Questions:

Nepal Chartered Accountants Act, 2053 & Regulation, 2061

Question No. 1
Mr. Revenge is a member of the Institute of Chartered Accountants of Nepal (ICAN). He was
prohibited from carrying on accounting profession for a period of 1 year as a disciplinary action
by the Council of the ICAN. The period of 1 year period lapsed last week. He believes the
disciplinary action charged by the Council was unfair against him. So, now he himself wants
to raise his candidacy in the upcoming election of Council.
Give your opinion upon his eligibility for filing candidacy in the upcoming election of council
pursuant to Nepal Chartered Accountants Act, 2053 & Rules, 2061.
Companies Act, 2063
Question No. 2
Ms. A, Ms. B, Ms. C & Ms. D are 4 shareholders cum directors of Numa Hardware Pvt Ltd.
Ms. A wants to transfer her 50% of share to Mr. Z. So, majority of directors passed an agenda
of BoD meeting allowing Ms. A for transferring her share to Mr. Z in which Ms. D expressed
a note of dissent on the ground such decision is against their consensus agreement which
restricts shareholders to transfer ownership of their share to other than existing shareholders.
However, other directors claim that shareholders have right to share their share freely to any
other persons like other properties.
Give your opinion on the validity of the decision of the Board made for allowing Ms. A to
transfer her share to Mr. Z.
Question No. 3
A recently incorporated private company has established its registered office at Kathmandu
Metropolitan City-1, Kathmandu. Officers of the company think getting registration certificate
is enough for operating a business. So, after its incorporation, no any document has been
submitted on behalf of the company to the Office of Company Registrar.
Give your opinion on the validity of the claim of officers of the company with respect to its
recently established registered office in accordance with the Companies Act, 2063.
Question No. 4
X Ltd is entitled to appoint 40% directors in Y Ltd. In addition, Z Ltd, a wholly owned
subsidiary company of X Ltd, is entitled to appoint 20% directors in Y Ltd. Y Ltd has 5
directors out of which 2 were appointed by X Ltd and 1 was appointed by Z Ltd. A close
relative of a director of Y Ltd concluded a contract with Ms. K, a shareholder of X Ltd, for
acquiring her 100 unit shares of X Ltd. However, a shareholder of Y Ltd complained that the
director’s close relative cannot acquire such shares of X Ltd.
Give your opinion regarding the validity of the shareholder’s complain in accordance with the
Companies Act, 2063.
Securities Act, 2063 and Rules
Question No. 5
ABC Securities Brokerage Company Pvt Ltd has not appointed a new formal agent after the
removal of its earlier agent. So, SEBON has asked a clarification with a warning for revocation
of its license on the ground of non-appointment of formal agent. Ms. Z, managing director of
the company, asks you for the confirmation if the SEBON holds power to revoke its license in
such a violation of law.
Give your opinion regarding the entitlement of SEBON for revocation of license at such a
circumstance in accordance with the Securities Act, 2063.
Banks & Financial Institutions Act, 2073
Question No. 6
Liquidator of ABC Finance Company Ltd which is under mandatory liquidation published a
notice for creditors in Gorkhapatra and The Rising Nepal for submitting claims to the financial
institution within 1 month of the notice published. However, a supplier of stationeries
submitted his claim to the liquidator only after the expiry of the specified time. So, the
liquidator denied for paying his claimed amount.
Give your opinion, if the liquidator is entitled to deny such claim of the supplier in accordance
with Banks & Financial Institutions Act, 2073? Would your opinion be different if the claim
was made by a depositor after the expiry of the specified period?
Nepal Rastra Bank Act, 2058
Question No. 7
ABC Micro Finance Financial Institution Ltd has been charging interest rate on loan in excess
to the maximum interest rate ceiling directed by Nepal Rastra Bank (NRB). So, the NRB is in
position of initiating an action against the financial institution. However, the financial
institution claims that any interest rate on loan can be fixed freely at mutual consent with
borrowers; NRB cannot interfere on charging such interest rate.
Give your opinion regarding the validity of the claim made by the financial institution in
accordance with Nepal Rastra Bank Act, 2058.
Industrial Enterprises Act, 2076
Question No. 8
XYZ Agro Farm Pvt. Ltd. desires to purchase 500 Ropani of land in Dhankuta for its farming
activities. However, Land Revenue Office Dhankuta refused to transfer the entire land in its
name on the ground the area to be acquired is excess to the maximum ceiling of land prescribed
under section 7 of Land Related Act, 2021. However, the company has no option other than
acquiring the entire 500 Ropani of land. So, it has asked you for your expert opinion regarding
the procedures to acquire the entire land.
Give your opinion in accordance with Industrial Enterprises Act, 2076.
Foreign Investment & Technology Transfer Act, 2075
Question No. 9
Ms. Z, a foreign citizen, has invested in shares of XYZ Hotel Ltd. She wants to repatriate her
investment amount earned out of selling her shares of the company. So, she applied to the
Department of Industry for the same last month. However, the Department has not provided
any response to her application yet.
Now, suggest her where and how she can file a complaint against the department pursuant to
Foreign Investment & Technology Transfer Act, 2075.
Labour Act, 2074
Question No. 10
Mr. Lazy lives in Active Community. The Active Community Development Committee has
decided for mandatory participation of every adult member of the community attained 18 years
of age at Weekly Sanitation Program of the community. Simultaneously, it has warned that if
any adult does not participate in the program, it will deprive him/her from entire facilities to be
provided by it. However, Mr. Lazy claims that no one including the Active Community
Development Committee has right to engage anyone forcefully at any work against his/her will
by giving such a threat.
Now, give your opinion, if the claim of Mr. Lazy is valid in accordance with the Labour Act,
2074.
Insurance Act, 2049 & Rules, 2049
Question No. 11
Ms. S, a mechanical engineer, had obtained a surveyor license from the Insurance Board.
However, the Board cancelled her license on the ground of its non-renewal on time last year.
Ms. S claims that if her license was not renewed on time, the Board would have charged her
fine instead of cancelling the license. She believes the Board has deprived her from right to
business secured by the Constitution of Nepal. So, she applied to the Board for the re-
registration as a surveyor. But the Board rejected her application on the ground that a period of
5 years has not been expired from the date of the cancellation of the license.
Now, give your opinion, if the claim made by Ms. S is valid in accordance with Insurance Act
2049 & its rules 2049.
International Financial Transactions Act, 2054
Question No. 12
Zara Leasing Company Ltd, a leasing company based in Malaysia, desires to obtain a license
to carry out international financial transactions under International Financial Transactions Act,
2054. It has planned to carry out leasing services after acquiring land & building in Nepal.
Suggest the company, if it is entitled to acquire such land & building for leasing purpose in
Nepal pursuant to International Financial Transactions Act, 2054.
Cooperatives Act, 2074 & Rules, 2075
Question No. 13
Mr. Fraud is a director of ABC Saving & Credit Cooperative Society Ltd. The Account
Supervision Committee of the Cooperative Society found the director Mr. Fraud involved in
embezzlement of Cooperative Society’s cash. Hence, the Committee asked your expert opinion
if he can be removed by the Board of Directors or the Committee self.
Give your opinion regarding the authority for the removal of fraudulent director Mr. Fraud in
accordance with Cooperatives Act, 2074.
