Pramod Adhikary

LAW NOTES
Contents
Audit Act, 2075 Notes .......................................................................................................................... 2
Bank and Financial Institution, 2073 .................................................................................................... 4
Section-wise notes on Companies Act, 2063 (First Amendment, 2074, Some Amendments Act, 2064
and Some Amendments Act, 2072) .................................................................................................... 14
Co-operative Act 2074 ....................................................................................................................... 32
FITTA, 2075........................................................................................................................................ 37
Industrial Enterprises Act, 2076 ......................................................................................................... 40
Insolvency Act, 2063 .......................................................................................................................... 43
Insurance Act, 2049 (First Amendment) ............................................................................................. 47
International Financial Transaction Act, 2054 .................................................................................... 52
Labour Act, 2074 ............................................................................................................................... 54
Anti-Money Laundering Act ............................................................................................................... 59
Financial Intermediary Act ................................................................................................................. 62
Nepal Rastra Bank Act, 2058 (2nd amendment plus Some amendments Act, 2074)............................. 64
Public Procurement Act, 2063 (Amended 2073) ................................................................................. 71
Securities Act, 2063 (Up to Some amendments Act, 2072) ................................................................. 77
Bonus Act, 2030 (Up to amendment 2066) ........................................................................................ 82

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Audit Act, 2075 Notes

Definitions

Corporate entity fully owned by government (Nepal government, state government or local level):
means corporate entity whose shares/assets are fully owned by these governments or a combination of
such corporate and these governments and these entities also include those entities whose liabilities are
required to be fully borne by these governments.

Corporate entity (controlled by government): means entity whose shares/assets are owned more than
50% by NG, SG or LLG and it also means those entities whose shares/assets are owned more than 50%
by such corporate entity.

Governmental offices: means the governmental and constitutional entities.

Section 3: Entities that can be audited by Auditor General

1. Governmental offices,
2. Corporate entity fully owned by government,
3. Entity which has been specified as that which can be audited by the AG by federal law. (ex.
Approved retirement funds must be audited by auditor general)
The chief of these entities must prepare financial statement and have them audited by the AG.

Section 4: Method of auditing

Sampling, surprise checks, auditing the whole or part of the entity, to emphasize facts, to give
explanations and to protest, and to give the necessary opinion on the financial statements.

Section 5: Auditing of financial and other matters

1. Aside from auditing the financial facets of an entity in light of their regularity, efficiency,
effectiveness, economy and propriety, the AG can also audit in relation to the IT, work-
oriented, gender-related, methodology, environment and other various subjects as well.
2. The method of auditing as above will be as prescribed by the AG.

Section 8: Subject of auditing

Any subject that can be audited (see list which is very long) (example, the assertions
MPCOVER)

Section 9: Matters examined by the AG in view on propriety (adhering to morals)

1. Following matters should be checked with view of propriety:
a. Even if expenditures are procured properly, check whether such procurements such
procurements are done so as to waste the national assets and resources.
b. Whether any procurements, leasing, grants or other activities have been carried out that
negatively affect the revenue and resources of the nation.
c. Matters related to expenditure on construction, repair and maintenance, service flow,
public expenditures and flow of revenues.
2. Auditor may choose not to include in reports other matters on income/expenses that are not
material or relevant.

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Section 10: Audit of entity fully owned by government
1. The audit of entity fully owned by government can also be audited by appointing an assisting
auditor.
2. The auditor as above will be directed and supervised by the AG.
3. Procedure of auditing and reporting, terms of engagement, rights and responsibilities will be
as prescribed by the AG.
4. The remuneration is as prescribed by the AG.

Section 11: Audit of corporate entity (majority)

1. The corporate entity can have itself audited by appointing auditor. Audit should be done
under the principles & procedures set by AG.
2. The entity should consult of AG before appointment of such auditor.
3. The auditor should forward a copy of report to the auditor general based on which the AG
may give directions to the entity.

Section 12: AG can cause to have documents presented from the officers of the corporate entity.

Section 19: Annual report of auditor general to the president.

1. The annual must contain:
a. The work done by AG in the year,
b. Summary of major details from audit,
c. Status of audit reporting and improvements needed,
d. Other matters.
2. Other matters related to environment, IT, science, gender related issues, etc.

Section 20: Audit of local level Every village municipality and municipality should get audited from the
AG.

Function duties and powers of Auditor General - Article 241

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Bank and Financial Institution, 2073
Section-wise notes
Definitions
Significant ownership: When a person singly or jointly (with any other person) owns 2 or more
percentage of the paid-up share capital of the BFI or due to ownership can influence the management.
Close relative: Does not include family member who lives separately with own employment or business
and after distribution of parental property.
Risk-weighted asset: Total sum of assets after each on or off-balance sheet item is multiplied by the risk
weight prescribed by NRB.
Capital Fund: Sum of core capital and supplementary capital.
Primary Capital:
1. Paid-up capital,
2. Share premium,
3. Irredeemable preference shares,
4. General reserve,
5. Other funds.
Financial interest: Interest of director, 1% or more shareholder, CEO or their family member, person
who has power to appoint director, any person who has singly or jointly purchased 10% or more of paid-
up capital.
Public shares are all the shares other than promoter shares. Promoter shares are those shares prescribed
by the NRB.

Section 3: Formation of BFI

1. Register as a public company after obtaining pre-approval.
2. Preapproval of NRB is required to incorporate the company as per section 4.
Section 4: Pre-approval of NRB for incorporation of BFI
1. For acquiring pre-approval of BFI, officer of the BFI should give application to NRB along with
required documents (long list of documents)
2. NRB should give approval within 120 days with or without specifying any condition.
3. The firm or company with significant ownership of the person or family of following will not be
given approval:
a. Punished by NRB for not following regulation,
b. Punished of banking offences,
c. Punished of fraud, cheating, etc.,
d. Punished of money laundering or terrorist activities,
e. Corruption,
f. Punished for human right offences.

Section 5: Pre-approval is required for foreign bank

Foreign bank or financial institution can incorporate bank for BFI jointly with a Nepali person
(entity or natural) or as a subsidiary with a share ownership as prescribed by NRB. Submit fees
and documents.

Section 6: Pre-approval of NRB is required to open branch of foreign BFI (and should register the
branch in CRO) and of Nepali BFI in foreign country.

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Section 7: Pre-approval can be rejected (Equivalent to rejecting incorporation of company)
If:
a. Name or its transactions are against social welfare,
b. Objectives are against the law,
c. If it is not appropriate due to technical reasons,
d. Where the feasibility studies report or other infrastructures are questionable,
e. If adequate information is not given by promoters in MOA and AOA,
f. If per person investment limit is exceeded from that prescribed by NRB from time to
time,
g. If it is against the licensing policies of NRB,
h. Others as prescribed reasons by NRB.

Section 35: Rejection of application of license for BFI

Application can be rejected for license in the following conditions:
a. If it will have negative impact on fair competition and trust over the financial system,
b. If it is not appropriate to provide license for the interest of depositors,
c. If necessary, infrastructures for banking business are not present,
d. Other conditions as per prevailing law are not fulfilled.

Section 9: Allocation of shares

1. At least 30% of issued capital should be allocated for general public. (natural persons only)
2. If the public does not purchase the issue, then the shares can be sold to other entities.
3. 0.5% additional shares should be allocated for its employees.

Section 12: Barring informed persons from securities transaction (To prevent insider trading)
A person directly involved with the BFI (includes executive, director, management, auditor and
accounts person) should not transact or cause related persons to transact (includes close relative
and owned firms) the shares of the BFI or its subsidiaries when in post or from 1 year after
retirement.
This provision is not applicable for right shares, employee shares, bonus shares, sale of share by
an entity as direct by NRB, mergers, acquisition, NRB approved transfer among disputing
directors and transfer during correctional or resolution process.

Section 13: BFI cannot purchase its own shares or give loan against its own shares (Buy-back)
1. However, shares can be purchased to the extent of percentage prescribed by NRB out of its
own free reserves if all following conditions are met:
a. All issued shares are fully paid up,
b. The shares are listed in the securities market,
c. Buy-back is allowed by the AOA,
d. Special resolution has been passed by GM to this effect,
e. If the value of loans (secured plus unsecured) will not become more than 2 times the
value of capital and general reserve fund after purchase.
f. If the value of shares purchased (probably value paid for shares) is not more 20% of the
paid-up capital plus general reserve fund,
g. If the buy-back will conform to the capital requirements as directed by NRB,
h. If the buy-back will not be against any directions of NRB.

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 2. For buy-back, application should be given to NRB for approval (with information including
amount, method, number of shares, projected effects).
3. CRR should be created equal to the face value of shares bought back and maintained as paid-up
share capital. Cancel bought shares within 120 days.

Section 14: BOD formation

1. BOD should consist of 5 to 7 directors.
2. Directors are elected by General Meeting. However:
a. Directors before first AGM are appointed by promoters.
b. If post is vacated, till next Annual GM by BOD.
c. In the proportion of shares held by any entity. The same person cannot be appointed in
other BFIs (except for being appointed in an Infrastructure Development Bank).
3. At least one independent director should be appointed by the BOD (and this director is included
in the limit of total number of directors). A promoter, director and shareholder with more than
0.1% of shares (and their family) cannot be an independent director.
4. Chairperson is appointed by BOD.

Section 15: Tenure of directors

Tenure is as per AOA but not exceeding 4 years. Independent director cannot be reappointed.

Section 16: Qualification of a director (except for D level BFI which is prescribed by NRB)
1. Worked for 5 years as director or officer of Nepalese or foreign bank or similar organization or in
GON at the Officer Level or,
2. Same, but if the person has Bachelor’s level degree, only 3 years’ experience required, or,
3. Master’s degree in prescribed fields.

Section 17: Qualification of Independent director

1. For A-class and B-class national level BFI – Master’s degree in prescribed fields with prescribed
experience.
2. For other B-class and C-class BFI – Same but Bachelor’s degree
3. For D-class FI - Prescribed education and experience

Section 18: Disqualification of director

1. 25 years not reached,
2. Insane,
3. Insolvent,
4. Blacklisted or defaulter-listed in Nepali or Foreign Bank and 3 years not elapsed from removal
from such list,
5. Employee or director of any BFI, Insurance or any institution that accepts any kinds of deposit
(like savings cooperative). However, employee or officer (but not director) of parent can serve as
director of its subsidiary.
6. Person with personal interest with the BFI, debtor, auditor or advisor.
7. Securities businessperson or merchant banker,
8. Minimum shares not subscribed (except independent director who is not allowed to subscribe
more than 0.1% shares)
9. Employee of GON, GON-owned entity, NRB or other BFIs. (Except, this does not apply for
Microfinance and Infrastructure Development Banks)

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 10. Person who has not cleared taxes,
11. Moral turpitude, fraud, corruption, etc. convicted person in any country and 10 years from the end
of sentence not elapsed.
12. Punished by any regulatory agency and 5 years not elapsed,
13. For independent director, promoter of the BFI or owner of more than 0.1% shares.
14. Any person that owes moneys, fines, fees, etc. to GON.

Section 21: Meeting of BOD

1. At least 12 times, but gap should not be more than 60 days.
2. One third directors can call meeting by requesting the Chairperson.
3. Quorum 51%. Majority is decision. Chairperson’s casting vote. Minute should be kept.

Section 22: Function, duties and power of BOD include all functions of BOD except that vested in
the General Meeting subject to its AOA and MOA.

Section 24: Statement of director should be taken by BFI (list of information is asked)
1. Name, address, qualification and experience of director,
2. Details of designation and responsibilities if s/he has worked as director of any other agency,
3. Details of family of director, financial interests in BFI or other entities of the director or family,
4. Details of shares or debentures held by the director or family in such BFI or its subsidiary,
5. Details of family member working as official or employee in such BFI if any,
6. Details of any agreement or prospective agreement with the BFI if any,
7. Details of any concerns or interest on appointment of CEO, Company secretary or auditor,
8. Written authority given to the NRB to conduct professional background checks of director,
9. Self-declaration that s/he is qualified to be director,
10. Any other details specified by NRB.

Section 25: Director should provide such statement within 7 days of appointment. Statement should
be recorded by the BFI. NRB should be notified within 15 days if directors or details thereof have
been changed.

Section 29: CEO must be appointed by the BOD

1. Tenure maximum 4 years and can be reappointed once. BOD can remove CEO anytime if
performance is not satisfactory.
2. Qualification (all required):
a. Master’s degree (business, law, statistics, account, economics, etc.) or
CA or bachelor’s degree and 10 years’ experience,
b. Has fulfilled standards set by NRB for appointment as CEO,
c. Disqualifications of directors applicable but disqualifications relating to shareholding will
not apply.
3. CEO of one BFI cannot be CEO or equivalent of another business entity except of another
Infrastructure Development Bank in which the bank has invested in.

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Section 30: Functions, duties and power of CEO
1. To exercise powers vested by the BOD onto him subject to MOA and AOA,
2. To prepare annual budget and action plan of the BFI and submit it before the BOD for approval,
3. To manage human resources of the BFI subject to personnel byelaws,
4. To implement decisions made by BOD,
5. To operate institution according to the act and directive of NRB with effective internal control
and risk management,
6. To submit statements required by the laws,
7. To operate institution with optimum protection of deposit holders, shareholders and the bank
itself,
8. To apply appropriate culture subject to BOD policy.

Section 38: Conversion to higher class BFI

1. Application can be given to NRB with documents to convert into one class higher BFI except, D
class FI cannot be converted to higher class.
2. Pre-approval for One class higher license can be given if following conditions are met:
a. Paid up capital is as prescribed by NRB,
b. If for 5 years it is in profit, for 5 years has adequate capital fund and avg. 5 years’ non-
performing loan is below prescribed limit,
c. Preliminary expenses have been written off,
d. Publicly issued shares have been issued and allotted,
e. Special resolution has been passed to this effect,
f. Other conditions of NRB have been fulfilled.
3. After pre-approval, BFI should amend AOA and MOA. After amendment, license will be given.

Section 42: Maintaining Capital Fund

1. It should be the ratio of total assets or Risk weighted assets as prescribed by NRB.
2. If a bank cannot maintain such capital, NRB should be informed within a month. Information
should include reasons on failure to maintain the fund and plans to restore capital fund.
3. If the reasons and plans are reasonable, then NRB can give necessary direction.

Section 43: Provision for possible loan losses should be made to cover potential risks concerning
assets including loans and off-balance sheet liabilities. (risk-bearing fund using % of loans)

Section 44: General Reserve Fund

1. One GR fund should be maintained and it should be credited with 20% of the net profit every
year till it reaches two times the paid-up capital. After reaching said amount, 10% every year.
2. Without approval of NRB, GR fund should not be used or transferred to any other use.

Section 45: Exchange equalization fund

1. Except for Indian Rupees, if there is gain due to exchange revaluation, it should be set off to the
annual profit/loss. If gain has been made, 25% must be credited to exchange equalization fund.
For gain on INR revaluation, as prescribed by NRB.
2. Exchange equalization fund should only be used to set off exchange loss. For other purposes,
NRB should approve first.

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Section 47: Dividend declaration and distribution
1. Approval of NRB required before declaration or distribution.
2. But first, all losses, preliminary expenses and required funds should be credited and shares
allotted for public issue should have been issued.

Section 50: BFI cannot do the following

1. Buying inventory with the intention of trading. Purchasing/constructing land, building or other
immovable assets more than it requires,
2. Give loans on the security of its own shares,
3. Give loan or any facilities to director, CEO, 1%/above shareholder, their family, person with
authority to appoint director, or any person who has any financial interest with the BFI.
4. Giving loans above prescribed limit to a single person or their associate,
5. Giving loans on guarantee of promoter, director or CEO.
6. Investing in securities issued by A, B or C class institutions,
7. Investing in securities above limit prescribed by NRB,
8. BFI colluding to create monopoly or any control in financial transactions,
9. Creating any conditions to degrade competitive environment,
10. Others prescribed by NRB not to be carried out.

Section 57: Provisions related to recovery of loan. (procedures)

1. If the lendee does not follow the agreement or cannot make payments, the bank can recover its
principal and interest by auctioning the security or through other forms of sales.
2. If the market value of the security declines, the BFI can give any period to add security.
3. Where the lendee does not add security and the loan cannot be recovered from the security, the
amount can be recovered from other assets owned by the lendee.
4. The remaining amount after recovering principal, interest, auction expenses, etc. should be
returned to the lendee.
5. Where the security is not purchased by another person, the BFI can take ownership of such asset.
6. Where the lendee cannot pay loan and interest, the BFI should send the name of the person to the
Loan Information Centre for blacklisting.
7. Where the loan cannot be recovered from assets inside Nepal, recovery can be made from foreign
assets.
8. If loan cannot be recovered after following this section, then BFI should write to NRB. NRB can
forward application to GON to suspend passport and facilities provided by the state to the person.

