a specified period in the future, the contract shall be deemed to have become invalid after the happening of that event becomes impossible within the specified period or after the expiring of that period. (5) In case a contract has been concluded with a provision to perform or not to perform any work if any event does not happen within a specified period in the future, liability under such contract shall emerge if that event does not happen within that period or if it becomes certain that the event will not happen within that period.


Chapter: 3Void and Voidable Contracts

13. Void Contracts : The following contracts shall be void: (a) A Contract preventing anyone from engaging him/herself in any occupation, profession or trade which is not prohibited by prevailing law.Provided that a contract shall not be deemed to have been concluded in preventing profession or trade in the following circumstances:

(1) A contract preventing the seller from engaging him/herself in a profession or trade at the time and place as mentioned in the contract concluded between the buyer and the seller on selling and buying of the goodwill of any trade;

(2) A contract concluded among partners in preventing their engagement in any trade or business, other than those of the partnership firm, similar to those of the partnership firm or any other trade or business together with other competitors belonging to the same kind of trade or business as long as the partnership continues.

(3) A contract concluded among the partners in preventing them from engaging in a trade or business under the partnership firm for the specified time or place after being separated fromthe partnership;

(4) A contract preventing any individual from receiving the service of any such agency, company, firm, individual or competitor of such agency, company, firm, or individual for the specified period of time after the retirement from service or during the service of such agency, company, firm or individual pursuant to contract concluded by any individual with any agency, company, firm or individual.

(b) A contract restraining marriages other than those prohibited by the prevailing law.(c) A contract preventing any one from enjoying the facilities already being enjoyed by the general

public.(d) A contract seeking to prevent the legal rights of any person from being enforced by any

government office or court.(e) A contract concluded in matters, contrary to or prohibited by the prevailing law.(f) A contract concluded for immoral purpose or against Public morality or public interest.(g) A contract which cannot be performed because the parties thereto do not exactly know about the matter in relation to which it has been concluded.(h) A contract which is considered impossible to fulfill even at the time is concluded.(i) A contract which is vague as it does not provide reasonable meaning thereof.(j) A contract concluded by an incompetent person to conclude such contract.(k) A contract concluded with an unlawful consideration or objective.

14. Voidable Contracts : (1) The following contracts may be made void by the aggrieved party:(a) A contract concluded through coercion:Explanation

A person shall be deemed to have indulged in coercion if he/she, with the objective of compelling any person, to accept any contract against his/her will, withholds or threatens to withhold property belonging to him/her, or threatens to defame him/her, or takes or threatens to take any other action in contravention of prevailing law.(b) A contract concluded through of undue influence:


Explanation(1) Undue influence means influence exercised by a person upon another person who is under his/her influence and is amenable to his/her personal benefit or interest.(2) Without prejudice to the generality of Clause (1), the following persons shall be deemed to be under the influence of any person and amenable to his/her wishes:(i) A person living under his/her guardianship, protection or custody.(ii) a persons who cannot take care of their interest temporarily or permanently by reason of old age, sickness or physical or mental weakness.(iii) A person who can be subjected to under one's economic or ranking influences.(c) A contract concluded through fraud:

ExplanationA party to the contract or his/her agent shall be deemed to have committed fraud if he/she, leads the other party or his/her agent to believe or takes any action to believe the particular matter is true, although he/she knows that it is false, or suppresses any information in his/her possession, or indulges in any other fraudulent act punishable under prevailing law, with the intention of deceiving the opposite party or his/her agent.(d) A contract concluded through deceit:

Explanation(1) Any of the following act shall be taken as deceit:(i) Submission of false particulars on any matter without reasonable basis for doing so;(ii) Misleading any party so as to aggrieve him/her;(iii) Causing any wrong deliberately on the matter of contract;(2) In a case of a voidable contract under this section, the following matters shall be dealt with as prescribed below:(i) The party caused to enter into a contract may, instead of making the contract void, demand his/her position to be remained the same, as it was prior to conclusion of the contract.(ii) Burden of proof of innocence of undue influence shall be rest in the party who claims that such contract is not concluded under an undue influence in case a contract is concluded with the person who is under one's influence and amenable to his/her wishes.

Chapter- 4 :Contracts relating to Guarantee, Indemnity and Subrogation

15. Contracts relating to guarantee: (1) A contract relating to guarantee shall be deemed to have been concluded in case it provides that if

any person defaults in the repayment of the loan obtained by him or fulfillment of the obligation accepted by him/her, it shall be repaid or fulfilled by a third person.(2) In case a third party has provided guarantee under Sub-section(1) and in case the person who has to repay the loan does not repay it or fulfill the obligation to be fulfilled, the person guaranteeing such loan or obligation shall repay the loan or fulfill the condition according to the contract.(3) Contract relating to guarantee must have been concluded in writing.

16. Surety's liability : Except when otherwise provided for in the contract, the surety's liability shall be as follows:


(a) Liability of the surety shall emerge from the very time when the person who has to meet the liability fails to meet it.

(b) Liability of a surely shall be similar to that of the person who has to repay the loan or fulfill any obligation. The surety shall remain responsible until the person becomes free from the liability of repaying the loan or fulfilling the obligation.

(c) The creditors may impose the surety with the liability immediately after the default by the person who is under obligation to repay the loan or fulfill the obligation.

(d) In case both security and guarantee have been provided in consideration of any loan or liability, the surety shall have no liability to the extent covered by the security so provided.

(e) The liability of a surety shall not terminate simply because the person who has to repay the loan or fulfill the liability becomes free from the liability through the mobilization of law.

ExplanationFor the purpose of this Act, the term 'creditor' shall denote a person who has supplied the loan and this term also includes a person who may obtain any benefits from or have any work done by the person who has to repay the loan or fulfill the liability.

17. Circumstance in which surety will be free from liability : (1)Except when otherwise provided for in the contract, the surety shall be free from liability to the extent as mentioned in any of the following circumstance:(a) In case the person who has to repay a loan or fulfill a liability changes the terms and conditions of the contract in such a way as to have a substantial impact on the contract without the approval of the surety, in respect to the transaction to be carried out after such changes.(b) In case a contract is concluded to absolve from liability to the person who has to fulfill the concerning matter in respect to which the guarantee has been provided.(c) In case the person who has to repay a loan or fulfill a liability is absolved from liability, or in case the loan is waived, due to the action of the creditors.(d) In case the creditor agrees to absolve the debtor from the liability by collecting a sum less than what is due, or to provide additional time limit for repaying the loan, or not to initiate a lawsuit.(e) In case any action of the creditors causing an adverse impact to the surety's right to legal remedy against the person who is under obligation to repay the loan or fulfill the liability.(f) In case the creditor loses, damages or returns any security obtained by him from the debtors, to the extent of the value of that security.(g) To the extent to which the person who is under obligation to repay a loan or fulfill a liability has repaid the loan or fulfilled the liability according to the contract.(2) Notwithstanding anything contained in Sub-section (1), the surety shall not be deemed to have been absolved from the liability, except when otherwise provided for in the contract, simply because the creditor fails to initiate legal action against the surety or try to realize the amount to be realized by him/her in time.(3) In case there are two or more sureties, and in case the creditors absolves any one of them from the liability, the other surety/sureties shall not be free from his/her/their share in the liability. In case the share in the liability of the surety/sureties can not be separated, no surety shall be deemed to have been absolved from his liability simply because; the creditor has absolved him/her from the liability.(4) In respect to a contract relating to guarantee which concerned with the fulfillment of a liability, the surety shall not be deemed to have been absolved from the obligation of fulfilling the liability under the contract simply because a dispute has arisen among the parties in relation to that contract, except when otherwise provided for in the contract.CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

18. Relationship between the Surety and the Debtors : Except when otherwise provided for in the contract, the relationship between the surety and the debtors in respect to the following matters shall be as follows:

(a) The surety shall cause a person who is under obligation to repay a loan or fulfill a liability according to the contract.

(b) In case the debtor has supplied any property or security to the surety in consideration of the guarantee provided by him/her while obtaining the loan or accepting a liability, the surety may not mortgage, sell, or otherwise transfer the title, thereto without the consent of the debtor.

(c) In case a guarantee has been provided in consideration of any loan obtained or liability accepted for any specific purpose, the objectives, nature or terms and conditions of that loan or liability may not be changed without the consent of the surety.

19. Surety to substitute creditor : (1) After the surety repays the loan to be repaid by the debtor or fulfills the liability to be fulfilled by

the debtors under the contract, the surety shall substitute the creditor in regard to that loan or liability, and may initiate legal action against the debtor like a creditor under this Act or prevailing law.

(2) Notwithstanding anything contained elsewhere in this chapter, the total amount and interest due on that amount, or any other fee or amount payable on that, shall be paid by the debtors to the surety in consideration of the loan repaid or liability fulfilled by the surety on his behalf according to the contract relating to guarantee.

(3) In case it becomes necessary to take legal action because of the failure the debtor to pay the amount payable by him/her under Subsection

(2), or in case it becomes necessary to incur any other expenses in consideration of the surety may have such expenses recovered from the debtor.

20. G uarantee related viable contract : The surety may cause to declare void the contract relating to guarantee in the following circumstances:

(a) In case the creditors him/herself, or any other person with his/her consent, has obtained the guarantee by supplying wrong or misleading information or notice to the surety in connection with the matter connected with the transaction in respect to which the guarantee has been provided;

(b) In case the subject matter, property (cash or kind) involved or facts relating to guarantee have been concealed or not mentioned:

(c) In case the contract has been concluded with a provision a third person as a surety, and the third person has not given his/her consent to provide the guarantee.

21. Equal liability of co-sureties : (1) In case two or more person have jointly or separately provided joint guarantee for any loan or liability, and in case the debtor fails to repay the loan or meet the liability, the co-sureties shall repay the loan or meet the liability or the requirements of the contract on an equal basis, except when otherwise provided for in the contract.(2) In case the guarantee has been provided on a sector wise basis while providing joint guarantee under Sub-section (1), a surety shall be required to meet only the liability for that sector for which he/she has provided the guarantee.

22. Contract relating to indemnity : (1) In case person has entered into a contract relating to indemnity with a provision to pay any party to a contract or a third person for any loss or damage that may result from his/her actions while working under the direction of that party to that contract, he/she may realize as compensation all or any of the following amounts, subject to that contract:CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

(a) The indemnity amount mentioned in the contract;(b) In case any loss or damage has been caused to a third person, the amount to be paid or borne in consideration thereof;(c) The amount spent on the case filed or defended by him/her in connection with the contract relating to indemnity;(d) The amount spend on the legal action, if it becomes necessary to initiate such action for failure to pay the amounts mentioned in Clause (a) to (c).(2) Notwithstanding anything contained in Sub-section(1), in case any person, while working under the direction of the other party, works negligently or with the intention of causing any loss or damage to that party or a third person, and in case the concerned party or the third person suffers a loss damage as a result thereof, he/she shall him/herself be responsible for such loss or damage.

23. Provision concerning subrogation : (1) In case any person has concluded a contract with any other person against any loss or damage that could be caused by a third person to his/her property, facilities, rights or profits that could result from his/her business, the other person who has signed the contract shall him/herself bear any such loss or damage irrespective of who is responsible.Provided that, in case the contract has been signed with a provision to have any such loss or damage borne by any other person, such loss or damage shall be realized from that person.(2) In case the amount or compensation to be paid for any loss or damage under Sub-section (1) has been mentioned in the contract, it shall be done accordingly and in case no such provision has been made in the contract, an appropriate amount or compensation shall be paid, or arrangements be made for payments, to the person affected by the loss or damage, or to his/her heir in case he/she is dead.(3) In case there has been any loss or damage as mentioned in Sub-section (1), the person paying the amount or compensation under Subsection(2) shall be deemed to have subrogated the person who has sustained the loss or damage, and, accordingly, the subrogator may have the amount or compensation in consideration of such loss or damage recovered from the person causing such loss or damage.

24. Rights of subrogator : The rights and liabilities of a subrogator shall be as mentioned in the contract, if any, and if not, it shall be as follows:(a) All the rights of the person who has sustained the loss or damage shall devolve on the subrogation.(b) The subrogator mentioned in Clause (a) may realize from the person who has caused the loss or damage, or from the party to a contract concluded in that connection, if any, the amount or reasonable compensation paid by him/her to the person who has suffered the loss or damage, as well as the expenses incurred in contesting a case, if any.

Chapter- 5:Contracts Relating to Bailment

25. Contract relating to Bailment: A contract relating to bailment shall be deemed to have been concluded in case any person delivers any property to another person on a returnable basis or for handing it over to any other person or selling it as ordered by him/her.Provided that, a deed must be execute while bailing any property worth more then Rs.5,000.00

Explanation : For the purpose of this chapter, the term 'property' includes any movable property and title to such property.


26. Process of bailment to be deemed completed : (1) The process of bailment shall be deemed to have been completed after the bailee receives the bailment property for being kept as such.(2) In case any property is already being kept by any person or a person authorized by him/her under his/her custody or control, the concerned property shall be deemed to have been taken by him/her as a bailed property.

27. Particulars of bailed property to be mentioned: (1) In case the bailee knows that the bailed property must not be used due to any defect in it, or

because it could cause any loss or damage or because separate arrangements or provisions be made for its protection, he/she shall inform the bailee about all such matters to the best of his/her knowledge.

(2) In case any information to be supplied under Sub-section (1) is not supplied even while knowing about it, the bailer must bear the loss or damage caused by that property or because of that property to the bailee.

(3) Notwithstanding anything contained in Sub-section (1), in case: any property given on rent or as collateral or for sale causes any loss or damage while using it due to its defect, the bailer must bear such loss or damage even if he/she has no knowledge about the defect in the property.

28. Bailee's liability : (1) A bailee shall look after and arrange for the safety of the property received by him/her as bailed

property as mentioned in the terms and conditions of the contract, or as his/her own property in case nothing has been mentioned in the contract.

(2) Except when otherwise provided for in the contract, in case any bailed property depreciates or is lost, stolen, damaged, destroyed, decreased or harmed because of a natural calamities despite taking care and arranging for its security under Sub-section (1), the bailee need not return such property.Provided that, in case the property is depreciated or is lost, stolen, damaged, destroyed decreased or harmed because of the negligence or malfide intention of the bailee, or of his/her failure to take care or ensure its safety according to the terms and conditions of the contract, he/she must return the property or pay an equivalent amount to the bailer.

(3) In case the bailee uses the bailed property without having the right to do so under the contract or in a manner contrary to the terms and conditions of the contract, and in case such use causes any loss, damage, destruction, depreciation or harm to the property, the bailee shall pay for compensation to the bailer.

(4) Except when otherwise provided for in the contract, the bailee shall not mix-up the bailer's property with his/her own property.Provided that, in case the bailee has mixed-up his/her own property with that of the bailer, both parties shall have title on that property, as well as to the income accruing there from, in proportion to their respective shares.

(5) In case the bailee has mixed-up his/her own property with the bailer's property and the property so mixed-up can be separated, the two parties shall have title to their respective property so separated, and the expenses incurred for separating the property so mixed and the loss, if any caused, to the bailer while mixing-up such property in that manner shall be borne by the bailee.

(6) In case the bailee has mixed-up his/her own property with the bailer's property without the consent of the bailer and their property cannot be separated as mentioned in Sub-section (5), the title of the bailer to the bailee's property shall terminate if he/she agrees to obtain his/her share from the property so mixed-up. In case the bailer does not agree to take his/her share from such property the bailee shall be required to pay compensation for his/her property.


29. Bailed property to be returned : (1) After the expiry of the ,period prescribed while bailing a property or fulfillment of the objectives with which the property has been bailed, the bailee shall return the bailed property to the bailer.(2) In case the property is not returned under Sub-section (1) within the prescribed period, or within a reasonable period according to the nature of the property where no such period has been prescribed, or in case the bailer does not take it back and the property is lost, stolen, damaged, destroyed or reduced after that date or bailer suffers any loss or damage due to that property after that date the party because of which the loss or damage has resulted shall bear the loss or damage.(3) Except when otherwise. provided for in the contract, in the case of a bailed property owned by several persons, it may be handed over to any one of such owners or to the person ordered by them, and the hand over of the property in that manner shall be deemed to have been done duly.(4) Except when otherwise provided for in the contract, the property raised or earned through the bailed property shall also belong to the bailer.

30. Person bailing other's property to be held responsible : In case any person bails any property on which he/she has no title, right or ownership to any other person to keep as a bailed property, and the bailee has to bear any claim of a third party or any loss, damage or any expenses in for accepting that bailment the bailer shall be required to bear such expenses as well.

31. Found property may be kept after notifying the police : In case person finds any property in any way, he/she may keep it safely with him/herself until the concerned owner is found out after notifying the police. The expenses incurred for finding out the owner of the property and for keeping the property shall be borne by the concerned owner, and the person who has found the property may keep it with him/herself until the owner pays such expenses.32. Property given for repair and maintenance to be returned : (1)In case person has given any property for repair, improvement or renovation in any way to any person, the latter shall return it to the former after collecting expense or service charge fixed for repair, improvement or renovation.(2) The property handed over under Sub-section (1) sha1I be returned to the concerned owner after repairing, improving or renovating it within the period mentioned in the contract. In case it is not returned within the prescribed period, or any additional loss or damage is caused to the property or the property is damaged in such a way as to become unusable in the course of repair, improvement or renovation, action shall be taken as provided for in the contract, and if no provision has been made in the connection in that contract, an appropriate compensation shall be paid to the concerned owner.(3) Notwithstanding anything contained elsewhere in this Section, the person repairing, improving or renovating any property may keep it with him/herself until the cost of repair, improvement or renovation or the service charge fixed for that purpose is paid. In case the cost or service charge is not paid within a reasonable period, the person repairing, improving or renovating the property may recover his/her expenses or service charge by selling the property,

33. Bailment Expenses : While bailing a property, expenses incurred for looking after and ensuring the safety of the bailed property shall be borne by the bailer, except when otherwise provided for in the contract.

34. Contract relating to bailment to be void: (1) In case it is proved that any property has been bailed with the intension of avoiding a partition of property or payment of any government charge or any amount involved in any claim or to be paid to anybody, or with any other illegal motives, the contract relating to such bailment shall be void. In case the bailee does not keep the bailed property according to the term and conditions of the contract, the bailer may get back the bailed property at any time.CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

Chapter -6Contracts relating to Collateral and Deposit

35. Contracts relating to collateral or deposit : (1) In case any person has obtained a collateral while supplying credit to anybody as a security for that credit, or obtained any property as a deposit in the form of a guarantee to perform the concerned work while having any work performed a contract relating to collateral or deposit shall be deemed to have been concluded.Explanation:For the purpose of this Chapter, the term 'property' shall denote any movable or immovable property, and title or document establishing title to that property.(2) In case a collateral has been obtained while supplying a credit, the credit and interest thereon, and in case any deposit has been obtained to perform any work the other expenses relating to that work, as well as the expenses incurred for looking after the collateral or deposit, shall also be deemed to have been included in the contract relating to collateral or deposit.

36. Collateral or deposit to be returned: (1) Except when otherwise provided for in the contract, the collateral obtained for a credit shall be returned after the repayment of the credit, or the deposit obtained for a work shall be refunded to the concerned person after the completion of that work.(2) In case the collateral or deposit kept under Sub-section (1) has been or can be divided into different parts, the collateral or deposit may be returned to the extent covered by the portion of the credit repaid or work performed.

37. Rights of person obtaining collateral or deposit : (1) In case a credit has been obtained by pledging any property as collateral and the debtor fails to repay the credit or interest thereon, if any, within the prescribed period, the person who has taken the collateral may initiate action according to, law and realize the amount to be realized in consideration ofthat credit by selling or auctioning the collateral according to current market price or transfer the title to such collateral subject to law in case it cannot be sold or auctioned.(2) In case the property kept as collateral is sold at a price lesser than the amount to be realized from the debtor by the person who has the collateral under Sub-section (1), the shortfall may be recovered form other assets of the debtors. In case the collateral is sold at a price higher than the amount to be recovered, the excess amount shall be refunded to the debtors.(3) Notwithstanding anything containing in Sub-section (1) and (2), in case the property kept as collateral has not yet been sold or the title to it has not yet been transferred, the person who has pledged the property as collateral may clear his property by repaying the credit and interest thereon and any other amount payable at any time.Provided that, the person pledging the property as collateral shall also bear the additional liability emerging on the property kept as collateral owing to his failure to repay the amount within the stipulated period.(4) In case anyone has been entrusted with the responsibility of performing any work by obtaining any property as deposit, and the concerned person fails to complete the concerned work or the concerned work fails to be completed within the stipulated period, the property kept as deposit may be used to complete the work or to recover the expenses incurred thereupon. In case the work can not be completed with the property kept as deposit, the amount in shortfall may be recovered from the other assets of the person who has furnished the deposit.


38. Consequences of pledging property without sufficient title as collateral or 'deposit : (1) In case anyone has obtained a credit or work by pledging as collateral or depositing any property to which he/she has no title or ownership or any property received under a contract which is void under this Act, and the person obtaining such collateral or deposit has no knowledge about the matter, the latter may demand the property from the ….. to which the he/she has a title so as to be kept as collateral or deposit. In case the former fails to provide such collateral, the latter may cause the contract to be void.(2) In case any property received under a void contract has been pledged as collateral or deposit, and such contract had become void before furnishing such collateral or deposit or the party receiving the collateral or deposit know that the concerned property did not belong to the person furnishing it as collateral or deposit, the person obtaining such property as collateral or deposit shall have no right to it and may realize the amount to be realized by him/her or have the work to be performed from the other property of the party furnishing the collateral or deposit.(3) In case the person furnishing the collateral or deposit has a partial or limited title to or ownership of the property pledged as collateral or deposit, the person accepting such property as collateral or deposit shall also have title to that property to the same extent.

39. Creditors to have equal status : (1) In case anyone has obtained credit from several creditors in one or several installments by pledging his/her property as collateral, and the property so pledged as collateral is not sufficient to repay the credit of all the creditors, all the creditors who have used the property as collateral shall be deemed to have equal status in respect to outstanding credit and all of them may make a proportionate claim on the property, except when otherwise provided for in the contract.(2) In case any property which has already been pledged as collateral under Sub-section (1) is again pledged as such with a provision to give priority to the second creditors in the future, the concerned contract shall be void. In case the (second) creditor has already realized his/her credit from the collateral before the contract becomes void even while knowing that there are other creditors in respect to the collateral, he/she shall refund the amount to the other creditors and realize his/her credit from the other assets of the person who has pledged the property as collateral.

Chapter- 7Contract relating to Sale of Goods

40. Contract relating to sale of goods : (1) A contract relating to sale of goods shall be deemed to have been concluded. in case any seller agrees to hand over any goods to the buyer immediately or in the future by receiving a price.ExplanationFor the purpose of this chapter, the term 'goods' means any type of movable or immovable property except current used currency, security, or actionable claim.Amended by the Act Amending Some Nepal Acts, 2064(2) A contract relating to sale of goods may be conditional or unconditional.(3) A contract may be concluded with a provision to sell goods owned or possessed by the seller or those to be produced or acquired by him/her in the future.

41. Contract relating to sale of goods to be void : In case a contract has been concluded to sell specific goods, and in case the goods have suffered any loss or damage at the time of or before concluding the contract and the seller had no knowledge thereon at the time of concluding the contract, the contract shall be void.


ExplanationFor the purpose of this Section, 'Specific goods' means the specific goods mentioned at the time of concluding the contract.

42. Determination of price of goods : (1) Except when otherwise provided for in the contract, the price of goods shall be determined on the basis of the terms and conditions of the contract or according to the procedure agreed upon in the contract or in the process of transaction between the parties.(2) In case the price of goods has been determined according to their weight and measurement, the price of goods shall be fixed on the basis of the net weight and measurement, except when otherwise provided for in the contract.(3) In case the price of goods cannot be determined under Subsection (1) or (2), the buyer shall pay to the seller a reasonable price taking into account the concerned circumstances.

43. Price of goods to be paid : Except when otherwise provided for in the contract, the price of goods must be fully paid as follows in the following circumstances:(a) A buyer shall pay to the seller the price of goods bought by him/her at the time of buying them.(b) The price of goods shall be paid in cash.(c) The contract shall be deemed to have been concluded with a provision to pay the price and. hand over the goods simultaneously.ExplanationFor the purpose of this Section, the term 'cash' includes cheques, traveler's cheques, promissory notes, bills of exchange, letter of credit, bank draft, credit card and telegraphic transfers payable through bank.

44. Particulars of goods : (1) In case the name, brand, trademark or specification of goods to be sold are mentioned in the contract, the contract shall be deemed to have been concluded to sell goods of the same name, brand, trade mark or specification.(2) In case the name, brand, trademark or specification and sample goods to be sold have been mentioned, the bulk of those goods shall correspond not only to the sample but also to their name, brand, trademark or specification as mentioned in the contract.

45. Title to be deemed to the goods to be sold: (1)Except when otherwise provided for in the contract, the seller shall be deemed to have or going to have title to the goods agreed to sell in the future. Goods agreed to sell in the future shall be considered to be or going to be free from anybody's seizure, control or procession.(2) Except when otherwise provided for in the contract, the seller shall be deemed to have the right to sell the goods sold or to be sold by him/her.

46. Goods to be deemed to be of merchantable quality : (1) Except when otherwise provided for in the contract, goods sold or to be sold shall be deemed to be of merchantable quality.(2) In case specific goods sold or to be sold for any specific purpose are suitable for that purpose, they shall be considered to be of merchantable quality.Provided that in case any defect in the goods has been mentioned in the contract itself, or in case the buyer had become aware of any defect before signing the contract or while inspecting the goods, those goods shall not be deemed to be of merchantable quality.CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

(3) In case the quality of specific goods has been mentioned in the contract, those goods shall be deemed to be of the same quality. In case the quality of the goods is not mentioned in the contract, their quality shall be as of the current standard.(4) Except when otherwise provided for in the contract, the seller shall not be deemed to have given a warranty to the effect that the goods sold or to be sold are of a specific quality.

47. Sale through samples: (1) In case provisions have been made in a contract to sell goods after inspecting their samples directly or otherwise, it shall be deemed to have been signed to sell goods after inspecting their samples.(2) In case a contract has been signed to sell goods after inspecting their sample, it shall be deemed to include the following conditions, except when otherwise provided for in the contract:(a) The bulk of the goods shall correspond to the samples in quality.(b) The buyer shall have, a reasonable opportunity to compare the quality of the bulk of the goods with the sample.(c) The goods sold or to be sold shall be free from any defect, and that their merchantable quality shall be apparent while inspecting them at the time of comparing them with the sample.

48. Provisions concerning transfer of ownership of goods: (1)In case a contract has been signed to sell specific or particular goods, their delivery shall be made as provided for in the contract, if any, and if not, according to the conditions of the contract, the conduct of the parties, and the intention of the parties expressed through the concerned circumstances.(2) Except when otherwise provided for in the contract, in case a contract has been signed in such a situation that specific goods can be delivered immediately, the parties shall be deemed to have the intention of delivering them after concluding the contract or paying their price.(3) In case a contract has been signed in such a situation that specific goods can be delivered immediately, and in case the buyer has to weigh, measure and examine them or execute any function to determine their price, such goods shall not be delivered until such functions are executed and information thereof is supplied to the seller within a reasonable period.(4) Except when otherwise provided for in the contract, a contract shall be deemed to have been made with a provisions to deliver the goods at the very place where they have been sold or are to be sold.(5) Except when otherwise provided for in the contract, the title or ownership of the buyer shall be deemed to have been established on the goods from the very moment when they are delivered to him/her.

49. Risk to be borne : (1) Except when otherwise provided for in the contract, the seller him/herself shall bear the risk of any loss or damage to the concerned goods until they are delivered to the buyer.(2) In case there has been a delay in the delivery of goods due to any reason concerning the buyer or the seller, the party responsible for such delay shall bear the risk of loss or damage under Sub-section (1).(3) In case the seller has agreed to deliver goods from the place of purchase to the place specified by the buyer, the seller him/herself shall bear the risk of any loss or damage to goods, except when otherwise provided for in the contract.

50. Buyer's right to inspect goods : In case sold goods are delivered to the buyer; the buyer shall have a reasonable opportunity to examine and ascertain whether or not they, conform to the contract and he/she shall not be deemed to have accepted the goods until this is done.


51. Goods to be deemed delivered: The buyer shall be deemed to have received the goods in any of the following' circumstances:(a) In case the buyer or his/her representative receives the goods;(b) In case a receipt or letter acknowledging the delivery of the goods is issued;(c) In case the buyer inspects the goods and ascertains that they conform to the contract under Section 50, and accordingly keeps them in his/her stock;(d) In case the goods reach the buyer and are retained by him/her, even if he does not send information about his/her refusal to accept them within a reasonable time limit,(e) In case he/she does anything to prove his/her ownership of such goods.

52. Time-limit for delivering goods : (1) In case the contract provides that gods to be delivered at any specified time or within any specified period, the seller must deliver the same to buyer at that very time or within that very period.(2) Notwithstanding anything contained in Sub-section (1), in case the buyer accepts goods delivered by the seller before the time or period prescribed in the contract, or after the time of period prescribed in the contract, the seller shall be deemed to have delivered the goods.

53. Documents relating to sold goods to be handed over: Except when otherwise provided for in the contract, the ownership of goods shall not be deemed to have been transformed after sale until basic documents connected with their ownership or required for their use are handed over.

54. In the event of delivery of goods in a quality different from the contracted quality: (1) In case the seller delivers goods to the buyer in a quantity less than the quantity mentioned in the contract, the buyer may refuse to accept them.Provided that, in case the buyer accepts goods even in the quantity, he/she shall be required to pay the price of the quantity at the rate mentioned in the contract.(2) In case the seller delivers goods to the buyer in a quantity higher than the quantity mentioned in the contract, the buyer might accept them only in the quantity mentioned in the contract, and reject the rest or the entire quantity.Provided that, in case the buyer accepts the entire quantity of goods so delivered, he/she shall be required to pay for them at the contract rate.(3) In case the seller delivers to the buyer, he has contracted to sell mixed with goods of a description not included in the contract, the buyer may accept the goods mentioned in the contract and reject the rest, or reject the entire lot.(4) Except when otherwise provided for in the contract, the buyer shall not be bound to accept delivery of goods in installments.(5) Excepts when otherwise provided for in the contract, in case the buyer refuses to accept goods brought by the seller for delivery, the buyer shall not be bound to return them to the seller.Provided that the buyer shall inform the seller through the quickest possible means about his/her refusal along with the reasons thereof.

55. Special provisions concerning compensation : Notwithstanding anything contained elsewhere in this Act, action in respect to compensation for contract under this chapter shall be taken as follows:(1) In case a buyer does not accept or refuses to accept or refuses to pay the price of goods after once signing a contract relating to sale of goods, the seller may, subject to the contract, claim compensation from the buyer in consideration of the buyer's failure to accept or refusal to accept the goods.(2) While determining compensation under Clause (a), in case goods not accepted or rejected by the buyer are available in the market, compensation shall be determined on the basis of the difference between the price of goods mentioned in the contract and the market or current price.


(3) In case the seller does not deliver or refuses to deliver goods according to the contract after signing a contract relating to sale of goods, the buyer may claim compensation from the seller in consideration of his/her failure to deliver the goods. While determining Compensation under Clause (c), in case the goods which the seller has refused or failed to deliver to the buyer are available in the market, compensation shall be determined on the basis of difference between the price of the goods mentioned in the contract and the market or current price.