Insolvency Act, 2063
Question No. 14
Court has appointed Mr. L as a liquidator of XYZ Hotel Ltd for conducting its liquidation
proceedings. After 2 months of his appointment, he is going to submit a progress report of the
liquidation proceedings carried out in relation to the company to the Court and Insolvency
Administration Office. After knowing the fact, creditors of the company are protesting against
the liquidator on the ground the report was prepared without discussing with them. However,
the liquidator believes he is entitled to prepare his report independently.
Now, give your opinion upon the legal validity of the claims made by the creditors and
liquidator in accordance with the Insolvency Act, 2063.
Money Laundering Prevention Act, 2064
Question No. 15
Mr. Fast, originally with a poor family background, neither had employment at any
organization nor a business. However, he bought a new house of NPR 2 Crores last year.
Further, after a few months of the house procurement, he bought a new car of NPR 1 Crore.
He & his family members wear expensive jewelries and go on foreign countries for vacation
frequently these days. Hence, at absence of reasonable source of his income, members of his
society including Mr. Slow find his rapid financial growth very suspicious. They doubt he has
been earning such a huge amount of money by engaging at money laundering offences. Thus,
Mr. Slow is planning to complain against the unusual financial growth of Mr. Fast to the
authorized body but he is unknown about its legal provisions.
So, suggest him for making a complaint against Mr. Fast in accordance with Money Laundering
Prevention Act, 2064.
Public Procurement Act, 2063 & Rules, 2064
Question No. 16
Ration Supplier Pvt. Ltd., a bidder for supply of ration to a public entity, believes the existence
of an error in the procurement proceedings of the public entity. So, it is planning to apply for
review to the chief of the public entity. Suggest him the procedure as prescribed by the Public
Procurement Act, 2063.
Audit Act, 2075
Question No. 17
Sushasan Rural Municipality has received an audit report of F/Y 2078/79. However, Mr. Z the
recently elected Chairperson of the Rural Municipality is not interested in presenting the Audit
Report at the upcoming Village Assembly as it includes the details of financial irregularities of
the past Chairperson who was elected from his political party. So, he has asked you for your
expert opinion regarding the requirement of the audit report to present for discussion at Village
Assembly. Give your opinion in accordance with Audit Act, 2075.
Arbitration Act, 2055
Question No. 18
Ms. A, Ms. B & Mr. C have been appointed as arbitrators for settling a dispute incurred between
XYZ Construction Company Ltd and ABC Hotel Ltd. Meanwhile, during the arbitration
proceeding, XYZ Construction Company Ltd felt that an arbitrator Mr. C is working in favor
of ABC Hotel Ltd only instead of working in an impartial manner. So, it has asked you if Mr.
C can be removed on such circumstance.
Now, brief XYZ Construction Company Ltd regarding the condition and procedure for removal
of an arbitrator pursuant to Arbitration Act, 2055.
Banking Offence & Punishment Act, 2064
Question No. 19
Ms. N is a new credit officer of XYZ Development Bank Ltd recently transferred from its HR
Department. She does not want to commit a banking offence while disbursing loan to
borrowers. So, she wants to be cleared about the activities prohibited while providing loan from
the Development Bank. Coincidently, while you were at onsite audit of the Development Bank,
she requested you to make clear about those prohibited activities.
Now, you are required to outline her activities prohibited to perform while providing loan to
borrowers in pursuant to the Banking Offence & Punishment Act, 2064.
Act relating to Institutions acting as Financial Intermediary, 2055
Question No. 20
Kanchanjungha Financial Care has been working as a financial intermediary after obtaining a
license from Nepal Rastra Bank. Ms. P, a group member of the financial intermediary, had
obtained a micro credit of NPR 3 Lakh for a period of 1 year from the financial intermediary
by pledging a security NPR 5 Lakh. After 4 months of the credit disbursement, the market
value of her pledged property suddenly decreased to NPR 2 lakh. Then, the financial
intermediary issued a letter to Ms. P ordering to provide additional security to the extent of
covering her credit amount within 35 days along with a warning that if not provided, it may
breach the existing credit contract immediately and recover its principal & interest amount by
auctioning the pledged property. However, Ms. P believes that though the market price of the
pledged property has been decreased, she has been paying the credit installment on time
without any delay. So, the financial intermediary cannot demand her additional security on any
cause. Further, the financial intermediary is neither entitled to breach the credit contract before
the expiry of the contractual period nor recover the principal & interest amount by auctioning
her pledged property while repaying the credit amount regularly.
Now, give your opinion, if the claim of Ms. P is consistent with the provisions of Act relating
to Institutions acting as Financial Intermediary, 2055.
Foreign Exchange Regulation Act, 2019
Question No. 21
Mr. E has recently started exporting goods manufactured from his new shoes factory. However,
he does not know much about the legal provisions in relation to receiving the payment of goods
exported from the foreign parties. Hence, he has asked for your help. Now, suggest him
pursuant to Foreign Exchange Regulation Act, 2019.
Answers:
Nepal Chartered Accountants Act, 2053 & Regulation, 2061
Answer to Question No. 1
As per section 14 of Nepal Chartered Accountants Act 2053, a Disciplinary Committee shall
beconstituted to recommend the Council to take necessary actions after investigation upon
complaints lodged by any person against any actioncontrary to this Act or Regulations or code
of conduct framed under this Act rendered by any member, or the Institute receives any
information of such kind. The Committee shall recommend to the Council, along with its
opinion and finding, for necessary action against a member, if found guilty, and the Council
may, considering such a recommendation, impose any of the following punishment according
to the degree of offense:
a) Reprimanding,
b) Removing from the membership for a period up to five years,
c) Prohibiting from carrying on the accounting profession for any particular period,
d) Cancellation of the Certificate of Practice or membership.
The concerned member may, if not satisfied with the decision of the council, file an appeal in
the High Court.
Further, as per rule 89 of Nepal Chartered Accountants Rules 2061, following persons are not
qualified to file candidacy in the election of the council member:
a) Not lapsed a period of 10 years after obtaining the membership of ICAN
b) Not lapsed a period of 6 years from the date of release of the imprisonment punishment
charged by the election special court constituted under prevailing law in a criminal case
relating to election
c) Not lapsed a period of 6 years from the date of release of the imprisonment punishment
with 2 years or more period in a criminal offence involving moral turpitude
d) Non-Nepali citizen
e) Continued the name registration in Chartered Accountancy education being conducted by
the ICAN
f) Not lapsed a period of 2 years after the expiry of disciplinary action related period charged
by the Council
In the given case, Mr. Revenge is a member of the Institute of Chartered Accountants of Nepal
(ICAN). He was prohibited from carrying on accounting profession for a period of 1 year as a
disciplinary action by the Council of the ICAN. The period of 1 year period lapsed last week.
He believes the disciplinary action charged by the Council was unfair against him. So, now he
himself wants to raise his candidacy in the upcoming election of Council.
The Council prohibited Mr. Revenge from carrying on accounting profession for a period of 1
year as a disciplinary action pursuant to section 14 of the Act. Further, if he was dissatisfied
with such decision of the council, he could have filed an appeal in the High Court on time.
In addition, as per rule 89 of the Rules 2061, Mr. Revenge may file his candidacy in the election
of council member only after the lapse of 2 years of disciplinary action related period charged
by the Council.