Section 59: Preparation of FS

1. In the format prescribed by NRB.
2. Financial statements should be presented to NRB (unaudited) within 3 months of end of year and
should be published for general public. Within 9 months, BFI should publish audited financial
statements in prescribed format.

Section 60: Audit committee must be formed

1. BOD must form an audit committee of 3 members with one non-executive director as
coordinator. (but one member should at least have bachelor’s degree as per companies act).
2. Cannot include chairperson of BOD, CEO or coordinator of sub-committees of the Board.

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Section 61: Function, duties and power of audit committee (checking byelaws, internal regulation
and internal audit procedures, recommending 3 names for stat. auditor)
1. To ascertain whether the accounts, budget, internal audit procedures, internal control system of
the BFI are appropriate.
2. To cause to carry out internal auditing and to ascertain whether the documents are prepared in
accordance with NRB directives,
3. To conduct management audit, operational audit and compliance audit of work of the BFI,
4. To monitor whether activities enacted under the Act or directives are followed,
5. To recommend names of 3 auditors,
6. To furnish opinions as required by the BOD.

Section 62: Audit

External Audit should be done within 4 months of FY end. Maximum 2 months can be extended
by NRB on application by the BFI if auditing could not be completed within that time. For
foreign bank, audit will be as prescribed by NRB.

Section 63: Appointment of auditor

1. General Meeting will appoint auditor. Same auditor cannot be appointed for more than 3 years
running.
2. If AGM cannot appoint auditor, the NRB can appoint for them.
3. If the auditor’s post is vacant, the BOD should appoint auditor for remaining period.
4. A, B, C class must appoint CA. D can appoint RA.

Section 64: Disqualification of auditor

1. Promoter, director, CEO or their family.
2. Officer, employee or internal auditor.
3. Partner of any director, CEO or employee.
4. Debtor, significant shareholder or their associate, or any person who has financial interest,
5. Declared insolvent in Nepal or abroad,
6. 1% or plus shareholder,
7. Criminal offence convicted and 5 years not elapsed from date of sentence ended,
8. Other disqualification as per prevailing law. (i.e. companies act)

Application with decision = Approval for Principal agreement with NRB

Valuation + Final agreement with each other = Final approval for M & A
Section 70: Application for merger or acquisition
1. For merger, application should be jointly submitted by the banks upon decision by all sets of
BODs along with various information as follows for approval.
2. For acquisition, application should be similarly given after decision given by all sets of BODs
as per the special resolution passed by their GM.
3. The following documents should be included with the application for merger or acquisition:
a. Significance of the merger or acquisition and a simple projection report,
b. Audited FS and audit report of the previous years of all BFI,
c. Provisions made for protection of creditor’s interest,
d. Report of assets and liabilities of the BFI,
e. Employee management report,
f. Approval as per companies and securities related laws,

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 g. Preliminary agreement of all the merging or acquiring BFIs.
h. Others as prescribed by NRB.
4. NRB can give the principal agreement if it is convinced that there will be no negative financial
impacts.

Section 71: Valuation of assets and liabilities can be done after obtaining principle agreement
1. For merger, valuator should be appointed before or after application and must be a person eligible
at least to be appointed as an auditor.
2. For acquisition, auditor should be appointed for valuation of latest assets and liabilities by GM or
BOD of target company.
3. NRB can replace the valuator if their work is believed to be not reasonable.

Section 72: Final agreement should be concluded among the BFIs who had obtained principle
agreement. (should contain provisions for depositors, valuation, management of inter-holding,
management structure, employee structure, about other stakeholders and regulators)

Section 73: NRB can give final approval after due inspection of the previous phases, necessary
documents, additional documents if needed and the final agreement of the BFI concluded as per section
72.
Section 74: BFI can finally acquire business or assets of other BFI’s branches with final approval of
NRB as per final agreement with the other BFI.

Section 75: Voluntary liquidation

1. BFI must submit application to NRB with workplan of liquidation.
2. Voluntary liquidation can be approved if NRB is confident that the BFI can discharge its
liabilities. NRB should give principle agreement to such BFI.
3. The BFI that acquires principle agreement must carry out the following functions:
a. Give information of this within 7 days to CRO.
b. Within 30 days to depositors, creditors and other related persons.
c. Publish in 30 days in national daily.
d. Others activities as prescribed by NRB.

Section 76: Commencement of voluntary liquidation

1. Commencement of proceedings is deemed to be started from the date of final approval by NRB.
2. Following should be done by the BFI to obtain the final approval of NRB:
a. Refund of deposit should have been done within the stipulated time,
b. Cease transaction and not start any new transaction,
c. Not exercise any other rights except those vital to voluntary liquidation.
3. Report after conclusion of above activities should be submitted to NRB. If the above conditions
are complied, NRB can give final approval and cancel the license of the BFI.

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Section 78: Application to the court for compulsory liquidation (insolvency)
1. NRB can submit application to the court to start compulsory liquidation proceedings and should
publish notice of such application in national daily.
2. Following persons also can, with prior approval of NRB, submit application for liquidation citing
that conditions as per s. 79 exist:
a. Joint application of depositors of 1% of total heads or at least 25% depositors of
withdrawable amount who did not receive withdrawable deposit amounts on demand.
b. Any person who is capable of starting compulsory liquidation as per Insolvency act.
3. If the court gives order to start liquidation proceedings, then from that date, compulsory
liquidation is deemed to have started.

Section 79: Conditions where the compulsory liquidation of BFI can be started (by court)
1. Deposits or other financial liabilities cannot be discharged within stipulated time,
2. If the capital fund of the BFI is debt-formed,
3. If NRB recommends the liquidation of the BFI based on the inspection report,
4. If any acts are done by the significant shareholders or officers of BFI against the interests of
depositors,
5. If it is found that the BFI has violated NRB’s directions time and again,
6. Other conditions as prescribed by the NRB.

Section 83: Effect of liquidation order given by court (long provision)

Following transactions can also be made void by the court: (same as that of insolvency act)
a. Preferential transactions done until before or after 6 months of liquidation proceedings
started,
b. Same but 1 year for associated person,
c. Transactions 1 year before or after liquidation started that were done below market rate
which caused the insolvency or any acts done after liquidation proceedings started below
market rate.
d. Fraudulent transactions before or after 2 years.

Section 99: Actions than can be taken by NRB (1 & 3 similar to NRB)
1. NRB can take following actions against the BFI if this act, NRB act, its regulations or directions,
etc. are violated:
a. Reprimand,
b. To make directors sign a bond to take reformative measures,
c. To give order to follow the law and take reformative measures,
d. To prevent from distribution of dividends or bonus shares,
e. Limiting deposits and loans of BFI,
f. Banning fully or partially business of the BFI.
2. In the following conditions, license can be suspended or cancelled:
a. If business is not started within 6 months of license acquired,
b. If without approval of NRB, financial transactions are ceased,
c. If acts against depositors’ interest or deposit is not or cannot be given on demand,
d. If violates banking act, rules, directions, order or conditions by NRB,
e. If it is found that license was obtained with false information,
f. If deposit is not secured as per prevailing laws.

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Section 103: Offences
1. Banking activities without license: Damage recovery plus 3 times the damage and 5 years,
2. License obtained through fraud: Damage plus 2 times the damage and 2 years,
3. Activities beyond the conditions of license: Damage plus 1 time the damage and 1 year,
4. Foreign exchange transaction without license: DO
5. Loans or other investment against the act: DO
6. Irregularities in valuation of securities, loan flow and auctioning: DO
7. Irregularities by anyone in merger, acquisition, liquidation and audit: DO
8. Accomplices in above offences: Damage is recovered plus half the punishment of offender.
9. Except for normal transaction, any officer or employee transfers or allows transfer of asset to a
foreign country: Damage amount and 5 years.

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Section-wise notes on Companies Act, 2063 (First Amendment, 2074, Some Amendments
Act, 2064 and Some Amendments Act, 2072)
Definition of court - a commercial bench formed by GON with the consent of the Supreme Court. (not the
district or high courts unless specified)
Section 3: Incorporation of Company
Public company should have at least 7 promoters. But this is not required for a public company
incorporated by a public company.

Section 6: Registration can be refused

1. If:
a. Name is similar to name or trademark of existing company.
b. If name is unethical or illegal,
c. If the name is similar to a liquidated company, only after 5 years.
d. If the conditions of the act are not fulfilled.
1. If registration is refused, CRO should inform within 15 days.
2. Appeal can be made in court within 15 days of information of refusal or non-information.

Section 9: Number of shareholders. 101 excluding ESOP for private. Minimum 7 for public
company.

Section 11: The minimum paid-up share capital of public companies should be as per the prevailing
laws or as determined by GON by publishing in Nepal Gazette. If not mentioned, then minimum 1
crore.

Section 12: Certain companies must be incorporated as public companies

Bank, financing company, insurance, securities related business, retirement fund and mutual fund
operating companies, Telecommunication business with paid up capital above 5 crores. Within 2
years from the amendment of act, these must convert to public companies.

Section 13: Conversion to public company (through special resolution)

1. General Meeting passes special resolution to convert to public company. But the private
company should fulfill all other conditions that a public company is required to fulfil.
2. Within 30 days of such decision, application should be made to CRO. If all conditions are
fulfilled, certificate of conversion should be provided within 60 days.

Section 14: Conversion to private company

1. If the number of shareholders falls below 7 or paid-up capital isn’t as required for public
company. Reduction of share capital u/s 57 below threshold also requires conversion.
2. Within 6 months of such circumstances arise, the public company should amend MOA and
AOA and convert to private company.
3. Company should make an application to the CRO with the amended documents. CRO should
give certificate of conversion within 60 days of application.

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Section 17: Pre-incorporation contract
1. Contracts before incorporation are not binding. The person borrowing in the name of the
company before incorporation is personally responsible. But,
2. Company can ratify the transactions and borrowings that were done before obtaining the right
to commence business within a reasonable time period after its incorporation.
3. However, consensus agreement will be binding for Private company regardless of the
provisions in the act.

Section 21: Amendment to MOA or AOA (Special resolution)

1. General Meeting can amend MOA or AOA with a special resolution but amendment should
not be against section 6.
2. Within 30 days of amendment, CRO should be informed.
3. For amendment of name, the company should first give application along with prescribed
fees with a special resolution to that effect to the CRO. Obtaining approval from CRO means
the name has been amended.
4. Dissenting shareholders only of public company can challenge in court amendment of
objective only, if they fulfil the following conditions:
a. Shareholders who did not vote for the amendment and holding at least 5% of shares
paid up capital can challenge,
b. Within 21 days of the amendment resolved.
c. Court will only accept if the company is notified of the details of the application.
5. Court can give the following decisions:
a. To declare the amendment to be accepted or rejected partially or fully,
b. Buying the shares and/or other rights of the dissenting shareholders where there is the
matter of change of chief objectives of the company. Buy back of shares should be
done out of free reserves (as per section 62) and MOA needs amendment after.

Section 23: Prospectus needs to be published by public company for public issue of securities
1. Every director needs to sign the prospectus and then publicize.
2. Before publishing, present the prospectus to the Securities Board. Then register the
prospectus in the CRO.
3. The Securities Board may cause to amend the prospectus. The CRO can also refuse to
register the prospectus if required.

Section 24: Liability of prospectus

1. Directors signing on the prospectus are personally liable.
2. However, the director who:
a. Resigns before the decisions were taken,
b. Informs or publishes about the wrong information in prospectus or,
c. Who can prove that s/he had no knowledge of the mal-intention in the prospectus,
is not liable.

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Section 29: Issue of shares at premium
1. For public company who can publicly issue shares, they can issue shares in premium if the
conditions as per the Securities Laws are fulfilled.
2. For other public companies and all private companies, net worth should be positive and
approval of General Meeting required.
3. Share premium should be deposited in separate account.
4. Use share premium for only 4 uses:
a. Bonus shares
b. Use this for payment of premium payable for redeemable preference shares,
c. Preliminary expenses
d. Discount on issue of shares, or commission expense.

Section 30: Shares with different rights

1. Shares with different rights can be issued.
2. Any changes made to rights should be consulted with the shareholders of that right-class.
Special resolution from that class of shareholders is required.
3. 10% shareholder can appeal to court against such changes.

Section 31: Return of shares should be sent to CRO

1. Within 30 days of issue and allotment of shares, details of share no., amount received,
receivable and name/address of shareholder should be submitted to the office.
2. If share were sold by other than cash consideration, details of the value/consideration deemed
received and receivable should also be included in above.

Section 34: Loan or debenture can be issued (only by public company)

First, approval to commence business should have been obtained and issued capital should be
fully paid up. Reasons for issuing debenture or raising loans should be given to the office.

Debenture trustees act on behalf of debenture holders.

Section 42: Share or debenture can be sold or pledged.

1. Share can be sold or pledged like a movable asset, subject to MOA and AOA.
2. Promoter of a company, other than that of a private company which has not taken loan from
another company, cannot sell or pledge the shares until the first AGM is held and the shares
are fully paid up.

Section 44: Refusal of registry of shares (i.e. refusal of deregistration of transferor)

Company can refuse to deregister the transferor (and register transferee) if:
a. Call for shares is not paid,
b. Deregistration is against the agreement or AOA,
c. Fee for registration is not paid.
Company must notify within 15 days of application.

Section 46: Register for shareholder and debenture holders (in registered office). Closure for
30days can be done on its inspection with a 7-days’ notice but closure cannot exceed more than 45
days in a year.

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Section 50: Substantial shareholder of public company
For public company, shareholder of 5% or more of paid-up share capital with full voting
rights. However, if the paid-up capital of the company is more than 25 crores, then 1% of
paid up capital.

Section 53: Payment against calls on shares (and forfeiture-only of shares for which calls not paid-
up)
1. Payments for calls have to be made as set out in AOA.
2. Company should send notice to shareholder to pay the call with amount, place and time and
30 days of time period. A public company should also publish in national daily newspaper at
least 2 times.
3. If shareholder does not pay within limit, another notice should be sent with time limit of 3
months and charging prescribed interest. Public company should also publish such notice in
national newspaper at least three times. If call is not paid still, then among the shares for
which the notice was given, the company can forfeit all shares of those shares after
maintaining the number of shares to the extent already paid-up and including the amounts of
dividends attached for the shares.
4. BOD can choose to repay for the shares and dividends forfeited and should repay within 3
months of forfeiture if so decided.
5. Forfeited shares can either be sold or cancelled as provided in the AOA.

Section 56: Alteration in share capital

1. Subject to AOA, the following alteration can be made to the share capital of a company with
a special resolution:
a. Increase (not decrease) of authorized share capital,
b. Combining or splitting shares into those of more or less face values,
c. Cancelling such shares that have not been subscribed when issued or have been
forfeited (s. 53(4)).
2. Amendment is required in MOA & AOA after above changes.
3. For shares issued as follows, shareholders do not have the first right:
a. Shares issued for other consideration than cash,
b. Shares issued due to any agreement entered into with another person,
c. Shares issued as per ESOP.
d. Shares issued due to any agreement entered into with a creditor,
e. Shares issued in restructuring or insolvency proceedings or merger,
f. Conversion of convertible preference shares or debentures.

Section 57: Reduction of share capital with approval of court

1. Share capital can be reduced after:
a. Passing a special resolution to that effect,
b. Obtaining approval of the court, and
c. Then, amending MOA and AOA.
2. Company can reduce share capital by the following methods:
a. If call of shares is not paid, maintaining share capital up to that amount,
b. Paying back paid-up share capital,
c. If there is a big loss or loss due to natural disaster, by reducing the face value of
shares (the FV being the maximum amount payable by the shareholder).

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 3. Insolvent company cannot reduce share capital as per this Act.

Section 58: Procedures for reduction of share capital

1. After passing the special resolution, application should be given to the court for approval.
Court will set hearing date.
2. Before the hearing date set by the court, the company should publish in newspaper at least 3
times with time and place of hearing.
3. Creditors who would be eligible to make claim as per the insolvency law can make their
claim and objection to the company.
4. The directors or company secretary should make and submit such a list of creditors to the
court.
5. The court can give the order to reduce the share capital if the creditors agree to such reduction
or if the company fully admits to such claims or makes a provision to pay such amount within
a period.
6. Court can give the order and the company must amend its MOA and AOA.

Section 60: Directors are responsible if net worth of public company falls
1. If net worth becomes half of paid-up capital, appropriate plan should be prepared by BOD to
restore net worth. Such plan should be proposed in coming AGM. However, if approval of
GM is required to implement the plan, then BOD should call an EGM immediately.
2. If directors do not comply with above provision, then they are punishable as per this Act.
3. If such fall in net worth was due to mala-fide intention or gross negligence of directors, the
directors are personally liable.