Chapter- 8Contracts Relating to Agency

56. Contracts relating to Agency : Any person may appoint any other person as his/her agent to do anything on his/her behalf, except something connected with his/her personal skills or to conduct business as his/her agent of may transaction with a third person on his behalf or to represent himself to such person, or to establish any kind of legal relation with the person appointing an agent and a third person, and in case an agent is so appointed, a contract relating to agency shall be deemed to have been concluded.57. Recognition of transaction made or carried out by an agent: (1) The liability resulting from the contract concluded through an agent appointed under Section 57 or from the action taken or work performed by the agent, shall be recognized as resulting from a contract signed or work performed by the principal person, and implemented accordingly.Provided that, the principal person shall not be responsible for any action taken by the agent beyond his/her authority.(2) Notwithstanding anything contained in Sub-section (2), among the actions taken beyond the authority, in case some of them are within his/her authority and some beyond it, and in case the action taken from within his authority can be separated principal person shall be responsible for actions taken to the extent of his/her authority.(3) Any information supplied to the agent in the course of transactions with the principal person through his/her agent shall be deemed to have been supplied to the principal person.

58. Power to appoint Sub-agents : (1) In case it is necessary to appoint, a sub-agent according to the nature of any trade, business or transaction, or in case a sub-agent can be appointed according to provision contained or practice followed in the contract relating to agency, the agent may, except when otherwise provided for in the contract, appoint a sub-agent with the consent of the principal person.Provided that, an agent who has been appointed on the condition that he/she will personally represent or personally execute any work may be able to appoint a sub-agent.(2) In case a sub-agent is appointed under Sub-section (1), the principal person shall be informed accordingly, and a sub-agent so appointed in that manner shall have right and duty equal to that of the agent appointed by the principal person.(3) In case any agent appoints a sub-agent without the consent of the principal person, the latter shall not be responsible for any action taken or work performed by the sub-agent. A sub-agent so appointed shall be personally responsible.

59. Matters to be complied with by agent: (1) Except when otherwise provided for in the contract, an agent shall comply with the following matters:(a) Work subject to the conditions of the contract relating to agency and the directives issued by the principal person.


(b) In case no condition has been mentioned in the contract or the principal person has issued no directive, the agent shall work as entrusted to him/her in the manner in which it has to be performed according to the nature of the trade and business and the laws and practices of the place of transaction, with bona fide motive, full dedication and necessary skills and efficiency.Provided that in case the principal person has a knowledge in advance that the agent has a knowledge in advance that the agent has no skill or capability in respect to any subject, the agent shall not be responsible for any loss or damage resulting from such lack of skill or capability.(c) An agent who has been removed from his/her position shall not do anything on the same subject, as before, in the capacity of an agent.(d) The agent shall supply or show details of account and record relating to the agency business when demanded by the principal person.(e) In case any obstruction, obstacle or difficulty arises in the course of performing work relating to agency, the agent shall notify the principal person as soon as possible and obtain necessary directives, and the principal person shall him/herself be responsible for any action taken according to the directives so issue.(2) In case the principal person suffers any loss or damage because of the failure of the agent to fulfill his/her duties under Clause (a), (b) and (c), agent shall personally bear loss or damage so incurred.

60. Agent to be responsible: (1) Except when otherwise provided for in the contract, the agent shall be personally responsible for transactions made by him/her on behalf of the principal person in the following circumstances:(a) In case he/she concludes a contract with a third party in relation to any transaction with provision for personal responsibility.(b) In case any work has been done for or on behalf of an unidentified principal person, in case the principal person is not identified;(c) In case the principal person can not be sued for any reason;(d) In case the contract has been signed in his/her own name;(e) In case anything has been done in contravention of the contract relating to the appointment of agent or beyond his/her authority;(f) In case any fraud or cheating has been committed in the course of the transaction(g) In case the agent has to bear personal liability according to the nature of the trade;(h) In case the interest of the agent is also involved in the transaction.(2) Except when otherwise provided for in the contract concluded between the agent and a third person, only the fact that the gent is personally responsible under Sub-section (1) shall not be deemed to have prejudices the right of the third person to make any claim against the principal person and legal action may be initiated against the principal person as well for arrears due from the agent.(3) For the purpose of initiating legal action against the principal person under Sub-section (2), the time limit shall be deemed to have begun from the date of the last payment made by the agent.

61. Termination of agency : (1) Except when otherwise provided for in the contract, the agency shall be deemed to have epso facto terminated in the following circumstances;(a) In case the agent voluntarily decides not to continue it;(b) In case the principal person conceals the authority granted or contract signed with the agent or gives a notice to the agent regarding the impossibility of complying with the contract;(c) In case the agent has been appointed for any specific work that works is completed;(d) In case the agent has been appointed for a specific period, after the expiry of that period;(e) In case the principal person or the agent loses his/her senses;(f) In case the principal person is declared bankrupt;CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

(g) In case the subject regarding, which the agent has been appointed no longer exists;(h) In case an agent is appointed by a company or an agent of a company, if the company is liquidated.(2) All or any of the power granted by the principal person to the agent may be cancelled at any time before the agent exercises them.Provided that, in case the agent has already exercised some of such powers, the work performed regarding to those powers shall not be deemed to have been cancelled.(3) Notwithstanding anything contained elsewhere in this Section, in case the agent has a share in the property connected with the main subject of the agency, the agent may not be dismissed, in such a manner as to have a negative impact on such share.

62. Prohibition to remove an agent : (1) Except when otherwise provided for the contract, in case an agent has been appointed for any

specific period or work, the principal person shall not remove him/her before that period or before the completion of that work without appropriate and sufficient reasons.

(2) An agent who has been appointed without prescribing any specific period or work can not be removed without a prior notice mentioning appropriate reasons;

(3) In case the principal person removes any agent in a manner opposed to Sub-sections (1) or (2), the principal person shall pay a reasonable compensation to the agent.

63. Agent prohibited from giving up agency : (1) Except when otherwise provided for in the contract, the agent who has been appointed for a specific

period or work shall not stop working as an agent before the expiry of the specific period or completion of the specified work without appropriate and sufficient reasons.

(2) An agent who has been appointed without specifying the period or work under Sub-section (1) shall not give up that work without informing the principal person in advance along with the reasons for doing so.

(3) In case any agent stops working in that capacity contrary to Sub-section (1) or (2), the principal person may claim a reasonable compensation.

64. Sub-agent also to leave if agent leaves: In case an agent no longer remains in that capacity under this act, the sub-agent appointed by him/her shall also be deemed to have automatically left.

Chapter- 9Contracts Relating to Transportation of Goods

65. Contracts relating to Transportation : (1) A contract relating to transportation shall be deemed to have been concluded if it provides for the

transportation of goods from one place to another.(2) Except when otherwise provided for in the contract, the receipt to be issued by the transporter to the

owner of goods for their transportation at the time of handling them over for the purpose of transportation shall be recognized as proof of contract between them.

Explanation:For the purpose of this Chapter, the term 'transporter' means a person operating a transport service other than air or marine transport, or a person operating a business of such operation, and the term also includes a person operating the transport business through animal or any other means.Provided that, in case any person employed by the owner of goods on wage basis or his/her agent or a person working under him/her transports goods, he/she shall not be recognized as a transporter for the purpose of this chapter.


66. Transporter's obligations : (1) It shall be the obligation of the transporter to transport and condition goods received from their

owners for transportation at the prescribed place and in their proper condition.(2) In case goods received from the owner for transportation are lost, destroyed, broken, harmed or

damaged, or in case they do not reach their destination in proper condition for any other reason, the transporter shall be held responsible.

(3) The transporter shall transport goods within the period mentioned in the contract, and within a reasonable period in case no period for transporting the same has been mentioned in the contract, and hand them over to their owner or his/her agent or a person designated by him/her.

67. First transporter to be held responsible in case goods are transported through several means of transport:

In case it becomes necessary to transport goods through more than one transporter or though more than one means of transport, the transporter to whom the owner of goods has handed them over shall be held personally responsible for the purpose of this chapter, except when otherwise provided for in the contract.

68. Liability of transporter to be limited : (1) Except when the owner of goods or his/her agent has clearly declared at the time of concluding the contract that the goods to be transported are worth more than Ten Thousand Rupees or except when otherwise provided for in the contract, the amount of compensation to be paid by a transporter for any loss or damage to goods transported by him/her shall not exceed Ten Thousand Rupees.

(2) Notwithstanding anything contained in Sub-section (1), the transporter shall not be held liable for any loss or damage to gold, sliver, diamond jewels or goods made thereof, precious stone, negotiable instruments, securities, documents registered by offices, certificates issuedby educational and other institutes, coins, bank notes, postal stamps, fish, meat, fresh fruits and vegetables, insecticide, inflammable materials, petroleum products, precious art pieces, idols, curio goods or fragile goods, wildlife and pets, handicrafts, arms and ammunition, explosives, radio, television, computer and similar other goods and their spare parts, machinery and goods specified in prevailing law as those which have to be declared by the owner before their transportation, except when the owner or his agent has clearly declared them at the time of signing the contract or at the time of handing them over to signing the contract or at the time of handing them over to the transportation for the transporter.(3) For the purpose of bearing the risk involved in the transportation of goods mentioned

in Sub-section (2), the transporter might have them insured against the risk through their owner or his/her agent or by him/herself by collecting a separate fee for the purpose, or take other necessary arrangement to avoid the risk.

69. Transporters to be responsible : A transporter shall pay a reasonable compensation to the concerned owner for any loss or damage in the process of transportation of goods declared at the time of signing the contract of handling them over to the transporter for transportation under this Chapter, or for goods which need not be declared, as provided for in the contract, if any, and, if not, reimbursement of the transported goods with the agreement of their owner, or in case no such agreement is reached or can be reached, according to the current price of the goods, and if the current price can not be determined, according to a reasonable price, subject to Chapter 12.


70. Transporter's liability to be ended: Except when otherwise provided for in the contract, the liability of a transporter shall be deemed to have ended in any of the following circumstances:(a) In case the transporter or his agent transports the goods and hands them over to the owner or his/her agent, or a person designated by him;(b) In case the goods handed over to the transporter are received back by the owner or his/her agent.(c) In case the transporter or his agent returns the goods to the owner or his/her agents citing the reason why the goods cannot be transported within the prescribed period in the circumstances mentioned in Clause (b) of Sub-section (2) of Section 79.

Chapter-10Time, Procedure and Place for Performing Contracts

71. Times and Procedure of performing contract : (1) In case the time and procedure of performing the contract has been mentioned in the contract, it

shall be performed within the specified time and according to the specified procedure.(2) In case no time or procedure of performing the work mentioned in the contract has been specified,

whereas, in case the work can be performed only at any specific time or according to any specific procedure, the contract shall be deemed to have been concluded so as to perform the work at that time and according to that procedure.

(3) Except in the circumstances mentioned in Sub-section (2), in case the time and procedure of performing the contract has not been mentioned in the contract, the contract shall be performed within a reasonable time by adapting a reasonable procedure.

72. Place for performing contract:(1) In case any specific place has been specified in the contract for performing the work, the work shall

be performed at the same place.(2) In case any party has to hand over or deliver goods to the other party under the contract, and the

place where those goods are to be handed over or delivered has not been specified in the contract, the contract shall be deemed to have been concluded with a provision to and over or deliver the goods at the place where those goods are stored.

(3) In case the specific place where the work mentioned in the contract has to be performed, has not been specified in the contract, and where as that work can be performed only in a specific place, or in case the work needs to be performed in any specific place due to the general practice and custom or the nature of the work, the contract shall be deemed to have been concluded with a provision to perform at work at place.

(4) In circumstances other than those mentioned in Sub-sections (2) and (3), in case the place for performing the work prescribed in the contract is not mentioned in the contract, the party performing the work according to the contract shall inform the other party to specify a reasonable place for performing the work, and the other party shall specify a reasonable place to perform the work.

73. Circumstances in which contracts need not be performed: Work under a contract need not be performed in any of the following circumstances:(a) In case one party to the contract absolves the other party from fulfilling the obligations according to the contract;(b) In case a voidable contract is made void by the party concerned;


(c) In case one cannot execute the contract due to its violation by the other party;(c) In case it becomes unnecessary to perform the work mentioned in the contract under any provision of this Act;(d) In case it becomes unnecessary to comply with the contract under Section 79.

Chapter- 11Execution of Contract and Obligation Arising out of the Contract

74. Obligation under contract to be fulfilled : Each party to a contract shall fulfill his/her obligation under the contract.

75. Reciprocal compliance with contract : (1) In case a contract has been concluded with a provision requiring both parties to simultaneously

fulfill their respective obligations, and in case one party fundamentally shows a conduct or intention of not fulfilling his/her obligation the other party shall not be required to fulfill his/her promise.

(2) In case the order of priority relating to fulfillment of any promise has been specified in the contract itself, it shall be fulfilled accordingly, and in case no such order of priority has been specified, the party who is required to do so first according to the nature of the contract shall fulfill it.

(3) In case one promise cannot be fulfilled without fulfilling another promise under any contract containing reciprocal promises, the party, which cannot execute the contract because of the failure of the other party to fulfill its promise, may recover the loss or damage caused by the failure of the other party to execute the contract.

(4) In case a contract of the type mentioned in Sub-section (1) has been concluded, and any party obstructs the other party from executing the contract, the party which becomes unable to execute the contract may the contract cancel and also recover any loss or damage suffered by him/her from the cancellation of the contract in that manner.

76. Devolution of rights and liabilities of contract : In case party to a contract dies or loses his/her senses, the rights accruing from the contract shall devolve on the heir to his/her property, and the heir shall also bear liability to the extent covered by the property received by him/her.Provided that, the rights and liabilities accruing on the basis of personal skills and qualification shall not devolve on such heir.

77. Person to execute contract: (1) Except when the person concluding contract is under the obligation to execute the contract, he/she

may have it executed by his agent or a person appointed by him/her or any other person on his/her behalf.

Provided that, no party to a contract may transfer the obligations under the contract to any other person without the consent of the other party.

(2) Except when otherwise provided for in the contract, once a party accepts a work done by a third person, he/her may not later claim that the work has to be done by the party signing the contract.

(3) In case two or more person have jointly signed a contract with any other party, any of the persons jointly signing the contract shall fulfill or cause to do so for the fulfillment of the obligation under the contract, except when otherwise provided for in the contract.


(4) In case any person has fulfilled his/her obligation under Subsection (3), the person so fulfilling the obligations may recover compensation or loss on a proportionate basis from the other persons jointly signing the contract.

(5) In a contract signed in the manner mentioned in Sub-section (3), in case any party gives concession to any person belonging to the other party from the obligations of his/her share, the other person shall not be free from the remaining obligation of the contract.

78. Only the party shall have right to execute the contract : (1) Only a person who is a party to a contract may demand the execution of that contract from other

party.Provided that, in case the contract has been signed for the benefit of any person, such person may demand the execution of that contract even if he/she is not a party to that contract.

(2) In case two or more than two persons jointly agree upon to perform or not to perform any work, except when otherwise provided for in the contract, all persons so concluding- the contract may demand the execution of that contract.

79. Contracts need not executed in the event of fundamental changes in the situation:

(1) In case it becomes impossible to execute a contract as a result of fundamental change in the situation prevailing at the time of signing of the contract, the work under the contract need not be performed.

(2) Without prejudice to the generality of Sub-section (1), fundamental change shall be deemed to have come in the situation prevailing at the time of signing of the contract in any of the following circumstances:

(a) In case the contract becomes illegal and it cannot be executed;(b) In case it becomes impossible to execute the contract due to emergence of such situations as war,

floods landslides, fire, earthquakes, and volcanic eruptions, which are beyond the control of human beings;

(c) In case anything essential for executing the contract is destroyed or damaged, or no longer exists, or cannot be obtained;

(d) In case the contract has been signed with a provision to provide services on the basis of efficiency, skill or talent, and the person providing such service dies or loses his/her sense or becomes incapable of performing the contract because of physical or mental disability.

(3) Notwithstanding anything contained in Sub-section (2), fundamental changes shall not be deemed to have come in the situation prevailing at the time of signing the contract in any of the following circumstances:

(a) In case it becomes difficult to perform the contract;(b) In case profit margin is low or loss is expected;(c) In case any party to a contract is dependent upon any third party who is not a party to the contract

for performing the contract, if the third party commits a mistake or becomes unfit;(d) In the event of strikes and lockouts;(e) In case it becomes necessary to pay additional tax, fee or other revenue;(f) In case the contract has been signed with several objectives and only some of them cannot be

fulfilled.(4) In case it becomes impossible to execute a contract because of fundamental changes in the

situation as mentioned in Sub-section (2), action in the following matters shall be taken as follows;(a) The amount paid by one party to the other in consideration of the contract before such a change in

the situation occurs shall be refunded to the other party.(b) Payment to be made or due from one party to the other in consideration of the contract shall not

be made after such a change in the situation.CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

(c) In case any party has performed any work or paid any amount before such a change in the situation, such work or amount shall be calculated and the amount to be paid to each other should be determined, and reasonable expenses incurred by one party in consideration of the contract may be recovered from the other party.

(5) Notwithstanding anything contained in this Section, after the end of the situation mentioned in Clause (b) of Sub-section (3), the parties to a contract may agree to fulfill their respective obligations by executing the contract.

80. Facilities to be provided: The parties to a contract shall provide facilities needed for executing the contract from their respective sides. In case the contract can not be executed due to failure of providing such facilities, the party failing to execute the contract in that manner shall not be held responsible.

81. Contract may be suspended or altered: (1) In case the parties to a contract agree, all or any of the portions of the work to be performed under the contract may be changed or amended, the time-limit for performing any work under the contract extended, the contract suspended by not making it obligatory to perform any work to be performed under the contract for some time, the work mentioned in the contract may be replaced by another work, or a new contract may be signed as a replacement of the original contract.(2) In case any change or amendment is made in the contract under Sub section (1), a new contract shall be deemed to have been signed, and the contract shall become effective accordingly. In case a new contract is signed in this manner, liability under the initial contract need not be borne except when otherwise provided for in the contract.

Chapter- 12Breach of Contract and Remedies

82. Breach of contract : (1) In case any party to a contract does not meet liability under the contract, or gives a notice to the

other party that he/she will not perform the work to be performed under the contract, or in case his/her action or conduct shows that he/she is incapable of performing the work under the contract, he shall be deemed to have breached the contract.

(2) In case a party has broken the contract under Sub-section (1), or in case his/her action or conduct shows that he/she has not basically compiled with the contract, the other party shall not be compelled to perform the contract, and may cancel the contract by furnishing a notice thereof to the other party.

83. Compensation on breach of contract: (1) In case a contract has been breached under Section 82, the aggrieved party may realize from the party

who has broken the contract, the actual loss or damage suffered by him/her a result of such breach of contract of the loss or damage, which the contracting parties had anticipated at the time of signing the contract.

(2) In case the contract provides that any specific amount or compensation shall be paid in the event of breach of contract, the aggrieved party may recover from the other party a reasonable amount not exceeding that amount.

(3) In case the amount of compensation under Sub-section (2) is not mentioned, the party making a claim for such compensation may realize a reasonable amount in consideration of the direct and actual


looser damage that has resulted form the breach of contract, or in consideration of the breach of contract, or in consideration of the breach of contract, or in consideration of compensation. No compensation may be recovered for any indirect or imaginary loss or damage.

(4) In case a contract has been signed for completing any work within a specific period, and in case provision has been made for payment of compensation under Sub-section (1) for failure to complete that work within the specific period, the party paying compensation may request for extension of the period for completing the contract in proportion to the amount paid by him/her as compensation.

84. Compensation in the event of cancellation or termination of contract: (1) In case a contract is terminated with the mutual consent of both parties or it is no longer necessary

to perform the contract under this Act or other prevailing laws, or in case the contract is made void under the law or becomes void or cancelled under this Act, after one party has already received some amount in cash or in kind or any other benefit from the. other party as per the contract, the cash or goods which have to be refunded after adjusting the accounts until the term of the contract expires from the amount paid in cash or in kind shall be refunded. In case any service or benefit other than cash or goods has been provided, the beneficiary must pay a reasonable amount to the other party in consideration thereof.

(2) In case it becomes necessary to initiate legal action owing to the non-refundment of the amount paid in cash or kind or the non-payment of amount under Sub-section (1), the concerned party may also realize reasonable expenses incurred for the purpose.

85. Right to recover a reasonable amount: The aggrieved party may claim payment in proportion to the work performed or the amount paid by him/her in cash or in kind in any of the following circumstances;(a) In case the contract is terminated due to the mistake of the other party at a time when he/she has already completed the work to be performed under the contract or was performing it;(b) In case the other party utilizes any service or commodity that has been given to him/her without the clear intention of giving it free of cost.

86. Execution of contract as stipulated (Specific performance ): (1) In case the cash compensation paid in consideration of the actual loss or damage suffered by the aggrieved party as a result of breach of contract is not reasonable or adequate, the aggrieved party may demand the execution of the contract as stipulated specific performance instead of making a claim for compensation.(2) Notwithstanding anything contained in Sub-section (1), no claims for execution of the contract as stipulated specific performance shall be heard in any of the following circumstances;(a) In case the amount paid in cash as compensation for breach of contract is adequate;(b) In case the court cannot supervise whether or not thework to be performed under the contract has been actually performed;(c) In case the contract has been signed for providing services relating to personal expertise, skill or knowledge;(d) In case the situation is -such that the contract cannot be executed as stipulated;(e) In case the party violating the contract him/herself demands that the contract be executed as stipulated.


87. Power of the judiciary to issue orders : (1) In case it becomes impossible to execute the contract because any party about to take any action or

behave in a manner contrary to the nature of the contract, the party aggrieved by such action or conduct may file a complaint with the Appellate Court to stay such action or conduct.

(2) In case a complaint is filled under Sub-section (1), the court may issue an appropriate order to any party to immediately stop his/her specific action or conduct with a provision to settle the dispute resulting from that contract according to the contract or prevailing law, not withstanding, anything contained in prevailing law.

(3) In case such order is issued, the aggrieved party may also realize the additional loss or damage resulting from the failure of the other party to comply with the order issued under Sub-section (2).

Chapter- 13Miscellaneous

88. Prevailing law to be obeyed: In case prevailing law prescribes that any specific procedure must be followed for executing any specific contract, or that any specific contract, must be registered at any government office, a contract signed without fulfilling such formalities shall not be valid.

89. Limitations: (1) In case prevailing law prescribe any specific limitation in respect to any specific contract or any specific matter relating to contracts, such time limits shall be applicable. (2) Complain in respect to the following contracts or matters other than those mentioned in Sub-section (1) shall not be heard unless these are filed within the limitation as mentioned hereunder;

(a) In the case of void a contract, to have them declared void at any time;(b) In the case of a voidable contract, within a year from the date when the party that can have the contract declared void learns about the reason for having the contract declared to be void;(c) In the case of contracts mentioned in Chapter 7, within two years from the date of emergence of the reason for filing a lawsuit;(d) In the case of any other claim under this Act, within two years from the date of emergence of the reason for filing a lawsuit for such a claim.

90. Repeal and saving: The Contract Act 2023 (1966), and the Chapter on Bailment and Deposits of the Muluki Ain (Legal Code) have been repealed.

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Insurance Act, 2049 (1992)

Date of Authentication and publication 2 Paush 2049(16 December, 1992)1. Insurance (First amendment) Act, 2052 2052.9.20 (4 January, 1996)2. Insurance (second amendment) Act, 2058 2058.10.10 B.S. (29 Jan, 2002)3. Amended by the Act Amending Gender equality some Nepal Acts, 2063 .

Preamble: Whereas, it is expedient to establish an Insurance Board to systematize, regularize, develop and regulate the Insurance Business, In the twenty- first year of the regime of HIS MAJESTY KING BIRENDRA BIR BIKRAM SHAH DEVA, the Parliament has made this Act.

Chapter - 1Preliminary

1. Short Title and Commencement: (1) This Act may be called the "Insurance Act, 2049" (1992).(2) It shall come into force on such dates as Government of Nepal, by notification publish in the Nepal Gazette, may appoint.

2. Definition: Unless the subject or context otherwise requires, in this Act:(a) "Board" means the Insurance Board constituted pursuant to Section 3.(b) "Chairperson" means the Chairperson of the Board.(c) "Member" means the Member of the Board and the word includes the Chairperson.(d) "Insurer" means a corporate body registered pursuant to Section 10 and the word includes the re-insurer.(e) "Insurance Business" means Life Insurance Business or Non- Life Insurance Business and the word includes the reinsurance.(f) "Life Insurance Business" means the business relating to a contract regarding to the life of any person under which he/she or his/her heir in the event of his/her death, will be paid a particular amount in case a specified amount is paid in installment on the basis of his/her age.(g) "Non-Life Insurance Business" means other Insurance Business other than the Life Insurance Business.(h) "Re-Insurance Business" means re-insuring the portion of the risk which is excess of the risk to be hold by the Insurer.(i) "Insurance Policy" means a document mentioning the rights and liabilities relating to the contract of the Insurance.(j) "Actuary" means a person having the qualification as prescribed and is appointed by the Insurer for assessing and calculating the liabilities of the Insurance Business.(k) "Insured" a person or organization holding a Life Insurance and Non-Life Insurance Policy.(l) "Insurance Agent" means a person other than a salaried employee of an Insurer who has obtained a license pursuant to Section 30, to work on behalf of the Insurer on the basis of commission.(m) "Surveyor" means a person who has obtained a license pursuant to *Section 30A, to make a financial valuation of the destroyed property and the word includes an adjuster and a person who makes a valuation of losses.(m1) "Broker" means a person who has obtained license pursuant to Section 30B, to work as an intermediary between an Insurer and Insurer relating to the Insurance Business.(n) "Auditor" means an auditor who has obtained a license to audit pursuant to prevailing law.


(o) "Fiscal Year" means the period beginning from 1st day of Shrawan to last day of Ashadh of each year.(p) "Prescribed" or "As prescribed" means prescribed or as prescribed in the Rule made under this Act.

Chapter - 2Formation and Management of the Board

3. Formation of the Board: (1) An Insurance Board shall be formed to systematize, regularize, develop and regulate the Insurance Business.(2) The Board pursuant to Sub-section (1) shall consist of the following Members:(a) A person nominated or designated by the Nepal Government – Chairperson(b) Representative, Ministry of Law, Justice and Parliamentary Affairs – Member(c) Representative, Ministry of Finance – Member(d) A person nominated by the Nepal Government from among the persons having the special knowledge in the Insurance Business – Member(e) A person nominated by the Nepal Government from among the Insured – Member(3) An employee designated by the Board shall perform the duty as a Secretary of the Board.(4) The Nepal Government may make alteration of the Members of the Board by publishing a notification in the Nepal Gazette, if it deems necessary.(5) If it is deemed necessary, the Board may invite any national or foreign experts in the meeting of the Board as an observer.(6) The tenure of the nominated Members of the Board shall be four years. They may be re-nominated up to twice after the expiry of their tenure.(7) The Head office of the Board shall be located in Kathmandu.

4. The Board to be an Autonomous Body: (1) The Board shall be an autonomous and corporate body having perpetual succession.(2) The Board shall have a separate seal for its business.(3) The Board may deal as a person to acquire, possess, dispose or otherwise manage the movable and immovable property.(4) The Board may sue as a person by its own name and the Board also may be sued in its name.

5. Meeting and Decision of the Board: (1) The meeting of the Board shall be held on the date, time and venue as prescribed by the Chairperson.(2) The meeting of the Board shall be held at least eight times per year and not less than twice within three months.(3) The meeting of the Board shall be presided by the Chairperson. In the case of his/her absence, the meeting shall be presided by the person selected from among the Members themselves.(4) The quorum for the meeting of the Board shall be fulfilled in the presence of fifty percent Member of the total Members of the Board.(5) The opinion of majority shall prevail in the meeting of the Board and in case of tie, the chair person may cast decisive vote.(6) The decision of the Board shall be certified by the Secretary.(7) Other procedures relating to the meeting of the Board shall be as determined by the Board itself.


6. Provisions Relating to the Service Conditions and Facilities of the Chairperson:(1) The Nepal Government may appoint or designate a person in the post of Chairperson having special knowledge in the Insurance Business.(2) The Chairperson shall be the Chief Administrative Officer of the Board and shall have the power and duty to execute the decisions of the Board and supervise and control the functions and activities of the Board.(3) The tenure of office of the Chairperson shall be four years and he may be re-appointed or designated.(4) Provisions relating to the service, conditions and facilities of the Chairperson shall be as prescribed.

7. Employees of the Board: (1) The Board may appoint necessary employees as prescribed for the operation of its functions.(2) The remuneration, conditions of service and facilities of the employees of the Board shall be as prescribed.

Chapter – 3Functions, Duties and Powers of the Board

8. Functions, Duties and Powers of the Board: The Functions, Duties and Powers of the Board shall be as follows:(a) To provide necessary suggestions to the Nepal Government to frame the Policy regarding to systematize, regularize, develop and regulate the Insurance Business.(b) To frame a policy for the investment of the amount received from the insurance and to prescribe the priority sectors.(c) To register and renew the *Insurer, Insurance Agent, Surveyor or Broker and to cancel or cause to cancel such registration.(d) To arbitrate in the dispute arises between the Insurer and the Insured.(d1)To make decision on the complaints filed by the Insured against the insurer regarding to the settlement of liability of the Insurance.(d2) To issue necessary directives to the Insurer from time to time regarding to the Insurance Business.(e) To formulate necessary basis for the protection of interests of the Insured, and(f) To do or cause to do other necessary functions regarding to the Insurance business.

9. Sub-Committee may be constituted:(1) The Board may constitute subcommittee as per necessary to conduct its functions smoothly.(2) The functions, duties and powers of the Sub-Committee and the procedures regarding to the meeting shall be as prescribed by the Board.

Chapter-4Registration of Insurer, Cancellation of Registration and Liability

10. Registration of Insurer: (1) No Person shall operate or cause to operate the Insurance Business without obtaining a certificate pursuant to this Act.(2) Any national or foreign corporate body desirous to operate an Insurance Business shall submit an application to the office of the Board in the prescribed form along with the following documents and prescribed fees for the registration of its name as an Insurer:(a) Memorandum and articles of association of the corporate body,CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

(b) Insurance Business to be operated and its policies and terms and conditions,(c) If life Insurance Business to be operated, documents displaying calculations of the premiums to be received in operating such business and liability,(d) The documents regarding the methods of utilizing the amounts to be received from the Insurance, and(e) Other necessary documents as prescribed by the Board.(3) The Board shall make necessary investigation upon the application received pursuant to Sub-section (2) and shall make an inquiry with the applicant, if necessary, and shall register the name of such applicant in the prescribed register-book by mentioning the types of the Insurance Business to be operated by the applicant and shall provide the registration certificate of Insurer to the applicant in the form as prescribed. In case there is any reasonable ground for not registering the name, the Board shall inform the concerned applicant accordingly. (4) Notwithstanding anything contained elsewhere in this Section, in the case of the Life Insurance, the Board shall, with the approval of the Nepal Government, issue a certificate to operate the Business, based on the fulfillment of the criteria which it has fixed, from time to time, in respect of the operation of the Insurance Business.

11. Renewal of Registration of the Insurer: (1) The Insurer shall have to submit an application to the office of the Board in the prescribed form along with the prescribed fees up to the last day of Chaitra of each year for the renewal of the certificate of registration.(2) Upon the receipt of the application pursuant to Sub-section (1), the Board shall have to renew the certificate of registration. (3) In case any Insurer submits an application to the Board within thirty days from the date of expiry of the time-limit pursuant to Sub-section (1), mentioning the reason for its failure to submit an application for the renewal of the certificate of registration within the aforesaid time-limit, the Board may, if it considers the reasons to be appropriate, renew the certificate of registration of such Insurer.