Hence, in my opinion, being the lapse period of such disciplinary action less than 2 years, he
is not qualified to be a candidate in the upcoming election of the council member pursuant to
rule 89 of the Nepal Chartered Accountants Rules 2061, even if he does not possess any other
disqualification.
Companies Act, 2063
Answer to Question No. 2
As per section 187(1) of the Companies Act 2063, 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. Further, as per section
187(2) of the Act, the concerned shareholder shall submit two copies of the agreement entered
into under Sub-section (1) to the company within 15 days after the date on which such
agreement was entered into. Then, the company shall submit a copy of the agreement so
received from the shareholder to the Office within 15 days after the receipt of the same.
In addition, as per section 45(1) of the Act, 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:
(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.
Further, as per section 45(2) of the Act, 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 pledger
and pledgee of the share or debenture within fifteen days from the date of making application.
In the given case, Ms. A, Ms. B, Ms. C & Ms. D are 4 shareholders-cum-directors of Numa
Hardware Pvt. Ltd. Ms. A wants to transfer her 50% of share to Mr. Z. So, majority of directors
passed an agenda allowing Ms. A for transferring her share to Mr. Z in which Ms. D expressed
a note of dissent on the ground such decision is against their consensus agreement which
restricts shareholders to transfer ownership of the share to other than existing shareholders.
As per section 187(1) of the Act, the consensus agreement concluded among shareholders of
Numa Hardware Pvt. Ltd. shall be binding upon them. Hence, shareholder Ms. A of the
company shall transfer her share subject to their consensus agreement. Otherwise, the company
may refuse to register the transfer of her share in the name of Ms. Z pursuant to section 45(1)
of the Act.
Hence, in my opinion, the decision of the Board of Directors of Numa Hardware Pvt. Ltd. for
allowing Ms. A transfers her share to Ms. Z is not valid pursuant to section 187 of the Act. So,
the company may deny transferring her share pursuant to section 44 of the Act.
Answer to Question No. 3
As per section 184 of the Companies Act 2063, every company shall have the address of its
registered office registered with the Office within three months of its incorporation. While
submitting an application for the registration of the registered office, the company shall provide
information of its contact address such as telephone, fax, email, etc. to the Office of Company
Registrar (OCR); and where such address is changed, the changed address shall be made
available to the OCR promptly. Then, the company shall place a signboard containing its name
and address in the Nepali language outside its registered office in a manner conspicuous to all.
The OCR may gradually prepare an index of addresses of the registered offices of companies
and addresses and keep such index open for inspection by the general public.
Further, as per section 81 of the Companies Act 2063, any director, officer or shareholder of a
company who is in default in providing statement, notice or information pursuant to this Act
but other than that of section 51, 78, 80, 120, 131 & 156 of the Act to the Office of Company
Registrar 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. Provided that such fine amount shall not be
more than Rupees one thousand in one fiscal year.
In the given case, a recently incorporated private company has established its registered office
at Kathmandu Metropolitan City-1, Kathmandu. Officers of the company think getting
registration certificate is enough for operating a business. So, after its incorporation, no any
document has been submitted on behalf of the company to the Office of Company Registrar.
The private company is required to register its registered office within 3 months of its
incorporation to the Office of Company Registrar under section 184 of the Companies Act,
2063. Otherwise, as per section 81 of the Act, the director, officer or shareholder of the
company who is in default in providing such information shall be punished with a fine of Rs
200 per month, after the expiration of 1 month of the date of expiry of the time limit within
which the information of registered office is required to be provided. However, such fine
amount shall not be more than Rs 1,000 in 1 fiscal year.
Hence, in my opinion, the belief of officers of the private company regarding not required to
submit any document after getting the registration certificate is not valid pursuant to section
184 of the Act.
Answer to Question No. 4
As per section 42 of the Companies Act 2063, 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. However, promoters 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.
Further, as per section 94 of the Act, 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;
While forwarding information to the company, such information shall also clearly set out the
number of shares or debentures, amount and class thereof. Then, the company shall maintain a
separate register to record the information received. The provisions contained in this Section
shall also apply to the close relative of a director as if such relative were a director.
In addition, as per section 142 of the Act, 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.
In the given case, X Ltd is entitled to appoint 40% directors in Y Ltd. Also, Z Ltd, a wholly
owned subsidiary company of X Ltd, is entitled to appoint 20% directors in Y Ltd. Y Ltd has
5 directors out of which 2 were appointed by X Ltd and 1 was appointed by Z Ltd. A close
relative of a director of Y Ltd concluded a contract with Ms. K, a shareholder of X Ltd, for
acquiring her 100 unit shares. However, a shareholder of Y Ltd complained that its director’s
close relative cannot acquire such shares of X Ltd.
As per section 42 of the Act, Ms. K is entitled to sell her shares to the close relative of the
director. Out of 5 directors of Y Ltd, X Ltd is entitled to appoint 2 directors directly and 1
directly through its wholly owned subsidiary company Z Ltd. Hence, as per section 142 of the
Act, X Ltd being entitled to appoint majority of directors directly and indirectly is a holding
company of Y Ltd. As per section 94 of the Act, if any director or close relative is going to
acquire title to any shares of the holding company, s/he shall give written information thereof
to the company in which he/she is a director no later than 15 days after such situation comes to
his/her knowledge:
Hence, in my opinion, as per section 42 of the Act, the close relative of the director of Y Ltd
may acquire shares of X Ltd, the holding company. However, as per section 94 read together
with section 142 of the Act, the director shall give information to his company within 15 days
of the agreement regarding such acquisition clearly setting out the number of shares, amount
and class thereof.
Securities Act, 2063 and Rules
Answer to Question No. 5
As per section 64(1) of the Securities Act 2063, 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.
Further, as per section 88(1) of the Securities Act 2063, the Securities Board of Nepal 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 this Act:-
(a) If one stops operating the stock exchange or securities business,
(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 the 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.
No revocation of a license made pursuant to sub-section (1) of section 88 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.
In the given case, ABC Securities Brokerage Company Pvt. Ltd. has not appointed a new
formal agent after the removal of earlier agent. So, SEBON asked a clarification with a warning
for revocation of its license. Ms. Z, managing director of the company, asks you if the SEBON
does not hold power to revoke the license in such a minor violation of law.
Clause (i) of Section 88(1) has entitled the SEBON for the revocation of license of the securities
business person operating securities broker, if it has removed an agent appointed by it does not
appoint another agent in lieu of such an agent.
Hence, in my opinion, as per section 88 read together with section 64 of the Act, the SEBON
holds the power to revoke the license of ABC Securities Brokerage Company Pvt. Ltd. at
circumstance of not appointing a new formal agent after the removal of earlier agent in lieu of
such agent.
Banks & Financial Institutions Act, 2073
Answer to Question No. 6
As per section 86 of the Banks & Financial Institutions Act, 2073, the liquidator shall, upon
initiating the process of mandatory liquidation of a bank or financial institution, within the time
line specified by the Rastra Bank, publish a notice containing clearly the following details
asking the persons having any claim of any type with the bank or financial institution to submit
his/her details of claim within 1 month from the last date of publication of the notice stating
his/her claimsand the amount he/she may receive:-
(a) To publish a notice in any daily Nepali and English languages newspaper of national level,
(b) To place or cause to be placed such notices at the main places of businesses of thebank or
financial institution and post it at every office in a conspicuous manner.