Section 61: Company should not buy its own shares (except)
1. Company cannot buy back or loan against own shares except if it fulfils all of following
conditions, should buy out of profit reserves:
a. Shares have been fully paid up,
b. In the case of shares of public company, they have been registered with Securities
Board (for BFIs they have to be listed in securities market),
c. If such provision is given in the AOA of the company,
d. Special resolution in GM passed,
e. Loans (secured or unsecured) will not be more than two times of share capital plus
general reserve (does not include revaluation reserve).
f. Amount of buy back (value of shares purchased) is not more than 20% of Share
capital plus general reserves, and,
g. Buy-back is in conformity with directives issued by the Office.
h. Also, buy-back of public company should not reduce share capital or number of
shareholders below threshold. (5.)
2. Information about the buy-back should be provided in the GM for the purpose of special
resolution as above.
3. Face value of amounts bought back should be kept as capital redemption reserve (CRR) and
maintained as paid-up capital. Bought back shares should be cancelled within 120 days.
4. Buy back in public company should not reduce number of shareholders and capital below
required amount.

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Section 62: No assistance to buy shares
1. Company should not assist anyone financially in buying shares of own, parent or subsidiary
company.
2. Nevertheless, assistance to employees to buy fully paid up shares of own or parent company’s
shares can be provided.

Section 64: Sale or issue of shares at a discount (discount can be given only up to prescribed rate)
Company cannot sell shares at discount except with a special resolution in following
conditions:
a. Sale as per restructuring plan,
b. Conversion of creditor’s loans into shares,
c. Sale to employees as per share schemes,
d. Other conditions as approved by the office.

General Meeting
Section 67: General meeting of a company (are AGM and EGM)
1. GM of private company and its proceedings are governed by its AOA. If nothing is provided
in the Articles, then the provisions below apply.
2. Before 21 days for AGM and before 15 days for EGM of a public company, notice should be
provided to shareholders with place, time and agendas of discussion. Notice of the same
should be published twice in national newspaper.
3. Adjourned general meetings can however, be called with a 7-day notice and published once.
4. Place of general meeting of public company (private company has no regulation for the place
of G. meeting subject to AOA, even foreign) should be in the district or adjoining district of
registered office where it will be convenient for majority shareholders unless approved by the
office that it can take place elsewhere.
5. If a shareholder was erroneously omitted to notify due to mistake in the address, the decisions
taken in GM will not be void. But if this was intentional, the shareholder has grounds to make
the proceedings of GM void.

Section 70: Restriction to voting and to attendance in general meeting

1. A shareholder is not entitled to attend or vote in a discussion of a meeting where any
terms/conditions made by the person with the company are to be discussed.
2. Director is not entitled to vote in a discussion in regards to the director’s interests.
3. Shareholders who have not paid calls cannot attend or vote.
4. If a bank writes to the company to restrict a person from voting for non-payment of loans
taken with pledge of shares, then such person can be disallowed from voting in respect of all
his shareholding until such loan is paid.

Section 71: 1 share 1 vote. Proxy can be appointed through a written instrument if AOA allows.

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Section 72: Voting for appointment of director
1. Unless otherwise stated AOA, the number of votes will be = No. of. Shares held* no. of directors
to be appointed. Such number of votes can be given to a single or multiple candidate as desired.
2. A corporate shareholder can appoint directors in proportion of its shareholding and in doing so, it
cannot take part in voting.
3. If a corporate cannot appoint even one director due to shareholding or will not opt to appoint
director as in 2. above, then the corporate can take part in voting as if a regular shareholder.

Section 73: Quorum of shareholders

1. Quorum of the GM of private company is as per AOA (can be less than half).
2. Unless at least 50% shareholders and 3 heads of shareholders of public company (or more if
given in AOA) are present, meeting should not go further ahead.
3. If another GM is called due to non-fulfilment of quorum with a 7-day notice, then at least 25% of
holdings and 3 heads of shareholders is the required quorum.

Section 74: Discussion and decision

1. Chairperson of the GM is the chair of BOD. If absent, a member of BOD appointed among
themselves.
2. Majority of opinion of attending shareholders is the decision for an ordinary resolution. However,
for a special resolution to pass, 75% vote is required.
3. Chairperson has the casting vote along with regular voting rights.

Section 76: Annual General Meeting

1. Every public company should conduct the first AGM within 1 year of approval (section 63) for
commencement of business and within 6 months of end of every fiscal year.
2. If within 3 months of the limit passed the AGM is not called, then CRO can order to call AGM.
3. If within 3 months of the order received AGM is not called, then any shareholder can petition in
court. And the court can call the AGM.
4. Quorum of such court-called AGM shall be the shareholders who attend the GM.
5. Above provisions are applicable for private companies that require to call AGM as per their
AOA.

Section 77: Matters such as dividend amount, remuneration of directors, appointment of auditor,
appointment of director can be discussed. However, the amount of dividend should not be more than
the rate proposed by the BOD.

Section 51: Inventory (lagat) of shareholder and debenture holder

1. Every company should maintain lagat of existing shareholders and debentures before 30
days and lagat of ceased shareholders and debenture holders before 21 days of AGM.
Contains:
a. Authorized share capital and NOS, Issued and PUC,
b. Amount called per share,
c. Amount paid up and amount in arrears for shares,
d. Amount of brokerage charge for shares and debentures,
e. Loans taken by the company and guarantees given by the company.
f. Number of shares forfeited and date and reason for forfeiture.

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 2. Lagat should be sent to office within 30 days of AGM. Within 6 months of end of FY for no-
AGM companies.

Section 78: Every public company should, before 21 days of AGM, submit a report to the office
containing following information. This report should be approved by BOD and certified by the
auditor. Contents of the report are:
1. Allotted number of shares, paid and unpaid amounts among these shares,
2. Facilities to Director, MD, auditor, CEO,
3. Information of shareholders/debenture holders holding 5% or more of PUC,
4. Amounts paid or payable for sale of shares,
5. Details of debts taken by the company,
6. Details of employees, foreign employees, foreign investments, dividends, management expenses,
etc.

Section 80: Annual return should be submitted after AGM

1. Every company that conducts AGM should, within 30 days of AGM, submit a return to the office
containing the following documents:
a. Number of shareholders present in AGM,
b. Number of directors who were present in AGM,
c. Annual Financial Statements,
d. BOD’s report and Auditors report,
e. Decisions taken by the AGM.
2. Unless otherwise stated in the Act, every company should submit to the office the Annual
Financial Statements and the Audit Report.

Section 82: Extraordinary general meeting (note that CRO can call an EGM but not the AGM
which can be called by court only)
1. BOD can call EGM if it deems necessary.
2. Auditor can request BOD to call EGM. If BOD does not call, then auditor can make an
application to the office and the office can call an EGM.
3. At least 10% of shareholders of paid up capital or 25% of heads of shareholders can give
application to BOD and BOD should call EGM within 30 days of application.
4. If BOD does not call EGM within the time limit, then shareholders can petition in CRO and CRO
can call the EGM.
5. During inspection, if it is deemed necessary, CRO can call or cause the BOD to call an EGM.

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Section 83: Special resolution should be put forward (for the purpose of)
1. Conversion from private to public company,
2. Increasing authorized capital of company,
3. Decrease or alteration to share capital of company,
4. To change name or main objective of company,
5. Merger with another company (for public company),
6. Issue of bonus share,
7. Buy-back of shares,
8. Discount issue of shares,
9. Other actions mentioned elsewhere in the act or rules,
a. Amendment to the MOA and AOA,
b. Altering rights of a class of shareholder requires special resolution of that class.
c. Proposal to determine that unpaid portion need not be called for profit making company
(s. 53),
d. Granting reward to the directors of maximum 3% of PAT (s. 91),
e. Ratification of director’s transaction out of jurisdiction (s. 103),
f. Acts mentioned in section 105 regarding gifts and donations.
g. Voluntary liquidation of company (s. 126)

Section 84: Listed company need not send annual financial statements and director’s reports to
shareholders. But it must send abstract of financial statement to every shareholder.
Abstract should be in the format as prescribed by the office and must be prepared based on annual
financial statements and directors report. Abstract must contain, among other:
1. The fact that it is only an abstract of AFS and DR,
2. Opinion of the auditor on whether the abstract reflects the Annual Financial statements and
director’s report and is as per the format required by this section,
3. Any remarks made by the auditor on the Annual FS of the company and explanation of
remarks,
4. Full disclosure of matters mentioned in the auditor’s report on whether s/he thinks the records
of the company is as required and whether s/he got the information required during audit.

Section 86: BOD and number of directors

1. Appointment of directors and their number for private company will be as per AOA but not more
than 11.
2. At least 3 and not more than 11 in the case of public company. If there is a female shareholder,
one female director at least.
3. For public company, if up to 7 directors; one independent director (included in those 7) and two if
more than 7 directors.
4. One chairperson is appointed by the directors among themselves.

Section 87: Appointment of directors

1. AGM appoints directors.
2. Until first AGM, promoters will appoint directors.
3. If the post of director is vacated, BOD will appoint director.
4. Corporate can appoint directors in proportion of shareholding and can also appoint alternate
directors for its directors. The alternate director cannot take part in BOD meeting without written
permission of the director (being replaced).

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Section 89: Disqualification of director (and independent director) and director no longer able to
hold post (long list)
1. 21 years not reached for public company,
2. Insolvent and 5 years not elapsed,
3. Corruption or moral turpitude. Public company cannot appoint such person but private can after 3
years since sentence ended,
4. Person who has personal interest in the transactions or business of the company,
5. For public company, a director, auditor, advisor, employee of another company with similar
objectives.
6. A shareholder who is in debt with the company,
7. Person who is not qualified due to any other law relating to such company.
8. Other disqualifications for independent director:
a. Who is disqualified to be a director as above,
b. Shareholder of such company,
c. Person without required academic qualification and experience,
d. Person who has retired from service of company and 3 years not elapsed,
e. Auditor of the company or relative of auditor or relative of officer of company.

Section 90: Tenure of directors

1. Tenure of director of private company as given in AOA.
2. As per AOA for public company not exceeding 4 years. However:
a. Where there is ownership of shares by a corporate body or GON and a director has been
appointed, as long as desired by the appointing body.
b. If appointed by promoters, till first AGM is done.
c. If appointed to fill a vacant post, the rest of the tenure is filled.
3. Unless otherwise stated in the law or AOA, director can be reappointed.

Section 91: Remuneration, allowance and awards to directors of company

1. They are decided by the AGM.
2. Maximum of 3% of after-tax profits can be paid as awards to directors after passing special
resolution in AGM.

Section 96: Appointment of Managing Director and company’s management

1. The Managing Director is appointed by directors subject to the provisions of the Articles.
2. Functions, duties and powers will be as mentioned in the articles.
3. Remunerations and other benefits of MD and executive directors will be as allowed by General
Meeting. No other payments will be allowed to such directors.
4. Tenure of the MD is maximum 4 years. Director of a listed company who is getting regular
remunerations other than the meeting fees cannot be appointed as MD of another public
company.

Section 97: Meeting of BOD

1. Meeting of BOD of private company as per AOA.
2. Public company’s BOD meeting should take at least 6 times annually with less than 3 months gap
among meetings.
3. Director should himself be present in meetings.

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 4. 51% of directors allowed to attend the meeting is the required quorum.
5. If quorum is not met and another meeting is called with a 3 days’ notice, the directors who are
present can conduct meeting.
6. Majority is decision, chair has casting vote. Interest-holding director cannot discuss in the matter.
Minute should be kept and signed by 51% of directors.

Section 103: Transaction out of jurisdiction of company (Doctrine of Ultra Vires)

1. A transaction done with another party by the company is not void merely because such is not
within the powers of MOA. (Transaction is binding upon the agreeing officers and other party.)
2. If director does any transaction out of jurisdiction of company, then a special resolution in the
GM can ratify the work.
3. Directors who have breached the jurisdiction are not freed of the liability just because the
transaction has been ratified. (ex, loss caused on such agreement.)

Section 104: Company is bound (Indoor Management; protects outsiders and also makes directors
liable if they work outside their authority)
1. Company is bound to any transaction entered into by any person of the company authorized to do
so or towards any document with the sign and seal of company.
2. Transaction entered into by any (outside) person in good faith with the company is binding on the
company. Nothing mentioned in the internal documents of the company (MOA, AOA or
otherwise) will void the transaction.
3. However, if it is found that the authorized person has acted beyond his/her power conferred upon
him/her by the company, it is binding upon that authorized person and not the company.
Company can ratify such act with an ordinary resolution but such person is still liable for losses
which, by the company, can be recovered.

Section 105: (Certain) Restrictions to authority of directors

BOD of a public company or a private company taking loan from BAFI cannot perform the
following transactions without authorization of a special resolution from the General Meeting:
a. Forfeiting ownership to anyone, selling, leasing, donating or gifting more than 70% of
any business undertaking of the company,
b. Acquiring loans more than the share capital plus free reserve from a BFI except a loan
which is taken in course of business with maturity of less than 6 months.
c. Donating more than Rs. 1 lakh or 1% of average net profit of last 3 years whichever is
lower in 1 year except if done for its employees or for business promotion.
General meeting can also specify additional conditions when approving above.

Section 108: Accounts of company should be kept by the board of directors.

Section 109: Financial reports and directors report should be prepared
1. Private company within 6 months of FY end and public company before 1 month of AGM,
should prepare financial reports every fiscal year.
2. Such report should be prepared and approved by BOD and audited.
3. Directors’ report should be prepared for every public company or private company with 1 crore
or more paid-up capital or with 10 crore/above transaction. (contains lots of other information)
4. Records should be kept for at least 5 years from the end of financial period.

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Section 110: Must appoint auditor
1. Every company must appoint an auditor qualified for auditing as per prevailing laws.
2. Foreign branch can be audited by the appointed auditor.

Section 111: Appointment of auditor

1. Among those licensed for auditing. For public company, appointed by the GM by taking into
account names recommended by the audit committee.
2. For private company, as per MOA, AOA or consensus and if not, by the GM.
3. Before first AGM, auditor will be appointed by the BOD.
4. The appointed auditor’s tenure is till next AGM.
5. 3 years in a row, public company cannot appoint the same auditor or the auditor’s relative,
employee, former employee, partner or former partner. However, if 3 years elapsed from
termination of partnership or employment, former employee or former partner can be appointed.

Section 112: Disqualifications of auditor (read the list from act)

1. Any employee, director, who is regularly remunerated by the company or who is in management
of the company or a partner of the person or close relative,
2. Any person who is a debtor of the company or who has not paid amount to the company within
period required,
3. Insolvent person,
4. Person who owns 1% or more share and their relative,
5. Person who was convicted of moral turpitude and 5 years from expirty of punishment not elapsed,
6. Auditor of public company who has been appointed as auditor for 3 consecutive years,
7. Any limited liability company or entity,
8. Any person who has interest in the transactions of the company.
If auditor becomes disqualified, it should immediately stop auditing and inform in writing to
company.

Section 113: Office can appoint auditor

Office can appoint the auditor itself upon request of BOD if:
a. AGM could not appoint auditor,
b. AGM could not be held, or,
c. Auditor could not hold post due to any reason.

Section 115: Work and duties of auditor

1. To issue a report containing opinion on the financial statements of the company,
2. Auditor must issue report as per Auditing standards and must disclose required facts in the report.
3. Auditor must mention the following matters among others in audit report:
a. Whether the auditor received proper information and explanation for audit,
b. Whether the company has kept records that reflect the correct financial position of the
company,
c. Whether the company has prepared financial statements as per accounting standards and
they reflect the correct financial position of the company,
d. Matters explaining on whether the directors or employees of the company have acted
against the law or misappropriated any funds of the company,
e. Whether any accounting frauds have occurred,

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 f. Any recommendations of the auditor.

Section 119: Removal of auditor

Nobody can remove auditor for the reporting period unless auditor does any work against
proper conduct, interest of the company or the law and:
a. Prior information has been given to ICAN,
b. Approval of regulatory agency of the company, if any, and if not, then of the office has
been acquired,
c. The process by which the auditor was appointed is used to remove him/her.

Section 121: Office can assign inspector

1. Following persons can request the office to assign inspector to inspect whether the company
is acting against the MOA, AOA, consensus or any prevailing laws:
a. At least 10% paid-up shareholders or 25% head shareholders,
b. Stakeholder creditors.
2. Inspector should be a specialist in a field of business and not have interest in any transaction
of the company.
3. The office can also assign an inspector if the office feels one of the following is the case:
a. Any illegal and unethical transactions are happening in the company,
b. A public company does not give information it should have given about its
transaction to the office.

Section 122: Rights, power and duties of inspector

1. Take statements from current or previous shareholders or officers of the company,
2. Take possession of documents of company,
3. Inspect the accounts of the company
4. Any statement given by a person can be used as evidence against that person.