11A. Circumstance on which Certificate of Registration of the Insurer cannot be renewed: (1) Notwithstanding anything contained in Section 11, the Board shall not renew the certificate of registration of the Insurer in any of the following circumstances:(a) If the balance-sheet has not submitted pursuant to Section 23,(b) If the statement of income has not submitted pursuant to Section 24,(c) If the audit report has not submitted pursuant to Section 25,(d) If the report of Actuary has not submitted pursuant to Section 26,(e) If the service-charge has not paid pursuant to Section 40,(f) If it has been prohibited to operate the Insurance Business pursuant to Section 12A.(2) If a circumstance has been created for not renewing the certificate of registration of an Insurer due to any of the circumstance mentioned in subsection (1), the Board shall notify the Insurer within fifteen days from the emergence of such circumstances.(3) If the Insurer has submitted an application to the Board within fifteen days from the date of receiving the notice pursuant to Sub-section (2), stating reasonable grounds for not performing the liabilities to be performed pursuant to Section 23, 24, 25, 26 and 40, the Board may, if it considers the reasons to be appropriate, provide an additional time-limit of up to one month to perform such liabilities.


12. Not to be Registered: Notwithstanding anything contained in Section 10, no national or foreign corporate body shall be registered as an Insurer in the following circumstances:(a) If the name of an Insurer to be registered is identical to the name of another Insurer which has been already registered in the office of the Board, and(a1) If any Insurer wants to be registered for operating Life Insurance and Non-Life Insurance Business, Provided that, the registered Insurer who is operating the Life Insurance and Non-Life Insurance Business before the commencement of this Act, shall operate the business through a separate organization for Life and Non-Life Insurance Business as prescribed from the date specified by the Board.(b) If the paid-up capital does not amount to at least two hundred fifty million rupees for the Life Insurance Business and to at least one hundred million rupees for the Non-life Insurance Business. (c) In the event that the Board has made a decision to ban to register to additional corporate body as an Insurer to operate Insurance Business on the basis of the report, regarding to the study, research and evaluation of the Insurance Business market.12A. A Ban May Be Imposed on the Insurance Business : (1) The Board may impose a ban entirely or partially or may cancel any type of business being operated by the Insurer under the Insurance Business in any of the following circumstances :(a) If the directives provided by the Board time to time regarding the procedures to be followed by the Insurer during the operation of the Insurance Business has been violated,(b) If the Insurer provides loan to any corporate body in which any of its Directors or his/her family is working as a Managing Agent or partner or provides guarantee or security of any kind for any loan provided to him/her by others by violating Section 14,(c) If the Insurer does not provide information to the Board to be provided pursuant to Section 15,(d) If the Insurer does not maintain the accounts and record, to be maintained pursuant to Section 19,(e) If the Insurer does not maintain separate accounts and records to be maintained separately pursuant to Section 20,(f) If the Insurer does not maintain the fund to be maintained by it pursuant to Section 21 or bears liability of one Insurance Business from the fund maintained for another business,(g) If the Insurer does not maintain the compulsory reserve fund to be maintained by it pursuant to Section 22,(h) If the Insurer accepts the insurance risk without receiving the insurance premium pursuant to Section 27,(I) If the Insurer does not re-insure pursuant to Section 28.(2) Before imposing a ban on the Insurance Business of an Insurer pursuant to Sub-section (1), the Board shall provide a reasonable time-limit to submit clarification to the concerned Insurer clearly stating the reasons for imposing the ban on its Insurance Business.(3) If the concerned Insurer does not submit its clarification within the time-limit mentioned in Sub-section (2) or the clarification submitted by it is not found to be satisfactory, the Board may impose a ban on the Insurance Business of the concerned Insurer pursuant to Sub-section (1) and shall publish a notice in two major newspapers to be published in Nepal for the information of public in general.(4) During the time period of a ban on the Insurance Business of any Insurer pursuant to Sub-section (3) such Insurer shall make payment of claims of compensation filed against it as prescribed.(5) If the ban is imposed in the Insurance Business of any Insurer under this section, the Board may, if it finds the evidence submitted by the Insurer within the time-limit by stating that the circumstances for imposing the ban on its business existed no longer to be satisfactory, impose a fine as prescribed and lift the ban.CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

13. Registration of an Insurer may be canceled:(1) The Board may cancel the registration of an Insurer by providing a written notice with effect from the date prescribed in the same notice in the following circumstances:(a) If the Insurance Business is not started within six months from the date of obtaining the certificate,(b) If it is felt that the liability of the Insurer exceeds its assets within Nepal,(c) If the Insurer could not fulfill the liability pursuant to the decision within three months from the date of final decision of the court in the case filed under the Insurance Policy issued within Nepal,(d) If the head office of the Insurance Business of any foreign Insurer is situated outside Nepal and in case it is felt that Nepalese Insurer has not obtained equal facilities there which are enjoyed by the foreign insurer pursuant to the prevailing law of such country,(e) If the Insurer does not open its office inside Nepal,(f) If the Insurer does not perform the functions to be performed or has performed any functions which is not to be performed pursuant to this Act or the Rules made under this Act.(2) Before canceling the registration of an Insurer pursuant to Subsection (1), the Board shall provide a reasonable time-limit to submit clarification to the concerned Insurer, stating the reasons for canceling its registration.(3) If the concerned Insurer does not submit its clarification within the time period mentioned in Sub-section (2) or in case the clarification submitted by it is found not to be satisfactory, the Board shall cancel the registration of such Insurer pursuant to Sub-section (1), and shall publish a notice in two major newspapers to be published Nepal for the information public in general.(4) Mere cancellation of the registration of an Insurer pursuant to this Section shall not make any effect to the rights and liabilities of the concerned Insurer regarding to any action taken or functions performed before the cancellation.

14. Loan, Guarantee and Security not to be provided to the Directors: No Insurer shall provide loans to its Director or #his/her family or any corporate body where he/she is a Managing Agent or partner and no guarantee or surety of any type shall be provided to such person when any person provides loan to him. Provided that, this Section shall not prevail to loans supplied to the extent of the surrender value of the Insurance Policy issued by the Insurer.

15. Notice to be provided : If the Insurer has made any dealing regarding the Insurance Business with its Director or his/her family or any corporate body where he/she is a Managing Agent or partner he/she shall provide a notice to the Board within thirty-five days.

16. Payment of Insurance Claims after the Cancellation of the Insurer: The Insurer, dissolved by the cause of the cancellation of its registration pursuant to Section 13, shall refund the amount received by it for Insurance to the person, organization or the Board, within the period and method specified by the Board. It shall refund the principal amount along with bonus as specified by the Board in the case of Life Insurance and it shall refund the principal amount as specified by the Board on a proportional basis in the case of Non-Life Insurance.

17. Insurer shall be Responsible: (1) The Insurer shall pay the compensation in case any actions against the rights and interests of the Insurance Policy holders cause losses by the Insurer, employees of the Insurer, Insurance Agents or Surveyors.(2)The Insured may submit a complaint to the Board as prescribed, if the liability on the compensation for insurance claim is not assessed within the prescribed period of time or if the liability is assessed to the disadvantage, or if the Insurer does not pay the compensation pursuant to Sub-section (1).


(3)The Board shall make necessary investigation into the complaint submitted pursuant to Sub-section (2) and shall provide a reasonable opportunity to the concerned Insurer to submit clarification upon such complaint.(4) If the clarification submitted by the Insurer pursuant to Sub-section (3) is reasonable, the Board may cancel such complaint by mentioning its ground. If clarification is not reasonable, the Board shall make a decision to pay the reasonable compensation to the complainant.(5) If the Board decides to give compensation to the complainant pursuant to Sub-section (4), the Insurer shall pay such amount for the compensation to the concerned Insured.(6) If an appeal is made against a decision made by the Board to pay compensation to the complaint pursuant to Sub-section (4) and the decision of the Board is upheld, the concerned Insurer shall promptly pay the compensation plus the interest on the amount of compensation to be set at the rate as prescribed, for the period from the date of original decision to the date of final settlement.

18. Appointment of Liquidator: Nepal Government may appoint a liquidator, if any Insurer has been dissolved due to the cancellation of its registration pursuant to Section13, The functions, duties and powers of the liquidator so appointed shall be equivalent to those of a government liquidator pursuant to Company Act, 2053.

19. Accounts and Records of the Insurer:(1) The Insurer shall maintain its accounts and records according to Rules.(2) The situation of actual activity of the Insurer and every item of income and expenditure of the Insurer along with the detail particulars of its assets and liabilities shall be comprehensively mentioned on the accounts and records maintained pursuant to Sub-section (1).

20. Separate Accounts to be maintained:(1) If any Insurer operates any other business along with the Insurance Business, such Insurer shall maintain a separate accounts and records of its Insurance Business.(2) The Insurer who deals with more than one Insurance Business shall maintain separate accounts and records for each category of Insurance Business.

21. Insurance Fund:(1) An Insurer shall maintain separate fund for each category of Insurance Business and the amount to be received from each Insurance Business shall be deposited in the concerned fund.(2) The fund maintained for one category of Insurance Business shall not be utilized to bear the liabilities relating to other category of Insurance Business.22. Compulsory Reserve Fund: Every Insurer shall maintain a reserve fund as specified by the Board for the liability relating to its Insurance Business inside the Nepal.

23. The Balance-sheet to be submitted:(1) The Insurer shall publish the balance sheet and profit and loss account of all transactions regarding the Insurance Business of each year within six months of the expiry of the fiscal year and shall submit a copy to the Board.(2) If any Insurer submits an application to the Board for the extension of the time limit pursuant to Sub-section (1), for submitting the balance sheet and profit and loss account, stating the reasonable ground for its inability to do so within the time-limit, the Board may extend the time-limit up to one month.


24. Account of Income to be submitted:(1) The Insurer shall prepare separate accounts of its income generated from the Insurance Business inside Nepal in the form as specified by the Board and submit them to the Board within six months after the expiry of the fiscal year.(2) If any Insurer submits an application to the Board for the extension of the time-limit pursuant to Sub-section (1), for submitting the account of income stating the reasonable ground for its inability to do so within the time limit, the Board may extend the time-limit up to one month.

25 Audit (1) The Insurer shall have the accounts and records of its Insurance Business audited by an auditor recognized in accordance with the prevailing law and submit a report thereof to the Board no later than ten months from the date expiration of each fiscal year.(2) Comments (inconsistencies and irregularity) made while performing the audit and the clarification of the management relating to it also shall be mentioned in the report pursuant to Sub-section (1).

26. Valuation to be made by an Actuary: The Insurer, who deals with the Life Insurance Business, shall have to assess the financial position and the valuation of liabilities by an Actuary once in every three years. The Insurer shall submit a copy of the reports submitted by the Actuary.

27. Insurance Premium to be Paid Before Holding the Risk: No Insurer shall hold the insurance risk of any category of Insurance Business until it receives the premium of the Insurance to be obtained by it. It shall be deemed that the Insurer has undertaken the Insurance Business only after receiving the Insurance premium by it for holding the risk.Provided that, if any practical difficulty arises due to any reason for paying the amount in a lump sum, this Section shall not be deemed to be prohibited to issue an Insurance Policy on the guarantee of a bank or the Nepal Government relating to the payment of the outstanding amount within a specified period.

28. Re-insurance to be made: The Insurer shall have the risk exceeding the limit of the risk to be held by it re-insured in manner specified by the Board.

29. Legal Representative to be appointed: The Insurer shall appoint a legal representative in his head office inside Nepal.

Chapter –5Provisions Relating to Insurance Agent, Surveyor and Broker

30. Registration of the Insurance Agents: (1) Any person desirous to work as an Insurance Agent possessing a qualification as prescribed shall submit an application to the Board along with the recommendation of the concerned Insurer.(2) After receiving an application pursuant to Sub-section (1), the Board shall make necessary inquiry upon the application, and if he is qualified to get the license, the Board shall provide a license of an Insurance Agent to the applicant in the form as prescribed by receiving the fees as prescribed. If there is any reason for not providing the license, the Board shall provide its information to the concerned applicant.

30A. Registration of the Surveyor: (1) Any person desirous to work as a Surveyor possessing a qualification as prescribed may submit an application to the Board.


(2) After receiving an application pursuant to Sub-section (1), the Board shall make necessary inquiry upon the application, it he is qualified to get the license, the Board shall provide a license of a Surveyor to the applicant in the form as prescribed by receiving the fees as prescribed. If there is any reason for not providing the license, the Board shall provide its information to the concerned applicant.

30B. Registration of the Broker: (1) Any person desirous to work as a Broker possessing a qualification as prescribed shall have to submit an application to the Board.(2) After receiving an application pursuant to Sub-section (1), the Board shall make necessary inquiry upon the application; if he is qualified to get the license the Board shall provide a license of a Broker to the applicant in the form as prescribed by receiving the fees as prescribed. If there is any reason for not providing the license, the Board shall provide its information to the concerned applicant.

31. Term and Renewal of the License: (1)The Insurance Agent, Surveyor or Broker shall submit an application to the office of the Board in the format as prescribed along with the fees as prescribed by up to the last day of Chaitra of each year for the renewal of his license.(2) After receiving an application pursuant to Sub-section (1), the Board shall make the renewal of the license of the Insurance Agent, Surveyor of Broker.(3) If any Insurance Agent, Surveyor or Broker has submitted an application to the Board stating the ground for his/her inability to submit an application for the renewal of the license within the period pursuant to Sub-section (1), and if the Board feels that ground is reasonable the Board may extend the time-limit for a maximum period of six months by receiving the additional fees as prescribed.

32. Disqualification of the Insurance Agent, Surveyor or Broker: No person shall become an Insurance Agent, Surveyor or Broker in the following circumstances:(a) If he/she has not attained the age of sixteen years,(b) If he/she is of unsound mind,(c) If he/she is an insolvent,(d) If he/she has been convicted and sentenced to punishment by a court in the offense involving any type of theft, fraud or misappropriation or embezzlement of the property entrusted to him, or(e) If he/she has done anything in the course of work regarding to the Insurance Business causing loss or damage to the Insurer or Insurance Policy Holder.

33. Cancellation of License : (1) If any Insurance Agent, Surveyor or Broker does not renew his license pursuant to Section 31 or if the Board has become confident that such action has been made against the right and interests of Insurance Policy Holder or committed any action contrary to this Act or the Rules made under this Act, the Board may cancel the license of such Insurance Agent, Surveyor and Broker.(2) Before canceling the license pursuant to Sub-section (1), the Board shall provide a reasonable time-limit to him to submit his clarification in respect to the charge leveled against him.


Chapter —6Fund and Audit

34. Fund of the Board: (1) The Board shall have a separate fund of its own and the following amounts shall consist in the fund :(a) The amount received from the Nepal Government,(b) The amount received from any foreign government or international organization or association,(c) The amount received as name registration and renewed fees etc. from the Insurer, Insurance Agent or Surveyor,(d) The amount received from service charge,(e) The amount received from any other sources.

34A. Expense of the Board to be Borne From the Fund: All the expenses to be incurred on behalf of the Board shall be borne from the amount credited to the fund of the Board pursuant to Section 34.

35. Accounts and Audit (1) The Board shall accurately maintain the accounts and records of its financial transactions. Such accounts shall so indicate, inter alia, the financial transactions, statement of each and every income and expenditure, procurement and sale of goods and detail statements of the assets and liabilities of the Board that the actual situation of the Board is clearly reflected.(2) The audit of the Board shall be done by the Auditor General's Department.(3) If the Nepal Government wishes, may examine or cause to examine the documents relating to the accounts and records of the Board as well as its cash and kinds at any time.

Chapter 7Miscellaneous

36. Punishment: (1) If any Insurer or the Director of the Insurer, employee or Surveyor, Broker or Insurance Agent knowingly violates this Act or the Rules made under this Act or order or directives or does not perform any function to be performed or does any act not to be done, the Board may punish to such Insurer or the Director, employee or Surveyor, Broker or Insurance Agent with a fine ranging from three thousand rupees to ten thousand rupees. If such offense has been made frequently, he will be fined at the rate of extra five hundred rupees for each subsequent offense.(2) If any Insurer or Insurance Agent or Broker has made any Insurance Business without following the procedures to be followed pursuant to this Act, the Board may fine him up to ten thousand rupees.(3) If the accounts, records, register, details, information or any other documents to be maintained, prepared, formed or submitted pursuant to this Act or the Rules made under this Act has not maintained, prepared, formed or submitted in time by knowingly or with malafide intention or has maintained or submitted the false details or documents by any-body, he may be punished with a fine up to thirty thousand rupees or imprisonment up to two years or with both.

37. Appeal: Any person or corporate body dissatisfied with the decision made by the Board pursuant to this Act, may make an appeal in the concerned Appeal late Court within thirty five days from the date of such decision.

38. Payment to be made to Designee: If any Life Insurance Policy Holder dies before the expiry of the term of his/her policy, the amount mentioned in such Insurance Policy shall be paid to the person


designated by him/her therein. If he/she has not designated any person or if the designee has already died, payment shall be made to any of his/her surviving related dependents as follows in the following order and if there are more than one surviving related persons in same order with amount shall be distributed or equal share:(a) Husband or wife of the joint family.(b) Son, sister and widow daughter-in-law of the joint family.(c) Father, mother (in case of the married woman father-in-law, mother-in-law).(d) Grandfather, grandmother who have to be taken care of by him/herself and grandson, granddaughter in the line of the son.(e) Husband, wife who is living separate.(f) Unmarried daughter, son, widow daughter-in-law who is living separate.(g) Father, mother who is living separate.(h) Step son, step daughter of the joint family.(i) Brother, sister of the joint family.(j) Father-in-law, mother-in-law living separate in the case of married woman.(k) Grandson, unmarried grand daughter who living separate.(l) Step mother who is living separate.(m) Step son, unmarried step daughter who is living separate.(n) Husband's elder brother, elder brother's wife, younger brother of the husband, wife of the husband's younger brother in case of married woman.(o) Nephew, niece of joint family.(p) Uncle, widow aunty, elder brother's wife, and daughter-in-law of the joint family.(q) Brother and sister who is living separate,(r) Grandfather, grandmother, grand daughter-in-law, nephew, niece living separately.(s) Person living together with in insured person up to the last stage.(2) If the person designated pursuant to Sub-section (1) dies or if the Insurance Policy Holder wants to replace him, he/she shall write to the concerned Insurer for designating another person. The Insurer also shall have to alter the designated person according to the request of the Insurance Policy Holder and shall provide the written notice thereof to the concerned Insurance Policy Holder.

39. Inquiry or Investigation can be made: (1) The Board may make an inquiry or investigation or cause to make an inquiry or investigation, as per necessity, in the interests of the Insurance Policy Holder or for any other reasonable cause, to any Insurer or Insurance Agent or Surveyor or Broker or Insured as well as including all other related persons or corporate bodies, regarding the Insurance Business and also regarding the other business dealt by any Insurer if it has undertaken any other business.(2) Upon making an inquiry or investigation pursuant to Subsection (1), it shall be the duty of an Insurer, all employees of the Insurer whether they are in service or retired, Insurance Agent, Surveyor or Broker, Insured and all other related persons or corporate bodies, to assist, by providing the accounts, records, registers, book accounts, or any other documents, information and replies, to questions asked during the inquiries or investigation.(3) The expenses incurred for conducting inquiries or investigations pursuant to Sub-section (1) shall be borne by the concerned Insurer.


39A. Special provisions relating to audit of insurer: (1) If the Insurer fails to submit the audit report to the Board within the period of time as referred to in Section 25 or if such report has a reasonable ground to confirm an irregularity committed in the Insurance Business or if a complaint is filed with the Board alleging that the accounts and records of the Insurance Business carried on by the Insurer suffer from irregularity, the Board may audit or re-audit, or cause to be audited or re-audited, the Insurance Business of the Insurer.(2) The Insurer him/herself has to bear all the expenses incurred in the performance of audit or re-audit pursuant to Sub-section (1).

40. Insurance Service Charge: (1) The Board shall provide essential and appropriate service to the Insurer and Insurance Agent.(2) Every Insurer shall pay an amount equal to one percent of the Gross Premium earning from the Insurance Business inside Nepal in each fiscal year to the Board as specified by Board pursuant to Sub-section (1).

41. Insurance Tariff Advisory Committee: (1) The Nepal Government may constitute an Insurance Tariff Advisory Committee to provide necessary advice and recommendation to the Board relating to the determination of the tariff of the Insurance Business consisting the members as follows:(a) Chairperson, Insurance Board –Chairperson(b) Three persons from among the Chief of Insurers as nominated by the Nepal Government –

Member(c) Secretary, Insurance Board –Member-Secretary(2) The procedures regarding to the meeting of the Advisory Committee shall be as determined by

the Committee itself.(3) The functions, duties and powers of the Advisory Committee shall be as prescribed.

41A. No Transaction Relating to the Insurance Business shall be Operated with Others Than the Insurer: No person or corporate body shall operate any transaction relating to the Insurance Business with other person or corporate body than the Insurer having the Certificate of Registration pursuant to this Act.

41B. Order of Priority in Settlement of Liabilities : If any Insurer is dissolved due to the cancellation of its registration pursuant to Section 13, the liabilities shall be settled in the following order of priority :-(a) The expenses incurred for the dissolution,(b) The amount to be paid against the insurance claims to the Insured pursuant to Section 16,(c) The remuneration and other outstanding amounts to be obtained by the employees of the Insurer,(d) Loan amounts,(e) The amount to be paid to the Board,(f) The amount to be paid to the Government of Nepal .

42. Annual Report: (1) The Board shall submit an annual report of the work done by it to the Ministry of Finance Government of Nepal.(2) The Board shall publish a summary of the report submitted pursuant to Sub-section (1) in the local newspaper .


43. Delegation of Power: The Board may delegate its power to the Chairperson, Member, Sub-committee or any employee of the Board as required.

44. The Government of Nepal may Issue Directives : The Nepal Government may issue directives to the Board in the interest and for promotion of the Insurance Business, and it shall be the duty of the Board to comply with such directives.

45. Contact with the Nepal Government: The Board shall make contact with the Government of Nepal through the Ministry of Finance.

46. Prevailing Law to Prevail: This Act shall prevail in matters written in this Act and in other matters prevailing law shall prevail.

47. Power To Frame Rules and By-laws : (1) The Government of Nepal may frame necessary Rules to meet the objectives of this Act.(2) Subject to the provisions of this Act, the Board may, with the approval of the Government of Nepal, frame necessary By-laws.

48. Repeal and Saving:(1) The Insurance Act, 2025 is hereby repealed.(2) All the actions taken and functions performed before the commencement of this Act shall be considered to have been taken or performed pursuant to this Act.

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AUDIT ACT, 2048 (1991)

Date of Authentication and publication: 11 kartik 2048 (October 28, 199l).

Preamble: Whereas it is expedient to make necessary provisions on Audit , Now, therefore, on the twentieth year of the reign of His Majesty King Birendra Bir Bikram Shah Dev, the Parliament has enacted this Act.1. Short Title and Commencement: (1) This Act may be called "Audit Act 2048 (1991)"(2) This Act shall come into force immediately.

2. Definitions: Unless the subject or context requires otherwise in this Act-(a)"Government Office" means all government office and courts, including the Supreme Court, Parliament, commission for investigation of Abuse of Authority Auditor General Public Service Commission and Offices of other constitutional bodies, and Nepal Army and Nepal Police.(b)"Accounts" means the records, ledgers books etc. maintained under prevailing laws showing particulars of transactions, and other documents substantiating such transactions.(c)"Audit" means examination of the accounts and the analysis and evaluation made on the basis thereof.(d)"Corporate body wholly owned by government of Nepal" means a corporate body whose all shares of assets are owned by Government of Nepal, or a corporate body whose all shares or assets are owned by the aforesaid corporate body or by such corporate body and Government of Nepal and this expression shall also include such corporate body for whom Government of Nepal is required to bear full responsibility.(e)"Corporate body substantially owned by government of Nepal" means a corporate body whose more than fifty percent shares or assets are owned by Government of Nepal.

3. Methods of Audit: (1) The Auditor General may conduct final audit of the financial activities and other activities relating thereto of the offices, bodies or organizations under its jurisdiction, either in detail or sporadically or a random basis and present the facts obtained there from, make critical comments thereon and submit its reports.(2) The Auditor General may if it deems necessary in course of audit exercise the following powers -(a) To check at any time the status of the program and project being operated under the grants obtained by Government of Nepal and examine documents relating to accounts;(b) To require contractors of government contracts to produce relevant documents or other evidence relating to the contract, which are supposed to be in his/her possession;(c) To hire services of any expert on the task of audit and, if necessary, engage someone under contract with reasonable remuneration.

4. Matters to be audited: The Auditor General, with due regard to the regularity, economy, efficiency, effectiveness and propriety, shall audit following matters to ascertain whether:(a) The amount appropriated in the concerned heads and subheads by the Appropriation Act for respective services and activities have been expended for the specified purposes of designated services or activities within the approved limit;(b) The financial transactions comply with the existing laws and the evidence relating to items of income and expenditure are sufficient;(c) The accounts have been maintained in the prescribed forms and such accounts fairly represent the position of the transactions;


(d) The inventory of government assets is accurate and up to date and the arrangement for protection and management of governmental property is adequate;(e) The arrangements for internal audit and internal control of cash, kind and other governmental property against any loss, damage and abuse are adequate and if so, are they pursued;(f) The accounts of revenue, all other incomes and deposits are correct and the rules relating to evaluation, realization and methods of book keeping are adequate and if so, are they followed;(g) The accounts relating to public debts, security, deposit, debt relief fund and the amounts set aside for debt services and repayment of debts are accurate;(h) The accounts of income and expenditure of industrial and business services, and their balance of cash and kind, and the arrangements and rules relating to their financial transactions are adequate and if so, are they observed;(i) The organization, management and job allocation of the office are sufficient and proper and are that operating accordingly;(j) Any function is being unnecessarily performed in duplication by any employee or agency or any essential function is being omitted;(k) The available resources, means and assets are properly utilized and the maintenance and perspiration thereof against any loss or damage has been properly arranged;(l) The progress has been achieved within scheduled time and the quality and quantity of the work is satisfactory;(m) The objective and policy of the Office is explicit and the program is delineated conforming to the specified objective and policy;(n) The program is being implemented within the limits of approved cost estimate and the proceeds received in comparison to the cost is reasonable;(o) The arrangements for maintaining data relating to target, progress and cost are adequate and reliable;

5. Matters to be audited in View of Propriety: (1) The Auditor General shall audit following matters considering the propriety thereof-(a) On the propriety of any expenditure and its authorization, if in the opinion of the Auditor General such expenditure is a reckless one or is an abuse of national property, whether movable or immovable, despite that the expenditure confirms to the authorization, and(b) On the propriety of all authorizations issued in respect of any grant of national property whether movable or immovable, fixed or current, or underwriting of any revenue, or any contract, license or permits relating to mining, forest, water resources, etc. and any other act of abandoning movable or immovable, assets of the nation.(2) The Auditor General may not include in the report minor items of discrepancy and other items deemed as insignificant in view of their property which were observed during the audit of income and expenditure.

6. Audit of Corporate Bodies Wholly Owned by Government of Nepal:(1) Notwithstanding anything contained in the existing laws, the audit of the corporate bodies wholly owned by Government of Nepal shall be audited by the Auditor General pursuant to this Act.(2) If the Auditor General is constrained by time and resources to audit the corporate bodies wholly owned by Government of Nepal pursuant to Sub-section (1) he/she may appoint license holder auditors under the prevailing laws an assistant. While appointing auditor as such, he/she shall give priority to the Nepali citizen.(3) The auditor appointed pursuant to Sub-section (2) shall act under the direction, supervision and control of the Auditor General.


(4) The powers, functions, duties and responsibilities of the auditors appointed pursuant to Sub-section (2) and the procedures to be followed by them in course audit and provisions relating to their report shall be as prescribed by the Auditor General.(5) The remuneration to be paid by the concerned organization to the auditors appointed pursuant to Sub-section (2) shall be fixed by the Auditor General keeping in view the volume of financial transactions, status of accounts, number of branches and sub-branches, work load and work progress of the concerned organization.

7. Audit of Corporate Bodies Substantially Owned by Government of Nepal: (1) The audit of the corporate bodies substantially owned by Government of Nepal shall be done in accordance with the prevailing laws relating to such body. (2) Notwithstanding anything contained in Sub-section (1), the Auditor General shall be consulted while appointing an auditor for auditing of the corporate bodies substantially owned by Government of Nepal.(3) The procedures to be followed while consulting the Auditor General for appointing auditors pursuant to Sub-section (2) and on matters to principles of audit to be followed by the auditors during their audit shall be as prescribed by the Auditor General.(4) The concerned organization shall deliver at the Office of the Auditor General a copy of the report submitted by the auditor appointed in consultation with the Auditor General pursuant to Sub-section (2).(5) The Auditor General may issue directives to the concerned organization in respect of the irregularities observed in the report received pursuant to Sub-section (4) and it shall be the duty of concerned organization to abide by such directives.

8. Annual Report of the Auditor General : The Auditor General shall submit its annual audit report, including his/her comments and opinions thereon, to president on the final audit of Government Offices and other offices and organization prescribed by prevailing laws, which are subject to audit by the Auditor General. Provided that the Auditor General may submit a report if he deems necessary at any time to take immediate action against any loss or damage already happened or impending upon to the national assets.(2) President shall forward the Report received pursuant to Subsection (1) to the legislative parliament.

9. Recruitment of Officers and Employees and Condition of Services:(1) There shall be officers and employees as approved from time to time by Government of Nepal in order to assist the Auditor General in the performance of his/her duties. The number of such employees shall not be reduced without the approval of the Auditor General.(2) A separate cadre of officers and employees in the Office of the Auditor General shall be constituted. The recruitment and other conditions of services of the officers and employees within the cadre shall be as prescribed in the Rules to be framed under this Act.

10. Powers to issue Directives by the Auditor General: The Auditor General may, subject to the Constitution of the Kingdom of Nepal, 1990 and the prevailing laws, issue directives to the concerned Government Offices, and Corporate Bodies wholly or substantially owned by Government of Nepal, from time to time to make proper arrangements on matters of accounts and to maintain regularity therein. It shall be the duty of the concerned offices or organizations to abide by such directives.


11. Powers to Frame Rules: Government of Nepal may in consultation with the Auditor General, frame Rules for the implementation of this Act.

12. Action to be taken Against Irregularities: Necessary legal action shall be taken in respect of the faults and irregularities observed during the audit of income and expenditure and other financial matters of Government of Nepal, according to the prevailing laws.

13. Repeal and Savings(1) Audit Act, 2018 is here by repealed.(2) Accounts to be audited under the Audit Act. 2018 shall be audited according to this Act.

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Nepal Chartered Accountants Act, 2053 (1997)

Date of Authentication and Publication: 2053.10.17(30 January 1997)Amendments:1. The Nepal Chartered Accountants (First Amendment) Act, 2059 (2002) 2059.3.24 (8 July 2002)2. Strengthening Republic and Some Nepal Laws Amendment Act, 2066 (2010) 2066.10.7 (31 Jan. 2010) Act No. 22 of the year 2053 (1997).

Preamble: Whereas, it is expedient to established an institute of accountants of Nepal in order to enhance social recognition and faith in the accountancy by raising public awareness towards the importance of the accountancy as well as towards economic and social responsibility of the accountants to have economic development of the country and to have development, protection and promotion of the accountancy by making the accountants understand their responsibility towards the importance of the accountancy and the accounts; Now, therefore, be it enacted by parliament in the Twenty Fifth year of the reign of His Majesty the King Birendra Bir Bikram Shah Dev.


1. Short Title and Commencement: (1) This Act may be called as the "Nepal Chartered Accountants Act, 2053 (1997)" (2) Sections 29 and 49 of this Act shall commence from such date as Government of Nepal may by a Notification in the Nepal Gazette, appoint and the other Sections shall commence immediately.