Further, as per section 98 of the Act, a creditor or other person who fails to submit a claim
within the time line given while publishing a notice for the same pursuant to Section 86 shall
not be entitled to make any claim thereafter. Provided that if a depositor has failed to make a
claim over the amount of money deposited in the account, his or her rights will not be affected
merely for the reason that heor she has failed to make a claim.
In the given case, the liquidator of ABC Finance Company Ltd which is under mandatory
liquidation published a notice in Gorkhapatra and The Rising Nepal for submitting claims to
the financial institution within 1 month of the notice published. However, a supplier of
stationeries submitted his claim to the liquidator of the financial institution only after the expiry
of the specified time. So, the liquidator denied paying his claimed amount.
Liquidator of ABC Finance Company Ltd published a notice for submitting claims within 1
month of notice published as per section 86 of the Act. Then the stationeries supplier should
have filed his claim within the time period of 1 month specified in the notice.
Hence, in my opinion, as per section 98 of the Act, the supplier shall not be entitled to make
any claim thereafter. It means the denial of the liquidator to accept the claim of the stationeries
vendor is consistent with Banks & Financial Institutions Act, 2073. However, such time limit
for submitting claim is not applicable for depositors. So, if he was a depositor of the finance
company, his rights will not be affected merely for the reason that heor she has failed to make
a claim.
Nepal Rastra Bank Act, 2058
Answer to Question No. 7
As per section 77 of Nepal Rastra Bank Act 2058, a person, 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 or to be charged on loan subject to provision prescribed by the Bank
in the matter of rate of interest from time to time.
Further, as per section 95(1) of the Act, 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 operated foreign exchange transactions
or involved in such acts or instead of obtaining license from the Bank as per prevailing law, if
transaction is made without obtaining it, or if obstruction is posed on the process of resolution
as per Chapter-9A, it shall be deemed to have committed offences under this Act. 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.
In addition, as per section 96 of the Act, the person who commits the offence of Section 95,
fine up to 3 times of the property involved or imprisonment up to 7 years, or both the
punishments shall be given by confiscating the property related to that offence. If there is the
condition that the property cannot be fixed while punishing as per Sub-Section (1) or (2) of
Section 95, fine up to maximum of one million rupees or imprisonment up to three years, or
both the punishments shall be given by looking into the extent of offence. If the offence as per
Section 95 is committed by any firm, company or institution, such punishment shall be given
to the chief lien on post of such firm, company or institution. The person, firm, company or
institution or the lien on post of such firm, company or institution who attempts to commit the
offence as per Section 95 or accomplices to commit such crime shall get half of the punishment
which is given to the principal criminal.
In the given case, ABC Micro Finance Financial Institution Ltd has been charging interest rate
on loan in excess to the maximum interest rate ceiling directed by Nepal Rastra Bank (NRB).
So, the NRB is in position of initiating an action against the financial institution. However, the
financial institution claims that any interest rate on loan can be fixed at mutual consent with
borrowers; NRB cannot interfere on charging such interest rate.
As per section 77 of the Act, ABC Micro Finance Financial Institution shall charge the interest
rate on loan as directed by NRB. If it charges against such directive of NRB, it shall be deemed
to have committed offence under this Act pursuant to section 95 of the Act. Then, as per section
96 of the Act, the official working as the chief of the financial institution shall be punished
with fine up to 3 times of the property involved or imprisonment up to 7 years, or both by
confiscating the property related to that offence.
Hence, in my opinion, the claim of the financial institution in not in consistent with the section
77, 95 & 96 of the Nepal Rastra Bank Act 2058.
Industrial Enterprises Act, 2076
Answer to Question No. 8
As per section 32 of Industrial Enterprises Act 2076, an industry may obtain land in excess to
the ceiling of land prescribed by Land Related Act, 2021 by adopting the following provisions:
(1) If any industry requires such land that exceeds the ceiling of land allowed under the
prevailing law, the industry may make an application to the industry registration body to
have exemption from the ceiling with respect to the land exceedingthe ceiling.
(2) If any industry requires such land that exceeds the ceiling of land allowed under the
prevailing law, theindustry may make an application to the industry registration body to
have exemption from the ceiling with respect to the land exceedingthe ceiling.
(3) The industry registration body shall examine, as required, the application received under
subsection (1) and submit a report along with its opinion to the Ministry.
(4) On the application received under subsection (1), the Government of Nepal may, subject to
the prescribed criteria, grant exemption so that the industry can hold land exceeding the
ceiling, according to the need of, and as mentioned in the approved scheme or project
proposal of, the industry. The land so exempted from the provision of ceiling may not be
used for other purpose than the purpose for which it has been exempted.
(5) The industry registration body may monitor, or cause to be monitored, as prescribed,
whether the industry has used the land exempted from the ceiling under the prevailing law
as per the approved objective and give necessary direction.
(6) If the industry is found not to comply with the direction given by the industry registration
body under sub-section (4), theGovernment of Nepal may withdraw, the land exceeding
the ceiling which such industry is allowed to hold, in accordance with the prevailing law,
without any condition.
(7) An industry permitted to hold land exceeding the ceilingunder the prevailing law may not
sell, distribute, or otherwise transfer right in, or borrow a loan from a bank and financial
institution against the security of, the land so held exceeding the ceiling.
(8) The quantity of maximum land allowed to be held by anindustry on the basis of the need,
capital and nature of the industry, provisions relating to the provision of land in excess of
the ceiling, criteria including conditions to be observed by the industry in that respect shall
be as prescribed subject to the prevailing law on land.
In the given case, XYZ Agro Farm Pvt. Ltd. desires to purchase 500 Ropani of land in Dhankuta
for its farming activities. However, Land Revenue Office Dhankuta refused to transfer the
entire land in its name on the ground the area to be acquired is excess to the maximum ceiling
prescribed under section 7 of Land Related Act, 2021. However, the company has no option
other than acquiring the entire 500 Ropani of land.
Hence, XYZ Agro Farm Pvt. Ltd. may acquire excess to maximum ceiling of land by fulfilling
the aforementioned procedures specified under section 32 of Industrial Enterprises Act, 2076.
Foreign Investment & Technology Transfer Act, 2075
Answer to Question No. 9
As per section 20 of the Foreign Investment & Technology Transfer Act 2075, a foreign
investor may repatriate foreign investment in compliance with following provisions:
(1) A foreign investor may, if it so wishes, repatriate its investment from Nepal by selling
wholly or partly of the shares or industry having its investment in accordance with the
prevailing Nepal law, after paying all such taxes as may be levied in accordance with the
prevailing Nepal law.
(2) A foreign investor may repatriate the following amount in the same foreign currency in
which the investment has been made or other convertible foreign currency with the
approval of the Nepal Rastra Bank, after paying the tax related liabilities under the
prevailing law:
(a) Amount received from the sale of shares with foreigninvestment,
(b) Amount of profit or dividend received from foreign investment,
(c) In the case of liquidation or winding up of the industry or company, amount remaining
after paying all liabilities following the liquidation or winding up,
(d) Amount of royalty received under the technology transfer agreement,
Provided, however, that in the case of the royalty or fee for the use of a trademark
under the transfer of technology in a liquor industry other that a liquor industry
exporting cent percent of liquor, the amount of such royalty shall not exceed five
percent of the total selling price, as prescribed, excluding the prevailing tax.