Section 126: Liquidation of company able to pay its debts (voluntary liquidation)
1. Voluntary liquidation can be done with a special resolution by the GM or through provisions
in MOA, AOA or consensus.
2. A company can only be liquidated as per this act (voluntarily) if following conditions exist:
a. If company can completely discharge its liabilities,
b. Its not facing any insolvency proceedings from the prevailing laws,
c. The directors give a written representation that the liabilities can be paid and can be
paid or discharged within one year from the date of application for liquidation after
making due investigation on the matter.
d. And, the representation so made was presented to a GM called for such discussion or
during the discussion of such matter in a GM.
3. The general meeting passing special resolution should also appoint a liquidator and auditor.
Appointment of liquidator means the management is relieved of its duty.

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Section 131: Rights and duties of the liquidator
1. Must give income and expenditure accounts every 6 months to the office,
2. Must give progress report to the shareholders,
3. Pay all debts of the company from the proceeds of the assets and receivables,
4. Give report of remaining assets to shareholders by calling GM,
5. Distribute remaining assets to shareholders,
6. Give final report to the office.

Cancellation of registration of company

Section 136: Cancellation of registration of company
1. In the following cases, the office can cancel registration of a company:
a. If promoters give application to office to do so because business could not be started,
b. If company does not submit reports (as per section 80) for 3 years in a row and does
not pay fines as per section 81 for these for 3 years,
c. If office is convinced from evidences that the company is not conducting business or
is not in operation.
2. Before deregistering, notice should be sent to company. If the address of the company is not
proper/known, then notice should be sent to the officer’s address and if also not applicable,
then notice should be sent to promoters’ addresses. This notice should also be published in a
national newspaper.
3. If within 2 months, the company does not give application not to deregister or such
application is not satisfactory, then office should deregister.

Section 137: Reincorporation of deregistered company (revival)

1. The company, the shareholders or its creditors within 5 years from the date of notice of
deregistration (published by office) can give application to court to reincorporate the
company if:
a. The company was indeed conducting business but it was deregistered, or
b. If the court feels that reincorporating the company will allow proper management of
assets and liabilities.
2. Reincorporating a company will deem that the company has existed from first registration
date.
3. Assets received or proceeds from assets received due to deregistration should be returned by
the shareholders to the company.

Section 139: Remedy against works done against interests of shareholders

1. If any transactions are carried out or is possible that it will be carried out into which are against
the interest of any shareholders, then such shareholders can give an application to the court for
appropriate court order.
2. For such application to be tenable, it must be proved that the directors, managing director,
managers or other officers are acting against the provisions of MOA, AOA or consensus
agreement.
3. If the concerns of the shareholders are reasonable, the court may issue an appropriate order to the
company as remedy. The court can take various remedial actions such as:
a. To stop transactions against the interest of such shareholders,
b. To order the company to stop or enter into transactions,
c. To file civil suit against anyone on behalf of the company,

27 | P a g e
 d. To recover damages against shareholders from the company or from discriminating
person,
e. To recover damage of company or shareholders from directors or officers.
f. To return the moneys of shareholders by reducing capital of the company with due
procedures.
4. Remedies as per other laws can also be issued by the court on behalf of the aggrieved
shareholders if they request for such action.

Section 140: Shareholders can file case on behalf of the company

1. To get any rights of the company enforced, the company can file case against the directors,
officers or controlling shareholders of the company.
2. If the company does not file a case, then 2.5% shareholder singly or 5% shareholder if more
than one shareholder can file a suit on behalf of the company against such persons.
3. The court can order the company to take over such case from the shareholders if it seems
appropriate.
4. Compromise cannot be made among the parties unless they adhere to the court’s terms and
conditions.
5. If the suit of the shareholder is tenable, then company should bear legal expense. If not
tenable, then the shareholders must bear the legal expense of the defendants.

Section 142: Subsidiaries (Short but important)

1. Parent can control subsidiary through either:
a. Direct or indirect control on appointment of BOD, or
b. Majority of share.
2. Subsidiary of subsidiary is a subsidiary. Shares held as a trustee or as security not counted.

Provisions of private company

Section 145: Consensus agreement (of private, public, company has no consensus agreement)
1. A specified list of agreements can be made in the consensus agreement. Contents:
a. Management, business and transactions of the company,
b. Prohibition on transfer of shares if any,
c. The right of one or more shareholder to liquidate the company on any certain or
uncertain event or at will,
d. Voting rights,
e. Conditions regarding appointment of company officers, employees and workers,
f. Director who is ultimately responsible for management or the identity of CEO,
g. Method of payment and allocation of dividend,
h. Whether BOD will exist,
i. If BOD will not exist, who will carry out activities of BOD,
j. Whether AGM needs to be conducted,
k. Whether shares of different rights exist.
2. Can be amended through written agreements of all parties.
3. Shareholder acquiring shares after consensus has been concluded is deemed to have agreed to
the consensus.

28 | P a g e
Section 149: Written resolution (by private companies, an alternative of GM)
1. Instead of passing a resolution through GM, written resolution signed by at least 75%
shareholders can be passed to make decisions.
2. Signatures should be dated. The decisions are deemed to be the same as those taken by a GM.
AOA can include provisions that can prevent written resolutions.

Foreign company

Section 160: Fine from 20000 up to 50000 or up to 2 years imprisonment or both (list is too long)
Auditor who audits with recklessness or mal-intention or does not report significant remarks.
Auditor who does not cease audit after it has the knowledge of its disqualification.

Section 161: Fine from 10000 up to 50000

Includes auditor who does not provide audit report.

Section 164: Audit committee (required only for some companies)

1. Audit committee should be formed by a company, with chairpersonship of a director who is
not involved in daily management and other at least two members (total 3 members
minimum), if:
a. The company is listed with more than 3 crores of paid up capital,
b. Or the company is fully or partly owned by GON.
2. Members of audit committee should not include close relative of executive of the company.
3. At least one member should have bachelor’s degree in management field and have experience
in the field of account or finance.
4. Audit committee can call officers, directors, etc. to attend their meeting.
5. Suggestions of audit committee should be implemented. If they are not implemented, they
should be included in the (annual) Directors’ Report.
6. Chairperson of audit committee should be present in AGM.
7. Meeting of audit committee can be done as per necessity, not mandated.

Section 165: Rights, duties and powers of audit committee (reviews statements, ICS, RMS, makes
policies related to accounts and audit, etc. Read from the act)

Section 176: Restriction to giving loans or investment in securities transactions (important)

1. Directly or indirectly, no company can provide loans or invest in securities of the amount in
excess of 60% of paid up capital plus free reserves or 100% of free reserves whichever is
higher.
2. However, loans or securities given to (not by) following companies are not prohibited:
a. Bank or Financial Institution
b. Insurance company
c. Company whose chief objective is to trade or invest in securities (securities trader),
d. Private company that has not taken loans from BAFI,
e. Companies with chief objective of providing Infrastructure Facility
f. Investment made by the parent in subsidiary of 100% only (fully owned),
g. Investment made by a company in right shares as per this act (as its cheaper for the
investor and this section could restrict the company from a profitable investment)

29 | P a g e
Section 177: Companies can merge
1. Public companies can merge into another company with a special resolution of GM and by
obtaining approval from the office. Private companies can as per AOA, MOA or consensus.
2. Within 30 days of special resolution, with following documents give application for approval:
a. Decision of GM for public and copies of MOA, AOA and consensus for private,
b. Latest Balance sheet and auditor’s report,
c. Written consent of creditors of merging companies,
d. Report of assets’ and liabilities’ valuation of merging companies,
e. Decisions taken regarding the employees and creditors of merging companies,
f. Scheme of arrangement among the companies for the merger.
3. Status of public company is maintained if public and private companies merge with each
other.
4. Within 3 months, CRO should give decision whether to allow.
5. Dissenting shareholders should be provided with proportionate amount by revaluing assets
into market value.
6. CRO should not give decision to allow if there would be a monopoly or unfair control of
trade.
7. Not distributing profit companies can merge with each other only. (s. 167, only reiterated
here).

Section 179: Bonus share can be distributed from profit distributable as dividends by passing a
special resolution.

Section 182: Dividend related provisions

1. Dividend should be distributed within 45 days of decision (by AGM) except in the following
cases:
a. Distribution is prohibited by any other law,
b. Right to receive dividend is disputed by any way,
c. If due to any conditions, the company cannot distribute dividend within given time.
2. Company owned, fully or partially, by GON should receive approval from GON before
distribution.
3. Dividend should be given with interest if it could not be given within the given time limit
(time limit can also exceed 45 days if conditions arise as above).
4. Company should not distribute dividends from any other reserve except that set aside for
distribution.
5. Reserves should be distributed after transferring to all other statutory reserves, covering all
previous year losses and deducting depreciation expenses.
6. Interim dividend can be distributed from profits out of previous year if:
a. Provided by the AOA.
b. And the financial statements of the year profit of which interim dividend is to be
distributed has been certified by auditor and approved by BOD.
7. Except as dividend, no amount in cash or kind can be distributed to shareholders chargeable
to funds. (ex, as gifts)
8. If dividend has not been claimed by a shareholder within 5 years from decision (by GM), it
should be deposited in Investor Protection Fund.
9. Before depositing the amount in the Protection Fund, it should be published in a national
newspaper with one-month time limit.

30 | P a g e
 10. Dividend approved by GM should be kept in a separate account and should not be used for
other purposes.

Section 183: Investor Protection Fund

1. Where an investor does not claim any refund amount against investment in shares (dividend,
repayment against shares, liquidation repayment etc.) even after 5 years as above, it should
be deposited in the Investor Protection Fund.
2. Other amounts that can be deposited in the funds can come from GON or any other donor.
3. Fund amounts can be spent related to company laws and securities laws.
4. Amount against shares before being deposited in IPF should be published in national
newspaper with one-month time limit.

Section 185: Appointment of Company Secretary

1. A company with paid-up capital of 1 crore or more (basically all public companies) should
appoint one Nepali Citizen as company secretary.
2. Nepali citizen has worked in mgmt. field after working as company secretary after obtaining
certificate of company secretary for two years or after receiving bachelor’s degree and
worked for 3 years.
3. Director of related company cannot be appointed as company secretary.
4. Person cannot be appointed as secretary in more than one company. But secretary of parent
can be appointed in subsidiary.
Section 186: Company secretary’s job is to do reporting jobs on behalf of the company and some
others (such as keeping records of share capital changes).

31 | P a g e
Co-operative Act 2074
Section-wise notes
Primary capital fund: Share capital plus reserve fund.
Chief Business: Business that is more than 30% of PY figures*
Sectoral: Pertains to a sector of business (like dairy, savings, agriculture, etc.)
Existing Institutions are deemed registered as per this act.
Coop(erative): Only cooperative society.
Institution: Cooperative societies, federations, Coop bank (all)
Registrar: Registrar or the officer authorized by registrar
Net saving means net profit.

Section 16: Refusal to register

1. If:
a. If it is not proper to register,
b. If the amendment to byelaws is not accepted by the association or if it is not amended
within 30 days of notice or is not amended to the extent accepted by the registering
authority.
2. If registration is refused, within 3 days give such notice.

Section 30: Members of the Coops

1. Following are eligible:
a. 16 years old,
b. Within jurisdiction,
c. Having purchased shares,
d. Who agrees byelaws of the coop and its responsibilities,
e. Who does not run business that is competitive to that of the coop.
2. Non-profit organization, schools and clubs and other can be members.

Section 31: Application for Membership (cannot be easily refused)

Section 34: Cessation of membership

Membership can be cancelled:
a. If the member submits written resignation to BOD,
b. If the member does not possess qualifications according to the byelaws,
c. If the society is dissolved.
However, if the member has amounts payable to the society, then resignation is not allowed. For
reregistration, the member can only apply after one year of cancellation.

Section 36: General Meeting

1. Apex body of the Institution.
2. All members of Institution are members of GM.
3. Three types of GM:
a. Preliminary GM
b. Annual GM
c. Extraordinary GM

32 | P a g e
 Preliminary General Meeting- Every society should call preliminary general meeting within 3
months of registration. If meeting is not called within time limit, registrar can call the meeting
within 35 days of time limit (of 3 months from registration date) elapsed or on application of any
member.
Following are the works to be done by the preliminary general meeting:
d. Nominating chairperson of the meeting,
e. Examining accounts of the society till the previous day,
f. Discussing upon the preliminary reports till date,
g. Appointing the BOD in accordance with the byelaws.
2. Annual General Meeting: Should be called within 6 months of every FY ended. As above, if
meeting is not called, registrar can call the meeting within 35 days of time limit elapsed or on
application of any member.
3. Quorum of AGM is 25% or 13 members whichever higher for cooperative society, and 50% for
federation. If the meeting is to be recalled due to quorum, it should be recalled by giving 7 days-
notice and the quorum is 15% or 11 members and 40% respectively.
4. Extraordinary General Meeting: In the following circumstances, the BOD may call EGM:
a. Where the auditor thinks it is necessary and gives a written request to the BOD,
b. Audit committee or any sub-committee gives a request to BOD,
c. Where any director passes a resolution through BOD to call EGM,
d. For cooperative 10% members or 10 persons and for federation 20% members request
BOD to.

Section 39: About General Meetings

1. Preliminary GM should be called within 3 months of registration of Institution.
2. AGM should be called every 6 months from the end of FY.
3. EGM should be called:
a. If recommended by account supervision committee (s. 49)
b. If BOD approves a request from a director to call EGM,
c. If BOD decides to,
d. 15% members give application to BOD,
e. If such direction is received from registrar (or the person authorized) after inspection or
supervision,
f. If such order is received from registrar (or the person authorized) where election for BOD
is not done.

Section 40: Direction can be given to call EGM

1. Registrar can order the BOD to call EGM on receiving any information of following conditions:
a. Acting against the principles of cooperatives,
b. Acting against laws, byelaws or internal procedures,
c. Any serious remarks made by NRB for Coop Bank,
d. If the directions of the registrar are breached time and again,
e. If BOD election is not done.
2. The EGM called this way should be called within 35 days and its report should be given to the
registrar.
3. If BOD does not call, registrar himself can call.
4. Quorum is 51% of the total members. If quorum is not filled and another has to be called within 7
days of the GM, quorum is majority of BOD and 1/3 of members

33 | P a g e
Section 41: BOD
1. Elected by GM.
2. At least 33% female BOD where possible.
3. Persons from the same family cannot be members of BOD or accounts committee.
4. Director cannot be employee. Also, cannot become director of Institution except of which his/her
Institution has taken membership.
5. However, Institution with transaction less than 2 crore can become employee. If existing
institution has such director, then within 4 years, should resign.
6. Director of one institution at a time.
7. Tenure of BOD is 4 year for all organization under this act.

Section 48: Formation of Accounts Supervision Committee with one coordinator and two other
members.
Section 49: Function, duties and power of Account Supervision Committee (internal auditing,
accounting policies, internal control, report to BOD)

Management of savings and credits

Cooperative Bank
Section 59: NRB can take over management
Can take over management if:
a. If directions of NRB time to time are not followed,
b. Any acts done against the interest of members,
c. If management is not done effective as to cause loss to the company.

Section 60: NRB can give advice to registrar to cancel registration of the Coop Bank and registrar
should cancel registration and appoint a liquidator.
Coop Bank chapter end

Section 67: Fund of Institution

Contains amount from sale of shares, deposit, loans received, donation of GON, donations from
foreign bodies, income from business, membership fees.

Section 68: Reserve fund

This fund is not divisible. It should contain the following amount:
a. 25% of the net saving amount,
b. Capital donation amounts received,
c. Sale proceeds of fixed assets
d. Others.

Section 69: Preserved Capital Redemption Fund

The fund should be credited with 25% the residual amount after deducting for reserve fund.

34 | P a g e
Section 70: Cooperative Promotion Fund
1. Should be credited with the amount of 0.5% of residual amount after having reserve fund
deducted.
2. Fund managed by a ministry and prescribed amounts from these are provided to federations.
(Cooperatives pay federations indirectly).
3. Federations should use 75% of that amount in infrastructures and 25% in education, promotion
training, etc.

Section 71: Funds other than above

1. Prescribed funds can remain. However, rules mandate the other 8 funds at 5% each of the
remaining amount after cooperative promotion fund. Dividend can be distributed from funds
other than reserve fund, preserved CRF and Promotion fund.
2. Dividend of shares cannot be more than the 18% of share capital.

Section 75: Auditing

1. Within 3 months from the end of FY, audit. If not done, registrar can cause to be audited.
2. Audit report should be endorsed (approved) by GM. If not endorsed, another auditor should be
appointed by the GM.

Section 76: Same auditor cannot be appointed for more than 3 years running.

Section 77: Disqualification of auditor

Director, member, employee, advisor, auditor appointed for 3 years, insolvent, convicted of
corruption fraud criminal cases, any interest holding person, punished for audit offences and 3
years not elapsed.