2. Definitions: In this Act, unless the subject or the contest otherwise requires,-(a) “Institute” means the Institute of Chartered Accountants of Nepal established pursuant to Section 3.(b) “Council” means the Council constituted pursuant to Section 7.(c) “Chairperson” means the chairperson of the Council.(d) “Vice-Chairperson” means the vice-chairperson of the Council.(e) “Councilor” means a member of the Council and this expression also includes the chairperson and the vice-chairperson.(f) “Secretary” means the secretary appointed pursuant to Section 38.(g) “Member” means a person who has obtained membership of the Institute by getting his or her name registered in the Institute pursuant to this Act.(h) “Chartered Accountant” means a person who has obtained the membership of the Institute pursuant to Sub-section (2) of Section 16.(h1) “Fellow Chartered Accountant (FCA)” means a member who has obtained the membership of the Institute pursuant to Section 17.(i) “Registered Auditor” means a person having obtained the certificate of auditor under the Auditors Act, 2031 (1975).(j) “Professional Certificate” means the certificate issued under Section 28 to practice accountancy in a professional manner.(j1) “Auditing” means auditing to be carried out in accordance with the laws in force, after having obtained the professional certificate. (j2) “Foreign Accountancy Practitioner Institute” means a chartered accountants institute of national level or accountancy practitioner institute equivalent thereto which is authorized to regulate public accountancy in a foreign country. (j3) “Accounting Standards Board” means the accounting board formed pursuant to Section 15A.CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

(j4) “Standards on Auditing Board” means the standards on auditing board formed pursuant to Section 15D.(j5) “Accounting Standards” means those accounting standards and guidelines and interpretations pertaining thereto as provided or recommended by the Accounting Standards Board in order to systematize and regulate the accountancy and financial reports.(j6) “Standards on Auditing” means those standards on auditing and guidelines and interpretations pertaining thereto as provided or recommended by the Standards on Auditing Board in order to systematize and regulate the accountancy and auditing.(k) “Prescribed” or “as prescribed” means prescribed or as prescribed in the Rules or Bye-laws framed under this Act.

Chapter-2Establishment and Provision of the Institute

3. Establishment of Institute: (1) An institute by the name of the Institute of Chartered Accountants of Nepal is, hereby, established for the development of the accountancy.(2) The Institute may be called as “the Institute of Chartered Accountants of Nepal” in the English language.(3) The Head Office of the Institute shall be located in Kathmandu Valley, and the Institute may, as per necessity, set up its training centre, branch and sub-branch office in any place within Nepal.4. Institute to be autonomous body:(1) The Institute shall be an autonomous and body corporate with perpetual succession.(2) The Institute shall have a separate seal of its own for its business and acts.(3) The Institute may, like an individual, acquire, own, sell, dispose of, or otherwise deal with, any movable and immovable property.(4) The Institute may, like an individual, sue and also be sued by its own name.5. Objectives of Institute: The objectives of the Institute shall be as follows:(a) To play the role of a regulatory body to encourage the members to carry on accountancy within the scope of the code of conduct in order to consolidate and carry on developing the accountancy for the economic development of the nation.(b) To enhance social recognition and faith in the accountancy by raising awareness of the general public towards the importance of accountancy and the economic and social responsibility of the accountants.(c) To develop, protect and promote the accountancy by making the accountants understand their responsibility towards the importance of the accountancy and accounts.(d) To develop the registration, qualifications of the accountants and the examination system in consonance with international norms and practice so as to make the accountancy respectable and reliable.6. No one else allowed to use name, emblem and power of Institute: Upon the establishment of the Institute pursuant to this Act, no person shall be allowed to use the name or emblem resembling the name of the Institute or to provide the certificate of any type to be granted by the Institute to any one or to give directions of any type to any one on behalf of the Institute as well as to exercise any of such powers as may be exercisable by the Institute.


Chapter-3Constitution and Functions, Duties and Powers of Council

7. Constitution of Council: (1) A Council shall be constituted for carrying out, or causing to be carried out, the programmes necessary for the attainment of the objectives of the Institute in a well planned manner and for monitoring and managing all the acts and actions of the Institute.(2) Except as otherwise provided elsewhere in this Act, the Council shall exercise all the powers and perform all the duties conferred on and assigned to the Institute, subject to this Act and the Rules and Bye-laws framed under this Act.(3) The Council shall consist of the following councilors:(a) Ten persons elected by the chartered accountant members from amongst themselves Member.(b) Four persons elected by the registered auditors from amongst themselves -Member(c) Three persons nominated by Government of Nepal upon the recommendation of the Auditor General, from amongst the persons having experience on accountancy -Member(4) The councilors shall elect the chairperson and the vice chairperson from the first class chartered accountants out of the councilors referred to in Clause (a) of Sub-section (3).(5) The term of office of the chairperson and the vice- chairperson shall be One year; and upon the expiry of their term of office, they may be elected for One more term.(6) The term of office of the councilors shall be Three years; and upon the expiry of their term of office, they may be re-elected or re-nominated.(7) The procedures relating to the election of councilors shall be as prescribed.(8) The functions, duties and powers of the chairperson and the vice chairperson shall be as prescribed.

8. Circumstance where councilor ceases to hold office:(1) A councilor shall cease to hold his or her office in any of the following circumstances: (a) If the councilor ceases to be a member of the Institute, Provided that, this provision shall not be applicable to the nominated councilor;(b) If resignation tendered by the councilor from his or her office is accepted by the Council;(c) If the councilor absents himself or herself from three consecutive meetings of the Council without giving a notice with reason to the Council;(d) If the term of office of the councilor expires;(e) If it is proved that the councilor has not abided by the conduct referred to in Section 34;(f) If the councilor dies.(2) While tendering resignation pursuant to Clause (b) of Subsection (1), the chairperson shall tender it to the vice-chairperson and the other councilors, to the chairperson.

9. Vacancy and fulfillment:(1) Where the remaining term of office of any councilor elected pursuant to Clause (a) or (b) of Sub-section (3) of Section 7, whose office has become vacant due to his or her death or resignation or being disqualified to be a member of the Institute pursuant to the provisions of this Act, is less than One year, the Council shall designate as the councilor any member of the Institute as referred to in the said respective Clauses of Sub-section (3) of the said Section, and where such term is more than One year, the vacancy shall be filled by way of election.(2) Any office falling vacant owing to the death of any councilor or resignation tendered by a councilor nominated pursuant to Clause (c) of Sub-section (3) of Section 7 shall be fulfilled by nominating a person as the councilor by following the procedures set forth in the said Clause, for the remaining term of office of such a councilor.


10. Council:(1) The Executive Director shall convene the meeting of the Council on such date and at such time and place as may be appointed by the chairperson.(2) The Council shall generally meet Six times a year, and the interval between the two consecutive meetings shall not be more than Three months.(3) The chairperson shall chair the meeting of the Council, and in his or her absence, the vice-chairperson and in the absence of both the chairperson and the vice-chairperson; a councilor selected by the councilors from amongst themselves shall chair the meeting of the Council.(4) If Twenty Five percent councilors of the total number of councilors make an application in writing to the chairperson that it is necessary to convene a meeting of the Council, the chairperson shall direct the Executive Director to convene a meeting of the Council within Fifteen days of such application.(5) The presence of Fifty percent councilors of the total number of councilors shall be deemed to constitute a quorum for a meeting of the Council.(6)The majority of opinion at a meeting of the Council shall be deemed to be a decision of the Council, and in the case of a tie, the person chairing the meeting shall exercise the casting vote.(7) The decisions of the Council shall be authenticated by the Executive Director.(8) The Council may, if it deems so necessary, invite any officer of Government of Nepal, any national or foreign expert, advisor or highly reputed person related with the accountancy to attend a meeting of the Council as an observer.(9) Other Rules of procedures relating to the meeting of the Council shall be as determined by the Council itself.

11. Functions, duties and powers of Council: The functions, duties and powers of the Council shall be as follows:(a) To conduct examinations of candidates who join the accountancy.(b) To determine the procedures in relation to the membership of the Institute and registration of name as a member having obtained professional certificate.(c) To provide a person who holds the required qualification with an appropriate type of membership of the Council pursuant to Section 16.(d) To make coordinative development of the accountancy by having maximum utilization of the available means and resources.(e) To determine the qualification required for efficient human resources for the development of the accountancy.(f) To determine the type of curriculum and practical training required to pursue the qualification necessary for obtaining the membership.(g) To carry out different teaching and training programmes in cooperation with any university or other educational institute by the Institute itself.(h) To grant the professional certificate to the members for carrying on the accountancy.(i) To enhance the capacity of members by providing them with career development opportunities.(j) To monitor as to whether or not the members or members having obtained the professional certificate have acted in conformity with the professional code of conduct prescribed for the members or members having obtained the professional certificate.(k) In accordance with the recommendation of the disciplinary committee, to take necessary action against any members and members having obtained the professional certificate for their acts and actions in contravention of the professional code of conduct.(l) To give theoretical or practical directions and guidelines in various aspects of the accountancy and auditing and carry out other functions as may be necessary for the professional development.(m) To observe, or cause to be observed, accounting standards and standards on auditing provided or recommended by the Accounting Standards Board and Standards on Auditing Board, and to regulate whether such standards have been observed or not.CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

(n) To safeguard and promote the rights, interests and reputation of the members.(o) To render advice and suggestion to Government of Nepal for the improvement of the various laws in force in the fields related with industry, commerce, finance, revenue and accountancy. (p) To accept membership of the International Federation of Accountants, and regional and sub-regional federations, and establish contact with the accountants institutes of other countries.(q) To recommend appropriate educational standards for accounting education in coordination with universities and other educational institutes.(r) To conduct necessary trainings, symposia and seminars in order to enhance professional efficiency of the registered auditors.(s) To conduct short term or long term trainings, symposia etc. for the benefit of accountancy human resources in service.(t) To publish materials relating to the accountancy.(u) To operate a library relating to the accountancy.(v) To determine the procedures to be followed by the committees to be formed by the Council.(w) To approve the budget of the Institute and manage the funds.(x) To appoint such employees as may be required for the Institute and prescribe their remuneration and other facilities.(x1) To provide for on-going professional education for members.(x2) To develop educational system in order to prepare account technicians and do necessary acts pertaining thereto.(y) To carry out such other functions as are prescribed by this Act or the Rules and Bye-laws framed under this Act.(z) To carry out such other functions as may be necessary for the attainment of the objectives of this Act.

12. Act and action not to be invalid: In cases where any act and action has been done in pursuance of a decision of the Council when the seat of any councilor is vacant or a person who has not possessed such qualification as required to become a councilor has been elected or nominated as the councilor, such act and action already done shall not be invalid by that only reason.

13. Committees of Council: (1) The Council may form the following permanent committees which shall be responsible to it:

(a) Disciplinary committee;(b) Examination committee;(c) Executive committee;(d) Professional guidance committee.

(2) The Council may, as per necessity, form other committees for the attainment of the objectives of the Institute.

(3) The functions, duties and powers of the committees formed pursuant to this Section shall be as prescribed.

(4) In forming a committee under Sub-section (1), the committee shall not be so formed that the members of one committee, save the chairperson and the vice-chairperson, are also included in another committee.

14. Disciplinary Committee: (1) There shall be a disciplinary committee as follows to inquire into a complaint and recommend the Council for necessary action in cases where anyone lodges a complaint in the Institute that any member has done any act or action contrary to this Act or the Rules or code of conduct framed under this Act, or where the Institute receives such information:


(a) A fellow chartered accountant designated by the Council from amongst the councilors referred to in Clause (a) of Sub-section (3) of Section 7 -

Chairperson(b) Three persons nominated by the Council from amongst the councilors - Member(c) Two persons nominated by the Council from amongst the members - Member(d) One person nominated by the Auditor General - Member

(2) Notwithstanding anything contained in Sub-section (1), the chairperson or any member of the disciplinary committee shall not be entitled to take part and cast vote at a meeting which is to be held to inquire into a complaint made that the chairperson or the member has done any act and action contrary to this Act or the Rules, bye-laws or codes of conduct framed under this Act and to make recommendation to the Council for necessary action.(3) The procedures relating to the meeting of disciplinary committee and the term of office of the chairperson and members of the disciplinary committee shall be as prescribed.(4) The disciplinary committee shall have the same powers as are vested in the court in respect of issuing an order to the concerned person, receiving evidence and examining witnesses.(5) The disciplinary committee shall make recommendation, along with its opinion and finding, to the Council for taking necessary action against a member found guilty from its investigation; and the Council may, in view of such recommendation, impose any of the following penalties on the concerned member, according to the gravity of the offence:(a) Reprimanding;(b) Removing from the membership for a period not exceeding Five years;(c) Prohibiting from carrying on the accountancy for any specific period;(d) Canceling the professional certificate or membership.(6) Where the disciplinary committee, upon investigating the matter that any councilor has done any act or action contrary to this Act or Rules, bye-laws or code of conduct framed under this Act, has made recommendation, along with its opinion and findings, to the Council for instituting necessary action against the councilor, such councilor shall not be entitled to take part and cast vote at the meeting of the Council while taking decision by the Council on such recommendation.(7) Before imposing penalty as referred to in Sub-section (5), the Council shall provide a reasonable opportunity to the concerned member to defend himself/herself.(8) The concerned member may, if he or she is not satisfied with the decision referred to in Sub-section (5), make an appeal to the Court of Nepal.

15. Executive Committee:(1) There shall be formed an executive committee comprising of the following members in order to carry out the day-to-day business of the Institute, under the direction of the Council:

(a) Chairperson - Chairperson(b) Vice-chairperson - Vice-chairperson(c) Two persons nominated by the Council from amongst the councilors - Member

(2) The functions, duties and powers of the executive committee and the procedures of its meetings shall be as prescribed.


Chapter-3AAccounting Standards Board

15A. Formation of Accounting Standards Board: (1) Government of Nepal shall form an Accounting Standards Board in order to systematize and regulate the accountancy and financial reports.(2) The Accounting Standards Board shall consist of the following members:(a) One person nominated by Government of Nepal from amongst the fellow chartered accountants -Chairperson(b) Representative, Ministry of Finance -Member(c) Representative, Office of Auditor General -Member(d) Representative, Office of Financial Comptroller General -Member(e) Registrar, Office of Company Registrar -Member(f) Director General, Department of Tax -Member(g) Chairperson, Securities Board -Member(h) Five persons nominated by Government of Nepal from amongst the chartered accountants, upon the recommendation of the Council -Member(i) One person nominated by Government of Nepal from amongst the registered auditors, upon the recommendation of the Council -Member(3) The Accounting Standards Board may, if it deems so necessary, invite any concerned expert to attend its meeting as an observer.(4) The term of office of the members mentioned in Clauses (a), (h) and (i) of Sub-section (2) shall be Three years, and they may, on the expiry of their term, be reappointed or nominated.(5) The Rules of procedures relating to the meeting of the Accounting Standards Board shall be as determined by the Board itself.(6) The secretariat of the Accounting Standards Board shall be situated in the Head Office of the Institute.

15B. Functions, duties and powers of Accounting Standards Board: The functions, duties and powers of the Accounting Standards Board shall be as follows:(a) To provide for accounting standards, also based on international accounting standards, in order to systematize and regulate the accountancy and financial reports;(b) To prepare appropriate modalities in order to develop accounting standards and publish materials relating to accounting standards;(c) To amend, improve and revise accounting standards;(d) To interpret accounting standards;(e) To perform other acts relating to accounting standards.

15C. Circumstance where member ceases to hold office: (1) A member of the Accounting Standards Board shall cease to hold his or her office in any of the following circumstances:(a) If the member tenders resignation;(b) If the member absents himself or herself from three consecutive meetings of the Accounting Standards Board without giving a notice;


(c) If the member is convicted by a court of a criminal offence involving moral turpitude and punished for such offence;(d) If the member becomes insane;(e) If the member dies;(f) If, in the case of a member of the Institute, the name of the member is removed from the membership register pursuant to Section 22.

Chapter-3BStandards on Auditing Board

15D. Formation of Standards on Auditing Board: (1) Government of Nepal shall form a Standard on Auditing Board in order to systematize and regulate the accountancy and auditing.(2) The Standards on Auditing Board shall consist of the following members:(a) One person nominated by Government of Nepal from amongst the fellow -Chairperson chartered accountants(b) Representative, Ministry of Finance -Member(c) Representative, Office of Auditor General -Member(d) Three persons nominated by Government of Nepal from amongst the chartered accountants, upon the recommendation of the Council -Member(e) One person nominated by Government of Nepal from amongst the registered auditors, upon the recommendation of the Council -Member(3) The Standards on Auditing Board may, if it deems so necessary, invite any concerned expert to attend its meeting as an observer.(4) The term of office of the members mentioned in Clauses (a), (d) and (e) of Sub-section (2) shall be Three years, and they may, on the expiry of their term, be re-appointed or nominated.(5) The Rules of procedures relating to the meeting of the Standards on Auditing Board shall be as determined by the Board itself.(6) The secretariat of the Standards on Auditing Board shall be situated in the Head Office of the Institute.

15E. Functions, duties and powers of Standards on Auditing Board: The functions, duties and powers of the Standards on Auditing Board shall be as follows:(a) To provide for standards on auditing, also based on international standards on auditing, in order to systematize and regulate the accountancy and financial reports;(b) To prepare appropriate modalities in order to develop standards on auditing and publish materials relating to standards on auditing;(c) To amend, improve and revise standards on auditing;(d) To interpret standards on auditing;(e) To perform other acts relating to standards on auditing.


15F. Circumstance where member ceases to hold office: (1) A member of the Standards on Auditing Board shall cease to hold his or her office in any of the following circumstances:(a) If the member tenders resignation;(b) If the member absents himself or herself from three consecutive meetings of the Standards on Auditing Board without giving a notice;(c) If the member is convicted by a court of a criminal offence involving moral turpitude and punished for such offence;(d) If the member becomes insane;(e) If the member dies;(f) If, in the case of a member of the Institute, the name of the member is removed from the membership register pursuant to Section 22.

Chapter-416. Membership of Institute: (1) The membership of the Institute shall be divided into the following classes:(a) Chartered Accountant; and(b) Registered Auditors.(2) The membership of chartered accountant shall, subject to Section 18, be given to a person having possessed the following qualification:(a) One who has a certificate of registered auditor of class ‘A’ pursuant to the Auditors Act, 2031 (1975) or a certificate of registered auditor of class ‘B” based on the ground of having passed the chartered accountancy examination, at the time of the commencement of this Act.(b) One who has passed the chartered accountancy examination or equivalent thereof from the Institute or any foreign other institute of chartered accountants recognized by the Institute and obtained a professional training relating to the accountancy.(3) The membership of registered auditor shall, subject to Section 16, be granted to a person who has obtained the certificate of auditor of class ‘B’, ‘C’, or ‘D’ pursuant to the Auditors Act, 2031 (1975) at the time of the commencement of this Act.

17. Fellow chartered accountant (FCA): The membership of fellow chartered accountant may be granted to the following members in such manner as prescribed:(a) Those who have obtained the certificate of registered auditor of class ‘A’ pursuant to the Auditors Act, 2031 (1975), at the time of the commencement of this Act;(b) The chartered accountant members who have been engaged in the accountancy for at least Five years._ Amended by the Nepal Chartered Accountants (First Amendment) Act, 2059 (2003).18. Disqualification for membership registration: The following person shall not be deemed to be qualified to be enrolled as a member of the Institute:(a) One who has not the qualification referred to in Sub-sections (2) and (3) of Section 16;(b) One who has not attained the age of Twenty One years;(c) …………….(d) One who has become insolvent being unable to repay loan to creditors;(e) One who has been convicted by the court of a criminal offence involving moral turpitude;(f) One who is of unsound mind.


19. Name to be registered: (1) A person who intends to become a member of the Institute and has possessed the qualification referred to in this Act shall submit an application setting out the details as prescribed to the Institute in the format as prescribed.(2) The fees as prescribed shall be paid to have the name registered for the purpose of obtaining membership of the Institute pursuant to Subsection (1).(3) Where a person having possessed the qualification to obtain the membership pursuant to Sub-section (3) of Section 16 desires to have his or her name registered in the membership of the Institute, he or she shall submit an application to the Institute no later than Six months after the date of the commencement of Sections 29 and 49 of this Act, by Government of Nepal upon notification in the Nepal Gazette. A person who fails to submit an application for the membership within that period shall not be entitled to obtain the membership as referred to in this Act.

20. Certificate of membership registration:(1) If a person making application under Sub-section (1) of Section 19 is found to be eligible to be enrolled as a member of the Institute, the Council shall register the name of such person in the membership of the Institute and grant the certificate of membership registration with setting out the class of member, in the format as prescribed.(2) The Institute shall maintain separate membership registration book as prescribed as per the class of membership.(3) Other provisions relating to the registration of membership of the Institute shall be as prescribed.

21. To notify in the event of ceasing to carry on profession or changing address: Where a member ceases to practice his or her profession or change his or her address, he or she shall notify the Institute thereof within Thirty-five days from the date on which he or she ceases to practice the profession or changes the address.

22. Provision on removal and re-registration of name:(1) The Council may issue an order to remove the name of any member from the membership register, in any of the following circumstances:(a) If the member is convicted by a court of a criminal offence involving moral turpitude and punished for such offence;(b) If the member fails to pay the fees required to be paid to the Institute;(c) If the member fails to abide by the professional conduct referred to in this Act and the Rules framed under this Act;(d) If the member becomes insane; or(e) If the member dies.(2) If a person whose name has been removed from membership pursuant to Sub-section (1) makes an application, accompanied by a reasonable ground, to again obtain membership, the Council may decide to grant membership, by re-registering his or her name, upon receipt of the fees as prescribed.

23. Certificate to be cancelled: Where an information is received that the name of any person has happened to be registered in the membership of the Institute by fraud or mistake and such matter is found to be true upon holding an inquiry into the matter, the Council may cancel the membership registration certificate of such person, and also the accountancy certificate, if any, granted to such person; and a notice thereof shall be published in a newspaper.


Chapter-5Provisions Relating to Examination

24. To provide for curricula and course-books: (1) The Council may determine such educational standards, curricula and course-books as required to become an accountancy practitioner or accountancy technician and hold examinations.(2) If, in providing for the examinations as referred to in Sub-section (1), the Council considers necessary, it may also seek advice and assistance of any university in Nepal and accountancy institute or organization in any other country or any expert.(3) The Council may itself or with the assistance of any native or foreign university or other institute hold the examinations as referred to in Sub-section (1).(4) The qualification required to attend an examination relating to accountancy practitioner or accountancy technician shall be as prescribed.(5) The other provisions relating to the holding of examinations shall be as prescribed.(6) The provisions relating to teaching and study to be conducted by the Institute pursuant to this Chapter shall be as prescribed.

25. To issue certificate: The Council shall give certificate, as prescribed, to the person who has passed the examination given pursuant to this Chapter.

Chapter-6Recognition of Educational Qualification

26. Council to give recognition: (1) A person who has passed the chartered accountancy or examination equivalent thereto and taken training from any foreign accountancy practitioner institute shall make an application, as prescribed, to the Institute for the recognition of such examination and training; and if an application is so made for recognition, the Council shall make decision to or not to recognize such examination and training.(2) If the Council holds that any term has to be fulfilled by the applicant prior to recognizing the examination and training referred to in Sub-section (1), such term shall also be specified.(3) If any term to be fulfilled is so specified under Sub-section (2), an application may be term.

27. Recognition to foreign accountancy practitioner institute: (1) The Council may, with the prior approval of Government of Nepal, recognize any foreign accountancy practitioner institutes and the examinations and trainings held and provided by such institutes.(2) The Council shall maintain a list of institutes recognized pursuant to Sub-section (1); and it shall not be necessary to fulfill the procedures set forth in Section 26 in relation to any examinations held and trainings provided by such institutes.


Chapter-7Professional Certificate

28. Professional certificate:(1) A member who intends to provide auditing service shall make an application in the format as prescribed to the Institute to obtain the professional certificate.(2) After the member making application pursuant to Sub-section (1) has fulfilled the terms as prescribed, the Council shall grant the profession certificate in the format as prescribed to such member obtained the professional certificate and require them to observe such terms, and make and enforce the code of conduct for such members.

28A. Registration of accountancy practitioner institute:(1) If a member who has obtained the professional certificate intends to operate auditing service by the name of an accountancy practitioner institute, the member shall make an application in the format as prescribed to the Institute for the registration of such institute.(2) The procedures relating to the registration of the accountancy practitioner institute shall be as prescribed.(3)After the procedures referred to in Sub-section (2) have been fulfilled, the Council shall grant the certificate of registration of accountancy practitioner institute in the format as prescribed.

29. Prohibition on providing auditing service: No person shall be entitled to provide the auditing service without obtaining the professional certificate. Provided that, this Section shall not be deemed to prevent the making of separate provisions and, carrying out regulation, by Government of Nepal in relation to auditing, other than the auditing of any company or professional organization established under the Companies Act.

30. Special provision relating to registered auditor: Notwithstanding anything contained elsewhere in this Act, the Council shall, subject to this Act and the Rules and Bye-laws framed under this Act, classify, as prescribed, the registered auditors existing at the time of the commencement of this Section and grant the professional certificate to them to provide the auditing service pursuant to this Act. Provided that, such registered auditors shall not be deprived of such facilities as they have been obtaining under the Auditors Act, 2031 (1975).

30A. Ceiling of auditing: The ceiling of auditing which the members who have been classified under Section 30 and have obtained the professional certificate can carry out shall be as prescribed by the Council, with the approval of Government of Nepal.

30B. Upgrading of class of professional certificate: The Council may, in pursuance of the procedures as prescribed, upgrade the class of the professional certificate by a registered auditor pursuant to Section 30.

31. Matters to be set out in report: A member having obtained the professional certificate shall set out the matters as prescribed in the report of audit carried out by him or her.

32. Publication of name-list: The Institute shall, no later than Three months after the expiry of each financial year, publish a name-list of members and accountancy practitioners.


33. Fees to be paid: The members, members having obtained the professional certificate and accountancy practitioner institutes registered pursuant to Section 28A, shall pay the fees as prescribed to the Institute.

Chapter-8Conduct

34. Conduct to be observed:(1) The member and member having obtained professional certificate shall fully observe this Act or the Rules framed under this Act.(2) No member shall carry out auditing in collaboration by way of partnership or otherwise with any person who has not obtained the accountancy practitioner certificate of his or her class.(3) No member shall make any kind of partnership in the audit fees or remuneration received or earned by, or sharing in the profits made by, that member with any person other than a person who has obtained member of the Institute nor shall he or she give commission, brokerage etc. from the professional fees which he or she has received or earned to any person including a person who has obtained membership.(4) No member shall, showing fear, terror, swank or influence, whether directly or indirectly, any person in order to get the business of accountancy practice.(5) No member shall supply or disclose any information and explanation which he or she has got in the course of his or her business to any person other than the person who employs him or her and the person to whom he or she is compelled by the laws in force to supply or disclose such information and explanation.(6) No member having obtained the professional certificate shall certify any financial returns or make any kind of report without making examination and verification by himself or herself or his or her partner or employee.(7) While making any kind of report or certifying any financial returns of an organization in which he or she or his or her partner has interest, a member having obtained the professional certificate shall also clearly set down that he or she or his or her partner has such interest.Provided that, where such member is merely a shareholder of a company, he or she shall not be deemed to have an interest.(8) A member having obtained the professional certificate shall clearly show any material details known to him or her in order to actually reflect any financial statements certified by him or her or shall also clearly mention the false details or explanations, if any, inherent in the financial statements certified by him or her, to the best of his or her information.(9) A member having obtained the professional certificate shall carefully perform the duties required to be performed in the course of practicing his or her profession and shall draw attention of all the concerned towards any material things which are not or have not been done in consonance with the laws in force and the recognized principles on auditing.(10) No member having obtained the professional certificate shall base the remuneration to which he or she is entitled for his or her work on a percentage of profits or on any other uncertain result.(11) No member shall knowingly or recklessly mention any false matter in any notice, explanation or statement required to be given to any office or department of Government of Nepal or any organization.(12) No member shall carry out auditing of an organization for which he or she has served, prior to the expiry of at least three years of his or her retirement from the service of that organization.(13) No member having obtained the professional certificate shall accept his or her appointment as an auditor of any organization without ascertaining that the procedures required by the laws in force for appointment as an auditor have been fulfilled.


(14) A member shall obtain ample related information prior to expressing his or her opinion about auditing.(15) Other matters relating to conduct to be observed by the member and the member having obtained the professional certificate shall be as prescribed.

35. Complaint to be made:(1) Where a member having obtained the professional certificate does not observe the conduct set forth in this Act or the Rules framed under this Act or such member violates this Act or the Rules framed under this Act, the concerned person may make a complaint to the Institute against such member.(2) Where there is found a fact to believe that a member having obtained the professional certificate has not observed the conduct required to be observed, the secretary shall submit a motion, accompanied by the available fact, to the Council for taking action against such member.

Chapter-9Fund

36. Fund of Institute: (1) The Institute shall have a separate fund of its own; and the fund shall consist of the following amounts:(a) Grants received from Government of Nepal;(b) Amounts received from any international or foreign organizations or institutions; Provided that, prior approval of Government of Nepal shall be obtained prior to obtaining such amounts.(c) Amounts received while registering the names of members of the Institute or issuing the professional certificate;(d) Amounts earned from the movable and immovable properties of the Institute;(e) Amounts received by the Institute from any other sources.(2) All amounts to be received by the Institute shall be credited to an account to be opened with any commercial bank within Nepal.(3) All expenditures to be incurred by the Institute shall be chargeable on the fund as referred to in Sub-section (1). Provided that, any amount received by the Institute for any specific purpose shall be spent for that purpose only.(4) The secretary shall make expenses chargeable on the fund subject to the control and supervision of the Council.(5) The account of the Institute shall be operated as prescribed by the Council.

37. Accounts and audit of fund of Institute: (1) The accounts of the incomes and expenditures of the Institute shall be maintained in the format as prescribed by the Council.(2) The accounts of the Institute shall be audited by a member having obtained the professional certificate.(3) Government of Nepal may, if it so wishes, inspect, or cause to be inspected, any documents relating to the accounts of the Institute at any time.


Chapter-10Provisions Relating to Employees

38. Executive Director: (1) The Council shall appoint any person who has experience in accountancy to the post of executive director in order to carry out administrative activities of the Institute.(2) The term of office of the secretary shall be four years, and the council may, if it so wishes, re-appoint him or her.(3) The Council may designate any officer employee of the Institute to perform the functions of the executive director during the absence of the latter.

39. Functions, duties and powers of secretary: (1) The functions, duties and powers of the secretary shall be as follows:(a) To be responsible to the Council and act as the chief of the Institute;(b) To perform the day-to-day administrative business of the Institute;(c) To prepare the annual budget of the Institute and submit it to the Council;(d) To maintain, or cause to be maintained, the accounts of the Institute;(e) To take custody of, and update, or cause to be updated, the register of members and members having obtained the professional certificate.(2) The secretary shall act under supervision and control of the Council.(3) The functions, duties and powers, other than those set forth in this Act, shall be as prescribed.

40. Other employees of Institute: (1) The Council shall appoint the employees required for the Institute, who shall be under direct supervision and control of the Director General.(2) The remuneration, terms and conditions of service and facilities of the employees of the Institute shall be as prescribed.