(e) Amount of lease rent under the lease investment,
(f) Amount received as damages or compensation, if any, received from the final
settlement of a law suit, arbitration or any other legal process in Nepal,
(g) Amount that can be repatriated in accordance with the prevailing law.
(3) In repatriating amount in a convertible foreign currency in accordance with sub-section
(1) or (2), it shall be repatriated by making conversion at the prevailing exchange rate.
(4) Where any foreign investor has lent a loan to any industry or company against the pledge
or mortgage of a movable or immovable property situated in Nepal and the movable or
immovable property pledged or mortgaged required to be auctioned or forfeited because of
non-repayment of the principal or interest of such a loan, the institution lending such a loan
may repatriate the principal and interest of the loan by auction of such property as if
it were a bankor financial institution of Nepal.
(5) In the case of termination of a lease agreement because of non- payment in accordance with
the lease agreement or breach of its terms, the foreign investor may repatriate its
investment and the property invested in the lease.
(6) A foreign investor who wishes to repatriate the foreign investmentor amount earned
therefrom in accordance with this Section shall make an application, in the form as
prescribed, to the foreign investment approving body for approval to that effect.
Provided, that such an application shall be made to the Single Stop Service Centre, if the
Government of Nepal, by a notification in the Nepal Gazette grantsto the Single Stop
Service Centre, the power to the body to give approval relating to repatriation of foreign
investment or amount earned therefrom.
(7) If, in examining an application received pursuant to sub-section (6), it appears that the
foreign investor has fulfilled the terms and liabilities referred to in this Act, prevailing
 law and the agreement made in relation to foreign investment, the foreign investment
approving body shall give approval to repatriate the foreign investment or amount earned
therefrom not later than fifteen days of the date of receipt of the application.
(8) After obtaining the approval pursuant to sub-section (7), the foreign investor may make an
application to the Nepal Rastra Bank for the foreign currency exchange facility.
(9) The Nepal Rastra Bank shall, upon receipt of an application in accordance with sub-section
(8), provide the exchange facility to the foreign investor for the repatriation of foreign
investment.
(10) Where the amount of investment is to repatriated by selling wholly or partly any industry
with foreign investment or upon revocation of the registration of the industry or
company for any reason, repatriation of the remaining amount may be made only after
the payment or settlement of all liabilities including the tax payable by such an industry.
(11) Notwithstanding anything contained elsewhere in this Section, a foreign investor may, in
repatriating foreign investment made in any industry in accordance with this Act or profit
earned therefrom, repatriate such investment or profit only to the extent of the ratio of the
portion of its investment in the concerned company.
(12) If any foreign investor is not satisfied with a decision made by the body giving such
approval in the course of repatriation of the amount of its investment, the investor may
make an application to the Ministry. The Ministry shall make a decision on such an
application within thirty working days.
In the given case, Ms. Z, a foreign citizen, has invested in shares of a company XYZ Hotel Ltd.
She wants to repatriate her investment amount earned from selling her shares of the company
to her country. So, she applied to the Department of Industry for the same last month. However,
the Department has not provided any response to her application yet.
Hence, as per section 20 of the Act, Ms. Z may make an application, setting out the content, to
the Ministry of Industries, Commerce & Supplies against the non-response of the
Department of Industry. Then, the Ministry shall make a decision on such an application
of Ms. Z within 30 working days from the date of such application received.
Labor Act, 2074
Answer to Question No. 10
As per section 4 of Labour Act 2074, no person shall employ any labour in forced labour,
directly or indirectly. However, the following work or service performed by a labour shall not
be deemed to be forced labour:
(a) Any work or service required to be performed under the duties of citizens as and when
the nation so requires,
(b) Any work or service required to be performed by any person in consideration for the
sentence imposed by a decision or order of a court,
(c) Any work or service required to be performed as a member of a community for the
interest of such a community.
Explanation: For the purpose of this Section, "forced labour" means any work or service
performed by any labour against his or her will as a result of athreat of taking any action
having financial, physical or mental impact if he or she does not perform such a work or
service.
In the given case, Mr. Lazy lives in Active Community. The Active Community Development
Committee has decided for mandatory participation of every adult member of the community
at Weekly Sanitation Program of the community. Simultaneously, it has warned that if any
adult does not participate in the program, it will deprive him/her from entire facilities to be
provided by it. However, Mr. Lazy claims that no one including the Active Community
Development Committee has right to engage anyone at any work against his/her will forcefully
by giving such a threat.
As per section 4 of the Act, though no person shall employ any labour in forced labour,
directly or indirectly, any work or service required to be performed as a member of a
community for the interest of such a community may be compelled to be done. It means, the
mandate provided by Active Community Development Committee to its members shall not
constitute the forced labour and hence not commits the violation of Labour Act, 2074.
Hence, in my opinion, the claim of Mr. Lazy is not valid in accordance with section 4 of Labour
Act, 2074.
Insurance Act, 2049 & Rules, 2049
Answer to Question No. 11
As per section 31 of the Insurance Act 2049, the Insurance Agent, Surveyor or Broker shall
submit an application to the office of the Board in the format as prescribed along with the
renewal fees as prescribed by the last day of Chaitra of each year for the renewal of his license.
After receiving such an application, the Board shall make the renewal of the license of the
Insurance Agent, Surveyor of Broker. 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 Chaitra end of each year and if the Board feels
that ground is reasonable, the Board may extend the time-limit for a maximum period of 6
months by receiving the additional fees as prescribed.
Further, as per section 33 of the Act, 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.
In addition, as per rule 30 of Insurance Rules 2049, if the Surveyor's license is cancelled
pursuant to Section 33 of the Act, the Surveyor shall not be permitted to work as a Surveyor
up to a period of 5 years from the date of such cancellation.
In the given case, Ms. S, a mechanical engineer, had obtained a surveyor license from the
Insurance Board. However, the Board cancelled her license on the ground of its non-renewal
on time last year. Ms. S claims that if her license was not renewed on time, the Board would
have charged her fine instead of cancelling the license. She believes the Board has deprived
her from right to business secured by the Constitution of Nepal. So, she applied to the Board
for the re-registration as a surveyor. But the Board rejected her application on the ground that
a period of 5 years has not been expired from the date of the cancellation of the license.
As per section 31 of the Act, Ms. S was obliged to submit an application to the office of the
Insurance Board in the format as prescribed along with the renewal fees as prescribed by the
last day of Chaitra for the renewal of his license. At failure to submit the application for renewal
on time, if she had submitted an application to the Board stating the ground for his/her inability
to submit an application for the renewal of the license within Chaitra end of each year and if
the Board felt that ground is reasonable, the Board might have extended the time-limit for a
maximum period of 6 months by receiving the additional fees as prescribed. As per section 33
of the Act, if Ms. S does not renew his license pursuant to Section 31, the Board may cancel
her license. As per rule 30 of Insurance Rules 2049, if her license is cancelled pursuant to
Section 33 of the Act, she shall not be permitted to work as a Surveyor up to a period of 5 years
from the date of such cancellation.
Hence, in my opinion, the claim made by Ms. S is not valid in accordance with section 33 of
the Insurance Act, 2049 read together with rule 30 of its Rules, 2049.