Section 78: Exemptions, facilities and concessions (read, important, quite long)

Section 104: Cooperative or federation can be declared problematic

1. If following conditions exist, registrar can recommend to ministry to declare the cooperative (not
bank) problematic:
a. If any work is done against the interest of its members,
b. If financial liability could not be paid,
c. If savings of its members cannot be returned as agreed,
d. If any act done against the law,
e. If any serious financial difficulties are being suffered.
2. Ministry can declare problematic. Also, such recommendation can be made to the ministry by any
other commission formed by GON.

Section 106: Function, duties and power of Mgmt. Committee (Basically can take over the entire
cooperative, list is long)

Section 108: Payment of liability

1. In the following order, liability should be paid:
a. Savings of members as per agreement,
b. GON liability,

35 | P a g e
 c. Persons who have advanced amounts for purchase of land or apartments to the
cooperative,
d. Creditors.
2. Payment can be done at liquidation rate. Small savers should be given priority.

Section 114: Remedial actions can be taken

1. Based on audit report, if the institution can be revitalized, mgmt. committee can do as follows:
a. Instruct BOD to conduct transactions,
b. Form an interim committee from amongst the members for management,
c. Dissolve existing BOD and appoint new BOD through GM,
d. If higher federation presents a trustable plan and wants to manage the institution, allow
such, and
e. Other actions as deemed appropriate by the mgmt. committee.

Section 128: NRB can punish Coop Bank

1. If directions or orders are not followed:
a. Reprimanding,
b. Giving direction to BOD for remedial actions,
c. Ordering BOD for remedial actions,
d. Banning fully or partially business,
e. Cancelling license.
2. If documents and records are not provided for inspection, director can be:
a. Warned,
b. Suspended,
c. Fine up to 5 lakhs,
d. Suspending remunerations and other as per law.

Section 136: Use of vote

1. One person one vote regardless of the amount of deposit in the matter of management.
2. More than one representative can be sent in GM of federations by member cooperatives.
However, only one person can be elected in BOD or accounts supervision committee.

Cooperative Rules, 2049

5. Quorum of EGM is 15% or 11 persons for cooperative and 40% for federation.
6. Every cooperative or federation should maintain a fund. The fund should contain all incomes,
donations from government and intl. organizations. Permission should be obtained from GON to
get foreign donations.
7. Apart from members, the cooperative can sell shares to GON and financial institutions that
transact with the Cooperative.
8. Auction of members’ assets not written (for recovering due amounts).
9. See rule 27, for different funds in which profit has to be distributed.
10. Rule 59, controlling liquidation process.
11.

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FITTA, 2075

Definitions

Foreign investor: Means foreign person, firm, company, NRN, foreign government, international
institution and other entities. It also means the final owner of any foreign investor.
Technology transfer: Means Transfer of technology after agreement in the following matters:
a. Patent, design, trademark, goodwill, formula, processes, etc.
b. Users license, know-how sharing, franchise,
c. Foreign technology consultancy, management and market service.

Foreign investment: Means following investments done by a foreign investor in company or industry:
a. Investment in foreign currency,
b. Reinvestment of dividend,
c. Purchase of shares or assets of company established in Nepal,
d. Investment in listed securities through secondary market,
e. If Nepali industry or company issues securities in foreign market,
f. Investment done through transfer of technology.
g. Lease finance (section 6)
h. Investment through venture capital fund (section 9)

Section 3: Foreign investment can be made:

1. Foreign investment can be made.
2. No investment can be made in scheduled industries. But technology transfer can be made to
them after approval from department.

Section 7: Investment can be made through technology transfer

1. Investment can be made through technology transfer after making an agreement. Conditions
of transfer will be as per the agreement.
2. Amount of royalty not higher than a prescribed amount will be allowed to be taken back in
the agreement.

Section 9: Investment can be made through venture capital fund

1. Venture capital fund can be established by institutional investors (mutual fund, pension,
insurance companies) to invest in equity of industries.
2. Approval is required as if foreign investment as per section 15.
3. Financial statements every 6 months to department.

Section 15: Application for making foreign investment

1. Application should be given to approving body with the schedule of investment and action
plan of such investment.
2. Approval will be given if document is complete. Approval may not be given if it appears
approval cannot be given.
3. If application is rejected, application can be made to the ministry of industry and commerce
for review of such decision.
4. Reinvestment of returns in other industries does not require approval (except in scheduled).

37 | P a g e
Section 20: Allowed to take back invested amount or return.
1. Investment can be taken back by selling shares after all taxes have been cleared.
2. Following amounts can be taken in the same or convertible currency:
a. Sale of shares
b. Returns of the foreign investment,
c. Amount from liquidation,
d. Royalty from technology transfer
e. Lease rental
f. Compensation from litigations.

Section 21: Function, duty and power of the Industry and Investment Promotion Board
(includes recommending policies to GON, to work to promote foreign investment in Nepal, to provide
facilities from single point service center)
Section 22: Function, duty and power of the department

Facilities to a Foreign Investor (bank account, visa facilities, repatriation facility)

Section 24: Industry with foreign investment will not be allowed service of sick industry as per
Industrial Enterprises Act.

Section 25: Foreign investor can transact in foreign currency by opening an account in any
commercial or infrastructure development bank or financial institution with approval of NRB.
Section 26: Facility can be provided for foreign currency to an industry
1. for payment of remuneration,
2. interest on loans,
3. to take back investment or return.

Section 27: Provision relating to specialist employees and experts

1. Such positions in industries having foreign investment must be fulfilled from Nepali citizens.
2. If the position cannot be fulfilled from Nepali citizens and know-how of foreign experts is
required to be transferred, then a foreign national can be employed.
3. The details of such foreign employee should be given to the department.

Section 30: Visa facility

1. Non-tourist visa will be provided to a person coming into Nepal for research or survey for
foreign investment.
2. The investor or his/her agent and their family will be allowed a business visa if a minimum
prescribed amount is invested in Nepal till such investment is maintained. However, if an
amount more than a prescribed amount is invested, such facility will be allowed to 2 such
persons and their family.
3. If an amount more than 10 lakh USD or such amount in convertible currency is invested, then
the person or his/her agent and their family will be allowed resident visa till such investment
is maintained.
4. Non-tourist visa is provided to foreign nationals who are employed as high-level experts as
per section 27.

Section 33: Such industry will not be nationalized. Such industry will not be acquired except for public
purposes.

38 | P a g e
Section 40: Settlement of dispute among Nepali and foreign investor
1. It can be settled through dialogue among parties and the department will assist in the matter.
2. If within 45 days, the dispute is not settled through dialogue, and there is an agreement
among parties, the dispute will be settled through the agreement. If settled, then within 15
days, the parties must inform this to the relevant department.
3. If such dispute is not settled as above, then this should be settled through arbitration as per
Nepali laws.
4. Unless otherwise agreed, the arbitration will be done under the UNCITRAL procedures.
Arbitration will be in Nepal and laws of Nepal will apply.

Section 42: Maintenance of approval

1. Any approved investment will exist in Nepal till it is maintained in Nepal.
2. However, in the following conditions, the investment is deemed ceased ipso facto if:
a. If the foreign investment is not entered into Nepal two years from approval without
any reasonable basis
b. If 100% of ownership of such industry becomes Nepali due to sale/transfer of shares,
c. If the registration of the such industry is cancelled.
3. Other provision relating existence of investment are as prescribed.

Schedule (foreign investment not allowed)

1. Agriculture,
2. Micro-industry or cottage industry,
3. Personal services such as driving, hairdressing, etc.
4. Weapons and explosives,
5. Real estate, retail business, internal courier, remittance, moneychanger, catering,
6. Travel agency, tourist guidance and remote tourism,
7. Business of means of mass-communication
8. Management, accounting, engineering, legal and training,
9. Where any consultancy business is invested over 51% by foreign investment.

39 | P a g e
Industrial Enterprises Act, 2076

Definitions:
Entity registering industry: Department of Industry and state department of industry and offices.
Fund means fund as per section 51.
Exporting industry: Means industry exporting at least 40% production other than energy industry.

Section 4: Provision for registration

1. Application for registration of following industries should be given to the department:
a. Industries requiring permission,
b. Industries to be incorporated with foreign investment,
c. Industries relating to the matters of constitution of Nepal (defense, military, passport and
citizenship)
d. Industries operating in two or more states of Nepal,
e. Service industry related to diplomatic missions.
2. Documents (write as much as possible like citizenship, company registration, foreign investment
approvals)
3. Registration of other industries and renewal and regulation as well as administration will be done
by state government itself.
4. Atomic and radioactive materials’ industry will be established and operated by Nepal
government. (only)
5. Before registering arms and ammunition industry, approval from council of ministry should be
taken.

Section 8: Permission must be obtained (first before application for registration)

1. For schedule 1 industry, an application must be made to the Industrial Investment and Promotion
Board through the body for registration of industries.
2. On examination of application, if the body for registration of industries is satisfied, it shall
forward a report along with its recommendations, if any, to the board within 7 days and the Board
shall make a decision on whether to provide permission or not, within 30 days & provide
information accordingly to body for registration of industries.
3. The body for registration of industries shall issue permission letter or reasons of refusal, as
decided & informed by the board, to the applicant, within 5 days.
4. Application for registration of industries shall be made within the time specified in the permission
letter and if application is not made within specified time, the permission shall be ipso facto
inactive.

Note: The permission granted above shall not be transferred or sold before operation and
commercial production or transactions. However, if the applicant dies before operation and
commercial production or transactions, remaining acts may be completed by the legal heir of such
applicant as per prevailing laws.

Section 12: Permission for capital increase, objective alteration should be taken from the body of
registration. Required documents should be submitted. Micro or cottage and small industries up to 1 crore
capital do not require permission. Increase of efficiency without installed fixed assets is not considered
increase in capital.

40 | P a g e
Section 15: Application for cancellation of registration
1. Application should be given to the body of registration for cancellation with following
documents:
a. Asset valuation,
b. Labour liabilities settled,
c. Settlement of other liabilities,
d. Report of liquidator,
e. Audit report of PY,
f. Registration certificate,
g. Self-declaration that no claims are pending.
2. Liquidation of companies will be as per prevailing act (insolvency act).

Section 17: Classification of industry

1. Based on size:
a. Micro industry: FA less than 20 lakhs, employees less than 9 including owner, less than 1
crore transaction annual and less than 20 KW used.
b. Cottage: Traditional industries using local RM and labour, less than 50KW energy used,
c. Small: Up to 15 crores,
d. Medium: 15 to 50 crores,
e. Large: Above 50 crores
2. Based on type: (MAMECIST)
a. Energy based,
b. Manufacturing,
c. Agro and forestry based
d. Mineral
e. Construction
f. Tourism
g. IT & Communication
h. Service

Section 20: Promotion board

Section 21: Functions, duties and powers of Promotion Board(read once)
1. Recommending policies for industrial promotion,
2. Recommending policies for improving conditions of industries to the GON,
3. To recommend policies to the GON for regulating foreign investment,
4. To hear industrial grievances,
5. Recommending change of classes of industry,
6. For activities relating to environment,
7. To promote the different levels of governances in regards to industrial matters.

Section 27: Female entrepreneur (full ownership of female)

1. 35% rebate on registration of industry,
2. 20% rebate for registration of industrial assets,
3. First priority on space in industrial area,
4. Export credit/loan may be provided based on financial position.
Section 32: Possession of land in excess of threshold
1. Application should be given to body of registration for possession of such land.
2. Investigate and allow based on project proposal.
3. No transaction on such land is allowed including collateral.

Section 34: Industry will not be nationalized. May be acquired for the sake of public interest.

41 | P a g e
Section 39: Identification of sick industry
1. Minimum 5 years has elapsed since commencement of production or business,
2. Sickness except due to intentional or management weakness i.e. due to circumstances beyond
control,
3. Running under 30% or less of its production capacity during previous 3 years (Continuous),
4. Continuous loss for 3 years above.
Industries may be provided prescribed facilities based on revival project submitted by industry (in
addition to section 41)
Section 40: Industry may be fully or partially sick.

Section 41: Industries may be provided full or partial rebate on duties and taxes on import of machineries
imported for the purpose of extension, reconstruction and diversification.

Section 49: Industrial manpower

1. If any special manpower is needed for the industry and such person cannot be available even after
publishing in national level newspaper, a foreign national may be appointed for not more than 5
years. Permission should be obtained from Dept. of Labour. Additional 2 years can be extended.
2. Only up to 70% remuneration can be repatriated.

Section 51: Industrial investment and promotion fund

1. GON should form such fund. Various fees and amounts received from different entities are in this
fund.
2. May be expended for following:
a. Micro, Cottage and Small Industries Development
b. Technology Development
c. Industrial Promotion
d. Sick Industries Revival
e. Women entrepreneurship Development.

Section 54: CSR

1. Cottage and small industry with more than 15 crore turnover and medium and large industry must
make 1% reserve to CSR.
2. At least 1% of net profit.
3. The progress report of the utilization of the fund collected for CSR shall be submitted to the
relevant government authorities within six months from expiry of the financial year.
4. Violation of this section: Monetary Fine: 1.5% of Annual Net profit for first year and additional
0.5% of Annual Net Profit for each successive years of violation

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Insolvency Act, 2063

Section 4: Application for insolvency proceedings

1. For the purpose of starting insolvency proceedings of a company, the following persons can give
an application to the court:
a. Insolvent company itself,
b. Creditor(s) of the insolvent company providing at least 10% of its debt,
c. 5% of the shareholder(s),
d. 5% of the debentureholder(s), (not persons but shares and debentures)
e. A liquidator who was hired to liquidate the company,
f. Regulatory body of the company (including NRB and Insurance Board)
2. For creditor (debentureholders are not creditors for this) who wants to give the application as
above, notice as per section 5 should be sent (first) and 35 days should have elapsed from sending
of notice.
3. Applicant should include the evidence of the financial position of the company along with other
proof to substantiate the application.
4. While the creditor should give the notice first, wait for 35 days and give application for
insolvency proceedings, the shareholders or debentureholders should first obtain the consent of
the court to give the application. They cannot get permission without giving adequate evidence of
insolvency to the court.

Section 5: Creditor should send a notice to the company for payment of debt (35 days not
mentioned here) in the prescribed format.

Section 6: Application to invalidate the notice of creditor

1. Within 35 days of notice issued by the creditor, the concerned company should give an
application to the court to invalidate the notice.
2. Court calls the creditor days to attend within 7. Within 7 days from the day of attention in court or
from the last day for attention, court should give decision on whether to invalidate the notice.
3. Court should decide to invalidate the notice in the following conditions:
a. If it is questionable whether the creditor has provided the loan,
b. If it is clear that the debt is not payable as of yet.
4. If the court does not invalidate, the company is liable to pay the debt within 35 days from the
decision.

Section 7: Company is deemed to be insolvent

1. If the following cases the company is deemed to have become insolvent:
a. Where the General Meeting of the company passes a special resolution and the BOD
gives the decision that the company is insolvent.
b. Where the company has received order from the court to pay the debt and the company
does not pay within 35 days,
c. Where a creditor issues the notice to pay the debt and the company either does not pay or
give application to the court to invalidate the notice within 35 days of notice.
2. Also, in the following cases:
a. Where it is proved that the liabilities of the company exceed the assets,
b. Where the company itself accepts that it is insolvent.

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Section 8: Cannot give application for insolvency proceedings without pre-approval
Without pre-approval of any regulatory authority if present, no application can be given to the
court. The applicant should obtain the pre-approval of the following authorities and include a
copy of the approval of:
a. Nepal Rastra Bank in case of BFI,
b. Insurance Board in case of insurance companies,
c. In case of other than these companies, the companies who cannot voluntarily liquidate
themselves without the approval of any authority, of that authority.

Section 11: Interim Order from the court during hearing

1. An interim order (that prohibits actions) can be given by the court to protect the interest of
creditors or other stakeholders where the following conditions exist:
a. Where the assets of the company might be sold in an unfair manner,
b. Where the management of the company is not proper,
c. Where any legal proceedings are being carried out that will affect the assets of the
company in a negative way.
2. The order can contain prohibition of all or some of the following actions:
a. Selling or mortgaging any assets of the company except in course of normal transaction,
b. Selling shares or changing ownership,
c. Withholding or foreclosing (taking possession of) assets of the company (where there are
mortgages),
d. Starting of any legal proceedings by any creditor or other person against the assets or
other ownerships of the company.

Inspection for insolvency proceedings

Section 13: Matters to be Inspected

1. The inspector should inspect the company and determine the following matters:
a. Whether the company should be immediately liquidated,
b. Whether the inspection period should be extended (section 14),
c. Whether the company should be restructured through a restructuring program,
d. Whether the company is already insolvent or will be in the near future.
2. Report should be given to court within the time given by the court and it should incorporate
decisions taken by the creditors of the company.
Section 14: Inspector can request to extend the time period required for inspection by giving an
application the court.