Chapter-1141. Punishment: (1) A person who carries out auditing without obtaining the professional certificate pursuant to this Act shall be punished with a fine not exceeding Two Thousand Rupees or with imprisonment for a term not exceeding Three months or with both.(2) Any person who uses the name, emblem of the Institute or any kind of power exercisable by the Institute in violation of Section 6 shall be punished with a fine not exceeding One Thousand Rupees for the first instance; and where such person is held to have committed such act even thereafter, such person shall be punished with a fine not exceeding Five Thousand Rupees or with imprisonment for a term not exceeding Six months or with both, for each instance. Provided that, this Sub-section shall not apply to any statutory body corporate or university or organizations associated with such body.(3) Where any person who has not obtained the professional certificate is proved to have signed any document in capacity of a member having obtained the professional certificate shall be punished with a fine not exceeding Two Thousand Rupees or with imprisonment for a term not exceeding Three months or with both.(4) A member who does any act in violation of this Act or the Rules framed under this Act, except any act set forth in this Section, shall be suspended for a period not exceeding Five years and be punished with a fine not exceeding Two Thousand Rupees or with imprisonment for a term not exceeding Three months or with both.


(5) Where it is held that any person has, without any reasonable cause to make a complaint, made a complaint against any member with intent to harass such member, such person shall be punished with a fine not exceeding One Thousand Rupees.(6) Where such complaints are made to the Council against any member pursuant to Section 35, the cases other than those to be dealt with under Section 14 shall be instituted in the concerned Court of Appeal


42. Formation of ad hoc council: (1) Notwithstanding anything contained elsewhere in this Act, pending the formation of the Council pursuant to Section 7, there shall be formed an ad hoc council consisting of the following members in order to perform the functions to be performed by the Council under this Act in relation to issue the membership registration certificate by registering the name of a person who has the qualification to become a member of the Institute and to hold election to the councilors representing the members to the Council:(a) Chairperson, Nepal Chartered Accountants Association -Chairperson(b) Three persons nominated by Government of Nepal from amongst the auditors who have been registered as auditors under the Auditors Act, 2031 (1975) -Member(c) Gazetted first class officer designated by Government of Nepal -Member secretary(2) The ad hoc Council formed pursuant to Sub-section (1) shall complete election to the councilors representing the members to the Council no later than Six months after the date of the commencement of this Act.(3) The ad hoc Council formed pursuant to Sub-section (1) shall determine the rules of procedures of its meetings and other modus operandi on its own.(4) The ad hoc council formed pursuant to Sub-section (1) shall ipso facto be dissolved upon the formation of the Council pursuant to Section 7. After ad hoc council is so dissolved, all acts and actions done and taken by that ad hoc Council on behalf of the Council shall be deemed to have been done and taken by the Council itself.

43. Saving of act done in good faith: Any member of the Council or a committee of the Institute or secretary or employee of the Institute shall not be personally liable for any act and action done and taken in good faith in accordance with this Act or the Rules framed under this Act.

44. Delegation of power:(1) The Council may delegate any or all of the powers conferred to it under this Act to any committee or the secretary, as per necessity.(2) Any officer may so delegate any of the powers conferred to that officer under this Act to any officer employee who is subordinate to that officer as such powers are to be exercised under his or her general supervision.

45. Power to give direction: (1) Government of Nepal may give necessary direction to the Council in relation to the activities of the Institute.(2) The Auditor General may give necessary direction to the Council in relation to the development, protection and promotion of the accountancy.(3) It shall be the duty of the Council to abide by the direction given by Government of Nepal or Auditor General pursuant to Sub-section (1) or (2).


46. Liaison with Government of Nepal: While making contact with Government of Nepal, the Institute shall do so through the Ministry of Finance.

47. Power to frame Rules: (1) The Council may frame necessary Rules in order implement the objectives of this Act.(2) Notwithstanding anything contained in Sub-section (1), where the Council is not formed pursuant to Section 7, the ad hoc council formed pursuant to Section 42 for the purpose of giving certificate of registration of membership of the Institute and holding election to the councilors may frame necessary Rules.(3) The Rules framed pursuant to Sub-sections (1) and (2) shall come into force only after being approved by Government of Nepal.(4) The Rules framed by the ad hoc council pursuant to Sub-section (2) shall ipso facto be inoperative upon the coming into force of the Rules framed by the Council pursuant to Sub-section (1).

48. Power to frame Bye-laws: The Council may, subject to this Act and the Rules framed under this Act, frame Bye-laws for the operation of the day to day activities of the Institute.

49. Repeal and saving: (1) Auditors Act, 2031 (1975) is, hereby, repealed.(2) Where an auditor who is recognized by the Office of Auditor General under any law in force is

recognized as a recognized auditor for the purpose of that law, such recognized auditor shall, after the commencement of this Act, be deemed to mean a member having the professional certificate under this Act.

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Nepal Rastra Bank Act, 2058 (2002)

Date of Authentication and publication 17 magh 2058 (January 30, 2002)Preamble: Whereas, it is expedient to establish a Nepal Rastra Bank to function as the Central Bank to formulate necessary monetary and foreign exchange policies, to maintain the stability of price, to consolidate balance of payment for sustainable development of the economy of Nepal, and to develop a secure, healthy and efficient system of payment; to appropriately regulate, inspect and supervise in order to maintain the stability and healthy development of banking and financial system; and for the enhancement of public credibility towards the entire banking and financial system of the country. Now, therefore, be it enacted by Parliament in the first year of reign of His Majesty the King Gyanendra Bir Bikram Shah Dev.


1. Short Title and Commencement: (1) This Act may be called "Nepal Rastra Bank Act, 2058 (2002)".(2) This Act shall come into force immediately.

2. Definition: Unless the subject or context otherwise requires, in this Act,(a) "Bank" means the Nepal Rastra Bank established under Section 3.(b) "Board" means the Board of Directors of the Bank constituted under Section 14.(c) "Director" means a member of the Board and this expression also includes the Governor and Deputy Governors.(d) "Governor" means the Governor of the Bank appointed under Section 15.(e) "Deputy Governor" means the Deputy Governor of the Bank appointed under Section 16.(f) "Commercial Bank" means a commercial bank established under the prevailing laws.(g) "Financial Institution" means a financial institution established under the prevailing laws with the objectives of providing loans for agricultural cooperative, industrial or any other specific economic purpose or of collecting deposits from the general public and this expression also includes an institution prescribed as financial institution by Government of Nepal upon publishing notice in the Nepal Gazette.(h) "Money" means all types of currency notes, postal orders, postal notes, money orders, cheques, drafts, traveler's cheques, letters of credit, bills of exchange, promissory notes and credit cards and this expression also includes similar types of monetary instruments as the Bank may prescribe, as per the requirement, through the publication and transmission of public notice.(i) "Currency Note" means the bank note in circulation in the form of cash and this expression also includes coin.(j) "Foreign Currency" means the currency other than the Nepalese currency and this expression includes the special drawing rights on the International Monetary Fund, the Asian Currency Units, the European Currency Units and other instruments as the Bank may prescribe, as per the requirement, by publication and transmission of public notice.(k) "Nepalese Currency" means the currency of Nepalese rupee denomination.(l) "Convertible Foreign Currency" means the foreign currency, which have been prescribed by the Bank as convertible foreign currency, as per the requirement, by publication and transmission of public notice.(m) "Foreign Exchange" means foreign currency, all types of deposits, credits, stocks, foreign securities payable in foreign currencies and the cheques, drafts, traveller's cheques, electronic fund transfer, credit cards, letters of credit, bills of exchange, promissory notes in international circulation payable in


foreign currencies; and this expression also includes whatsoever, type of other monetary instrument as the Bank may prescribe, as per the requirement, by publication and transmission of public notice.(n) "Foreign Exchange Transaction" means the acts of purchase and sale of foreign exchange or the acts of borrowing, giving credits, and of accepting or providing foreign exchange in any manner whatsoever, and this expression also includes the act of granting approval for foreign exchange by the Bank.(o) "License holder" means an individual, firm, company or institution that has obtained license from the Bank for foreign exchange transaction.(p) "Letter of Credit" means an instrument issued by a bank to another bank instructing to accept cheque, draft, hundi or bill of exchange drawn by specified person up to the limit of specified amount.(q)"Securities" means share, stock bond, debenture, debenture stocks issued by any corporate body or a certificate of unit saving scheme or collective saving scheme (mutual fund) or transferable certificate of deposit issued by a corporate body in accordance with laws, and this expression also include the securities or receipt of deposit (pledge) of such securities, and interest in securities prescribed by Government of Nepal upon publishing notification in the Nepal Gazette.(r) "Negotiate" means the act of transferring an instrument to any person having the right to hold negotiable instruments enabling him/her to become a bearer.(s) "Negotiable Bill of Exchange" means letter of credit, bill of exchange or cheques.(t) "Bill of Exchange" means an unconditional order in writing, addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand, or at a fixed or determinable future time, a sum certain in money to or to the order of a specified person or to bearer.(u) "Promissory Note" means an instrument signed by a person with an undertaking to pay, without any condition, a fixed amount to any particular person referred to in such instrument or to the person ordered by such person or to the bearer of such instrument on a fixed date or on demand.(v) "Cheque" means a bill of exchange drawn on any bank ordering it to make payment on demand.(w) "Credit" means a direct or indirect promise to invest money and the right to recover such amount of investment in return and the interest of such credit or payment of other charges, the refinance given against the security of credit or investment restructuring and renewal of credit, the guarantee made for repayment of credit or any other promise for such repayment, and this expression also includes any type of debt.(x) "Account" means the record, registers and books to be maintained as per prevailing laws to keep the record of transactions, and this expression also includes other documents to prove the said transactions.(y) "Credit security” means any bill of exchange of indebtedness and any other instrument equivalent to such instruments of indebtedness, whether in certified or in book entry form.(z) "Monetary liability" means the bank notes and coins in circulation existing in the balance sheet of the Bank.(aa) "International Account Standard" means the account standard of international level.(ab) "Employee" means a person holding a post in the Bank an individual presently employed in any post of the Bank.(ac) "Prescribed" or "as prescribed" mean prescribed or as prescribed in the Rules or Bye-laws framed under this Act.


Chapter - 2Establishment, Objectives and Functions, Duties and Powers

3. Establishment of the Bank: (1) There shall be a Central Bank established in the name as NEPAL RASTRA BANK in order to carry out the functions of Central Bank.(2) The Nepal Rastra Bank established under the Nepal Rastra Bank Act, 2012 (1955) shall be deemed to have been established under this Act.(3) The Bank shall be an autonomous and corporate body with perpetual succession.(4) There shall be a separate seal for transaction of business of the Bank.(5) The Bank may, subject to this Act, acquire, utilize, retain, sell and otherwise dispose of or manage movable and immovable property.(6) The Bank may sue in its name and the Bank may also be sued in the same name.(7) The Central office of the Bank shall be located at Kathmandu and the Bank may open branch, sub-branch and other offices at any place within and outside Nepal and appoint agent or representative as per its requirement.

4. Objectives of the Bank: (1) The objectives of the Bank shall be as follows:-(a) To formulate necessary monetary and foreign exchange policies in order to maintain the stability of price and balance of payment for sustainable development of economy, and manage it;(b) To promote stability and liquidity required in banking and financial sector;(c) To develop a secure, healthy and efficient system of payment;(d) To regulate, inspect, supervise and monitor the banking and financial system; and(e) To promote entire banking and financial system of the Nepal and to enhance its public credibility.(2) The Bank shall, without any prejudice to the objectives referred to in Sub-section (1), extend co-operation in the implementation of the economic policies of Government of Nepal.

5. Functions, Duties and Powers of the Bank:(1) In order to achieve the objectives referred to in Section 4, the functions, duties and powers of theBank shall be as follows:(a) To issue bank notes and coins;(b) To formulate necessary monetary policies in order to maintain price stability and to implement or cause to implement them;(c) To formulate foreign exchange policies and to implement or cause to implement them;(d) To determine the system of foreign exchange rate;(e) To manage and operate foreign exchange reserve;(f) To issue license to commercial banks and financial institutions to carry on banking and financial business and to regulate, inspect, supervise and monitor such transactions;(g) To act as a banker, advisor and financial agent of Government of Nepal;(h) To act as the banker of commercial banks and financial institutions and to function as the lender of the last resort;(i) To establish and promote the system of payment, clearing and settlement and to regulate these activities; and(j) To implement or cause to implement any other necessary functions which the Bank has to carry out in order to achieve the objectives of the Bank under this Act;


(2) While exercising the powers conferred by this Act or any other prevailing law, the Bank shall have power to carry out other functions and take actions, which are incidental thereto.(3) No one shall violate powers conferred on the Bank under this Act.

6. Prior Right of the Bank:For the purpose of recovering any loan, which the Bank has given to any borrower or any other type of claim of the Bank against any borrower, the Bank shall have prior right of security over cash deposited in an account in the name of such borrower at the Bank or in any commercial bank or financial institution or against any other movable and immovable property owned by the borrower for the purpose of recovering such loan.(2) The Bank shall recover its loan by taking into its custody the cash or movable or immovable property having its prior right and selling such property as prescribed.

7. Functions not to be Carried out by the Bank:(1) Except otherwise provided for in this Act, the Bank shall not carry out the following functions:-(a) Providing any loan, accepting any type of deposit or making any type of financial gift;(b) Purchasing shares of any commercial bank, financial institution, public corporation or a company or acquiring any type of proprietary right in any financial, commercial, agricultural, industrial or other institution;(c) Carrying out any type trade; and(d) Acquiring right over movable and immovable property by way of purchase, lease or in any manner whatsoever.Provided that the Bank may acquire such property as required for carrying out its function or for achieving its objectives.(2) Notwithstanding anything contained in Sub-section (1), the Bank may carry out the following functions: -(a) To provide loan to and invest in the shares of the institutions which carry out the functions helpful in carrying out the function of the Bank or in attaining its objectives, not exceeding ten percent of the total capital of such institutions.

Explanation: For the purpose of this Clause, "institutions which carry out the functions which are helpful in carrying out the functions of the Bank or in attaining its objectives" means any institutions, companies which are exclusively engaged in evaluating, managing, protecting the security, restructuring and transferring the securities of commercial banks or of financial institutions, carry out the function of credit rating, exchange of credit information, process and transmit data, print financial instruments, clearing payments, liquidate property, produce bank notes and coins and act as trustee and any other institution or companies established for carrying out similar function and prescribed by the Bank.(b) To provide loan to its own employees.

8. Privileges and Facilities to the Bank: Notwithstanding anything contained in the prevailing laws, the Bank shall be entitled to the following privileges and facilities: -(a) Exemption from all types of taxes, fees and charges on the incomes, capital transactions, houses, land, assets etc.;(b) No requirement for the payment of registration fee for registration of the deeds of loan or refinance to be given by the Bank;


(c) No requirement of revenue stamps on any of the documents relating to the Bank;(d) There would be no tax, fee, charge, duty on the export and import of bank notes, coins, gold, silver and the paper, metal, chemicals, and other materials to be used for printing bank notes and minting coins.

9. Relation between Government of Nepal and the Bank: Any contact by Government of Nepal with the Bank and by the Bank with Government of Nepal under this Act, shall be made through the Ministry of Finance.

10. Coordination with Public Bodies: (1) The Bank may, in order to achieve its objectives, make necessary coordination with public bodies or their agencies or their organs.(2) The Bank shall, on the request made by Government of Nepal, provide necessary information on the balance of payment, banking and financial matters.(3) Government of Nepal, public bodies and the private sector shall, in the event of request made by the Bank, provide necessary information on economic and financial matters.

11. International Cooperation and Relationship:(1) The Bank shall represent Nepal in international organizations and associations on the matters within the jurisdiction of working areas of the Bank such as monetary policy, foreign exchange policy, and the balance of payment, bank supervision and other related matters.(2) The Bank may provide the services of banking and payment to foreign government, foreign central banks, foreign bank and international organizations, or associations, and obtain similar type of facilities from them.(3) The Bank shall take part in international organizations or associations working for the financial and economic stability through international monetary cooperation.(4) The Bank, while taking part in international organizations or association as a representative of Nepal, shall assume the responsibility and undertake the functions to be carried out on behalf of the country.

12. Flow of Public Information: The Bank shall publish and transmit, on regular basis, the information on the data based analysis conducted by it on macro economy, development of financial market, monetary circulation , price stability, balance of payment and foreign exchange etc.

13. Operation of Accounts: The Bank may open and operate account for Government of Nepal and other governmental bodies, commercial banks and financial institutions, public corporations, foreign diplomatic missions, foreign central banks, foreign banks and international organization, associations. The procedures for opening and operating such accounts shall be as prescribed by the Bank. Provided that, the Bank shall not operate account for any individual, industry and political organization.


Chapter -3Formation of Board and Functions, Duties and Powers

14. Formation of the Board: There shall be a Board of Directors in the Bank consisting of the following members:-(a) Governor -Chairperson(b) Secretary, Ministry of Finance -Member(c) Two Deputy Governors -Member(d) Three Directors appointed by the Government of Nepal from amongst the persons renowned in the fields of Economic, Monitory, Banking, Finance and Commercial Law -Member

15. Appointment of the Governor:(1) Government of Nepal, the Council of Ministers shall appoint Governor on the basis of the recommendation of the Recommendation Committee formed pursuant to Sub-section (2).(2) Government of Nepal, the Council of Ministers shall, for the appointment of Governor, form a Recommendation Committee as follows:-

(a) Minister of Finance -Chairperson(b) One person from among the former Governors - Member(c) One person designated by Government of Nepal from amongst the persons renowned in the fields of Economic, Monitory, Banking, Finance and Commercial Law. -Member

(3) While making recommendation for the appointment of Governor, committee formed pursuant to Sub-section (2), shall recommend to Government of Nepal, the Council of Ministers the names of three persons renowned in the field of economic, monetary, banking, finance, commerce, management, commercial law and from among the Deputy Governors.(4) Government of Nepal, the Council of Ministers shall, out of the names recommended pursuant to Sub-section (3), appoint one person to the Office of Governor.

16. Appointment of the Deputy Governor: (1) Government of Nepal, the Council of Ministers shall, on the recommendation of the Governor, appoint Deputy Governor.(2) The Governor shall, while making recommendation for appointment of Deputy Governor pursuant to Sub-section (1), recommend names, double in number of the post falling vacant from among the special class officers of the Bank on the basis of their performance and capability.(3) Person appointed in the post of Deputy Governor under this Section shall be deemed to have been automatically retired from the service of the Bank.

17. Appointment of the Directors:(1) Government of Nepal, the Council of Ministers shall appoint Directors.(2) Government of Nepal, the Council of Ministers shall, while appointing Directors, appoint them each representing different sectors from amongst the persons renowned in economic, monetary, banking, financial, commercial, management and commercial law sectors.

18. Tenure of Office of the Directors:(1) The tenure of Office of the Governor, Deputy Governor and Directors shall be of five years.(2) Government of Nepal may, reappoint the retiring Governor for one term and the retiring Directors for any term, if it is deemed necessary.


19. Remuneration and other Benefits of the Directors:The remuneration and other benefits of the Governor, Deputy Governor and Directors shall be as prescribed by the Board.

20. Qualifications of the Directors: In order to be appointed to the post of Governor, Deputy Governor and Directors, a person shall have to meet the following qualifications:-(a) A Nepalese citizen;(b) Having higher moral character;(c) Having work experience in economic, monetary, banking, financial and commercial law sectors after having attained at least master's degree in economics, monetary, banking, finance, commerce, management, public administration, statistics, mathematics and law.

Explanation:- For the purpose of this Clause, "work experience" means the experience of works in the post of special class of Government of Nepal or of the Bank or in the post of a university Professor or in the post of Executive Chief of class 'A' of a commercial bank or of a financial institution or in the equivalent post or in the post higher than those in terms of the order of protocol.(d) Not disqualified under Section 21.

21. Disqualification of the Directors: None of the following persons shall be eligible for appointment to the Office of the Governor, DeputyGovernor and Director:-(a) Member or official of a political party, or(b) The person blacklisted in relation to transaction with a commercial bank or financial institution, or(c) An official currently engaged in any commercial bank or financial institution, or(d) A person having five percent or more shares or voting right in a Commercial Bank or financial institution, or(e) A person rendered bankrupt for being unable to pay debts to creditors, or(f) A insane person, or(g) A person convicted by a court in an offence involving moral turpitude.

22. Grounds for Removable of the Directors from Office: (1) Government of Nepal, the Council of Ministers shall remove the Governor, Deputy Governor and Director on conditions stipulated under Sub-section (5). Provided that Government of Nepal shall not deprive the concerned person from a reasonable opportunity to defend himself/herself prior to remove him/her from his/her office.(2) Government of Nepal shall, remove the Governor from his office pursuant to Sub-section (1), on the recommendation of an inquiry committee constituted under Section 23.(3) While removing a Director or Deputy Governor pursuant to Subsection (1), Government of Nepal shall cause to conduct an inquiry by committee and remove him/her from the office on the basis of the recommendation made by the committee.(4) Once Government of Nepal initiates the process for removing the Governor, Deputy Governor and Director pursuant to Sub-section (1), they shall be deemed to have been ipso facto suspended from the office.(5) The Governor, Deputy Governor and Director shall be removed from the office on any of the following grounds:-(a) If one is disqualified to become a Director pursuant to Section 21; or(b) The lack of capability to implement or cause to implement the functions which the Bank has to carry out in order to achieve the objectives of the Bank under this Act; orCIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

(c) If one has committed any act causing loss and damage to the banking and financial system of the country; or(d) If one is found to have acted dishonestly or with mala fide intention in any transaction related to the business of the Bank; or(e) If professional license is revoked or prohibited from carrying out any profession rendering disqualified to be engaged in any trade or profession on the ground of gross misconduct; or(f) If one is absent for more than three consecutive meeting of Board without a genuine reason;(6) Except on the grounds referred to in sub-section, no Governor, Deputy Governor and Director shall be removed from office.

23. Constitution, Functions and Duties of Inquiry Committee: (1) Government of Nepal shall, prior to removing the Governor from office under Sub-section (2) of Section 22, constitute an Inquiry Committee consisted as follows, and remove the Governor from the Office on the basis of the recommendation of such committee:-(a) The person designated by Government of Nepal from amongst the retired Justices of the Supreme Court - Chairperson;(b) Two persons designated by Government of Nepal from amongst renowned persons belonging to economic, monetary, banking, financial, commercial or management sectors - Member(2) The Inquiry Committee may, prior to submission of its recommendation to Government of Nepal along with its findings, record the statement and conduct inquiry with, the concerned person.(3) The Inquiry Committee may fix its procedure to be followed in connection with the inquiry.(4) The Inquiry Committee shall submit its recommendation along with its findings to Government of Nepal within one month.

24. Resignation by Director: The Governor, Deputy Governor or Director may resign from his/her office by tendering a written resignation to Government of Nepal.

25. Public Notification of Governor's Appointment: Government of Nepal shall, normally one month prior to the vacancy in office of the Governor, make appointment to the office of Governor in accordance with this Act and issue and transmit public notice of such appointment.

26. Fulfillment of Vacant Office: In cases the office of the Governor, Deputy Governor and Director falls vacant before expiry of the tenure of office, Government of Nepal shall, appoint appropriate person to such office for the remaining term of office pursuant to the provisions made under this Act.

27. Acting Governor: Government of Nepal shall depute the Senior Deputy Governor of the Bank as Acting Governor to discharge the functions of the Governor in cases where the Governor dies or resigns from office, falls sick, goes on leave or is unable to discharge his/her duties due to any reason.28. Meeting of the Board: (1) The Governor shall preside over the meeting of the Board.(2) The meeting of the Board shall be held as per the requirement of the Bank. Provided that the Board meets at least once in a month.(3) The Governor shall call on the meeting of the Board. Provided that in case of a written request from three Directors of the Board to call the meeting of the Board, the Governor shall call the meeting of the Board.


(4) The Board may frame a separate Bye-law with regard to the procedures for calling the meeting of the Board, conducting the meeting, voting, keeping minutes and for other matters.(5) The presence of at least three Directors and of the person presiding over the meeting of the Board shall constitute the quorum for the meeting of the Board. Provided that out of the three Directors presented in the meeting at least one director should be the director appointed under Clause (d) of Section

(6) The decision of the majority shall be the decision of the Board. In the event of a tie of votes for and against a resolution, the person presiding over the meeting shall exercise a decisive vote.

29. Functions, Duties and Powers of the Board: The functions, duties and powers of the Board shall be as follows:(a) To frame monetary and foreign exchange policies;(b) To take necessary decisions with regard to the denominations of bank notes and coins, the figures, size, metal, materials for printing notes, and other materials; and to frame appropriate policies with regard to their issue;(c) To frame necessary policies for causing the supervision and inspection of commercial banks and financial institutions and banking and financial arrangement.(d) To approve Rules and Bye-laws of the Bank and to frame policies applicable to the operation and management of the Bank;(e) To frame policies with regard to the appointment, promotion, transfer, dismissal, remuneration, pension, gratuity, provident fund, leave, code of conduct and other terms and conditions relating to the service of the employees of the Bank;(f) To approve the annual programs and budget of the Bank and the annual auditing of accounts, and to submit its report to Government of Nepal for information;(g) To approve the annual report on the activities of the Bank;(h) To frame necessary policy for the issue of license to commercial banks and financial institutions and or revoking such license;(i) To approve the limit of the loan to be provided to Government of Nepal by the Bank;(j) To fix the amount, limit and terms and conditions of the loan and refinance which the Bank provides to the commercial banks and financial institutions;(k) To make decision with regard to the Bank's membership to international organizations, associations;(l) To frame policy for the mobilization and investment of Bank's financial resource;(m) To submit proposal to Government of Nepal along with the reasons there for if it is necessary to make amendment to this Act;(n) To take decision on all other matters excluding the matters which are within the authority of Governor under this Act; and(o) To delegate the powers vested on the Board to the Governor or the subcommittee constituted by the Board with or without fixing the time limit.

30. Functions, Duties and Powers of the Governor: (1) The functions, duties and powers of the Governor shall be as follows:-(a) To implement the decisions made by the Board;(b) To operate and manage the Bank;(c) To systematize the functions to be carried out by the Bank;(d) To represent and cause to represent on behalf of the Bank in international organizations and associations;(e) To implement and cause to implement the policies relating to monetary and foreign exchange matters;CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

(f) To formulate necessary policy on rates of interest for deposits and loan with commercial banks and financial institutions;(g) To formulate necessary policies with regard to the rates of interest to be paid by commercial banks and financial institution on deposit and loan or the rate of interest to be charged by them on deposits and loan;(h) To formulate necessary policies relating to liquidity to be maintained by commercial banks and financial institutions;(i) To make necessary arrangement with regard to the basis, amount, methods, conditions and duration of compulsory deposit to be maintained by commercial banks and financial institutions, and its use;(j) To fix the terms and conditions relating to adequacy of the capital fund of commercial banks and financial institutions;(k) To take decision with regard to the procedures and terms and conditions to be followed while purchasing and selling gold and other precious metals;(l) To fix the charge on the services to be provided by the Bank;(m) To take decision for opening and closing branch offices and other offices of the Bank as may be necessary;(n) To establish and close the agency of the Bank;(o) To make necessary arrangement for development and operation of information system of the Bank;(p) To make necessary arrangement for supervision of commercial banks and financial institutions;(q) To take decision with regard to revocation of the license provided to commercial banks and financial institutions;(r) To take decisions on any other matters subject to the powers delegated by the Board of Directors;(2) The powers to be exercised by the Governor of a Central Bank in accordance with international practice shall be vested in the Governor.31. Delegation of Powers:The Governor may, in order to conduct the business of the Bank in a smooth manner, delegate authority invested with him/her under this Act to the Deputy Governor or other employees of the Bank.

32. Prohibition on Vested Personal Interests: (1) After appointment to the office of Governor, Deputy Governor or Director shall, in each six months, should disclose, as prescribed to the Board about any direct or indirect commercial interest of himself/himself or of his/her family members.(2) Where any resolution involving personal interest of the Governor, Deputy Governor or Director, shall disclose to the Board about his personal interest on any matter to be discussed in the meeting of the Board, prior to the beginning of discussion on such matters. No such Director shall take part in that meeting.(3) No Governor or Deputy Governor shall be allowed to work in a commercial bank and financial institution till one year after retiring from his/her office.(4) The Governor and Deputy Governor should make it public the details of property held in his/her name and in the name of his/her family members within one month from the date of appointment and retirement.

33. Management Committee: (1) There shall be a Management Committee, to remain under the Board to be chaired by the Governor in order to conduct the business of the Bank in a smooth manner. The two Deputy Governors shall be other members of the Management Committee, and one senior officer of the Bank designated by the Governor shall act as the member-secretary of the committee.


(2) The functions, duties and powers of the Management Committee formed pursuant to Sub-section shall be as prescribed.(3) Notwithstanding anything contained in Sub-section the Governor may invite any of the officers to take part in the meeting of the Management Committee.(4) The Committee shall, in connection with discharging its functions, evaluate the country's monetary and financial condition on a periodic basis. For this purpose, the Management Committee shall, at leastonce in a month, submit a report to the Board on the Bank's administration and operation, operation of monetary and other regulatory policies, the soundness of the banking system of the country, condition of money, capital and foreign exchange market, implementation of such policies and impact they may have and situation on the banking system, and on the significant events.

34. Audit Committee: The Board shall constitute an Audit Committee comprising of the following members which will be accountable to the Board:-(a) One Director -Convener(b) Chief of Internal Audit Department of the Bank -Member(c) One senior officer of the Bank designated by the Board -Member

35. Functions, Duties and Powers of the Audit Committee: (1) The functions, duties and powers of the Audit Committee shall be as follows:-(a) To submit its report and recommendations to the Board on accounts, budget and audit procedures and control system of the Bank;(b) To ascertain whether or not the audit and preparation of periodic balance sheet and other documents of the Bank have been carried out properly;(c) To supervise the implementation of the appropriate risk management adopted by the Bank;(d) To audit managerial and performance of works of the Bank in order to be assured that the prevailing laws applicable to the Bank have been fully complied with;(e) To frame bye-law for auditing of the Bank in accordance with the prevailing laws and international auditing standard and to submit it to the Board for approval.(2) The Audit Committee shall, while submitting the report and recommendations to the Board pursuant to clause of Sub-section furnish the information thereof to the Governor.

36. Employees of the Bank: (1) The Board shall appoint necessary employees in order to conduct the business of the Bank in a smooth manner.(2) The terms and conditions, remuneration and other benefits payable to the employees appointed pursuant to Sub-section (1) shall be as prescribed.

37. Professional Code of Conduct and Official Responsibility:(1) The Governor and Deputy Governor shall, so long in office, fully devote his/her professional service to the Bank. Except nominated by the Bank they shall not be entitled to assume any type of office or accept job in or render services to anyone else with or without remuneration.Provided that this Sub-section shall not restrict to render services by assuming any post in any non-profit making organizations such as Medical Association, Engineers Association, Bar Association, Bankers Association, Chartered Accountants Association and in any other trade and professional organization.(2) The Governor, Deputy Governor or Director shall have to provide highest priority to the interests of the Bank while discharging their official duties.


(3) The Governor, Deputy Governor or Director shall not accept, personally or through any person having any commercial, financial relationship with him, any type of gift or loan in a manner that may cause undue influence of any type in discharging his duties.

38. Confidentiality: (1) No Governor, Deputy Governor or Director or employees, Advisor, Auditor, Agent or Representative of the Bank shall be allowed to be engaged in the following acts and activities:-(a) To divulge any published or unpublished confidential information or notice that came to his knowledge while exercising his official duty to any other person; or(b) To use such information or notice for personal gain.(2) Notwithstanding anything-contained in Sub-section any published or unpublished information in one's knowledge may be divulged on the following grounds in the manner prescribed by the Bank:-(a) Providing such information while discharging one's duties in public, while assisting law enforcement agencies, as per the order of the court or of the authorized officer;(b) Providing such information, in connection with discharge of his/her duties, to the external Auditor of the Bank and the employees of international financial institutions; and(c) Providing such information in connection with legal actions for the sake of the Bank's interests.