International Financial Transactions Act, 2054
Answer to Question No. 12
As per section 3 of the International Financial Transactions Act 2054, an international financial
entity interested to carry out international financial transactions shall be required to obtain a
license therefore from the Accreditation Committee pursuant to Section 14 of the Act.
Further, as per section 4 of the Act, only the following financial entities may be authorized to
obtain licenses to carry out international financial transactions under this Act:
(a) Foreign bank and trust companies,
(b) International insurance and reinsurance companies,
(c) Companies serving as the registered offices for foreign companies
(d) International holding and investment companies,
(e) Administrative or regional offices established by foreign companies,
(f) International trading companies,
(g) International finance companies,
(h) Foreign real estate holding companies,
(i) Foreign Patent and royalty companies,
(j) Foreign mutual funds,
(k) International leasing companies,
(l) International merchant banks,
(m) Entities such as foreign partnership and trusts established as body corporate,
(n) International sales transaction companies,
(o) Foreign entities to allow nonresident pensions or deferred bonus plans,
(p) International financial companies providing services like stock broker, underwriter,
investment advisor, and pension fund advisor.
Notwithstanding anything contained in Sub-section (1), in order to obtain a license under this
Act, a financial entity should have been registered duly in any country outside the Nepal and
engaged in international financial transactions at least for a period of three years.
In addition, as per section 5 of the Act, international financial entities shall not be allowed to
do the following acts:
(a) To purchase any kind of immovable property within Nepal or to keep in their name
otherwise,
(b) To carry out any type of international financial transaction with any person resident of
Nepal,
(c) To purchase shares or debentures of any company incorporated in Nepal under the existing
laws,
(d) To open an account in any commercial bank of Nepal:
Provided that an account may be opened in any commercial bank with the permission of
the Accreditation Committee for the purpose of running the day-to-day administrative
business of the office up to such amount as may be fixed by the Accreditation Committee.
In the given case, Zara Leasing Company Ltd, a leasing company based in Malaysia, desires
to obtain licenses to carry out international financial transactions under International Financial
Transactions Act, 2054 and carry out leasing services after acquiring land & building in Nepal.
As per section 4 of the Act, Zara Leasing Company is authorized to obtain a license for carrying
out international financial transactions if it has engaged in such transactions at least for a period
of 3 years. For carrying out such transactions, it shall be required to obtain a license therefore
from the Accreditation Committee pursuant to Section 14 of the Act. However, as per section
5 of the Act, the license holder entity is not allowed to purchase any kind of immovable
property within Nepal or to keep in their name otherwise,
Hence, in my opinion, Zara Leasing Company Ltd is not entitled for acquiring land & building
and then leasing it in Nepal pursuant section 5 of the International Financial Transactions Act,
2054.
Cooperatives Act, 2074 & Rules, 2075
Answer to Question No. 13
As per section 45 of Cooperatives Act 2074, a director may be removed by adopting following
procedures:
(1) General Meeting may by a resolution adopted by its majority remove a director from the
office of a director in any of the following circumstances:-
(a) In case he/she incurs loss or damage to the concerned Cooperative Society by
committing fiscal embezzlement;
(b) In case he/she discloses confidentiality of transaction of the concerned Cooperative
Society in an unauthorized manner;
(c) In case he/she involves in the same nature of business or transaction withthe
concerned Cooperative Society in a competitive manner;
(d) In case he/she commits any act against the interests of the concerned Cooperative
Society;
(e) In case he/she is physically or mentally incapable to work;
(f) In case any director does not have qualifications referred to in this Act, Rules or
Byelaws framed under this Act.
(2) Before adopting a resolution to remove any director is removed from the office, such
a director shall be provided with reasonable opportunity to defend himself or herself at
the General Meeting.
(3) In case any director fails to submit his or her defense within the period referred to in
sub-Section (2), or in case his or her defense is not satisfactory, the General Meeting
may remove him or her from the office thereafter.
(4) The member removed from the director pursuant to sub-Section (3) shall not be
eligible to become a candidate for a period of two terms of the office.
(5) In case any director is removed from the office pursuant to sub-Section (3), the
General Meeting may elect another person as the director for the remaining term of
the office.
In the given case, Mr. Fraud is a director of ABC Saving & Credit Cooperative Society. The
Account Supervision Committee of the Cooperative Society found the director to have been
involved at embezzlement of Cooperative Society’s cash.
As per section 45 of the Act, General Meeting of ABC Saving & Credit Cooperative Society
may by a resolution adopted by its majority remove the fraudulent director Mr. Fraud from the
office of a director in case he incurs loss or damage to the concerned Cooperative Society
by committing fiscal embezzlement;
Hence, in my opinion, neither the Board of Directors nor the Account Supervision Committee,
instead the General Meeting of the Cooperative Society is entitled for the removal of fraudulent
director Mr. Fraud in accordance with section 45 of Cooperatives Act, 2074.
Insolvency Act, 2063
Answer to Question No. 14
As per section 42 of the Insolvency Act 2063, the liquidator shall prepare a progress report on
the proceedings carried out in relation to the company and submit it to the Court and the Office
no later than 3 months after the date of his or her appointment. Such submitted report shall state
the following matters, in addition to other matters:
(a) The amount of issued capital of the company, capital that the shareholders have undertaken
to subscribe and paid-up capital;
(b) Estimated value of the assets and liabilities of the company;
(c) Opinion of the liquidator in relation to the reason for financial failure of the company;
(d) Opinion of the liquidator on the need to further examine or inquire into the promotion,
incorporation of the company or the affairs of the company and its directors and
shareholders;
(e) Such other necessary matters as the liquidator considers appropriate.
Further, as per section 43 of the Act, the liquidator shall, prior to preparing his or her report
pursuant to Section 42 and thereafter from time to time as per necessity, call a meeting of
creditors of the company. The meeting of creditors shall be called pursuant by fulfilling the
requirements set forth in sub-sections (2) and (3) of Section 21. The liquidator shall chair the
meeting of creditors. The provisions of Section 24 shall apply, mutatis mutandis, to the other
matters relating to the meeting of creditors.
In the given case, court has appointed Mr. L as a liquidator of XYZ Hotel Ltd for conducting
its liquidation proceedings. After 2 months of his appointment, he is going to submit a progress
report of the liquidation proceedings carried out in relation to the company to the Court and
Insolvency Administration Office. After knowing the fact, creditors of the company are
protesting against the liquidator on the ground the report was prepared without discussing with
them. However, the liquidator believes he is entitled to prepare his report independently.
As per section 42 of the Act, liquidator Mr. L has to prepare a progress report of XYZ Hotel
Ltd and submit it to the Court and Insolvency Administration Office no later than 3 months of
his appointment. However, as per section 43 of the Act, before preparing such report, he shall
call a meeting of creditors of the company and prepare it as per decision passed in the meeting.
Hence, in my opinion, the claim of the creditors that the liquidator shall conduct discussion
before preparing and submitting his progress report to the Court and Insolvency Administration
Office is valid pursuant to section 42 and 43 of the Act.
Money Laundering Prevention Act, 2063
Answer to Question No. 15
In the given case, Mr. Slow may complain against Mr. Fast to the Department of Money
Laundering Investigation by adopting the following procedures prescribed under section 13 of
the Money Laundering Prevention Act, 2064:
(1) Any person, who has knowledge that somebody has committed, is going to commit or
is committing any act constituting an offence of money laundering and terrorist
financing, may submit a complaint, application, information or notice to the
Department of Money Laundering Investigation in writing or oral form.