Section 18: Report of the inspector to court

The report should contain:
a. The current financial position of the company,
b. Opinion on the status of company of the inspector,
c. Recommendation of any one of the things as determined in section 13 (1).
d. Basis and reason of such determination.
e. If above recommendation is presented to the meeting of creditors, the decision taken by
the majority of creditors on the matter.

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Section 19: Transactions are automatically suspended
Where the court gives decision to start insolvency proceedings (as per section 10), the following
transactions are prohibited and if started but pending, are suspended:
a. Selling shares, transfer of shares or change in position of shareholding,
b. Selling, transfer or mortgage of assets of the company,
c. Foreclosing or realizing any assets of the company as per any order or decision,
d. Preempting (repossessing) or making legal proceedings on leased assets by lessor,
e. Paying any debts or giving security on debts that were outstanding as on the date the
court gave order (for starting proceedings),
f. Withdrawing or transferring moneys in the company’s funds.

Section 23: Restructuring program

Where the court orders for restructuring (section 22), the restructurer should prepare a restructure
program in writing. The restructuring program should include the following:
a. Altering the share capital through capitalization of debts,
b. Payment of creditors’ claim by selling assets,
c. Issuing securities against claim of debts,
d. Issuing shares against claim of creditors,
e. Merging with another company,
f. Changing the management of the company,
g. Other activities required to be done as deemed appropriate by the court.

Section 40: Functions, duties and powers of the liquidator

The following are the functions, duties and powers of the liquidator:
a. Starting and defending legal suits in the name of the company,
b. Appointing employees for assistance,
c. Calling payment of shares where shareholders have not fully paid up,
d. All transactions done for the company by using the seal of the company,
e. Obtaining loans by keeping security of assets,
f. If disposing any asset, liability or contract will benefit the company, doing so,
g. To enter into a compromise with the creditors,
h. To enter into a compromise with the debtors,
i. Selling assets of the company and distributing the amounts as per this act,
j. Other as required for liquidation.

Section 42: Report should be submitted by the liquidator

1. Liquidator should submit report to the court and the office within 3 months of appointment.
2. The following matters should be included:
a. Issued, subscribed and paid-up capital of the company,
b. Estimated assets and liability of the company,
c. The reason for financial failure of the company in the opinion of the liquidator,
d. Opinion on the operation of directors, shareholders and employees,
e. Other matters as deemed appropriate by the liquidator.

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Section 57: Order of payment of liability (by the liquidator)
Payment should be done in the following order:
a. Expenses and remuneration of the interim administrator (section 11).
b. Expenses in relation to application and notices in newspapers (of chapter 2 of the act).
c. Expenses and remuneration of inspector,
d. Expenses and remuneration of restructurer,
e. Loans taken during the inspection period,
f. Loans taken during the restructuring period,
g. Expenses and remuneration of liquidator,
h. (Basic) wages and remuneration of employees payable at the period of order for restructuring
or liquidation, except directors,
i. Other employment benefits to employees, except directors,
j. Claim of creditors accepted by the liquidator,
k. Interest payable on debt from the date of order of liquidation or restructuring,
l. Preferential shareholders,
m. Proportionate amount to the ordinary shareholders.

Section 59: Transactions that are voidable (these have to be the reason for insolvency to be
voidable)
1. Where the company has become insolvent, the following transactions are voidable:
a. Preferential transactions carried out within 6 months before or 6 months after
commencement of insolvency proceedings.
b. Same but 1 year before or after with associated persons of the company.
“Preferential transaction” means any transaction that entitles the person amounts more
than which would’ve been payable as liquidation payment.
c. Similarly, transactions that were done below the market value 1 year before or after.
d. Fraudulent transactions 2 year before or after,
2. Liquidator should give application to the court to void above transactions.

Section 60: Defense against voidable transactions is that it did not cause insolvency or no gain was
received from such transaction.
Section 61: Authority of the court upon voidable transaction
1. To order any person to pay the liquidator fully or partially the amount,
2. Order the person to handover asset or value of transaction of the asset to liquidator,
3. To order that the debt taken by the company or security be fully or partially released,
4. To order that the agreement be void or unenforceable.

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Insurance Act, 2049 (First Amendment)
Section-wise Notes

Section 3: Constitution of the Insurance Board

1. IB can invite experts to observe meetings.
2. Tenure of nominated IB members is 4 years and may be re-nominated up to two times. (Total 3
times)

Section 5: Meeting and Decision of the Board

1. At least 8 times per year with 2 meetings at least in 3 months.
2. 50% is the quorum of meeting.
3. Other procedures are general.

Section 6: Chairperson has 4 years tenure and can be reappointed once.

Section 8: Functions, duties and power of IB has been resvised in the amendment. (Read from the
act)

Section 10: Registration of the insurer

1. No one should operate insurance business without obtaining a certificate. National or foreign
insurer both can operate.
2. Application, with required documents, should be given to IB.
3. If reasonable to register, IB should register. If not reasonable, then refuse and inform the insurer.
4. However, before an insurance company can be incorporated, the insurer requires preapproval
from the Insurance Board. Required documents including MOA and AOA need to be provided
for approval.

Capital requirements for New insurance company (Insurance registration and operation
regulation)
1. If company has only national promoters (section 5):
a. Promoter group must have minimum 51% shares,
b. General public must be offered minimum 30% as an IPO,
c. Maximum 5% of such public offering may be allocated to employees,
d. Promoters cannot invest in such shares by taking loan from BFI.
2. If company has foreign promoters as well.
a. Maximum 80% may be invested by foreign investor.
b. If investment is less than 50% of total PUC, then 30% of total PUC must be publicly
offered. If investment is more than 50%, then 15% must be publicly offered.
c. Maximum 5% of public offering may be allocated to employees.
3. If the company is existing (during the commencement of this directive):
a. PUC must be maintained as required (2 billion and 1 billion)

Section 11: Renewal of registration of the insurer

1. Application should be given to the IB for renewal within last day of Chaitra of every year along
with fees.
2. If within 30 days of the expiry of time-limit, the insurer gives application for renewal with
appropriate reasons, the IB can renew.

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Section 11A: Certificate cannot be renewed by the IB
1. In the following additional cases, IB should not renew the certificate:
a. B/S (and P/L) not provided (s. 23),
b. Income Statement not provided (s. 24),
c. Audit report (s. 25),
d. Report of actuary (s. 26),
e. Service charge not paid (1% of premium, s. 40),
f. If insurer has been prohibited to conduct business (s. 12A)
2. IB should give notice to the insurer within 15 days if any of the above circumstances occur.
Within 15 days of notice, if the insurer can provide reasonable grounds of above conditions, then
IB can provide an addition to the time-limit of one month to perform them.

Section 12: Not to be registered

IB should not register an insurer in the following cases:
a. Name of the insurer is identical to other insurers already registered
b. Single insurer wants to register as both life and non-life insurance. (incorporate different
company for this)
c. If paid up capital of the insurer is less than following thresholds:
i. 250 mil. (25 crores) for life insurance business, and
ii. 100 mil. (10 crores) for non-life insurance business.
But directives require the minimum paid up capital need to be 2 billion and 1
billion respectively.
d. Where it is decided that not incorporating new insurance businesses will be prudent based
on market conditions.

Section 12A: Ban may be imposed on insurance business of any insurer

1. Any insurance business operated by an insurer can be banned or suspended fully or partially, in
the following circumstances:
a. Directives or procedures have been violated.
b. Violates s. 14 by giving loan to directors, family or a body where the director works as a
managing agent or partner.
c. Does not provide information about any dealing made with director, their family or their
organization (s. 15).
d. Insurer does not maintain accounts and records,
e. Insurer does not maintain books of accounts and records separately,
f. If insurer does not maintain funds for each category of business or bears liability of one
from the other.
g. If compulsory reserve fund is not maintained,
h. If insurer takes risks without required premium,
i. If insurer does not reinsure risks (it cannot bear)
2. Reasonable (not fixed) time limit should be given to the insurer to clarify above circumstances.
3. If clarification is not reasonable, then the IB can ban the insurance business and publish so in two
national newspapers.
4. If ban is imposed, the insurer should pay all the claims against it as prescribed.
5. Ban already imposed can be lifted if satisfactory evidence is provided.

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Section 13: Registration of insurer can be cancelled
Compare this section with section 12A
1. Registration can be cancelled if:
a. Insurance business has not started within 6 months of starting business,
b. If it is felt that liability of insurer exceeds the assets (assets within Nepal),
c. If insurer could not fulfil the liability of any insurance policy by court decision within 3
months of court decision,
d. If any foreign insurer operates outside Nepal and any Nepalese insurer operating in that
place outside of Nepal has not enjoyed equal facilities,
e. Insurer does not open its office inside Nepal,
f. Does not perform any provisions of this act or rule,
2. Reasonable time should be provided to provide the clarification of the above. If clarification is
not found reasonable, then the IB should ban the insurer and publish so once in two national
newspapers.

Section 16: Payment of insurance claims after liquidation of the insurer

1. If the insurer is dissolved due to cancellation of license, then insurer should pay back any
insurances amount. Period and method prescribed by the Board.
2. Life insurance should pay back principal amount plus bonus as prescribed by the Board.
3. Non-life insurance should pay back principal amount on proportional basis as prescribed by the
Board.

Section 17: Insurer is responsible (following are the liabilities of the insurer)
1. Responsible for any loss caused to policy holders by the insurer, its employees, agents or
surveyors.
2. Insured can complain to the IB against the insurer if it does not assess or pay the insurance claim
or losses within time.
3. IB should investigate of this complaint. If found to be not reasonable, dismiss the complaint. If
reasonable, then order the insurer to pay immediately.
4. Any decision made by the board regarding payment of compensation for or against the insurer
can be challenged in court. If the decision of the board to pay compensation is upheld by the court
of appeal, then the insurer should pay compensation and interest from the date of decision by the
IB to the final decision by the court.

Section 22: Compulsory reserve fund should be maintained as specified by the Board for insurance
liabilities inside Nepal. Liability cannot be borne from fund of another business.
Following amounts should be deposited in the compulsory reserve fund by the insurer as per
Insurance Regulation:
a. For life insurance, amount not less than that specified by the actuary relating to the
insurance business done within Nepal.
b. An amount not less than 50% of the net premium shown in the Income/Exp. Account of
the non-life insurance business and,
50% of the profit earned until this amount equals the paid-up capital of the non-life
insurer. For marine insurer, this amount that is to be deposited cannot be considered to be
profit for at least 3 years.
c. An amount equaling 115% of the remaining amounts of claims payable at the end of the
FY by either life or non-life.

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Section 23: Balance sheet and P/L statement (of the entire business) should be submitted to the
Board within 6 months from the end of FY. One-month extension for submission can be granted
with reasonable application. (also mentioned in section 12A)

Section 24: Account of Income for each business in the form specified by the Board should be given
within 6 months of FY. (One-month extension also)

Section 25: Audit

Provide audit report within 10 months from the end of FY.

Section 26: Life insurer must have the liabilities and financial position valued once every 3 years by
an actuary. One copy of such report to the Insurance Board.

Section 27: Premium must be paid before taking risks. However, Bank or GON guarantee may be
accepted in the event of practical difficulty for payment.

Section 30: Registration of insurance agents

Any person (natural or corporate body) who wants to work as insurance agent should give
application to IB along with recommendation of the insurer. Qualification required of insurance agents is
as prescribed in the rules.
Prescribed qualification is: a) SLC or equivalent passed for life insurance, b) Literate person for other
insurance agent, c) Certification of training received for training programs for agents

Section 30A: Qualification of surveyor (s. 30)

Qualification of insurance surveyor as per rules (any one of the following):
a. 10 years of experience at an officer level in any insurance business,
b. Bachelor’s degree in engineering subject,
c. Bachelor’s degree in insurance subject from any international chartered institute,
d. Having passed the Chartered accountancy examination.
Section 30B: Qualification of broker (s. 30)
Qualification of broker as per rules (all of the following):
a. Authorized capital as determined by the board,
b. 25% of the authorized capital should be deposited in a fixed deposit of any commercial
bank,
c. General manager should have at least 15 years of experience in insurance business,
d. Other conditions as prescribed by the board.

Section 31: Term and renewal of license

1. Agent, surveyor or broker should apply for renewal within Chaitra end every year.
2. Time limit can be extended up to 6 months for renewal.

Section 33: License of agent, broker or surveyor can be cancelled if license is not renewed or such
person has done anything against the interest of policy holders or against the act or rules.

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Fund of Insurance Board
Section 36: Punishment
1. If insurer, director, employee, agent, broker or surveyor violates any provision of act or rules, fine
from 3000 to 10000 fine. Extra 500 for each subsequent violation.
2. If insurance is made without due procedures by insurer, agent or broker, fine up to 10000.
3. If accounts or documents not made or submitted or falsely submitted, fine up to 30000, or 2 years
imprisonment or both. (by court)

Section 40: 1% of the Gross premium earnings inside Nepal in each FY should be paid as service
charge to IB. (Registration cannot be renewed as per section 11A if not paid)

Section 41B: Order of settlement of liabilities (when dissolved due to cancellation)

1. Liquidation expenses (including liquidator’s remuneration),
2. Payment against insurance claims,
3. Remuneration to employees,
4. Loan amounts,
5. Amounts to be paid to board,
6. Amounts to be paid to GON (taxes as well?).

Insurance Rules, 2049

1. Renewal fee 50000.
2. Re-registration of insurance where insurance license has been cancelled can be done by
submitting an application to IB. Board can inspect whether the insurer has complied with the act,
rules and its directives and if deems that it would be appropriate to do so, should register with an
additional fee of 25000.
3. Insurer should not loan to anybody where any of its director is functioning as director or has a
financial interest (10% share).
4. Life and non-life insurance should be conducted as different entity. (Rule 15A, read more into it)
5. Surveyor – A-class 15 or more than 15 year, 10-15 B class, less than 5-10 C class, less than 5, D-
class.

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International Financial Transaction Act, 2054
Section-wise notes
Definitions (must see)
Intl. Financial Transaction: Financial transaction carried out by licensed entity. (as per this act)

Resident of Nepal includes:

a. Any entity registered in Nepal,
b. Foreign person who has been staying in Nepal longer that prescribed period for employment or
business.
c. All Nepalese citizens excluding those that have been staying longer than prescribed period in
foreign country for business or employment.

Section 4: Financial entities that can get license to carry out IFT in Nepal
1. Only the following financial entities are allowed to carry IFT. List is long, they mainly include:
a. Intl banks,
b. Intl Insurances,
c. Intl holdings, trusts, and other foreign or international entities.
2. The financial entities must have been registered and running in a foreign country for at least 3
years to obtain license.

Section 5: Activities that should not be done by Intl. Financial Entity

1. Purchasing or owning any immovable property inside Nepal.
2. Conducting IFT with any (natural) person residing in Nepal. (so, no transaction with proprietorship
or partnership)
3. Purchasing Shares or Debentures of any other company incorporated in Nepal.
4. Opening bank account in any commercial bank. However, this may be allowed by Accreditation
Committee up to the prescribed limit.

Section 10: Committees function, duties and powers of IFT Promotion Board (policies made, advise
GON, hear appeals against decisions of Accreditation Committee, others as prescribed.)

Section 11: International Financial Transaction Accreditation Committee

1. Members include:
a. Governor of NRB- Chair
b. Secretary MOF
c. Secretary Ministry of Law
d. One CA nominated by GON- 2 year
e. GON nominated one economist – 2year

Section 13: To conduct international financial transaction in Nepal, application to Accreditation

Committee should be given.

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Section 12: Function, duties and power of IFT Accreditation Committee.
1. Supervision of licensees,
2. For promotion of Nepal as a financial transaction center,
3. To recommend the Promotion board for making policies,
4. If licensees do not act as per law, to direct them to do so,
5. To cancel and suspend licenses of the licensees.

Section 16: License should be renewed every calendar year.

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Labour Act, 2074
Section-wise notes
Definitions
Worker: An employee of any post who does physical or mental work.
Difference between basic and khai-pai wages
Enterprise: May be profit or non-profit organization and also governmental.
Strike: Refusal to do regular work fully or partially. (Refusal to work due to holiday, work hazard or
being absent due to uncontrollable situations is not a strike)

Section 10: Types of labour (write description)

1. Regular (other than following is regular),
2. Work-based (until a particular work is finished),
3. Time-based (to employ a person for a fixed period of time),
4. Occasional/Casual (Employed for 7 days or less in a month),
5. Part-time employment (Employed for 35 hours or less in a week)

Section 13: Employer can keep employee in probation period for 6 months. Employer can terminate
employment at any time during such period, however, after 6 months, the employee is deemed to be hired
ipso facto.