Chapter - 4Financial Provisions

39. Capital of the Bank: (1) The Capital of the Bank shall be one billion rupees.(2) The Capital of the Bank shall be received from Government of Nepal and this Capital shall not be transferred or any burden of debt be placed upon it.(3) Government of Nepal may alter the capital referred to in Subsection (1). Government of Nepal shall have consultation with the Bank while altering the capital.

40. Computation of Net Profit or Loss: (1) The Bank shall prepare the account of its net profit and loss in each Fiscal Year.(2) While preparing the account of profit and loss pursuant to Subsection (1), it shall be prepared in accordance with the international accounting standard.(3) While preparing profit and loss account, the profit made and the loss sustained or the loss yet to be appropriated and the net valuation gains or loss shall be reconciled and the bad or doubtful debts and depreciation of property shall be deducted there from.41. Allocation of Net Profit:(1) In case the Bank makes a profit in any fiscal year, the allocation and use of such profit shall be made in according to the following priority:-(a) Unless five percent of the total monetary liability of the Bank shown in the balance sheet is met, an amount equal to five percent of the net profit of each year shall be allocated from the profit and kept in the monetary liability fund. The amount deposited in the monetary liability fund shall be used only for the purpose of fulfilling the financial liability of the Bank.(b) An amount prescribed by the Board not less than ten percent of the net profit of the Bank shall be allocated in the general reserve fund established by the Bank.(c) While allocating an amount in the general reserve fund pursuant to Clause, an additional amount shall be appropriated to cover the capital expenses referred to in the annual budget of the Bank.(d) The amount equal to the revaluation profit shall be kept in the revaluation reserve fund.


(e) The Board shall, having appropriated the amounts referred to in Clauses (a), (b), (c) and (d), appropriate the remaining profit in other funds as may be necessary and pay the remaining amount to Government of Nepal.(2) The amount allocated to general reserve fund pursuant to Sub-section 1 Clause (b) and (c) shall be used only for the purpose of recovering the loss.

42. Allocation of Net Loss:(1) In case the Bank sustain net loss in any fiscal year, such loss shall be allocated as follows:-(a) In cases where the total operation loss and revaluation loss have been included in the net loss, the amount of the total operation loss shall be charged to the general reserve fund or to the capital account. The amount of revaluation loss shall be debited to the revaluation reserve fund. While making such allocation, if the revaluation reserve fund also is at loss, it shall be debited to general reserve fund or the capital account.(b) In case the net loss is due to accumulation of the total operation loss and the revaluation loss, the amount of such net loss shall be debited to the revaluation fund. If the balance of the revaluation reserve fund would be negative after such allocation, it shall be debited to the general reserve fund or the capital fund.(2) The Government of Nepal shall bear the loss that cannot be adjusted after making allocation pursuant to Sub-section (1).

43. Annual Budget: The Board shall, prior to the beginning of each fiscal year, approve the estimated budget of incomes and expenditures and the programs for the coming fiscal year. The Board may evaluate and amend the approved budget in each three months on the basis of actual position and the matters that can be estimated. Such budget shall be sent to Government of Nepal for information.

Chapter - 5Monetary Functions and Operation of Open Market

44. Monetary Policy: The Bank shall have full powers to formulate, implement and cause to implement monetary policy of Nepal.

45. Operation of Open Market: The Bank shall operate open market transaction on the basis of agreements for immediate or late purchase and sale of debt securities issued on behalf of Government of Nepal or by the Bank itself and may immediately be sold in market. Such transaction may also be in the forms of repurchase agreements or reverse repurchase agreements. For this purpose, no other instruments shall be used.

46. Compulsory Deposit in Commercial Banks and Financial Institutions: (1) The Bank shall issue directives to the commercial banks and financial institutions to maintain compulsory reserve with the Bank in proportion to the deposits accumulated with them, borrowed fund or other liability prescribed by the Bank. It shall be the duty of commercial banks and financial institutions to maintain the compulsory deposit in the Bank as prescribed by the Bank.(2) While computing the compulsory deposit of commercial banks and financial institutions, the Bank shall compute on the basis of daily average of deposit by prescribing the duration.


47. Failure to Maintain Compulsory Deposit: In cases where any commercial bank or financial institution fails to maintain the compulsory deposit prescribed by the Bank, the Bank shall impose a fine on bank or financial institution for the period of such failure. While imposing the fine, the amount of fine shall not be more than three times of the maximum of the bank rate prescribed by the Bank.

48. Discount Operation: (1) The Bank may conduct discount transaction on the following negotiable instruments submitted by the commercial bank and financial institutions who maintain their accounts with the Bank:-(a) A promissory note or bill of exchange signed by at least two parties including a commercial bank payable in Nepal within six months.(b) Debt bond issued by Government of Nepal or the Bank payable within Nepal and within six months from the date of acquisition by the Bank.(2) The discount rates, terms and conditions and procedure of operating discount transaction shall be as prescribed by the Bank.

49. Loan and Refinance to Commercial Banks and Financial Institutions: (1) The Bank may, subject to the terms and conditions prescribed by it, make available loan and refinance to commercial banks and financial institutions for a maximum period of six months against the security of the following assets:-(a) International negotiable instrument referred to in Clause (e) of Sub-section (1) of Section 66;(b) The debt bond issued by Government of Nepal payable within Nepal;(c) The deposits accumulated in the Bank or the gold and precious metals, which the Bank may transact under this Act;(d) The bill of exchange or the promissory notes referred to in Sub-section (1) of Section 48;(e) Other securities as prescribed.(2) Notwithstanding anything contained in Sub-section (1) of the Bank may provide any type of credit to a commercial bank and financial institution for a maximum period of one year in cases where Government of Nepal has, for the sake of public interest and welfare, deemed it appropriate to provide loan and has requested the Bank therefor and Government of Nepal has given a guarantee of securities of prevailing market rate for such loan or in extraordinary circumstances where the Bank has to work as a lender of the last resort.

50. Discount Rate and Rate of Interest for Refinance: The Bank shall fix the discount rate and the rate of interest for refinance from time to time. The Bank shall publish and transmit the notice of discount rate and interest rate of refinance for the information of all concerned.

Chapter 6Monetary Unit, Banknote and Coins

51. Monetary Unit: (1) The Rupee shall be the monetary unit of Nepal and such Rupee shall be divided in one hundred Paisa.(2) The Rupee referred to in Sub-section (1) shall be a legal tender within Nepal and Government of Nepal shall provide guarantee for such Rupee.

52. Power to Issue Banknotes and Coins: (1) The Bank shall have monopoly over the issue of banknotes and coins in Nepal. Such notes and coins shall be legal tenders in Nepal.


(2) The Bank shall issue notes pursuant to Sub-section (1), only against the security, and the liability of such issued notes shall be equal to the value of property kept as security. At least fifty percent of the property to be kept as security shall be one or more of gold, silver, foreign currency, foreign securities, and foreign bills of exchange and the remaining percentage shall be one or more of the coins (Mohar Double or coins of higher denomination, the Debt Bond issued by Government of Nepal, the promissory note or bills of exchange payable in Nepal within a maximum of eighteen months from the date of repayment by bank. Provided that with the permission of the Government of Nepal the ratio of property kept as security may be at least forty percent one or more of gold, silver, foreign currency, foreign securities, and foreign bills of exchange and the remaining percentage shall be one or more of the coins (Mohar Double or coins of higher denomination, the Debt Bond issued by Government of Nepal, the promissory note or bills of exchange payable in Nepal within a maximum of eighteen months from the date of repayment by bank.(3) For the purpose of Sub-section (2), the valuation of property shall be made as follows:-(a) The price of gold at the rate fixed by Government of Nepal on the recommendation of the Board;(b) The price of silver at the rate deemed appropriate by the Board;(c) The foreign currencies at the exchange rate fixed by the Bank;(d) The Debt Bond issued by Government of Nepal, the foreign securities and Bills of Exchange at the rate deemed appropriate by the Board on the basis of market rates;(e) Coins at the rate of face value.(4) The Bank shall issue the bank notes of various denominations as may be necessary. While issuing banknotes in this way, the figures appearing in the notes, size and denominations shall be as approved byGovernment of Nepal and the figures, internal security arrangements, the materials for printing banknotes and other materials shall be as decided by the Board.(5) Government of Nepal may, in consultation with the Board, declare that banknote of any denomination shall cease to be legal tender in any place other than the prescribed place or office having published a notification in the Nepal Gazette.(6) The Bank shall not reissue the notes, which are torn, defaced or excessively soiled.(7) The Bank may, with the approval of Government of Nepal, mint and bring into circulation the coins of whatever metal or mixture of metals or bring into circulation having minted them in Mint on specials occasions. The Bank may, if it deems appropriate, cause such coins minted in any foreign Mint.Provided that, if coins minted once with the approval is to be re-minted, no approval of Government of Nepal shall be required.(8) The Bank may, with the approval of Government of Nepal, mint the coins sent for minting by a foreign government.(9) The Bank shall be responsible for payment of the banknotes issued by the Bank and the banknotes issued by Government of Nepal prior to the establishment of the Bank.(10) No liability other than the liability referred to in Sub-section (9) shall be borne from the property given as security for issuance of banknotes.

53. Banknotes and Coins to be Acceptable all: The banknotes and coins issued by the Bank having made them legal tender shall be all acceptable to the extent of the amount of face value for repayment of all types of public or private debts within Nepal.

54. Measurement, Weights and Size of Coins: The face value, measurement, weight, size and other features of the coins to be issued by the Bank under this Act shall be prescribed by the Board.


55. Issuance of Currency and Security: Matters relating to printing of banknotes and minting coins, providing security to the not issued banknotes and coins, keeping them in appropriate manner and the matter of safe keeping or destroying the old banknotes or coins which are not in circulation, plate and die shall be as prescribed.

56. Provisions for Exchange of Currency: The Bank shall, without any fee or charge, change a banknote or coin with legal tender in Nepal with the banknotes or coins of same denomination or of different denominations of the equal value.

57. Soiled or Counterfeit Currency: (1) The Bank may withdraw, destroy or replace the soiled currency with other banknote or coin.(2) Notwithstanding anything contained in Sub-section (1), the Bank may deny to replace the banknote or coin the design of which has been deleted, or which is torn, defaced or more than fifty percent of its portion has been destroyed.(3) The Bank may withdraw or destroy such banknotes or with or without compensation to the owner of the banknotes or coins referred to in Sub-section (1).(4) No owner of the lost or stolen banknotes or coins shall be entitled to a reimbursement from the Bank. The Bank may forfeit without any compensation, the coins or notes the outer appearance of which is changed, or which is counterfeit coins or fake note.

Explanation: For the purpose of this Section, "Counterfeit coin" means a duplicate coin minted copying the coin issued by the Bank or a counterfeit coin or prepared by melting or manipulating or a coin prepared by cutting and breaking into two or more places a coin issued by the Bank or the coin the figures, letters and signs in which have been defaced.58. Provisions Relating to Currency Inventory and Issuance of Currency: The Bank shall carry out the functions relating currency stock and issue of currency and to regularly supply the banknotes or coins in order to meet the demand of currency.

59. Account of Issued Currency: The Bank shall maintain account of the entire banknotes and coins in circulation showing them separately as monetary liability. Such liability shall not include the bank notes and coins in stock or not in circulation.60. Currency Recall: (1) The Bank may recall the bank notes and coins in circulation within Nepal by issuing in exchange there for other bank notes and coins in equivalent amount. The Bank shall publish and transmit pubic notice clearly specifying the period during which the bank notes or coins must be presented for exchange and where they are to be so presented.(2) Notwithstanding anything contained in Section 53, upon expiry of the time prescribed pursuant to Sub-section (1), bank notes and coins to be exchanged shall cease to be a legal tender.(3) The Bank may cut, break or demolish or destroy in any manner whatsoever, the banknotes and coins withdrawn from circulation and the currency with defect, as prescribed.61. Reproduction and Counterfeiting of Currency: (1) No one shall commit or cause to commit any of the following acts:-(a) To forge, counterfeit or alter banknotes and coin in circulation as legal tender in Nepal or any cheques or payment card or to do any other act relating to it or to assist in any of such acts;(b) To possess, transport or issue any banknote or coin or cheque or payment card with the knowledge that such banknote or coin, cheque or payment card was falsely made, forged, counterfeited or altered or to assist in such acts in any manner;(c) To possess, transport any sheet of metal, stone, paper, die or any other material or substance with the knowledge that it was destined to be used in falsely making, forging, counterfeiting or altering any banknote or coin, cheque or payment card or to assist in any of such acts.CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

(2) Any reproduction of banknotes, coins, checks, securities or payment cards, denominated in Rupee, and the creation of any objects that by their design imitate any such banknote, coin, check, security or payment card, shall require the prior written authorization of the Bank.(3) The Bank may take appropriate action to prevent the issue of fake note or counterfeit currency or duplicate cheque or payment. The Bank may issue necessary order, directives or notices while taking such actions.

Chapter - 7Foreign Exchange Policy, Regulation and Reserve

62. Foreign Exchange Policy: The Bank shall have full authority to formulate, implement and cause to implement foreign exchange policy of Nepal.

63. Management of Foreign Exchange: The Bank shall manage the foreign exchange. The Bank shall have the following powers for such management: -(a) To issue license under this Act or any other prevailing laws to the persons willing to deal in foreign exchange transaction;(b) To frame Rules and Bye-laws and to issue necessary order, directives or circulars in order to regulate dealings in the foreign exchange transaction by the foreign exchange dealer; (c) To inspect, supervise and monitor the foreign exchange dealer;(d) To set the bases, limitations and terms and conditions for the transaction of the foreign exchange dealer; and(e) To prescribe the system of determining the foreign exchange rates of the Nepalese currency.

64. Particulars of Foreign Exchanges Dealings: (1) The Bank shall cause the license-holder to submit to the Bank the detailed particular of exchange of foreign currency and of the transaction relating to it. The duration for submitting such particulars, the format and other documents relating to it shall be as prescribed by Bank from time to time.(2) It shall be the duty of the concerned license holder to submit the particulars referred to in sub-section (1) and the documents prescribed by the Bank.

65. Dealing in Foreign Exchanges: (1) The Bank may purchase and sell foreign exchanges, gold and precious metals.(2) The purchase and sale to be made by the Bank pursuant to Subsection (1) shall be affected through the spot, advance exchange rate, swap, option or the similar types of other instruments, cash or negotiable instrument.(3) The Bank may, for the purpose of Sub-section (1) of Section 66, purchase or sell foreign exchange. It may affect such purchase and sale also on the basis of spot, advance exchange rate, swap, option or similar types of other of instruments.(4) The Bank shall deal in foreign exchange after fixing its buying and selling rates. The basis, limitations and conditions of such dealing shall be as prescribed by the Bank.66. Foreign Exchange Reserve:

(1) The Bank shall mobilize the foreign exchanges reserve. Such reserve shall be denominated in the respective foreign exchange and such reserve shall consist of the following assets:-(a) Gold and other precious metals held by or for the account of the Bank;(b) Foreign currencies held by or for the account of the Bank;(c) Foreign currencies held in the accounts of the Bank on the books of a foreign central bank or other foreign banks;


(d) Special drawing rights (SDR) held by the Bank at the International Monetary Fund;(e) Bill of exchange, promissory note, certificate of deposit, bonds, and other debt instrument payable in convertible foreign currencies issued by any debtor or liability holder and held by the Bank;(f) Any forward purchase or repurchase agreements of the Bank concluded with or guaranteed by foreign central banks or public international financial institutions, and any futures and option contracts of the Bank providing for payment in freely convertible foreign currency.(2) While selecting the assets referred to in Sub-section (1), due consideration should be given to the Bank's capital and liquidity to maximize earnings.(3) The Bank shall maintain international reserve at a level, which shall be adequate for the execution of monitory and exchange rate policies and for the prompt settlement of the international transaction.(4) If international reserves have declined or, in the opinion of Bank, are in danger of declining to such an extent as to jeopardize the execution of the monetary or exchange rate policies in the prompt settlement of the country's international transactions, the Bank shall submit to Government of Nepal a report on the international reserves position and the causes which have led or may lead to such a decline, together with such recommendations as it considers necessary to remedy the situation.(5) Until such time as, the situation referred in Sub-section (4) has been rectified, the Bank shall make further such report and recommendations to Government of Nepal.(6) The Bank shall hold the foreign exchange reserve referred to in Sub-section (1) in its balance sheet.

67. Issuance of Debt Bond Against Gold and Foreign Currency:(1) The Bank may, having obtained approval from Government of Nepal, issue one or more types of debt bond denominated in gold or foreign currency for certain purpose.(2) The types, duration, payment of principal and interest and other matters of the debt bond to be issued pursuant to Sub-section (1) shall be as prescribed by the Bank.

68. International Clearing and Payment Agreements: The Bank may, either for its own account or for government account and by the order of Government of Nepal, enter into clearing and payment agreements with public or private central clearing unions domiciled abroad. The Bank may, in order to implement the objectives of such agreement, enter into other necessary agreements.

Chapter - 8Relation with Government of Nepal

69. Banker, Advisor and Financial Agent: (1) The Bank shall be the banker and financial advisor of Government of Nepal and a financial agent of Nepal.(2) Government of Nepal shall consult the Bank on any matters that are within the jurisdiction of its competence. It shall be the duty of the Bank to advise on matter consulted by the Government of Nepal.(3) Government of Nepal shall, while preparing annual budget, consult the Bank on the domestic debt including overdrafts.(4) The Bank shall submit a pre-budget review report to Government of Nepal each year on the economic and financial matters.

70. Opinions and Information Relating to External Debt: (1)Government of Nepal may consult the Bank while taking loan from external sectors.(2) The consultation referred to in Sub-section (1) shall include the subjects such as amount of loan, the terms and conditions of the loan and the repayment of loan.


(3) Government of Nepal shall inform the Bank when external loans have been received.(4) Government of Nepal shall consult the Bank while granting approval to private and public institutions to raise loan-creating liability in foreign exchange.(5) Government of Nepal, public institution or private sector shall inform the Bank about the agreements concluded having creating liability in foreign exchange.

71. Deposit Collection: (1) The Bank shall accept the deposits of Government of Nepal or other bodies prescribed by Government of Nepal.(2) While accepting deposits pursuant to Sub-section (1), the Bank shall receive and disburse monies, keep accounts therein, and provide banking services related thereto.(3) The Bank may authorize commercial banks and other financial institutions to conduct the transaction as referred to in Sub-section (2) subject to the terms and conditions prescribed by the Bank.

72. Functions of Fiscal Agent: The Bank shall, subject to the terms and conditions stipulated in the agreement entered into with Government of Nepal, act as fiscal agent of Government of Nepal on the following matters:-(a) Marketing, purchase and sell of debt bonds issued by Government of Nepal and to act as registrar and transfer agent there for;(b) Payment of the principal, interest and other fees of the debt bonds referred to in Sub-section (a);(c) Other necessary functions to be carried out as the agent.

73. Bank may ask for Particulars, Statistics and Documents: (1) The Bank may ask for the particulars, statistics and documents necessary for conduct of its business from the concerned bodies.(2) It shall be the duty of the concerned bodies to provide the Bank with the particulars, statistics and documents asked for under Sub-section (1).

74. Consultation on the Matter of Law Reform: (1) The Bank may be consulted on any proposals by the concerned entities for legislation with respect to matters that relate to Bank objectives or that otherwise are within its fields of competence, including monetary policy and its operations, credit, the balance of payments, foreign exchange, and banking, before they are submitted for amendment or legislative action.(2) It shall be the duty of the Bank to provide opinion sought pursuant to sub section (1).(3) The Bank shall have powers to submit proposals to Government of Nepal for enacting new law or amending the existing laws on the subjects relating to the objectives of the Bank or area of its competence such as monetary policies and its operation, credit, balance of payment, foreign exchange and banking.

75. Credit to Government of Nepal and Purchase of Government Debt Bonds: (1) Except otherwise provided in this Act, the Bank shall not provide any type of financial assistance to Government of Nepal or an institution under the full or substantial or partial ownership of Government of Nepal.(2) Subject to the limits specified in this Section, the Bank may extend credit to Government of Nepal with a condition to repay within one hundred eighty days.(3) Notwithstanding anything contained in Sub-section (2), the Bank may extend a special credit of long term to Government of Nepal only on account of subscription and similar payments resulting from or incidental to the membership of Nepal with international organization.


(4) The Bank shall disburse credit to be extended to Government of Nepal or an institution under full or substantial or partial ownership of Government of Nepal only in Nepalese rupees. Such credit shall be certified by negotiable debt bond issued by Government of Nepal and delivered to the Bank. Such debt security should have the maturity corresponding to the maturity of the extension of credit and should bear the interest at market rate. There must be a written agreement executed between Government of Nepal and the Bank. Such agreement should clearly stipulate the principal amount of the loan or limit on a line of credit, the maturity, and the applicable rates of interest and other charges.

Explanation: For the purpose of this Section, "Negotiable Debt Bond" means the debt bond issued in the form of promissory note.(5) At no time the amount of overdraft provided by the Bank to Government of Nepal shall be more than five percent of the revenue income of Government of Nepal in the preceding fiscal year. While computing such revenue income, the amount of borrowing, grants or any other form of financial assistance or income received from the sale of property shall not be included.(6) Government of Nepal shall make the payment of the overdraft referred to in Sub-section (5) within one hundred eighty days at the prevailing interest rate either in the form of cash or marketable debt bond.(7) The total amount of debt bond purchased by the Bank from Government of Nepal and taken into its ownership shall not be more than ten percent of the revenue income of the preceding fiscal year.(8) In the following circumstances, the debt bond issued by Government of Nepal and purchased by the Bank shall not be treated as the credit extended under Sub-section (7):-(a) If the purchase is made in the secondary market for the operation of open market consistent with the monetary policy of the Bank;(b) If the purchase is made in the primary market, when it is necessary in the opinion of the Bank, to maintain stability in the market at the time of primary issue of such securities and such securities are divested within 60 days of purchase.(c) The debt bond purchased by the Bank from Government of Nepal and retained in its ownership prior to the commencement of Sub-section (7).

Chapter - 9Regulation, Inspection and Supervision of the Banks

76. Bank's Approval Required for Accepting Deposits or Giving Credits: (1) Any person, firm, company or institution shall, in order to accept any type of deposit or to provide loan, obtain approval from the Bank as may be prescribed.(2) The Bank, while giving approval referred to in Sub-section (1), may subject the approval to the terms and conditions prescribed by the Bank and it shall be the duty of the concerned person, firm, company or institution to abide by such terms and conditions.

77. Restriction on Rate of Interest: An individual, firm, company or organization authorized to accept deposit or to provide loan pursuant to prevailing laws, shall fix the rate of interest payable on deposit and to be charged on loan subject to arrangement prescribed by the Bank in the matter of rate of interest from time to time.

78. License to be Obtained from Bank: (1) Commercial Banks and financial institutions shall, in order to conduct banking and financial transaction, obtain license from the Bank as prescribed.


(2) While issuing license pursuant to Sub-section (1), the Bank may fix necessary terms and conditions and it shall be the duty of the licensed bank and financial institution to abide by such terms and condition.

79. Regulatory Powers of Bank: (1) The Bank shall have full powers to regulate the functions and activities of commercial banks and financial institutions.(2) For the purpose of the regulation under Sub-section (1), the Bank may frame rules and bye-laws on the matters which the Bank deems appropriate and issue necessary order, directives and circular and it shall be the duty of the concerned commercial bank and financial institution to abide by such Rules, Bye-laws, order, directives and circular.(3) The Bank shall issue appropriate directives to commercial banks and require them to submit the following particulars:-(a) Its balance sheet accounts, off balance sheet commitments, statement of income and expenditures and their ratio among accounts or items.(b) Prohibitions, restrictions or conditions concerning specific types or forms of credit or investments, or of credit or investments, forms of commitments of a risk-bearing nature which are not matching as to maturity of assets and liabilities and off-balance-sheet items, foreign currency, spot or advance rate of interest, swap, option or similar instruments or access to the payments system through electronic or other means.(c) Other particulars and documents prescribed by the Bank.(4) Bank may issue necessary directives to commercial banks on the following matters and require to submit particulars on the following subjects:-(a) Books and accounts, profit and loss account, balance sheet and off-balance-sheet transaction and commitment, statement of income and expenses and their ratio among accounts or items.(b) Prohibitions, restrictions or conditions concerning specific types or forms of credit or investments, loan and investment in excess of the ceiling prescribed by the Bank, risk bearing commitment, position of foreign exchange, payment and electronic and other means of payment.(c) Other particulars and documents prescribed by the Bank.(5) The Bank shall have the following powers with regard to commercial banks and financial institutions:-(a) To enforce authority and responsibility granted under this Act and any other Act enacted for licensing, supervising and regulating commercial banks and financial institutions and to revoke the license of commercial banks and financial institutions and to take over or to provide in trusteeship the commercial banks or financial institutions which have been declared insolvent or are on the verge of insolvency;(b) To investigate or inspect, or supervise or to cause to investigate, inspect or supervise by any official ofthe Bank or the person designated by the Bank the books and accounts, records, documents or register of commercial banks or financial institutions in order to find whether or not any commercial bank or financial institution has conducted business and transaction in accordance with the provision made under this Act or the Rules, Bye-laws framed there under and an order or directive issued there under;(c) To issue order to the member of the Board of Directors, official or employee of any commercial bank or financial institution to provide necessary information about the bank or institution in cases where it is necessary to inspect and supervise the transaction of such bank or financial institution.

80. Banking and Financial System and Credit Control: The Bank may issue directives from time to time to commercial banks and financial institutions on banking financial system, currency and credit. It shall be the duty of commercial banks and financial institutions to abide by such directives.


81. Credit to Prescribed Sectors: (1) Commercial banks and financial institutions shall advance credit to the sectors prescribed by the Bank from time to time for a prescribed period and in the manner prescribed by the Bank.(2) In cases where any commercial bank or financial institution does not advance the credit pursuant to Sub-section (1) or advance credit less than prescribed amount, the Bank may recover as fine an amount equal to the interest which a commercial bank or financial institution would have charged for the amount of credit not advanced or advanced less than the prescribed amount from the concerned commercial bank or financial institution.

82. Information to be Furnished to Bank: (1) Commercial Bank and financial institution shall furnish the particulars of its transaction and financial position to the Bank as prescribed by the Bank.(2) The Bank may publish the particulars made available pursuant to Sub-section (1).

83. Approval Required to Issue Debentures and Financial Instruments: (1) Commercial banks and financial institutions shall, while issuing any type of debenture or financial instruments, obtain a prior approval of the Bank.(2) While giving approval referred to in Sub-section (1), the Bank may prescribe necessary terms and conditions and it shall be the duty of the concerned commercial bank and financial institution to abide by such terms and conditions.

84. Inspection and Supervision: (1) The Board shall frame and implement inspection and supervision bye-law confirming to international standard for inspection and supervision of the commercial banks and financial institutions licensed by the Bank.(2) The Bank may, at any time, inspect and supervise or cause to inspect and supervise any of the offices of commercial banks or financial institutions. Such inspection and supervision may be carried out by the deputed official of the Bank or an expert designated by the Bank at the office of the commercial bank or financial institution or by asking the concerned institution to submit detailed particulars and information to the Bank itself.(3) It shall be the duty of the concerned commercial bank and financial institution or Directors, officials or employees of such commercial bank and financial institution to make available the statement, data, record, information, particulars necessary for computer and auditing and other programs and particulars developed through the electric system and financial control system or necessary other documents to such official, expert or the Bank or to enable such official or expert to review or to examine them within the time prescribed by such officer or expert.(4) The inspecting and supervising official or the Bank under this Section may cause to record written statements of any Director, official or employee of the commercial banks or financial institutions with regard to the functions and proceedings which are deemed necessary in course of inspection and supervision.(5) The Bank or the inspecting and supervising official may issue necessary directives to the commercial bank or financial institution on the matters deemed necessary while inspecting and supervising. It shall be the duty of the concerned commercial bank or financial institution to abide by the directives issued by the Bank or by the inspecting or supervising official. The inspecting or supervising official shall inform the Bank as soon as possible about the directives so given.(6) The official or expert carrying out the inspection and supervision under this Section shall submit the report of the inspection and supervision he has undertaken generally within fifteen days upon completion of his works to the Bank. In case such report is not completed within fifteen days, the Governor may extend the time limit for another fifteen days.


(7) The report submitted pursuant to Subsection (6) should be submitted in the next meeting of the Board.(8) The Board may, after making appropriate decision on matters contained in the report submitted pursuant to Sub-section (7), issue appropriate directions to the Governor about the actions to be taken in the matter. It shall be the responsibility of the Governor to implement or cause to implement such directions.

85. Exchange of Mutual Cooperation: (1) The Bank may, in order to supervise commercial banks and financial institutions under its supervisoryjurisdiction, exchange cooperation with concerned foreign supervisory authority on reciprocal basis.(2) The Bank may exchange the notices or information received for carrying out supervision pursuant to Sub-section (1) with the foreign supervisory authority provided that such authority undertakes to respect the confidentiality of the information so received.(3) The Bank may exchange mutual cooperation with other institutions regulating the policies relating to financial system to promote financial system.

86A. Information Need to Provide to the Bank by Commercial Banks and Financial Institutions : Commercial bank or financial institution shall inform to the bank within fifteen days about the situation of insolvency or state of dissolution under the prevailing law or incapability to pay the debt or materially unable to discharge any or all liabilities by any commercial bank or financial institution.

86B. State of Problematic Commercial Bank and Financial Institution: Bank shall declare any commercial bank or financial institution problematic by providing written notice to it when bank is convinced that the following conditions are prevailing in any commercial bank or financial institution on the basis of information received under Section 86A or from the report of inspection and supervision conducted under Section 84 or from any other means.(a) In case of any action which is against the interest of the depositors, shareholders, creditors, or general public,(b) In case of not fulfillment of any financial liabilities or not having probability to do that or not paymentof due amount,(c) In case of insolvency or going to fall under insolvency or facing material financial difficulties,(d) In case of discredit or breach of this Act, prevailing law related to bank and financial institution, otherprevailing law, terms of license or regulation, directives or order of bank,(e) In case the license obtained on the basis of submitting false, fraudulent, wrong document or data,(f) In case of unable to maintain the capital fund as per this Act, prevailing law related to bank and financial institution and directives issued by the bank at time to time,(g) In case of the initiation of the process of liquidation or insolvency of any commercial bank or financialinstitution under the prevailing law,(h) In case of undue delay in the process of voluntary liquidation,(i) For the commercial bank or financial institution established with the joint venture of the foreign commercial bank or financial institution while such foreign commercial bank or financial institution is in insolvent or liquidator is appointed for the liquidation or the license of such commercial bank or financial institution is terminated under the provision of the law of respective country or transaction is banned either full or partial or in case of operation of banking transaction being involved with such commercial bank or financial institution, or(j) If the bank is convinced that commercial bank or financial institution is unable to pay it’s due or canmake negative effect in its liability or duties, which it has to perform.CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

86C. Bank can Take Action Against Problematic Commercial Bank or Financial Institution: (1) Whatever may be mentioned in the Companies Act or other prevailing law, the bank can take any or all of the following actions against the commercial bank or financial institution which is declared problematic under the provision of Section 86B.(a) To increase the paid capital by issuing new shares or by receiving due amount of issued capital.(b) To suspend the right to vote or other rights of shareholder.(c) To stop payment of dividend or any other amount to the shareholders to increase the capital.(d) To determine limitation to the amount of bonus, salary, compensation and other expenses for the director and other high level management officials.(e) To make necessary arrangement for the corporate governance, internal control and risk management of commercial bank or financial institution.(f) To prohibit or make limitation in collection of deposit, credit supply or investment.(g) To maintain sufficient capital and high proportion of liquidity or prohibit business transaction or determination of other necessary terms.(h) To limit transaction of the commercial bank or financial institution or prohibit sale of property or expansion of branch office or close any domestic or international branch.(i) To maintain necessary arrangement for reduction of risk of the properties which are materially doubtful or securities without proper evaluation or other properties(J) To prohibit any action carried out illegally by breaching the prevailing law and regulation of the bank that is against the interest of commercial bank or financial institution.(K) To prohibit from doing some specific business among the businesses allowed to commercial bank or financial institution for specific time(l) To receive prior approval of the bank for major capital expenditure, substantial commitments having major liabilities or for the expenditure of contingent liabilities.(m) To issue order to remove from the post to single or more director or manager or employee as per the necessity.(n) Bank can remove the director or manager or employee in case of not discharge of the order made under Clause (m) by respective commercial bank or financial institution.(o) To suspend board of director of the commercial bank or financial institution and takeover the management of such commercial bank or financial institution in self control or operate the management and transaction of such commercial bank or financial institution by appointed official.