(2) The Department shall register complaint, application, information or notice if it is
received in writing pursuant to Sub Section (1) and the Department shall transcribe the
oral complaint, application, information or notice it receives and then register it.
Provided that if anyone complains with an intention to keep his name confidential, a
code as designated by the Chief of the Department should be used in place of the name
of the complainer while registering such complaint.
(3) Notwithstanding whatever written in Sub-sections (1) or (2), information should be
officially registered as complaint if any staff of the Department knows by any means
that certain person(s) has committed or is committing or is going to commit money
laundering or terrorist financing.
(4) Complainer making complain pursuant to sub-sec (1) or (2) may be asked to endorse
the complaint if so required.
(5) If the complainer endorsing pursuant to sub-sec (4) requests for confidentiality of name,
address, it shall be kept confidential.
Public Procurement Act, 2063 & Rules, 2064
Answer to Question No. 16
As per section 47 of Public Procurement Act 2063, Ration Supplier Pvt. Ltd. a bidder for supply
of ration who believes existence of error in the procurement proceedings may file his complain
to the chief of the public entity by adopting the following procedure:
(1) A bidder or proponent may file an application before the chief of the concerned
Public Entity for review against any error or decision made by the Public Entity stating the
cause for the damages the bidder will suffer or is likely to suffer from the error or breach
of the duty, imposed on the Public Entity in carrying out the procurement proceedings or
making decision.
(2) The application to be filed pursuant to Sub-section (1) shall be limited with respect only to
the proceedings prior to entry into force of the procurement contract.
(3) The application under Sub-sec (1) shall have to be filed within the period specified, if any,
in this Act for making application and, if not so specified, within 7 days from the date of
 the bidder or proponent having become aware of that the Public Entity has made an error
or has dishonored the duty relating to the procurement proceedings.
(4) In the application under Sub-sec (1), the applicant shall have to state clearly the commission
or omission of an act by the Public Entity that led to such error or breach of duty and the
provision of this Act or Regulations or guidelines made thereunder that have been
contravened by such decision.
(5) An application for review received after the expiry of the period under Sub-sec (3) shall
not be processed.
(6) If, from the inquiry made in respect of the application received pursuant to Sub-section (1),
an error is found in the procurement proceedings or the Public Entity is found to have
reached its duty or such decision is found to be contrary to law, the chief of the Public
Entity shall suspend the procurement proceedings and make a decision with reason in
writing within 5 days of receipt of such application.
(7) The decision under Sub-sec (6) shall also state how the procurement proceedings shall
further proceed on.
(8) If the application under Sub-section (1) is in respect of the procurement proceedings of an
amount below the prescribed one, no application can be submitted before the Review
Committee for review against the decision made by the chief of the Public Entity pursuant
to Sub-section (6).
Audit Act, 2075
Answer to Question No. 17
Section 20 of Audit Act, 2075 prescribes about the following provisions regarding the audit of
municipalities and rural municipalities:
(1) Each Rural Municipality or Municipality shall have its accounts audited by the Auditor
General.
(2) The Auditor General may, after completion of the audit of each Rural Municipality
or Municipality, issue individual audit reports.
(3) The concerned Rural Municipality or Municipality shall submit the report issued by the
Auditor General pursuant to sub-section (2) to, and have it discussed at, the Village
Assembly or Municipal Assembly in accordance with the prevailing law of the Local Level.
In the given case, Sushasan Rural Municipality has received an audit report of F/Y 2078/79.
However, Mr. Z the recently elected Chairperson of the Rural Municipality is not interested in
presenting the Audit Report at the Village Assembly as it includes the details of financial
irregularities of the past Chairperson who was elected from his political party.
As per section 20 of the Act, the Office of Auditor General has audited and issued its audit
report of F/Y 2078/79 to Sushasan Rural Municipality. So, the audit report needs to presented
and discussed at the Village Assembly of Sushasan Rural Municipality.
Hence, in my opinion, the recently elected chairperson Mr. Z has to present the audit report of
the rural municipality for discussion in the Village Assembly in accordance with section 20 of
Audit Act, 2075.
Arbitration Act, 2055
Answer to Question No. 18
In the given case, Ms. A, Ms. B & Mr. C have been appointed as arbitrators for settling a
dispute incurred between XYZ Construction Company Ltd and ABC Hotel Ltd. Meanwhile,
during the arbitration proceeding, XYZ Construction Company Ltd felt that Mr. C is working
in favor of ABC Hotel Ltd instead of working in an impartial manner. So, regarding the
condition and procedure for removal of an arbitrator, I would brief following provisions to
XYZ Construction Company Ltd as prescribed by section 11 of the Arbitration Act, 2055:
(1) The condition and procedure for removal of an arbitrator shall be as mentioned in the
agreement.
(2) In case the condition and procedure has not been mentioned in the agreement pursuant
to Sub-section (1), any party may, in any of the following circumstances, submit an
application to the arbitrator requesting for permission to remove an arbitrator within
15 days from the date of his/her appointment or from the date when the party learns
that the concerned arbitrator has failed to act:
(a) In case any arbitrator is clearly seen to have shown a bias toward or discriminated
against any party instead of working in an impartial manner;
(b) In case any arbitrator engages in improper conduct or commits fraud in the course of
arbitration;
(c) In case any arbitrator frequently commits mistakes or irregularities in the course of
arbitration;
(d) In case any arbitrator does not attend arbitration meetings or refuses to take part in
arbitration proceedings for more than three times without furnishing satisfactory
reasons with the objective ofprolonging or delaying the arbitration proceedings in an
improper manner;
(e) In case any arbitrator takes any action which is opposed to the principles or rules of
natural justice; or
(f) In case any arbitrator is found to be lacking the necessary qualifications, or to have
ceased to be qualified.
(3) Upon received of an application pursuant to Sub-section (2), if the arbitrator whose
removal has been demanded does not relinquish his/her post voluntarily, or other party
does not agree with grounds on his/her removal, the arbitrator shall take a decision on the
matter within 30 days from the date of application.
(4) A complain may be filed before the High Court against the decision pursuant to Sub-
section (3), and the decision of the High Court shall be final.
Banking Offence & Punishment Act, 2064
Answer to Question No. 19
In the given case, Ms. N is a new credit officer of XYZ Development Bank Ltd recently
transferred from its HR Department. She does not want to commit a banking offence while
disbursing loan to borrowers. So, she wants to be cleared about the activities prohibited while
providing loan from the Development Bank. So, I would outline her following prohibited
activities while providing loans from her development bank pursuant to section 7 of Banking
Offence & Punishment Act 2064:
(a) To avail or provide loans by submitting a false, fake or fake financial statement or by
creating an artificial business.
(b) To avail or provide over loans by way of unnatural over valuation of collateral security.
(c) To avail or provide excess loans by way of unnaturally hiking the project cost based on
false details.
(d) To avail or provide credit, facility or discounts beyond the authority obtained or the limit
sanctioned.
(d1) To avail loan or borrowing by Chief Executive Officer or employees of Bank or Financial
Institution from own B/FI by other means except the loan or borrowing obtained under the
prevailing Bye-law related to Employee Administration or prevailing Bye-law related to
Employee Borrowing or Loan
(d2) To avail loan by promoter, director, shareholder deemed to have the financial interest as
per prevailing law or family members of such persons from the own B/FI,
Exception: Not restricted to obtain loan at security of fixed deposit receipt, gold or
government bonds.