Section 15: Reserve period

1. Workers can be kept on reserve under special circumstances. Special circumstances mean
shortage of resources or uncontrollable circumstances where work cannot continue.
2. Where an employer with 10 or more workers wants to keep them in reserve for more than 15
days, the consent of trade union.
3. 50% of wages during the reserve period should be paid to employees. (section 39)

Section 22: Foreign national can be employed by the employer

1. Foreign national should not be employed without permission of labour department.
2. Before employing foreign national, an ad should be published in national daily newspaper for
Nepalese employees. If no application is filed by Nepalese or applicants are not acceptable, then
application should be made to department with proof thereof for permission.
3. Permission can be given but provision should be so made that gradually Nepalese can replace
them.
4. Advert is not necessary to be published for technician or expert hired as per investment
agreement made with the approval of GON or relevant ministry by any governmental entity such
as ministries and boards.

Section 38: Wages cannot be deducted (unless for advances, payment required by law, trade union
fees, loss caused to the entity, or other as agreed)
1. Cannot be deducted unless conditions as said.
2. Amounts have to be recovered from monthly wages. But first, legal payments, insurance and
provident fund amount have to be deducted first.

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Section 52: Amount should be deposited in Provident Fund
1. 10% of basic wages should be deducted and equal amount should be deposited in provident fund.
2. This is applicable since the day the worker commences work.
3. For employees whose amounts were not deposited, deposit should be made from the date of
commencement of this act.
4. If for any reason, provident fund deposit cannot be made, 10% addition should be paid.
Section 53: Gratuity
1. 8.33% of the basic wages should be deposited every month. It starts from the day employee
started working.
2. Payment should be made from the commencement of this act if deposit was not made before.
3. Any gratuity that was deposited in retirement fund or with employer should be handed over to
Social Security Fund.

Section 55: Accident insurance

1. Accidental insurance of 7 lakhs, and borne by employer only.
2. If fully incapable or dies, 100% compensation to employee or successor.
3. If disabled or incapable, based on incapability percentage (as given in rules).

Labour Provider (Provider, workers and chief (actual) employer) (Ex, security business?)
Section 59: Labour provider (company) should get license.
1. Application should be given to office or department.
2. If application is accepted, ask for bank guarantee or security as prescribed within 15 days.
3. Conditions are dictated in license.
4. A labour provider cannot supply more than 2 types of work or service.

Section 64: Liability of chief employer

1. Chief employer should engage labour in the work agreed with provider. The employer should
make agreement with provider at rates not lower than this act prescribes.
2. Employer should inquire regularly whether wages and facilities are being provided to the
workers. If not, then employer should request the provider to do so and inform the office.
3. If it is not provided, then office should provide wages from security kept.
4. Chief employer should provide for adequate safety and health of labour.
5. Labour cannot be provided by the company in which director, officer of the chief employer or
their family is involved.

Section 89: Seasonal enterprise must pay labour 25% while keeping them in reserve. Seasonal
enterprise is an enterprise which can be operated in a particular season and it includes that enterprise
which cannot be operated for more than 180 days in a year.

Section 92: Deemed improper behavior of employer and trade union (cases are obvious, read once)

Resolution of individual dispute

Section 113: Individual demand/claim can be made for facilities
1. Dissatisfied labour should submit written application to employer,
2. Resolve by negotiation within 15 days or if both agree, over an extended period. If not resolved
submit application to office by either party.

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Section 114: Application to the office
1. In the following conditions, related party can give application to solve the claim:
a. If the employer does not give notice to hold negotiation even within 7 days of submitting
application to the employer,
b. After 15 days of the application submitted to employer, an agreement could not be
reached.
2. Notice for time and date should be given to parties to hold negotiation by office.
3. Negotiation and resolution should be made within 21 days of application submitted to the office.
However, this period can be extended if required.
4. If there is an agreement between the employer and worker, the problem is deemed resolved and
agreement is binding.

Section 115: However, if there is no agreement still, then office should give decision based on
evidences/documents available.

Resolution of collective dispute (CBC and employer are the two disputing parties)
Section 116: Collective claim can be submitted by the Collective Bargaining Committee
Claims that the CBC cannot make:
a. Claims that are against the constitution of the country,
b. Claims based on baseless accusations,
c. That affects personal conduct of any employer or worker,
d. Where collective claim agreement has been made as per this act and 2 years have not
elapsed,
e. Rate of contributions to the Social security plans.

Section 119: Dispute resolution through arbitration

1. In the following conditions, the dispute must be resolved through arbitration if dispute could not
be resolved through amity as per s. 118:
a. If the Collective Bargaining Committee and employer (both parties) agree to resolve
through arbitration,
b. If such dispute arises in enterprises that provides vital services,
c. If dispute arises in enterprise within SEZ,
d. If the country is in a state of emergency according to Nepal’s Constitution and has
banned from conducting any strikes.
2. The Ministry (Labour and Employment or GON) can, if it feels it is required due to the dispute’s
negative impact on economy due to strike or a possibility of strike, can order the parties to resolve
the dispute through arbitration regardless of the stage of negotiation reached.
3. Arbitrating body should be formed by the ministry and must include workers, employer and
representation from GON.
4. Decision should be given by the arbitrator within 30 days.

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Section 121: Strike can be conducted for resolution of collective dispute
1. In any of the following conditions, CBC can conduct strike for resolution of collective dispute:
a. If it is not mandatory to resolve dispute through arbitration (s 119(1)),
b. If arbitrator does not carry out arbitration,
c. If ministry cannot form arbitrator within 21 days of application given for formation of
arbitrator,
d. If decision cannot be given within stipulated time (30 days)
e. If employer refuses to implement decision by arbitrator or legally challenges such
decision,
f. If decision is rejected by any party on decision made by arbitrator formed by the ministry
other than mandatory arbitration.
Note that decision of mandatory arbitration is legally binding cannot be challenged nor
strike can be conducted. (Challenge may only be entertained by the Supreme court)
2. If CBC wants to conduct strike, then 30 days’ notice with the date of commencement of strike
should be given to employer, labour office and local administration.
3. Security staff cannot conduct strikes, sit-in protest (dharna) nor hold assembly.

Section 127: Wages in strike or lockout period

1. No wage is payable if strike is against the law.
2. If employer does lockout against the law, then full wage is payable.
3. 50% wage is payable if strike or lockout as per law is done, except otherwise agreed in collective
agreement (that may have been done before).
4. Department decides whether a strike or lockout is legal or not.

Termination of employment
Section 145: Employees can be retrenched
1. If:
a. Due to financial difficulty,
b. Excess employees due to merger,
c. If the enterprise needs to be closed fully or partially.
2. Notice should be given to the office and labour union within 30 days.
3. Alternatives and methods for retrenchment should be discussed with the union.
4. Order of retrenchment as follows:
a. Foreign employee,
b. Who has been punished most due to misconduct,
c. Who have weaker work evaluation ratings,
d. Employees who have joined at a later date for the same type of work.
5. Officers of trade union or negotiation committee must be retrenched last.
6. Compensation should be given to employee at the rate of one month’s wages for each year
worked in the enterprise.

Section 146: Reinstatement of employee

If the enterprise is revived and the workers need to be fulfilled, retrenched workers should be
given priority. If employer does not do so, within 35 days, employee can give application to
labour court.

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Provisions related to labour court
Section 170: Minimum wages as prescribed in the act (13450 and 10781 for tea estate)

Section 171: Special provision for management level employee

1. For CEO, provisions as per this act may not be binding.
2. Management level employees cannot present collective claim, take part in collective negotiation
or participate in strikes.

Section 180: Labour act may not be applicable:

1. Labour act will not apply to Nepal army, Nepal police, armed police force and national research.
2. Civil service laws will be applicable for civil servants.
3. The terms of service and facilities mentioned in prevailing laws will be applicable if they exist
for services under special laws or for special economic zones.
4. If the remuneration, terms of service and facilities of a laborer are not mentioned in the prevailing
laws, then provisions of Labour Act will ipso facto be applicable.
5. If it is decided that the provisions of this act will not be applicable to a laborer, then the law
which guarantees such rights and facilities guaranteed by this act should be mentioned along with
such decision.
6. If employee and employer of Sramjivi Patrakar Act make agreement as per this act, then
provisions of this act will apply.

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Anti-Money Laundering Act
Offences under this act
1. Money laundering i.e., concealing the illicit origins of the asset, changing the nature of origin of
assets or aiding any person to do so.
2. Financing terrorist activities is doing so in spite of knowledge of such activities.
3. If any person is deemed to have committed any offence of money laundering or investing in
terrorist activities in another country, then such person is deemed to have committed the similar
offence in Nepal.
4. Doing fictitious transaction or opening shell entities is prohibited.
Functions, duties and powers of Financial Information Unit
1. To obtain information from reporting entities such as government entities, banks and other non-
financial institution.
2. To conduct preliminary inquiry on asset laundering and send details to the department,
government, BFI or other non-financial institution.
3. To communicate to the department on any doubt on any suspicious activities.
4. To communicate notice, details and documents of FIUs of other countries.
5. To inspect transactions and documents of BFIs and record such information.
6. To manage training programs of staff or government entities.
7. Other functions as prescribed.
Procedure for investigation
1. Any person who has information of offence can submit a complaint in written or oral form in the
department. The department may arrest such accused person if there is risk of destruction of
evidence.
2. Department may designate any officer to conduct such investigation.
3. The officer may take actions such as:
a. To arrest the suspect immediately,
b. To conduct search of buildings or vehicles,
c. To exercise other powers vested in the department.
d. Officer may detain such person if there is risk of destruction of evidence with approval
up to 24 hours.
4. The officer may order any entity to prevent transfer or pledge of the assets of such person and the
entity must comply.
5. Bank accounts and transactions of such persons may be frozen. For foreign accounts, department
will issue such request through diplomatic channel.
6. Officer should submit report to the department from investigation.
7. If the department deems that the person has committed offence, then the department should write
to a government attorney on whether a case should be filed against such person. If the attorney
decides to do so, then the department will file a case.
8. There will be no time limit to file a case for offence under this act.
9. Assets deemed to have gained by laundering: If any person who is sued under this act is seen
to live an unnaturally high standard of life or proved to have donated, granted loans or
contributed more than his/her capacity, the person is required to prove the source of such earnings
and in case s/he fails to prove that, then the person is deemed to have committed an offence under
this act.

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Punishment (Section 30)
1. Fine twice the offence amount and 2 to 10 years imprisonment for money laundering offence.
2. Fine 5 times or if not calculable, up to 1 crore and 3 to 20 years for financing terrorist activities.
3. Accomplice 50%.
4. If any person uses a legal person to commit acts, then the legal person or its officers or staff will
be punished similar to above. If such person is not identified, then the chief of such entity will be
punished as per prevailing acts.
5. Punishment to the government employees or chief or staff of reporting entity (banks) will be
handed 10% additional punishment.

Declaration of Currency and Negotiable Instruments

1. Any person who is leaving or is entering Nepal, in possession of Nepali or foreign currency or
bearer negotiable instruments or who arranges for their transport in excess of that prescribed by
the NRB should make a declaration as required by NRB.
2. Such declaration if in possession should be made before the customs and if arranged through
cargo, courier or other postal means should declare before such agency.
3. Such cargo, courier or postal agency should submit such declaration to the nearest customs office.
4. Customs officer may require such person to disclose the items so declared or open the cargo,
courier or envelope if he suspects the declaration or information submitted.
5. Other provisions on declaration as prescribed.
Inquiry, confiscation and punishment
1. Customs officer may inquire about the origin and intended purpose of the currency or instruments
in the following circumstances:
a. If he suspects the declaration is not made or if made is false, or,
b. If there are adequate grounds to suspect that the currency was obtained or is related to
offence.
2. If the currency or instruments are proved to be so, the officer should confiscate the currency or
instruments and fine an equal amount to the person.
3. Reasons of confiscation should be notified to such person.
Information must be provided
1. Customs officer must provide the information of such suspicion immediately to the Financial
Information Unit and the concerned investigation authority immediately.
2. Customs officer must submit monthly return of declarations made regarding the currency and
negotiable instruments to the Financial Information Unit.

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Banking Offence and punishment act
Section 3: Opening of bank account and payments:
1. To open bank account using fraudulent document or to help open such accounts,
2. To open bank accounts of persons who is not legal,
3. To issue cheque in full information of insufficient balance.
Section 5: To pay or withdraw amounts not authorized by the accountholder.
Section 6: To abuse electronic means of payment such as credit and debit cards or ATMs.
Section 7: To provide or receive unauthorized loans
1. By taking loans using false information and documents,
2. To inflate the value of securities to issue loans,
3. To issue loans by inflating the cost of projects,
4. To issue loans by person who is not authorized to issue loans or issuing loans outside limits of
such person,
5. To take loans by the officer or employee other than allowed by laws,
6. To take loans by any unauthorized loans by the shareholders,
7. To provide loans in excess of the customer’s requirement,
8. To receive gains for providing loans.
Section 8: Person receiving loans should not abuse it by using it in other activities than it is
intended for.
Section 9: Officials should not use assets or moneys of bank for themselves or relatives.
Section 10: Person who is blacklisted cannot make deposit amounts in domestic or foreign accounts.
But this can be done with the intention of paying loan within 30 days or for expenses of living.
Section 13: False financial statements
1. Valuator should not value assets differently.
2. Valuator should not value assets where there is financial interest.
3. BFI should not make the person prepare different financial statements of same period.
4. Auditor should not issue reports other than those containing his/her opinion.

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Financial Intermediary Act
Procedure of license
1. Without license, no act can be carried out.
2. An institution registered under Association Registration Act, 2034 may apply to NRB to act as an
intermediary with following documents:
a. Certificate of registration and charter of institution,
b. Name, address and occupation of office bearers,
c. Number of members in the institution
d. Movable and immovable properties
e. Geographical location where the intermediary intends to work
f. Other matters as prescribed.
3. NRB should inspect the documents and require additional information if necessary. If it is
appropriate to issue license, then NRB should issue license to such person. If not appropriate,
then such information should be given within 75 days.
Mediators need not register as per Companies act but fall under D class institutions under BAFIA.
Financial intermediation is the supply of credit for the operation of enterprises and employment within
the limit prescribed by NRB.
License may be cancelled in the following cases:
1. If the institution violates directions given by NRB for 3 times,
2. If it ceases financial intermediation activities,
3. If the institute misuses the funds,
4. If the institution does not renew as per Association Registration Act and this act.
Renewal of license:
1. License must be renewed every 2 years.
2. Any license not renewed as above is cancelled ipso facto.
3. For renewal the following should be done:
a. Application should be given to NRB as prescribed,
b. Following documents should be included in the application:
i. Yearly Report and other financial information,
ii. Photocopy of renewal as per Association Registration Act
iii. Fee
iv. Other required documents.
c. If the bank feels the license should not be renewed, then it should not renew. If such
license is not renewed, then license will be cancelled.

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Foreign Exchange Regulation Act
Definitions
Foreign exchange: Foreign currency and includes deposits, credits, balances, foreign security, traveler’s
cheque, bank draft, letter of credits and bills of exchanges which are drawn in Nepali currency but can be
paid in foreign currency.
Foreign exchange transaction: Means buying and selling of foreign exchange, acquiring or supplying
loans in foreign exchange, or in any way supplying foreign exchange.
Securities: Shares, stocks, bonds, debenture, certificates or transferable deposits relating to saving
schemes issued by a corporate body. It includes the securities prescribed by the GON in the Nepal
gazette.
Action if any license holder fails to comply with the order or directive of NRB
1. Warning,
2. Ban all or any foreign transaction,
3. To forfeit cash in bank or recover amounts from security,
4. Suspend or cancel license.
The bank must provide the person opportunity to submit explanation. The persons committing
offences as per the act will be liable to pay fines.
Resident of Nepal cannot pay foreign residents foreign exchange other than under law. Such person
cannot receive loans from foreigner.
Foreign investment: Following investments made by foreign person:
1. Investment in shares,
2. Investment in deposits,
3. Reinvestment from such investment,
4. Investment in the form of loans or credit.
For license, application must be submitted to NRB.

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Nepal Rastra Bank Act, 2058 (2nd amendment plus Some amendments Act, 2074)
Section-wise notes (“The Bank” Means NRB)

Section 5: Function, duties and power of the Bank

1. Bank notes and coins issuance,
2. Formation of monetary policies and implementation,
3. Formation of foreign exchange policies and implementation,
4. Supervision and inspection of BFI,
5. Banker, advisor and financial agent of GON,
6. Loan provider of banks (BFIs) (lender of last resort),
7. Regulation of payment and settlement system,
8. Liquidity management,
9. Other acts as required to fulfil the objectives of this act.