Clarification: “Appointed Officer” means any person, firm, company or organization appointed by the bank for the management and operation of transaction of the commercial bank or financial institution which is in the control of bank under the provision of this Clause.(p) To order commercial bank or financial institution, which are listed in stock exchange for the application of de-listing.(q) To prohibit payment of interest and principal for time bond auxiliary loan without having securities of commercial bank or financial institution.(r) To take any other action as bank feels necessity and proper.(2) While removing the directors, managers or employee of the commercial bank or financial institution from their post as per the order of Clause (n) or to suspend the board of director of commercial bank or financial institution by taking the charge of management under Clause (o) of Sub-section (1) reasonable opportunity of hearing shall be provided to the director, manager or employee or board of directors of the commercial bank or financial institution before. Provided that if such opportunity of hearing can makes negative effect to the interest of the commercial bank or financial institution or its depositors, shareholders, creditors or general public, no provision of prevailing law can debarred to remove immediately to the director, manager or employee from their post or to suspend the board of directors by providing opportunity to hearing after such decision.


(3) During the hearing of the action under the proviso of the Subsection (2) if such action does not seems reasonable bank can annul, change or make necessary decision to the order under Clause (n) or (o) of Subsection (2).(4) Respective commercial bank or financial institution have to bear all the expenditure while bank take the control of management of any commercial bank or financial institution under the provision of Clause (o) of Sub-section (1) and makes arrangement for the management and operation of transaction.(5) The order of the bank issued under Sub-section (1) Clause (o) shall generally remain valid for two years from the date of issue unless it is not renewed by the bank.(6) In case of control of any commercial bank or financial institution by the bank under the provision of Clause (o) of Sub-section (1), the preliminary and annual report prepared by the bank or the officer appointed by the bank shall be submitted to the government of Nepal.(7) In case of necessity bank can revoke or nullify its order issued under the provision of Clause (m), (n), (o) and (p) of Sub-section (1) by issuing another order. Such order shall contain the basis and reason and other necessary information regarding the need of issuing such order.(8) The directors, managers, or employees removed by the bank under the provision of the Clause (n) of Sub-section (1) are not allowed to work or involve in transaction in the same commercial bank or financial institution as director, manager or employee or any other post of any commercial bank or financial institution or any other way being involved directly or indirectly.(9) The directors, managers, or employees removed by the bank under the provision of the Clause (n) of Sub-section (1) or suspended member of board of directors under the provision of Clause (o) are not allowed to receive or claim any remuneration or compensation under the provision of prevailing law or agreement held directly or indirectly from the date of such order.(10) Determination of the capital and valuation of assets and liabilities of any problematic commercial bank or financial institution shall be based on the basis, process and standard determined by the bank.

86 D. Effect of the Control of the Bank to any Commercial Bank or Financial Institution: (1) While bank takes control of any commercial bank or financial institution by issuing order under the provision of the Clause (o) of Sub-section (1) of Section 86C, for the management and operation of transaction respective commercial bank or financial institution; the directors, manager and employees of such commercial bank or financial institution have to provide the assets, material goods and all transaction and its report and other necessary cooperation and facilities to the bank or the official appointed by the bank.(2) While bank takes control of any commercial bank or financial institution by issuing order under the provision of the Clause (o) of Subsection (1) of Section 86C, the official appointed by the bank for the management and operation of transaction of such commercial bank or financial institution, being within the limitation of order issued by the bank have to manage and operate such commercial bank or financial institution in the name of such commercial bank or financial institution by taking control of the property and transaction unless the bank decide otherwise for such order.(3) Whatever may be written in the prevailing law, the appointed official for management and operation of any commercial bank or financial institution which is in the control of the bank, can exercise all the rights conferred to such commercial bank or financial institution, its board of directors, shareholders or manager by prevailing law, memorandum and article association of such commercial bank or financial institution and such official can exercise the act assigned for the general meeting or special general meeting or any rights by any other way of such commercial bank or financial institution.(4) Till the date of validity of the order issued by the bank to take the control of any commercial bank or financial institution, no director, manager or employee removed under the provision of Clause (n) of the Sub-section (1) of Section 86C and suspended director under the Clause (o) of such commercial bank or financial institution, can be involve in the management or take any remuneration or facility from such commercial bank or financial institution during the period of being problematic without CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

written permission of the bank or the official appointed for the management and operation of such commercial bank or financial institution.

86E. The Reformative Measures and Rights Which can be Used by the Bank or the Official Appointed by the Bank:(1) Whatever may be mentioned in the Companies Act or other prevailing law, the bank itself or with the prior approval of the bank the official appointed by the bank can initiate one or more than one of the following actions for the purpose of restructuring of any problematic commercial bank or financial institution which is under the control of the bank by order issued under the provision of Clause (o) of Sub-section (1) of the Section 86C:(a) To cancel or suspend any transaction operating within or outside Nepal.(b) To sell the assets of such commercial bank or financial institution to any other commercial bank or financial institution in terms and conditions determined by the bank.(c) To terminate the employment of the employees working in such commercial bank or financial institution and to appoint new employees in their place as per necessity.(d) To merge such commercial bank or financial institution with other commercial bank or financial institution or arrange to transfer the assets and liabilities of such commercial bank or financial institution partially or whole to any other commercial bank or financial institution or any other body.(e) To increase the capital, being based on the standard determined by the bank, by selling the share to other person to reduce the participation of the present shareholders or to restructure such commercial bank or financial institution by reshuffling the board of directors.(f) To reduce the capital reflecting the actual price of real assets of such commercial bank or financial institution under the provision of Section 86H and determine the face value of the shares in the proportion of reduced capital.(g) To do necessary managerial restructure or corporate restructure by closing the branches and transactions which are not properly running for the protection of the interest of the depositors, shareholders, creditors and general public.(h) To implement or cause to implement other measures determined by the bank to make competitive for the problematic commercial bank or financial institution.(2) The reasonable opportunity of hearing should be provided to any commercial bank or financial institution before taking any decision under Clause (f) or (g) of sub Section (1). Provided that, if the bank feels that prior opportunity of hearing can make negative effect to the interest of its depositors, shareholders, creditors or general public, the bank can provide the opportunity of hearing as soon as possible after making such decision and if the bank satisfied with the reason and basis presented during the time of hearing it can change or repeal the decision as per necessity.

86F. Right of the Bank for Corrective Action: (1) Bank has to publish in public the report of management auditing or auditing within one year of the control of the commercial bank or financial institution which declared problematic under the provision of Clause (o) of Sub-Section (1) of Section 86C either conducted itself or by others.(2) Whatever may be mentioned in the Companies Act or any other prevailing law, on the basis of the management auditing or auditing report under Sub-section (1) if bank convinced that the controlled commercial bank or financial institution can operate properly it can carry out following corrective actions as per necessity:-(a) Issue order to manage and operate the transaction to the board of director by releasing the suspension order issued under the provision of Clause (o) Sub-Section (1) of Section 86C,(b) Assign the management and operation of transaction to the new board of director formed among the shareholders of such commercial bank or financial institution by removing suspended board of director under the provision of Clause (o) of Sub-section (1) of Section 86C,


(c) Call or cause to call the general meeting of the shareholders of such commercial bank or financial institution to elect the new board of director for the management and operation of transaction after removing suspended board of director under the provision of Clause (o) of Subsection (1) of Section 86C, or(d) Carry out any other corrective measures, which the bank thinks appropriate.(3) Bank by public notice may issue the order to implement or cause to implement the following actions on the basis of the management audit or account audit report under Sub-section (1) or report of the official appointed by the bank.(a) To sale, distribute and transfer of shares of any shareholders to the proper person to whom bank think, in the price determined by the committee constituted having representation from the Securities Board Nepal, Chartered Accountant Association Nepal and other outside expert being based on the criteria determined by the bank.(b) Transfer or cause to transfer partially or fully the assets and liabilities of the problematic commercial bank or financial institution to any commercial bank, financial institution or any other body being based in the terms and criteria determined by the bank.(c) To merge partially or fully the assets and liabilities of the problematic commercial bank or financial institution with any commercial bank, financial institution or any other body which bank may think proper, being based in the limitation of the Section 86J.(d) To establish or cause to establish new commercial bank or financial institution in the investment of theGovernment of Nepal, which also get the assets and liabilities of problematic commercial bank or financial institution under the provision of Section 86J and 86K.(4) Bank can confiscate the shares which are not sold, distributed and transferred because of any reason under Clause (a) of Sub-section (3), and bank can sell, distribute and transfer such share any manner which it think proper to any body with the advise of the committee constituted under Clause (a) of Sub-section (3).(5) Bank may provide reasonable opportunity of hearing to the stakeholder about the proposed issue before taking any decision against any commercial bank or financial institution under Sub-section (3).Provided that, if the bank feels that prior opportunity of hearing can make negative effect to the interest of such commercial bank or financial institution, its depositors, shareholders, creditors or general public, thebank can provide opportunity of hearing as soon as possible after making such decision and if the bank satisfied with the reason and basis presented during the time of hearing it can change or repeal the decision as per necessity.

86G. Application for the Dissolution: In case the bank is convinced that any problematic commercial bank or financial institution even after the action under Section 86C, reformative action under Section 86E or corrective action under Section 86F, such commercial bank or financial institution is unable to discharge its liabilities or there is no possibility to operate in healthy way, can apply to the Appellate Court for the dissolution of such commercial bank or financial institution.

86H. Decrease of the Capital of Problematic Commercial Bank or Financial Institution: (1) Whatever may be mentioned in the Companies Act or other prevailing law or memorandum and article of association of the problematic commercial bank or financial institution, after taking such commercial bank or financial institution in its control under the provision of the Clause (o) of the Sub-section (1) of the Section 86C, in case there is reduction of the paid up capital of such commercial bank or financial institution or the due amount was not paid by the shareholders or liabilities is not recoverable by the assets of such commercial bank or financial institution, bank can decrease the share capital of such commercial bank or financial institution in limit of reduction of the share capital or


liabilities which is not coverable by the assets. Provided that, before decrease of share capital the bank has to publish minimum two notice of this effect in national daily.(2) Whatever may be mentioned in the Companies Act or other prevailing law or memorandum and article of association of the problematic commercial bank or financial institution, bank can cancel theremaining shares of the commercial bank or financial institution whose assets and liabilities are partially or wholly transferred to other commercial bank, financial institution or any other body under the provision of Clause (b), (c) or (d) of Sub-section (3) of Section 86F by publishing minimum two notice of this effect in national daily.(3) Before issuing the notice under Sub-section (1) the bank has to provide thirty days time for those shareholders who has due amount of the price of paid up share. Bank can initiate the process of cancellation of share of those shareholders who did not pay the due amount after such notice, and bank can determine the minimum price for the share of the commercial bank or financial institution which is insolvent or in the process of dissolution.(4) In case of decrease of the share capital of any commercial bank or financial institution under Sub-section (1) or cancellation of share under Sub-section (3) it may be ipso facto considered that amendment in the memorandum and article of association such commercial bank or financial institution is made accordingly.

86I. Right to Appeal Against the Order of the Bank:(1) Only the representative of shareholders of the commercial bank or financialinstitution can appeal to the committee within fifteen days against the action, order, decision or Proceedings of the bank or the official appointed by the bank, under Section 86C, 86D, 86E, 86f and 86h, if not satisfied with such action, order, decision or proceedings.

Clarification: For the purpose of this Section "shareholders representative" means representative elected among the shareholders having minimum twenty five percent of prevailing share.(2) No appeal will be entertained without having the representation of twenty five percent of prevailing shares within the time of Sub-section (1.)(3) In case of the appeal under the provision of Sub-section (1), the committee has to approve, review or cancel the action, order, decision or proceedings done by the bank or the official appointed by the bank, within thirty days of receipt of such appeal by giving related proof, basis and reasons.(4) Bank may provide information about the decision made under Sub-section (3) within fifteen days of such decision to the respective representative of the shareholders.(5) The action, order, decision or Proceedings of the bank or the official appointed by the bank shall remain continue unless the committee under Sub-section (3) cancel it.(6) The decision of the committee under Sub-section (3) on the appeal of the shareholders representative shall be final.

86J. Transfer of the Assets and Liabilities of the Problematic Commercial Bank or Financial Institution: (1) In case of the order issued by the bank for the transfer of assets and liabilities partially or fullyof the problematic commercial bank or financial institution under the provision of Clauses (b), (c) or (d) of Sub-section (3) of the Section 86F, notifying such order to public by publication, it can be transferred to any commercial bank or financial institution or any other body in the terms and basis which bank think proper.(2) Bank may provide, real, detail and information on the serious matters about the belongings or description of assets and transaction of the problematic commercial bank or financial institution to the prospective commercial bank or financial institution or anybody which is ready to receive the assets and liabilities of such commercial bank or financial institution by determining the terms of privacy.


86K. Basis for Transfer of the Assets and Liabilities: (1) Whatever may be mentioned in the Section 86J no assets and liabilities of the problematic commercial bank or financial institution can be transferred to any commercial bank or financial institutions or any other body in the following conditions:(a) In case it is against the interest of the depositors, shareholders, creditors or general public.(b) In case it seems that the transaction related to the assets and liabilities cannot be operated competentlyand liabilities against the depositors, shareholders and creditors cannot be fulfilled.(c) In case of refusal to provide written commitment by the recipient commercial bank or financial institution or any other body, in the terms determined by the bank regarding the proper use of the assets and discharge of the liabilities.

86L. Consequence of Transfer: (1) Whatever may be mentioned in the Companies Act or any other prevailing law, while the assets or liabilities of any problematic commercial bank or financial institution is transferred to any commercial bank or financial institution or any other body, the following provision shall be applicable in the issue of the assets, liabilities, transaction and other related matters of such commercial bank or financial institution from the date mentioned in the order of the bank.(a) In case of transfer of assets and liabilities of the problematic commercial bank or financial institution to any other commercial bank or financial institution or any other body, all the rights and liabilities upon such assets and liabilities shall automatically be transferred to the recipient commercial bank or financial institution or any other body.(b) In case of transfer of assets and liabilities under the provision of Clause (a), if it is necessary to transfer or complete other legal procedure for such transfer the respective official have to transfer it in the name of recipient commercial bank or financial institution or any other body. Provided that, such transfer of assets and liabilities is not considered otherwise only because of not being transfer in the name recipient.(c) The recipient commercial bank or financial institution or any other body which receives the assets and liabilities of the problematic commercial bank or financial institution, have to follow the terms of the written commitment and directives issued by the bank in time to time under the provision of this Act or other prevailing law related to commercial bank or financial institution.(d) In case of transfer of the assets and liabilities of any problematic commercial bank or financial institution to any commercial bank or financial institution or any other body, for the execution of such it is considered that the license for banking and financial transaction issued under the provision of this Act shall be considered automatically amended for the limit of transaction of transferred assets and liabilities and license issued to the problematic commercial bank or financial institution shall be considered as repealed.(e) It is considered that all responsibilities occurred from any agreement, contract, right, right to representation, pledge, securities, instruments, etc of the problematic commercial bank or financial institution which assets and liabilities are transferred to the other commercial bank or financial institution or any other body are transferred to the later till the limit of transferred assets and liabilities of the problematic commercial bank or financial institution.(f) The commercial bank or financial institution or any other body which receives the assets and liabilitiesunder Clause (e) shall operate any action by its own name till the limit of the assets and liabilities transferred to it from the problematic commercial bank or financial institution on which it was party.


86M. Finality of the Order of Transfer: Whatever may be mentioned in the prevailing law, the order issued by the bank for the transfer of the assets and liabilities of any problematic commercial bank or financial institution to any other commercial bank or financial institution or any other body under this Act shall be final.

86N. Prohibition in any Actions: Whatever may be mentioned in the prevailing law, if bank feels necessity for the healthy development of banking and financial system, stability and for the sake of depositor's interest bank can do following actions:(a) Apply to the Appeal Court for the order of suspension of hearing of civil matters for not more than six months to any actions, transaction and related any matter or all cases on which problematic commercial bank or financial institution is either party.(b) Control or capture the assets, records, account, etc of the problematic commercial bank or financial institution.

87. Establishment of Information Network: (1) The Bank shall, in order to promote banking and financial system of Nepal, establish and operate information network as prescribed.

88. Establishment of Credit Information Center: (1) The Bank shall establish or cause to establish one credit information Center for the following purposes:-(a) To obtain information on the flow of credit from commercial banks and financial institutions in order to ensure fairness and appropriateness in credit flow;(b) To require the exchange of the information received pursuant Clause (a) amongst the commercial banks and financial institutions for the purpose referred to in that Sub-Section;(c) To require to send the name-list of the debtors not repaying the loan in time or misusing the loan to theCenter;(d) To require to obtain on compulsory basis the information from the Center prior to making investment or advancing loan of an amount more than the limit prescribed by the Bank;(e) To have the name-list received pursuant to Clause (c) blacklisted by the Center upon confirmation and to take necessary action in this regard; and(f) To submit report to the Bank, on the exchange of information among the commercial bank and financial institution and use such information while making loan investment on the basis of inspection, supervision and monitoring.(2) The Bank shall regulate and manage the functions referred to in Sub-section (1) as specified.

Chapter - 10Balance Sheet, Auditing and Report

89. Fiscal Year: The Fiscal year of the Bank shall be as per the Fiscal year of Government of Nepal.

90. Account System: The Bank shall maintain at all times accounts and records adequate to reflect its operations and financial condition in accordance with international accounting standards.

91. Annual Report:(1) The Bank shall prepare an annual report for each fiscal year, which should include the balance sheet, profit and loss accounts and the particulars relating to it.(2) The Bank shall submit the annual report referred to in Subsection (1) to Government of Nepal within four months from the date of completion of each fiscal year.


92. Auditing:(1) The Auditor General shall carry out auditing of the accounts of the Bank.(2) The Board may, if it deems appropriate, cause the internal auditing of its accounts carried out by some external Auditor. While causing such auditing of accounts, it shall cause to be carried out in accordance with the account system of international practice.

93. Submission of Report to Government of Nepal:(1) The Bank shall have to submit the following reports to Government of Nepal within four months from the date of completion of each fiscal year:-

(a) Auditing Report,(b) Report on its activities of itself,(c) Report on economic and financial position,

(2) The Bank shall publish its monthly balance sheet within fifteen days from date of completion of each month.

94. Report on Monetary Policy: The Bank shall publish the report on monetary policy each year for the information of general public. The said report to be published in such a manner shall contain the following matters:-(a) Comprehensive review and evaluation of the monetary policy introduced and followed by the Bank in the preceding year;(b) Justification and analysis of the monetary policy that the Bank is going to introduce in the following year:-

Chapter - 11Offences, Punishment and Proceedings

95. Acts to be deemed to be Offence Under this Act: (1) Whoever accepts deposits or gives credits or issues debenture or other financial instruments in contravention to this Act or the Rules or bye-law framed there under or an order or directive issued there under; or whoever charges or gives interest against the policy determined by the Bank or issues fake, fraudulent, counterfeit or duplicate or copied currency or distributes or circulates such currency or is involved in such acts, it shall be deemed to have committed offences under this Act.(2) Except otherwise provided under Sub-section (1) any person who fail to comply with the provisions made under this Act or rules made there under, or bye-laws, or the order or directives issued there under, shall commit offence under this Act.

96. Punishment: (1) The person convicted of offence referred to in Section 95 shall have the assets related to the offence confiscated and shall be liable to a fine up to three times of the value of the said assets or an imprisonment up to three years or the both.(2) In cases where the value of the assets related to offence cannot be ascertained pursuant to Sub-section (1), a fine of up to one million rupees or an imprisonment up to three years or both may be imposed depending upon degree of the offence.(3) If the offence referred to in Section 95 has been committed by any firm, company or institution, the punishment referred to in Sub- Sections (1) and (2) shall be imposed on the official of the said firm, company or institution committing the offence.(4) The person who has attempted to commit, or who is indirectly related to the offence referred to in Section 95 or the person who has helped to commit such offence or the official of the concerned firm,


company or organization who has helped to commit such offence shall be liable to a punishment up to the half of the punishment prescribed for the offender of the first degree.

97. Government of Nepal to be Plaintiff: The cases relating to the offences referred to in Section 95 shall be filed by Government of Nepal as plaintiff and such cases shall be deemed to have been incorporated in Schedule -1 of the Government Cases Act, 2049 (1992).

98. Bank to Provide Information: In cases where the Bank has information from any source that any one has committed the offences referred to in Section 95, the Bank shall forward such information in writing to Government of Nepal or the concerned agency for necessary actions.

99. Fine for Violation of Bank's Regulation: (1) In case any commercial bank or financial institution licensed under this Act, violates an order or directive issued by the Bank under this Act or under the regulation or Byelaws framed there under, the Bank may fine such commercial bank or financial institution an amount up to the amount related to such violation.(2) In cases where the Bank's regulation referred to in Sub-section (1) has been violated by a Director, official or employee of the commercial bank or financial institution, such fine shall be imposed on the concerned Director, official or employee.

100. Punishment for Violation of Bank's Regulation: (1) In case any commercial bank or financial institution licensed from the Bank, violates an order or directive issued by the Bank under this Act or under the regulation or bye-laws framed there under, the Bank may impose one or more of the following punishment to such commercial bank or financial institution:-(a) Giving reprimand or written warning;(b) Obtain an undertaking from Board of Directors for adopting reformative measures;(c) Issuing written order to end up frequent violations, to abstain from such violation and to adopt reformative measures;(d) Suspend or terminate the services of the Bank's employee;(e) Prohibit commercial bank or financial institution to distribute dividend to its shareholders;(f) Prohibit commercial bank or financial institution to accept deposits or to grant loan and advance;(g) Imposing full or partial restriction on the transaction of business of the commercial bank or financial institution;(h) Suspend or revoke license of the commercial bank or financial institution.(2) Where a Director or official or employee of a licensed commercial bank or financial institution violates an order or directive issued by the Bank under this Act or under the regulation or bye-law framed there under or in cases where, they have acted against the interest of the depositor or general public or where they failed to submit the documents, particulars, data required by the Bank or the inspecting or supervising official within the time prescribed, the Bank may impose the following punishments to such Director, official or employee:-(a) Giving reprimand or written admonition;(b) Suspending;(c) Imposing a cash fine not exceeding five hundred thousand rupees;(d) Giving order to the Board of Directors of concerned commercial bank or financial institution to stop payment of all benefits including remuneration and allowances;(e) Giving order to the Board of Directors of the concerned commercial bank or financial institution to remove Directors from his office of Director or to terminate the services of officer or employee.


101. Procedures for Pecuniary Penalty and Punishment: (1) While imposing pecuniary penalty or punishment pursuant to Sections 99 and 100, the Bank shall have to follow the following procedures:-(a) Prior to imposing pecuniary penalty or punishment, the Bank shall issue a written notice to the accused institutions or persons stipulating the following matters to submit its reply within fifteen days, on the proposed fine or punishment:-(1) Nature of the offense,(2) Amount of fine or proposed punishment that may be imposed on the basis of nature of offence, and (3) Summary of the facts related to the offence.(b) The institution or person accused pursuant to Clause (a) should submit written replies within fifteen days accepting or denying the charges.(c) In case the denial of the charge by the accused institution or person is found to be satisfactory, the Bank may change, limit or dismiss such charge.(d) In case the accused institution or person accept the charge or does not give satisfactory replies, the Bank shall impose such fine or punishment.(e) The Bank may issue order to deduct the amount of fine imposed pursuant to Clause (d) from the accounts of the concerned commercial bank or financial institution maintained at the Bank.(2) The cash fine to be recovered by the Bank pursuant to Clause (e) of Sub-Section (1) shall be deposited in the general reserve fund.(3) Notwithstanding anything contained in Sub-section (1), there is no need to follow such procedure while imposing punishment under Clauses (a), (b), (c) or (d) of Sub-section (1) and Clauses (a) and (b) ofSub-section (2) of Section 100.

102. Filing Appeals: The commercial bank or financial institution or the director or official or employee thereof not satisfying with the punishment imposed by the Bank under Sections 99 and 100 may, within thirty five days from the date of punishment, file an appeal at the Appellate Court.

Chapter - 12Miscellaneous

103. Payment, Clearing and Settlement:(1) The Bank shall make necessary arrangement for the clearing and settlement of cheques, payment orders, interbank payment security transactions made in the currencies prescribed by the Bank and any other payment instrument and carry out the functions of regulation, inspection and supervision thereof.(2) While carrying out the functions referred to in Sub-section (1), the Bank may prescribe necessary procedures.(3) For the purpose of clearing and settlement arrangement referred to in Sub-section (1), the commercial bank or financial institution shall, subject to the terms and conditions prescribed by the Bank, open account in the Bank or any other financial institution prescribed by the Bank.

104. Collection of Data:(1) The Bank shall, in order for achieving its objectives or carrying out its functions, collect data necessary for it from itself or from Government of Nepal or other agencies. For this purpose, theBank may seek help from the authorized persons, institution, organization within and outside the Kingdom and international association and organizations.


(2) The Bank may make necessary provisions for coordination and reformation in the system of collection, storing and distribution of data relating to its area of competence.

105. Trust Accounts: The Bank may, for special purposes, open and operate separate account in the form of trust account. The amount collected in such account shall not be used for any other purposes. The property in such account shall be used only for the purpose of fulfilling the liabilities of such accounts and the Bank shall not be allowed to use the amount or property in other accounts for fulfilling such liabilities.

106. Actions not to be Invalid: None of the actions taken by the Bank or the Board shall be invalid merely for the reason that there was irregularity in the appointment of Governor, Deputy Governor or Director or in the formation of the Board or simply on the ground that the office of the Governor, Deputy Governor or Director has remained vacant.

107. No Responsibility for Acts Done on Good Faith:(1) Governor, Deputy Governor, Director or any official or employee of the Bank shall not be personally or collectively liable for any act done on good faith under this Act and under the Regulations or Bye-laws or under an order or directive issued there under. Provided that for any act done knowingly or with mala fide intention, they shall be personally liable.(2) In case a lawsuit of any type has been filed against the Governor, the Deputy Governor, Director or any official of the Bank with regard to any loss sustained or to be sustained because of any act done or attempted to do in good faith pursuant to this Act or under the Regulations or Byelaws framed there under or an order or directive issued there under, the Bank shall bear expenses incurred there for. Provided that the Bank shall not bear the expenses incurred for the lawsuit filed against any act done knowingly or with mala fide intention.

108. Oath of Office:(1) Before assuming their office, the Governor and Director before the chief justice of the Supreme Court or justice prescribed by him/her and Deputy Governor before the Governor, shall take an oath of post and secrecy as determined in the schedule.(2) Any employee or advisor appointed first time in the bank should take an oath of post and secrecy as prescribed, before resuming his post.

109. This Act to be Applicable: Notwithstanding anything contained in the prevailing laws, provisions contained in this Act shall prevail.

110. Power to Frame Rules and Bye-laws: (1) In order to implement the objectives of this Act, the Bank shall, having obtained approval of Government of Nepal, frame necessary Rules on the following matters:-(a) Foreign Exchange Transaction;(b) Refund of the burnt, torn, defaced or mutilated banknotes and coins;(c) Transaction of business between Government of Nepal and the Bank;(d) Other necessary matters which bank thinks necessary to implement the objective of this Act.(2) In order to implement the objectives of this Act, the Board may frame byelaws on the following matters:-(a) The venue and time of the meeting of the Board and procedures relating thereto,(b) Formation of sub-committees by the Board as per necessity and procedures of such subcommittees,(c) Appointment, promotion, transfer, dismissal, remuneration and facilities, pension, gratuity, provident fund, leave, conduct and discipline and terms and conditions of service, of the employees of the Bank,CIMA/CAP II/Act Compilations/CA. Hem Kafle of 300

(d) Delegation of authority by the Board to the Governor, by the Governor to the Deputy Governor or other employees of the Bank,(e) The terms and conditions for the lease agreements to be concluded on behalf of the Bank,(f) The use of the seal of the Bank,(g) The accounts, ledger, registrars, books and other record and documents to be maintained by the Bank and the format thereof,(h) Internal auditing and inspection of the Bank,(i) Supervision of commercial banks and financial institution,(j) The particulars to be submitted by commercial banks and financial institutions,(k) Cash deposit of the Bank or responsibility of the cash,(l) The case to be filed on behalf of the Bank or operation of other transaction of business,(m) Credit control,(m) The Bank's system of expenditure,(n) Other necessary subjects, which are necessary to implement the objective of this Act.(3) Except the subject matters referred to in Sub-Sections (1) and (2), the Governor shall issue the order, direction, procedures and guidelines to be issued under this Act.(4) The Bank shall forward, for information of Government of Nepal, the Bye-law framed under Sub-section (2) and the order or directive issued under Sub-section (3).(5) The Bank shall publish and transmit the bye-law framed under Sub-section (2) or an order or directive issued under Sub-section (3).

111. Guidelines to be Framed and Introduced: The Bank may, in order to fulfill the objectives of the Act, frame and introduce necessary guidelines from time to time subject to this Act, or Regulations or bye-laws frame under this Act.

112. Repeal and Saving: (1) The following Acts have been repealed:(a) The Nepal Rastra Bank Act, 2012 (1955);(b) The Currencies Act, 2040 (1983);(2) All acts and activities carried out in accordance with the Acts repealed under Sub-section (1) shall be deemed to have been carried out in accordance with this Act. erted by Nepal Rastra Bank (First Amendment) Act, 2063

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Negotiable Instruments Act, 2034 (1977)

Amendment Finance Related Some Nepal Acts Amendment Act, 2039 (1982) 2039/7/3 (October 19, 1982) Act Number 26 of 2034 (1977)An Act Made to Provide For Matters Relating to the Negotiable Instruments Preamble: Whereas, it is expedient to define negotiable instrument and make other arrangements relating to it in order to systematize the banking transaction, Now, therefore, be it enacted by His Majesty King Birendra Bir Birkram Shah Dev on the advice and with the consent of the Rastriya Panchayat.


1. Short Title, Extent and Commencement: This Act may be called "Negotiable Instruments Act, 2034" (1977).(2) This Act shall extend to all over the Nepal.(3) This Act shall come into force from such date as Government of Nepal may, by a Notification published in the Nepal Gazette, appoint.