(e) To re-avail or re-provide loans by pledging the same collateral security in other Bank or
Financial Institution without having due release of the collateral security which was once
provided to a B/FI.
Provided that, this restriction shall not be applicable in case of release or obtain of loan
under consortium related prevailing law at pari passu charge to the extent of value covered
by the collateral security.
(f) To avail loans through an entity having established in the name of a person who, in fact,
does not have financial capability to run the business or, who is a person under undue
influence or through such borrower by creating a fake borrower or extend loans or obtain
or provide loans knowing the said facts.
(g) To extend credit more than the requirement compared to the customer's transaction.
(h) To avail or provide any sort of undue benefit in return to granting credit facility.
(i) To avail or provide full or partial payment of such loan amount through creating a fake
borrower with an intention to consume loan facilities by promoter, director, chief executive
officer or person authorized to disburse loan as well.
(j) To provide any type of loan by promoter, director, chief executive officer or person
authorized to disburse loan in the name of any person or organization having his/her
financial interest.
Act relating to Institutions acting as Financial Intermediary, 2055
Answer to Question No. 20
Section 11 of the Act relating to Institutions acting as Financial Intermediary, 2055 prescribes
about the following power of institution in the event of violation of terms:
(1) If any borrower does not abide by the agreement or terms thereof entered into with the
institution or fails to repay the micro-credit to the institution within the period specified in
the deed or if, upon an inquiry held by the institution, it appears that the borrower has
misused or misappropriated the amount of the micro-credit so borrowed, the institution
may, notwithstanding anything contained in the prevailing laws, recover its principal and
interest by auctioning the security furnished or held by the borrower to or with the
institution, in accordance with the prevailing laws.
(2) If the borrower transfer, in any manner, the title to the security which the borrower has
furnished with the institution to any other person or if, for any reason, the price of the
security furnished with the institution is devalued, the institution may, notwithstanding
anything contained in the prevailing laws, require the borrower to furnish additional
security covering the credit for the same within the time-limit specified by the institution.
If the borrower fails to furnish such a security within the time-limit specified by the
institution, the institution may recover its principal and interest by auctioning the property
furnished as the security.
(3) If, in making recovery by making auction pursuant to Sub- section (1) or (2), the whole of
the principal and interest of the institution cannot be recovered from such a security, the
institution may recover its principal and interest by auctioning other assets of a member
where the member has borrowed the micro-credit personally and of the members of a group
where the micro-credit has been borrowed collectively.
(4) The amount of expenditure incurred in making auction sale of the property and principal
and interest of the institution shall be deducted from the proceeds of the auction sale made
pursuant to this Section, and the remaining amount shall be returned to the concerned
person 20.
(5) If, in making auction sale pursuant to this Section, any one does not take over, the institution
may itself take over the property as prescribed 21.
In the given case, Kanchanjungha Financial Care has been working as a financial intermediary
after obtaining a license from Nepal Rastra Bank. Ms. P had obtained a micro credit of NPR 3
Lakh for a period of 1 year from the financial intermediary by pledging a security NPR 5 Lakh.
After 4 months of the credit disbursement, the market value of pledged property suddenly
decreased to NPR 2 lakh. Then, the financial intermediary issued a letter to Ms. P ordering to
provide additional security to the extent of covering the credit amount within 35 days along
with a warning that if not provided, it may breach the credit contract immediately and recover
its principal & interest amount by auctioning the pledged property. However, Ms. P believes
that though the market price of the pledged property has been decreased, she has been paying
the credit installment on time without any delay. So, the financial intermediary cannot demand
additional security on any cause. Further, the financial intermediary is neither entitled to breach
the credit contract before the expiry of the contractual period nor recover the principal &
interest amount by auctioning the pledged property at regular repayment of the credit amount.
As per section 11 of the Act if the title to the security which Ms. P has furnished with
Kanchanjungha Financial Care, for any reason, the price of the security furnished with the
institution is devalued, the institution may, notwithstanding anything contained in the
prevailing laws, require the borrower to furnish additional security covering the credit for the
same within 35 days specified by the institution. If Ms. P fails to furnish such a security within
the time-limit specified by the institution, the institution may recover its principal and interest
by auctioning the property furnished as the security.
Hence, in my opinion, the claims of Ms. P are not valid as per section 11 of the Act. In other
words, Kanchanjungha Financial Care has power to demand additional security to the extent
of covering the credit amount within 35 days along with a warning that if not provided, it may
breach the credit contract immediately and recover its principal & interest amount by
auctioning the pledged property.
Foreign Exchange Regulation Act, 2019
Answer to Question No. 21
In the given case, Mr. E has started exporting goods manufactured from his new shoes factory.
However, he does not know much about the legal provisions in relation to receiving the
payment of goods exported. Hence, pursuant to section 9A of the Foreign Exchange Regulation
Act 2019, I would suggest him to do following activities:
(1) The exporter shall have to declare before the Customs Officer that he or she shall bring the
payment of declared value within the period in the approved foreign exchange as prescribed
by the Bank by filling up the said details in the export declaration form as prescribed by
the Bank.
(2) If there occurs a condition to receive the payment in excess or less than the value as
declared in the declaration from before receiving the payment for exported goods, the
exporter shall have to submit an application to the Bank, along with the evidence of such
fact, and if such fact is found justifiable, the Bank may give permission to receive the
payment in such excess or less amount.
(3) If the exporter does not receive the payment of price of the exported goods within the time
limit as prescribed under Sub-section (1), it shall be deemed that he or she has violated this
Act.
(4) Notwithstanding anything contained in Sub-section (3), if the exporter submits an
application to the Bank setting out the reasonable reason of being failed to receive the
payment of price of the exported goods within the period as prescribed in Sub-section (1)
and if the Bank is satisfied with that matter, it may issue the following order to the
concerned exporter setting out the next period:
(a) To bring the payment, if the goods have already been sold.
(b) If the goods have not yet been sold, to bring the payment by selling them or return back
such goods to Nepal.
Provided that, if an application has been submitted to the Bank setting out the
reasonable reason of being unable to bring the payment for exported goods due to the
condition of beyond control of the exporter, the Bank may, upon holding necessary
examination, give concession not to return back such goods or bring payment fully or
partly.
(5) If the Bank desires to have certified the consent that the payment of the price declared in
the declaration form shall be made within the prescribed period and mode, it may cause the
submission of the agreement and other evidence relating to the same concluded between
the exporter and the foreign buyer.
(6) The Bank may issue an order to do the following in relation to all or any particular type of
goods to be exported or all or any particular exporter in order to manage the provision to
receive the payment of total value of the exported goods:
(a) Except as otherwise prescribed by the Government of Nepal, the payment for the
exported goods has to be received through the means of letter of credit and other means
as prescribed,
(b) In order to certify covenanting that the price as declared in the declaration form as
referred to in Sub-section (1) is the real price for export, it is required to submit the said
declaration form to the authority or institution as prescribed by the Bank.
(7) Notwithstanding anything contained elsewhere in this Section, the procedures for the
export of knowledge and informative technology and payment for the same shall be
as specified by the Bank by publishing and broadcasting a public notice.