2. Definitions: Unless the subject or context otherwise requires, in this Act,-(a) "Bank" means the bank established pursuant to the prevailing laws.(b) "Bankers" means the organization performing the banking occupation and this term also includes the post office operating the functions of a saving bank.(c) "Security" means the property or document relating to it which is kept or to be kept as security while taking or giving loans.(d) "Negotiation" means the act of transfer of Negotiable Instruments to any person so as to constitute that person the holder thereof.(e) "Negotiable Instruments" means a Promissory Note and Bill of Exchange.(f) "Promissory Note" means an instrument in writing except government or Bank note containing an unconditional undertaking, signed by the maker, to pay a certain sum of money to, or to the order of, a certain person, or to the bearer of the instrument. Provided that, this word shall not include the document prepared pursuant to the Chapter of Transaction of the Muluki Ain (General Code).(g) "Bill of Exchange" means an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money to, or to the order of a certain person or to the bearer of the instrument in a certain date or after certain period of time or at the demand.(h) "Cheque" means a bill of exchange drawn on a certain Bank payable on demand.(i) "Draft" means a bill of exchange drawn by a Bank payable on demand from its one Office to another Office to, or to the order of a certain person.(j) "Payee" means the person named in the instrument to whom or to whose order the money is by the instrument directed to be paid.(k) "Holder" means a person entitled in his own name to the possession of a Negotiable Instrument and to receive the amount due on it.(l) "Drawer" means a person who makes or draws a bill of exchange.(m) "Drawee" means a person thereby directed for the payment of the bill of exchange.(n) "Alternative Drawee" means a person mentioned or endorsed in the bill of exchange, to be contacted in case the Drawee does not accept the bill of exchange or gives the payment.(o) "Holder in due Course" means a person having entitlement upon the Negotiable Instrument according to law, in the case of a Negotiable Instrument payable to a bearer, and the Payee or a person endorsed by him, in the case of a Negotiable Instrument payable to the ordered person.


Provided that, such entitlement must have received or endorsed before the maturity of such Negotiable Instrument without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title.(p) "Payment in due Course" means payment in accordance with the apparent tenor of the Negotiable Instrument in good faith and without negligence to any person in possession thereof.(q) "Endorsement" means the act of signing on the Negotiable Instrument for the purpose of Negotiation, on the face or back or on the document or a slip of paper annexed thereto.(r) "Endorsement in Blank" means the Endorsement having signed only the name of the endorser.(s) "Endorsement in Full" means the Endorsement which contains the direction to pay the amount mentioned in the instrument to, or to the order of a specified person.(t) "Bill of Exchange Payable on Demand" means a bill of exchange which is payable on demand or at sight or on presentment.(u) "Maturity" means the date at which a bill of exchange falls due.(v) "Public Holiday" means the day declared by Government of Nepal to be a public holiday and it includes the day on which the Banking business does not take place.(w) "Notary Public" means a person appointed or designated pursuant to Section 106.(x) "Prescribed" or "as Prescribed" means prescribed or as prescribed in this Act or Rules made there under.

Chapter-2Negotiable Instruments, its Party and His Rights and Liabilities

3. Ambiguous Negotiable Instrument: Where a Negotiable Instrument may be construed either as a Promissory Note or Bill of Exchange the Holder may at his /her election treat it as either.

4. Rights of the Holder: The Holder may transfer the Negotiable Instrument.

5. Negotiable Instrument without Payment Date: Payment of the Negotiable Instrument in which the payment date is not written shall be made on demand.

6. Difference between Figure and Letter: In case there is difference between the figure and letter of the amount to be paid on the Negotiable Instrument, the amount written in the letter shall be the amount to be paid.

7. The Additional Time Limit: Payment of the Negotiable Instrument on which it is not written that payable on demand or at sight or on presentment shall be on the fourth day from the date of payment.

8. Payment after the Specified Period: Payment of the Negotiable Instrument payable on a specified day or after the specified period of presentment or after the happening of any inevitable event or after the specified period of the happening of such event shall be as mentioned in such instrument.

9. Calculation of the Date of Maturity: While calculating the date of payment of the Negotiable Instrument to be payable after a specified period, it is calculated by excluding the day written in the Negotiable Instrument or the day of presentment for the acceptance.

10. When Day of Maturity is a Holiday: When the day on which a Negotiable Instrument is at maturity is a Public Holiday, the instrument shall be deemed to be due on the next preceding business day.


11. Capacity of Parties: Any person, who is capable of contracting under the prevailing law, may make, draw, accept, endorse, negotiate etc. of the Negotiable Instrument and all parties shall be liable for it. Provided that, if such act has been done by the minor, all parties accept him/her shall be liable.

12. Agent: For the acts done by an agent, the principal who has authorized him/her to do such act shall be liable.

13. Liability of an Agent: If an agent who signs his/her name to a Negotiable Instrument without indicating thereon that he/she signs as an agent, or he does not intend thereby to incur personal responsibility, is liable personally to such Negotiable Instrument.

14. Liability of an Heir: If a person who signs his/her name to a Negotiable Instrument as an heir of a deceased person is fully liable personally thereon unless he/she expressly limits his liability to the extent of the assets received by him as such.

15. Liability of Drawer: In case the Drawer has been provided due notice of dishonour of the bill of exchange by the acceptor or Drawee, it shall be the duty of the Drawer to Compensate the Holder.

16. Liability of the Bank Giving Payment of the Cheque: The Bank having sufficient funds of the Drawer in the account, properly applicable to the payment of the Cheque must pay the Cheque, and, in default of such payment must compensate the Drawer or Holder in due Course for any loss or damage caused by such default pursuant to this Act.

17. Liability of Maker of Promissory Note and Acceptor of bill of exchange: The maker of a Promissory Note or the acceptor of bill of exchange is bound to pay the amount thereof at Maturity when the Negotiable Instrument is duly presented for the payment. In default of such payment, the maker of the Promissory Note or the acceptor of the bill of exchange is bound to compensate any party payable for any loss or damage sustained by him and caused by such default.

18. Person Capable to Accept the bill of exchange: (1) No person except the Drawee or Alternative Drawee of a bill of exchange can accept the bill of exchange in his responsibility.(2) In case there are more than one Drawee in the Bill of Exchange, any one Drawee may accept the Bill of Exchange only in his/her own favour. Provided that, in case the Drawees of a Bill of Exchange who are partners or authorised, one can accept it for another.

19. Liability of Endorser: Any person who indorses and delivers a Negotiable Instrument expressly limiting or excluding his/her own liability, shall be responsible to every subsequent Holder except otherwise a contract is made thereto.

20. Liability of the Parties to Holder in Due Course: Every prior party to a Negotiable Instrument is liable thereon to a Holder in due Course until the instrument is duly satisfied.

21. To be Equivalent to Principal Debtor: The maker or Drawer of the Negotiable Instrument until acceptance, and the acceptor are in the absence of a contract to the contrary respectively liable thereon as principal debtors, and the other parties thereto are liable thereon as sureties for the maker, Drawer or acceptor, as the case may be.


22. Prior party to be Equivalent to Principal Debtor in Respect of each Subsequent Party : As between the parties so liable as sureties, each prior party is, in the absence of a contract to the contrary, liable thereon as a principal debtor in respect of each subsequent party.

23. Liability of Surety: Notwithstanding anything contained in the prevailing laws, the surety of Bill of Exchange cannot take stand that only in case the realization could not be possible from the property of the principal debtor, shall be realized from his/her property, it can be directly realized from the person being a surety.

24. Discharge of Endorser's Liability: If the Holder without the consent of the endorser impairs the remedy against a prior party, the endorser is discharged from Liability to the Holder.

25. Bound to be Responsible: An Acceptor of a Bill of Exchange already indorsed is not relieved from liability by reason that such Endorsement is forged, if he knew or had reason to believe the Endorsement to be forged when he/she accepted the bill.

26. Negotiable Instrument without Consideration: A Negotiable Instrument made, accepted, indorsed or transferred without consideration against the prevailing law creates no obligation of payment between the parties to the transaction. If any person has transferred such Negotiable Instrument with or without Endorsement to a Holder for consideration, such Holder deriving title for him/her, may recover the amount due on such Negotiable Instrument from the transferor for consideration or any prior party thereto.

27. Duplicate to be Given: In case the Holder who has lost the Negotiable Instrument requests for obtaining the duplicate of the lost Negotiable Instrument the Drawee or maker of the Bill of Exchange shall have to give him/her the aforesaid duplicate by taking required security and the expenditure incurred for the preparation of the duplicate.

Chapter - 3Negotiation and Endorsement

28. Delivery: The function of making, acceptance or endorsement of a Negotiable Instrument shall be regarded to be completed only after its delivery.

29. Negotiation by Delivery: A Negotiable Instrument payable to bearer is negotiable by delivery thereof. If the Negotiable Instrument is payable to the person written on the instrument or to one ordered by him/her, such instrument should be indorsed by the Holder.

30. Effect of Endorsement: The right shall be transferred after the Endorsement of a Negotiable Instrument followed by delivery. The Holder may give such instrument to any other by indorsing it or receive payment by himself.

31. Change of Endorsement: The Holder of any Negotiable Instrument having general Endorsement may change the general Endorsement into special Endorsement.


32. Restriction can be Imposed to Indorse: While indorsing the Negotiable Instrument, restriction can be imposed in the right of the Holder to indorse in a way that such instrument cannot be re-indorsed or to be done only according to as mentioned in the Endorsement. Provided that, such restriction cannot be imposed in the case of a Negotiable Instrument payable to bearer.

33. Holder Deriving Title from Holder in due Course: A Holder of a Negotiable Instrument who derives title from a Holder in due Course has the right thereon of that Holder in due Course.

34. Endorsement or Negotiation can be Done: Every party of the Negotiable Instrument can indorse or negotiate such instrument except it is restricted pursuant to Section 32.

35. Endorsement can be done Without Persisting Liability: The endorsee can indorse by clearly stating the matter that his liability shall not persist on the Negotiable Instrument.

36. Endorsement for Part of Sum Due: No Negotiable Instrument can be negotiated which is indorsed to transfer only a part of the amount appearing to be due on the instrument.

37. Negotiation by the Heir: In case the endorsee is dead before its delivery, the heir of the deceased also cannot negotiate the instrument by delivery only without the Endorsement.

38. Negotiable Instrument Obtained by Unlawful Means: The person obtaining a Negotiable Instrument by means of any offence or fraud or unlawful consideration or the person, who found the lost Negotiable Instrument, cannot make a claim upon the amount mentioned on such instrument with Drawer, accepter or Holder of such Negotiable Instrument.

39. Negotiable Instrument Acquired after Dishonour or when Over Due: The Holder of a Negotiable Instrument, who has deliberately acquired it after dishonour, whether by non acceptance or non-payment or after Maturity, has only the rights thereon of his/her transferor of such instrument.

Chapter-4Of Presentment

40. Presentment for Acceptance: A Bill of Exchange payable after presentment must be presented to the Drawee thereof for acceptance, in business hours on a business day. If no time or place is specified therein for presentment of bill of exchange it must be presented to the Drawee thereof for acceptance, if he/she can, after reasonable search, be found, by a person entitled to demand acceptance, within a reasonable time and in business hours on a business day. In default of such presentment, no party thereto is liable thereon to the person making such default, Provided that, if the Drawee cannot, after reasonable search, be found, the Bill of Exchange is deemed to be dishonoured.

41. Drawee to Have Time: The Holder must, if demanded by the Drawee of a bill of exchange presented to him/her for acceptance, allow the Drawee two days, exclusive of Public Holiday, to consider whether he/she will accept it.

42. Presentment of Promissory Note: A Promissory Note, payable at a certain period after sight must be presented to the maker thereof for sight by a person entitled to demand payment, within a reasonable time after it is made and in business hours on a business day. In default of such presentment no party thereto is liable thereon to the person making such default.


43. Presentment for Payment: Promissory Notes, Bills of Exchange and Cheques, must be presented for payment to the maker, accepter or Drawee thereof respectively, by or on behalf of the Holder within the business hours, In default of such presentment; the other parties thereto are not liable thereon to such Holder.

44. Negotiable Instrument Payable at Specified Place: A Negotiable Instrument mentioned as payable at a specified place must be presented for payment at that place.

45. Negotiable Instrument without Mentioning Place of Payment: If the place of payment is not stated by the maker, accepter or Drawer, a Promissory Note must be presented to the maker and the bill of exchange to its acceptor or Drawee in his place of business or residence.

46. In case the place of Business or Residence is not Fixed: If the maker, acceptor or Drawee of a Negotiable Instrument has no fixed place of business or residence presentment of such instrument for payment or acceptance may be made to him/her in person wherever he/she can be found.

47. Presentment of Cheque to Charge Drawer: (1) No person can charge the Drawer without presentment of a Cheque at the Bank upon which it is drawn.(2) If any damage is caused to any person due to the reason of default of presentment of Cheque within a reasonable time, the amount of such damage cannot be charged with the Drawee.

48. Excuse for Delay in Presentment: Delay in presentment for acceptance or payment is excused of the delay is caused by circumstances beyond the control of the Holder, and not imputable to his/her misconduct, negligence or default. Provided that, when the cause of delay ceases to operate, presentment of the Negotiable Instrument for the acceptance or payment must be made within a reasonable time.

49. To be presented within a Reasonable Time: The Holder of a Negotiable Instrument payable on demand must present such instrument for the payment within the reasonable time.

50. Presentment May be made to the Agent of Heir: Presentment for acceptance or payment may be made to the agent of the maker, acceptor and Drawee respectively. Provided that, if the maker, acceptor or Drawee has died, such instrument must be presented to his/her heir.

51. Situation to be Arised When Presentment is not Made for the Payment: The Negotiable Instrument shall be deemed to be dishonoured in the following situation and no presentment is necessary for its payment:-(a) If the maker, acceptor or Drawee deliberately prevents the presentment of the Negotiable Instrument, or(b) If the instrument being payble at the specified place, neither the payer or his Agent to pay it attends at such place during the business hours on a business day, or(c) If the payer closes his/her office during the business hours on a business day, or(d) If the Negotiable Instrument not being payable at any specified place, the concerned party cannot be found for the presentment after due search.

52. Compensation to be given for Negligence or Mistake: When a Bill of Exchange accepted, payable at a specified Bank, has been duly presented there for the payment and dishonoured in a way to cause loss to the Holder, such Banker must compensate the Holder pursuant to this Act.


Chapter-5On Payment, Interest and Discharge From Liability

53. Payment: Subject to the provisions of Section 56, payment of the amount due on a Negotiable Instrument must be made to the Holder. Provided that, the Bank shall not be bound to give payment of a Cheque or Draft drawn upon the Bank is not made presentment for its payment within Six months from the date at which it is drawn.

54. Interest: Notwithstanding anything contained in the prevailing laws, if a rate of interest is specified in the Negotiable Instrument, it will be calculated at such rate. Provided that, while computing the interest for giving compensation or recovering loss, it shall be calculated by the maximum rate of interest to be charged by the commercial Bank in the loan extended by it.

55. Negotiable Instrument to be delivered on Payment: The payer may see the Negotiable Instrument before its payment and keep such instrument with him/her on its payment.

56. Discharge from Liability: The Drawer, acceptor or endorser of a Negotiable Instrument shall be discharged from his/her liability in the following conditions:-(a) If the Holder intentionally cancels the name of the acceptor or endorser with intent to discharge him/her to such Holder and all parties claiming through such Holder.(b) If a Holder thereof who otherwise discharges such acceptor or endorser or Drawer and to all parties deriving title under such Holder after notice of such discharge.(c) If the Negotiable Instrument is payable to bearer or has been indorsed in blank and such Drawer, acceptor or endorser makes Payment in due Course of the amount due thereon is discharged to all concerned parties thereto related with such Negotiable Instrument.

57. Discharge From the Liability by Allowing Additional Time: If the Holder allows the acceptor of a Negotiable Instrument a period of more than two days, exclusive of Public Holiday to consider whether he/she will accept the same, all prior parties not consenting to such allowance are thereby discharged from the liability to such Holder.

58. Discharge From Liability of Cheque Payable to the Bearer or Ordered Person: The Drawee shall be discharged from his/her liability in the case of a bearer's Cheque by Payment in due Course to the bearers thereof, notwithstanding any Indorsement on the back side of the Cheque and in the case of a Cheque payable to order purports to be indorsed by or on behalf of the Payee, by Payment in due Course.

59. Discharge From Liability of Payment of Draft: When a Draft drawn by one office of a Bank upon another office of the same Bank for a sum of money payable to order on demand, purports to be indorsed by or on behalf of the Payee, the Bank is discharged by Payment in due Course.

60. Acceptance with Conditions: If consent is given to the acceptance with conditions made by the Holder of a Bill of Exchange all other prior parties except the party who gave consent to such conditions, shall be discharged from the liability.

61. Alteration or Scratching and Erasing in the Bill of Exchange: If alteration or scratching and erasing has been made in the Negotiable Instrument except any material alteration or scratching and erasing has been made in the Negotiable Instrument by the main parties thereon with unanimous intention, all


other prior parties except the party who gave consent to such alteration or scratching and erasing shall be discharged from the liability.

Explanation: "Alteration or scratching and erasing" means the functions of alteration or scratching and erasing in a way that another meaning in the Negotiable Instrument to be given or the appearance of the Negotiable Instrument to be changed or the liability of the concerned parties to be changed.

62. Payment of Negotiable Instrument on which Scratching and Erasing or Alteration is not Apparent: When a Negotiable Instrument has been materially scratched and erased or altered but does not appear to have been such things or crossing does not appear in a cross Cheque, Payment in due Course shall discharge such person or Bank from his/her or its liability thereon.

63. All Parties to be discharged From the Liability: If a Negotiable Instrument which has been negotiated is, at or after maturity, held by the acceptor in his own right, all other parties shall be discharged from the liability related with that instrument.

Chapter - 6Of Notice of Dishonour

64. Dishonour by Non-Acceptance: (1) A Bill of Exchange shall be deemed to be dishonoured by non-acceptance when the Drawee, or one of several Drawees not being partners, makes default in acceptance upon being duly required to accept the bill.

(2) If agreed to accept the bill with conditions or the Drawee is incompetent to contract, the bill of exchange shall be deemed to be dishonoured.

65. Dishonour by Non-Payment: A Promissory Note, bill of exchange or Cheque shall be deemed to be dishonoured by non-payment when the maker of the note, accepter of the bill or Drawee of the Cheque makes default in payment upon being duly required to pay the same.

66. Notice of Dishonour: When a Bill of Exchange is dishonoured by nonacceptance or non-payment, the Holder thereof, or some party thereto who remains liable thereon, must give notice to all other parties related to such instrument, and if any party among them has not been noticed such party shall not be liable to that instrument. Provided that, nothing in this section renders it necessary to give notice of dishonour to the maker of the Promissory Note, acceptor of the Bill of Exchange or the Drawee.

67. Mode in which Notice May be Given: Notice of dishonour may be given to a person to whom it is required to be given or to his/her duly authorized agent or, where he/she has died, to his/her heir, may be oral or written. While giving written notice, it can be sent by post and maybe in any form. In such notice it must be informed to the party to whom it is given, either in express terms or reasonable intendment, that the Negotiable Instrument has been dishonoured and he /she will be held liable thereon and it must be given within reasonable time, at his place of business or residence. If the notice is duly directed and sent by post and miscarries, such miscarriage does not render the notice invalid.


68. The Agent to Have Time to Give Notice of Dishonour: When the Negotiable Instrument is deposited with an agent for presentment, the agent is entitled to give notice to the concerned principal party as if he were the Holder giving notice of dishonour.

69. When Party to Whom Notice Given is Dead: When the party to whom notice of dishonour is despatched is dead, and the party despatching the notice is ignorant of his/her death, the notice shall not be invalid.

70. When Notice of Dishonour is Unnecessary: No notice of dishonour is necessary in the following conditions:-(a) When it is dispensed with by the party entitled thereto,(b) When the Drawer has countermanded payment,(c) When the party has not suffered damage for want of notice,(d) When the acceptor is also a Drawer,(e) In the case of a Promissory Note which is not negotiable.(f) When the party entitled to notice cannot after due search be found, or the party bound to give notice, is for any other reason, unable without any fault of his/her own to give it,(g) When the party entitled to notice, knowing the facts, promises unconditionally to pay the amount due on the Negotiable Instrument.

71. The Facts of Dishonour Can be Caused to be Noted by Notary Public : When a Negotiable Instrument has been dishonoured by nonpayment or non-acceptance, the Holder may complain such dishonor to the Notary Public within a resonable time and may cause to be noted the particulars of dishonour by the Notary Public upon the instrument, or upon a paper attached thereto. The date of dishonour and the reason assigned for such dishonour must be specified while causing to note and if the instrument has not been expressly dishonoured, the reason why the Holder treats it as dishonoured also shall have to be expressed clearly.

72. The Facts of Dishonour May be Taken by Certifying it: The Holder may take the facts of dishonour to be certified by the Notary public after it is noted pursuant to Section 71.

73. Protest For Additional Security: When the acceptor of a Bill of Exchange has become insolvent, before the Maturity of the Bill of Exchange, the Holder may, within ta reasonable time, cause a Notary Public to demand additional security of the acceptor and on its being refused may, within a reasonable time, cause such facts to be noted and certified.

74. Contents of Protest: The protest in relation to dishonour or refusal for additional security must contain the following particulars:-(a) The Negotiable Instrument or its duplicate and of everything written or printed thereupon,(b) The name of the person for whom and against whom the instrument has been protested,(c) A statement that payment or acceptance, or additional security, as the case may be, has been demanded of such person by the Notary Public, the terms of his answer, if any, or a statement that he gave no answer, or that he could not be found,(d) When the Negotiable Instrument has been dishonoured, the place and time of dishonour, and when additional security has been refused, the place and time of refusal.

75. Notice of Protest: When a Negotiable Instrument is required by any prevailing law to be protested, notice of such protest must be given instead of notice of dishonour. The notice may be given by the Notary Public also who makes the protest.


76. Protest For Non-Payment After Dishonour by Non-Acceptance: All Bills of Exchange drawn payable at some other place than the place mentioned as the residence of the Drawee, and which are dishonoured by non-acceptance, may, without further presentment to the Drawee, be protested for non-payment in the place specified for the payment.

77. Protest of Foreign Bills of Exchange: Foreign Bills of Exchange must be protested for dishonour when such protest is required by the law of the country where they are drawn, the protest of dishonour of such Bills of Exchange also must be caused by the Notary Public.

Chapter - 7On Reasonable Time

78. Determination of Reasonable Time: In determining the reasonable time for presentment for acceptance or payment, for giving notice of dishonour and for noting, regard shall be had to the nature of such Bills of Exchange and the usual course of dealing with respect to similar instruments, and, in calculating such time Public Holiday shall be excluded.

79. Determination of Reasonable Time of Giving Notice of Dishonour: If the Holder and the party to whom notice of dishonour is given carry on business or live in different places such notice is given within reasonable time if it is dispatched by the registered letter through the post or by any other means on the day next after the day of dishonour. If both the parties carry on their business or line in the same place, such notice is given within a reasonable time if it is dispatched in time to reach its destination the day next after the day of dishonour.

80. Reasonable Time to Give Notice to Make Liable to the Prior Party: A party receiving notice of dishonour, who seeks to enforce his/her right against a prior party, transmits the notice within a reasonable time if he transmits it within the same time after its receipt as he/she would have had to give notice if he/she had been the Holder.

Chapter-8Of Crossed Cheques

81. General Crossed Cheque: Where a Cheque bears across its face an addition of the words "and company" or any abbreviation thereof, or of two parallel transverse lines simply, either with or without the words "not negotiable" and the Cheque shall be deemed to be generally crossed.

82. Special Crossed Cheque: Where a Cheque bears across its face an addition of the name of a Banker, either with or without the words "not negotiable" and the Cheque shall be deemed to be specially crossed.

83. Crossing after Issue: (1) Where a Cheque is uncrossed, the Holder may make it general or special crossed Cheque.(2) Where a Cheque is general crossed Cheque, the Holder may make it special crossed Cheque.(3) Where a Cheque is general or special crossed Cheque, the Holder may add the words "not negotiable".(4) Where a Cheque is crossed specially, the Banker to whom it is crossed may again cross it especially to another Banker or his agent for collection.


84. Payment of Crossed Cheque: (1) Where a Cheque is crossed generally, the Banker on whom it is drawn shall not pay it otherwise than to a Banker.(2) Where a Cheque is crossed specially, the Banker on whom it is drawn shall not pay it otherwise than to the Banker to whom it is crossed or his /her agent for collection.

85. Payment of a Cheque Bearing "Account Payee": The Banker shall make the payment of a crossed Cheque bearing the words "account payee" only by depositing the amount in the account of the person on whose name the Cheque is drawn.

86. Payment of Cheque Crossed Specially More Than Once: Where a Cheque is crossed specially to more than one Banker, except when crossed to an agent for the purpose of collection, the Banker on whom it is drawn shall refuse payment thereof.

87. Payment in due Course of Crossed Cheque: Where the Banker on whom a crossed Cheque is drawn has paid the same in due course, the Banker paying the Cheque, and the Drawer thereof, shall respectively be entitled to the same rights, and be placed in the same position in all respects, as they would respectively be entitled to and placed in if the amount of the Cheque has been paid to and received by the true owner thereof.

88. Payment of Crossed Cheque Out of Due Course: Any Banker paying a crossed Cheque without completing the procedures of Section 84 and 85, shall be liable to the true owner of the Cheque for any loss he/she may sustain owing to the Cheque having been so paid.

89. Cheque Bearing "Not Negotiable": A person taking a Cheque Crossed generally or specially bearing in either case the words "not negotiable" shall not have, and shall not be capable of giving a better title to the Cheque than that which the person from whom he took it had.

90. Non-Liability of Banker Receiving Payment of Cheque: A Banker who has in good faith and without negligence received payment from customer of a crossed Cheque to him/herself shall not, in case the title to the Cheque proves defective, incurr any liability to the true owner of the Cheque by reason only of having received such payment.

91. Application of this Chapter to Drafts: The provisions of this Chapter shall apply to any Draft as if the Draft were a Cheque.

Chapter -9Miscellaneous

92. Acceptance For Honour: When a Bill of Exchange has been protested for non-acceptance or for additional security, from the Notary Public, any person not being a party liable thereon may, with the consent of the Holder, accept the same for the honour of any party thereto.

93. How Acceptance For Honour Must be Made: A person desiring to accept for honour must, by writing on the Bill of Exchange itself under his/her hand, declare that he/she accepts for the honour of the Drawer or of a particular endorser whom he/she names. In case such name is not mentioned the acceptance shall be deemed to be done for the honour of the Drawer.


94. Liability of Acceptor for Honour: (1) An acceptor for honour binds him/herself to all parties subsequent to the party for whose honour he/she accepts to pay the amount of the bill if the Drawee do not, and such party and all prior parties are liable in their respective capacities to compensate the acceptor for honour for all loss or damage sustained by him/her in consequence for such acceptance. Provided that, an acceptor for honour is not liable for the Bill of Exchange unless such Bill of Exchange is presented to him.(2) An acceptor for honour may be Charged unless the Bill of Exchange has at its Maturity been presented to the Drawee for payment, and has been dishonoured by him/her, and protested by the Notary Public for such dishonour.

95. Payment for Honour: (1) When a Bill of Exchange has been caused to be protested by the Notary Public for non-payment, any person may pay the same for the honour of any party. Provided that, the person so paying or his/heragent must cause to be noted in the record of the Notary Public that for whose honour the payment has been made before giving such payment.(2) Any person making payment pursuant to Sub-section (1) is entitled to all the rights, in respect of the Holder at the time of such payment, and may recover from the party for whose honour he pays all sums so paid, with interest thereon and with all expenses properly incurred in making such payment.

96. Alternative Drawee in case of Need: Where an Alternative Drawee in case of need is named in a bill of exchange or in any Indorsement thereon, the bill of exchange is not dishonoured until it has been dishonoured by such Drawee.

97. Acceptance and Payment Without Protest: The Alternative Drawee in case of need may accept and pay the bill of exchange without previous protest by a Notary Public.

98. Sets of Bills of Exchange: Bills of Exchange may be drawn in parts, each part being numbered and containing a provision that it shall continue only so long as the others remain unpaid. All the parts together make a set; but the whole set constitutes only one bill, and is extinguished when one of the parts, if a separate bill, would be extinguished.

99. Provisions Relating to the Foreign Negotiable Instrument: In the absence of a contract to the contrary, the liability of the maker or Drawer of a foreign Negotiable Instrument is regulated in all essential matters by the law of the country where the instrument was made and the respective liabilities of the acceptor and endorser by the law of the country where the instrument is made payable.

100. Law of the Country of Payment Governs Dishonour: Where a Negotiable Instrument is made payable in a different country from that in which it is made or indorsed, the law of the country where it is made payable determines what constitutes dishonour and what notice of dishonour is sufficient.

101. Validity of Bill of Exchange Made or Drawn in Foreign Country: If a Negotiable Instrument is made drawn, accepted or endorsed outside Nepal, but in accordance with Nepalese Law, the circumstance that any agreement evidenced by such instrument is invalid according to the law of the country wherein it was entered into does not invalidate any subsequent acceptance or endorsement made thereon within Nepal. 102. Presumption as to Foreign Law: The law of any foreign country regarding Negotiable Instrument shall be presumed to be the same as that of Nepal Law, unless and until the contrary is proved.

103. Special Provisions Relating to the Evidence: Until the contrary is proved, the following presumptions shall be made:-


(a) That every Negotiable Instrument was made or drawn for consideration, and that every such instrument, when it has been accepted, indorsed negotiated or transferred, was, accepted, indorsed, negotiated or transferred for consideration in accordance with the prevailing law,(b) That every Negotiable Instrument bearing a date was made or drawn on such date,(c) That every transfer of a Negotiable Instrument was made before its Maturity,(d) That every accepted bill of exchange was accepted within a reasonable time after its date and before its Maturity,(e) That the Indorsements appearing upon a Negotiable Instrument were made in the order in which they appear thereon,(f) That the Holder of a Negotiable Instrument is a Holder in due Course. Provided that, the burden of proving that the Holder is a Holder in due Course lies upon him/her in the following conditions:-(1) Where the Negotiable Instrument has been obtained from its lawful owner or from any person in lawful custody thereof by means of an offence or fraud,(2) Where the Negotiable Instrument has been obtained from the maker, Drawer or acceptor thereof by means of an offence or fraud, or for unlawful consideration.

104. Estoppel Against denying Capacity of Payee to Indorse: No maker or Drawer of the Negotiable Instrument and the acceptor for the honour of the Drawer shall, in a suit thereon by a Holder in due Course, be permitted to deny the Payee's capacity, at the date of the Negotiable instrument, to indorse the same.

105. Estoppel against Denying Signature or Capacity of Prior Party: No endorser of a Negotiable Instrument shall, in a suit thereon by a subsequent Holder, be permitted to deny the signature or capacity to contract of any prior party to the Negotiable Instrument.

106. Appointment of the Notary Public: Government of Nepal may, by a Notification published in the Nepal Gazette, appoint a Notary Public for the work to be done by the Notary Public or may designate any Officer to do such work.

106A. Provisions Relating to the Notary Public: Qualification, certificate, conduct and fees of the Notary Public and the other procedures of the Notary Public shall be as prescribed.

106B. Removal of the Notary Public: Government of Nepal may remove the Notary Public in prescribed conditions.

107. Determination of Compensation: The compensation payable in case of dishonour of a Negotiable Instrument, by any party liable to the Holder or any endorsee shall be determined as follows:-(a) The Holder is entitled to the amount, together with the expenses properly incurred in presenting, noting and protesting it.(b) An endorser who, being liable has paid the amount due on the same is entitled to the amount so paid with interest from the date of payment until realization thereof.

107A. Penalty: In case any person who deliberately transfers a Cheque by drawing it to somebody that he/she does not bear deposit in the Bank or even if there is a deposit which is not sufficient, and if the Cheque thus transferred is dishonoured due to lack of sufficient deposit when the Cheque is presented to the concerned Bank for the payment, the amount mentioned in the Cheque as well as interest on it shall be caused to be recovered to the Holder from the Drawer and he/she shall be punished with an imprisonment up to Three months or a fine up to Three Thousand Rupees or both.108. Limitation: No complaint relating to the Negotiable Instrument shall be valid which is not filed within five years from the date of cause of action to file such complaint.109 Power to Frame Rules: Government of Nepal may Frame Rules to carry out the objectives of this Act.

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