Section 7: The Bank cannot do the following

1. Providing loans or accepting deposit or giving up financial gifts,
2. Buying or owning any firms,
3. Trading activities,
4. Owning non-movable property except that required to achieve objectives.
5. However, following can be done:
a. For making it possible for the bank to perform its duties or carrying out its objectives,
NRB can own shares of or loan to an entity maximum 10% of its total capital.
b. Loaning to its employees.

Section 8: Exemptions and concessions to NRB (in registration fees or taxes, 4 points)
1. Exemption in tax on incomes of NRB, fees and duties for capital transactions,
2. Exemption on registration of loans provided by the bank,
3. NRB need not use revenue tickets on its documents,
4. Materials for making currency such as notes and coins will be exempt from any fees, duties or
taxes.

Section 14: BOD

1. Governor- Chairperson
2. MOF secretary- member
3. Two deputy governor – member (Are there more than 2 deputy governors in total?)
4. 3 directors - GON appointed and reputed in the field of financing, banking, monetary, etc field.

Section 15: Appointment of Governor

Governor is appointed by GON from 3 names given by the recommendation committee. Names
can include the names of deputy governors and other reputed persons.
Recommendation committee includes:
a. Finance minister- Chairperson
b. One Ex-governor
c. One person nominated by GON.

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Section 16: Appointment of deputy governor by is done by Council of Minister on recommendation
of governor. Deputy governors are recommended from amongst officers of NRB, in twice number
of vacant posts.
Section 17: Appointment of director (others) nominated by GON-council of minister.
Section 18: Tenure 5 years (all directors). Governor can be once reappointed and other directors as
many times. Deputy governor cannot be reappointed.

Director should have at least masters degree.

Section 21: Disqualification of director
1. Member or officer of political party,
2. Blacklisted by BFI,
3. Current officeholder of any BFI,
4. 5% or more shareholder or vote-owner of BFI,
5. Declared Insolvent,
6. Insane,
7. Convicted of moral turpitude.

Section 22: Director (governor, deputy or others) to be removed

1. The Governor, deputy or director can be removed by the council of ministers of GON under
conditions stated as below (4).
2. Where governor is to be removed, GON should form an inspection committee and based on
recommendation of that inspection committee decision must be taken.
3. Where the deputy governor is to be removed, GON should have the BOD to inspect and should
take decision based on such recommendation.
4. The directors are to be relieved of their duties (removed) in the following conditions:
a. Where the director is disqualified,
b. Where the director is incapable to attain the objectives of the bank,
c. Where the director has committed any act that may damage the banking condition of the
country,
d. Acted with any mal-intention or dishonesty in the bank’s transaction,
e. If any professional license has been revoked on account of gross misconduct (for
example, a doctor’s license, CA’s COP),
f. If absent in more than 3 consecutive meeting without genuine reason.
5. The directors should not be removed in any other condition except in the cases as stated above.

Section 23: Inspection committee for removal of governor – 1 retired judge of supreme court and 2
experts nominated by GON. Report will be provided to GON.

Section 33: Management committee of NRB is formed under chairpersonship of governor includes
two deputy governors and one senior officer as member secretary.
Management of NRB and reporting on status of monetary, banking, foreign exchange system of the
country.

Section 34: Audit committee (One director appointed by BOD, one expert appointed by BOD,
internal audit dept. chief)

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Section 35: Audit committee function, duties and power
1. Submitting report on account, budget and audit,
2. Whether the financial statements of the NRB have been prepared properly
3. Supervision of risk management procedures of the NRB,
4. To perform management and operational audit of the Bank time to time,
5. To form procedures on auditing of the Bank based on international standards and have them
approved.

Section 41: Allocation of net income (in its different funds)

1. Revaluation profit should be transferred to revaluation fund.
2. Remaining fund should be transferred as:
a. 5% in monetary liability fund,
b. Not less than 10% in general reserve fund,
c. 5% in financial stability fund,
d. Amount fixed by the board in accumulated savings fund.
3. Any amount remaining should be transferred to other funds as required and remaining should be
transferred to the GON.

Monetary activities and open market transaction (answer from here for monetary activities of
NRB)
Section 44: Monetary policies (NRB has full rights in formation and implementation)
Section 45: Open market operation i.e. conducting purchase or sales of securities openly for maintaining
liquidity (issuing commercial notes, repurchase agreement and other instruments, etc.)
Section 46: Compulsory deposit of commercial BFIs (in the proportion of certain amounts like deposit
amount, loans, etc)
Section 47: If compulsory deposit cannot be kept, fines can be levied on BFI as prescribed by NRB.
Section 48: Discount transaction (short term bills of exchange) can be issued.
Section 49: Loan to commercial banks on security of gold or other low risk instruments can be provide for
a maximum period of 1 year.
Section 50: Rate of discount or loan determined by NRB and should be published.

Foreign exchange policies

Section 63: Foreign exchange management (is done by NRB as follows, important)
1. Issuing license to persons who want to conduct forex transactions,
2. Regulating and directing such licensees through by issuing rules and directions,
3. Supervising and inspecting licensees,
4. Determining basis, limitations and conditions for licensees,
5. Determining procedures for exchange rates.

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Section 66: Foreign exchange reserves (of NRB)
1. Reserve contains:
a. Gold and other precious metals,
b. Foreign currency with NRB and in accounts of other foreign central or other banks,
c. Special drawing rights owned by NRB in international currency fund,
d. Bills, bonds, promissory notes payable in foreign currency by another person owned by
NRB,
2. NRB should optimize between the security, liquidity and return on its investment of reserves.
3. The Bank should also keep an international reserve for prompt international transaction.

Relation with GON

Section 69: Banker, advisor and financial agent of GON
1. Banker, advisor on economic matters and financial agent of GON.
2. Consultant of GON of matters that fall under NRB’s expertise.
3. GON should ask for consultancy regarding internal credit system when preparing budget.
4. NRB should submit to the GON the financial and economic report of the year.

Section 75: Loan to GON and purchase of governmental bonds

1. NRB should not provide financial assistance to GON or its wholly or partially owned entities
other than mentioned in the act.
2. NRB can provide loan to GON payable within 180 days.
3. Long term loan can be provided to GON for membership fee in any international organization.
4. Any loans provided by NRB to GON or its owned entities should have bonds prepared or made in
written agreement.
5. Overdraft from NRB to GON cannot be more than 5% of previous year revenue and NRB cannot
hold/buy GON bonds more than 10% of PY revenue.

Regulation, inspection and supervision of Banks

Section 80: Loan can be regulated for BFI by GON.
Section 81: Bank can direct commercial BFI to invest loans in a specific area. If not invested, the
difference interest amount can be recovered as fine from that bank.
Section 82: BFI should report to NRB as notified.
Section 83: Approval of NRB should be received by BFI to issue debentures.
Section 84: NRB can inspect a BFI any time. Inspector has power to demand documents and explanation.
Inspector should present report to Governor. Report should be presented by the Governor in the meeting
of BOD and decision upon such by the BOD should be given if any.
Section 85: NRB can cooperate with foreign (central banking authority) supervising body for better
supervision without compromising the confidentiality.
Section 86: Deleted

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Problematic Bank
Section 86B: BFI deemed to have become problematic
If NRB finds out in any way (report of inspector, BFI informs or others) that any of the following
conditions exist in a BFI, it can declare the BFI problematic:
a. If any act is done against the interest of depositors, shareholders, creditors or public,
b. If any liability cannot be discharged,
c. If BFI has become insolvent, about to become insolvent or facing financial difficulty,
d. If BFI has broken any relevant act, rules, directions or orders, etc.,
e. If license was obtained through fraud,
f. If prescribed capital fund is not maintained,
g. If any proceedings of liquidation, resolution or insolvency have been started as per
prevailing laws,
h. Where voluntary liquidation was started but it is abnormally delayed,
i. Where the bank was established with association of a foreign bank an such bank is about
to be liquidated or banned from transactions,
j. Where NRB is confident that the BFI is facing problems in discharging its liabilities or
duties in any way.

Section 86C: Proceedings for problematic BFI

1. Where the BFI is deemed problematic, NRB can take control of the BFI or give the BOD the
following orders:
a. Increase the share capital or order to fully pay up the remaining share capital,
b. Suspending the voting power of shareholders and other powers as required,
c. Suspending the distribution of dividend to shareholders to increase share capital,
d. Limiting the benefits given to directors and other high-level officers,
e. Managing proper provisions for improved self-governance, internal control and risk
management,
f. Limiting accepting deposits, providing loans and investments,
g. Limiting transactions so that high liquidity is maintained,
h. Limiting transactions of BFI, selling assets of BFI or closing down any branch,
i. Managing risky investments and assets,
j. Banning any irregular activities that may be against the laws,
k. Removing any director or employee,
l. Suspending the BOD and taking control of the BFI,
m. A few others.
2. NRB should however, give the BFI a reasonable opportunity to present a defense.
3. NRB should prepare report and submit it to GON if BFI is taken control of. Expense is borne by
the BFI.
4. Removed directors and employees are not allowed to be employed to another BFI nor do any
transactions directly or indirectly with BFIs. Also, they are not allowed to claim any remuneration
from the date of removal.

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Section 86F: Right of the Bank to take corrective actions
1. Within one year of control, the bank should do a management audit and should publish report
publicly.
2. If the NRB is confident that the BFI can operate correctly, it can do the following
(notwithstanding anything in BAFIA):
a. Order the suspended BOD to resume position,
b. Removing the BOD and forming new BOD from among the shareholders,
c. Removing the BOD and calling GM to form new BOD,
d. Any other as seen fit by NRB.
3. NRB can order any shareholder to sell its shares to another person after proper valuation by a
committee made of representative of ICAN, member of SEBON and other experts.

Section 86I: Right to appeal against the decision of NRB.

1. Only a representative of the shareholders of the BFI can appeal to the BOD (of NRB) within 15
days against decisions/actions of NRB itself or the appointed authority. Representative of the
shareholders means a representative among the shareholders appointed by holders of at least 25%
valid shares. Without 25%, appeal will not be entertained.
2. BOD of NRB must give decision within 30 days to approve, review or cancel the appeal.
Information of decision within 15 days of decision to representatives should be provided.
3. Decision of the board is final.

Resolution of Bank
Section 88A: Right of NRB to carry out Resolution of a Bank
1. Resolution proceedings of a BFI can be carried out by NRB in the following conditions by taking
control of the BFI:
a. If it cannot discharge its liabilities fully or partially,
b. Where there is a supervisory analysis and liabilities payable within 90 days cannot be
paid,
c. Liabilities exceed its assets,
d. Where losses are more than the reserves prescribed by the Bank can bear,
e. Where the bank decides to take the BFI to resolution process after the corrective actions
are not adequate (section 86G)
2. Expenses of resolution out of assets of the BFI.

Section 88B: Formation of Special Administrative Team

1. If the bank decides to resolve a bank, the bank should form an administrative team of no more
than 3 persons (of prescribed qualification). The bank takes control of the BFI through this team
and proceeds through with the resolution.
2. The bank can relieve any member if the work is not satisfactory. Remaining period is appointed
by NRB.

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Section 88H: Bridge institution or unit may be established (vehicle through which assets and
liabilities can be sold through, it can manage internal control of the problematic BFI)
1. The team can give an application to the NRB to set up a bridge institution/unit to handle a
resolution if it deems necessary. This unit is part of resolution proceedings for settlement,
payment, sales of assets and liabilities.
2. The unit has no ownership upon the assets or rights of the BFI being resolved.
3. Transfer of assets/liabilities (of BFI) into this unit is like movement inside the same BFI i.e. It is
not required to obtain consent of creditors, following laws relating to transfer of securities or
fulfilling the procedures set out in contracts where the BFI is a party (relating to such assets).

Offences and Punishments

Section 95: Offence as per this Act (Fraud as asked in ICAN questions)
1. Accepting deposits or providing loans against the provisions of this act,
2. Issuing debentures or other securities against the provisions of this act,
3. Giving or taking against prescribed interest rates,
4. Doing foreign exchange operations without permission,
5. Any other permission required from NRB is not taken,
6. Obstructing in the resolution process as per this act.
7. Any other actions done against the provisions of this act.

Section 100: Punishment upon breaching the regulation of the bank (imposed by NRB)
1. If the BFI breaches the regulation of the bank, the bank can impose one or more of the following
punishments: (Similar to BAFIA)
a. Giving warning in writing,
b. Making the BOD sign a deed to take corrective actions,
c. Giving written order where there have been multiple breaches,
d. Suspending or ending the services given to the BFI by the bank,
e. Suspending the distribution of dividend to the shareholders,
f. Limiting or banning accepting deposits or giving out loans,
g. Banning fully or partially the transactions of the BFI,
h. Cancelling or suspending the license of the BFI.
2. Where the director, officer or employee of the BFI does anything to against the interest of the
depositors or the creditors, or does not provide documents required by the authority, the following
punishment can be imposed by NRB:
a. Warning or reprimanding,
b. Suspending the person,
c. Cash fine up to 5 lakhs rupees,
d. Ordering the BOD to suspend the remuneration and benefits to the person,
e. Ordering the BOD to remove or retire the person.

Section 106A: Directors cannot work in BFI

1. A person who has been appointed governor cannot work in BFI (ever).
2. Deputy governor and Managing director cannot work for 3 years of leaving post and officer level
employee cannot work for 2 years. Even after the lapse of said time period, the approval of NRB
to work in BFIs.

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Public Procurement Act, 2063 (Amended 2073)
Section-wise notes
Definitions
Public entity (PE): Governmental or constitutional organization, entity wholly or majorly owned by
GON, GON managed or running from majority donations of GON.
Bidding-related documents: Prepared by the public entity which contains various information and
conditions.

Section 8: Method of procurement

1. Method for procurement of goods:
a. Open bidding on international level,
b. Open bidding on national level,
c. Sealed quotations
d. Direct purchase
e. Force account- Construction works to be carried out by the entity itself (its own
workforce before opting for external contract)
f. Single rate method (a discount rate is offered on total estimated cost of the project)
g. Catalogue shopping (purchasing at a competitive rate declared in websites or in official
printings of the retailer or authorized seller)
h. Limited tendering (where purchase is done by competing limited existing providers or
sellers)
i. Buy back method (where the seller buys back the equipment after a certain time if
required by the PE)
2. For procurement of consultancy service:
a. Inviting competitive proposal,
b. Direct agreement.

Section 12: Pre-qualification should be determined for complex projects

The public entity should publicly ask for proposals in order to determine the prequalified bidders
for procurement projects which have been identified as “large and complex projects” by the
Public Procurement Monitoring Office.

Section 14: Invitation to bids (for inviting bids or for inviting pre-qualification proposals)
1. For national level bid, notice must be published on national newspaper and for international level
bid, any international means of communication. Notice of invitation should be published in the
website of entity.
2. Such notice should include following information:
a. Name of the inviting public entity,
b. Validity period of bidding
c. Time period and place of procurement,
d. Amount of bid security and validity,
e. Where and how bidding-related documents can be received,
f. Place, time and manner of submission of bid or prequalification,
g. Time and place for opening of bids.

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Section 13: Bidding-related documents
Bidding-related documents should be prepared by the PE which include matters regarding the bid
which are as follows:
a. Time of bidding,
b. place and
c. method for bidding,
d. Bid security,
e. Performance security,
f. Time and place of opening of bids
g. Validity period.

Section 15: International level bidding invitation

Invitation can be invited from an international level if:
a. Competitive prices cannot be obtained from more than one supplier,
b. Where no bid was received from national level invitation,
c. Where agreement to do so has been made with a donor party,
d. Where goods are of such nature that they have to be procured from outside.

Section 20: Validity period of bids: It is the time period after opening of bids until which the bidders are
bound to the matters they have mentioned in their bids.

Section 21: Bid security

Bid security will be forfeited in the following cases:
a. If the bidder requests to change or withdraw bid after the deadline for submission of bids,
b. If bidder refuses the correction of arithmetical corrections made to the bids,
c. If the bidder does not make contract with the conditions mentioned in bidding-related
documents,
d. If the performance security is not provided by the bidder within the time for signing of
procurement contract, as mentioned in the bidding-related documents,
e. If the fundamental information is changed in the information demanded from the bidder
while examining the bids (section 23).
f. If acts against the conduct (as in s. 62)

Section 23: Examination of bids (evaluation is as per section 25)

1. Bids should be presented to the Bid Evaluation Committee.
2. Evaluation committee should examine the bids upon following subjects:
a. Whether the bidder has furnished documents proving legal eligibility to bid,
b. Whether signature and seals are accurate,
c. Whether security is furnished and,
d. whether the bid is substantially responsive towards the technical specification of
bidding-related documents.
3. Documents and information can be demanded for examination in which the bidder cannot alter
fundamental information of the bid.
4. If prequalification was significantly inadequate, it should be rejected immediately.
5. During the examination, arithmetical errors can be corrected by the public enterprise.

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Section 24: Bids that will not be processed
1. If it is not sealed,
2. Not submitted within time limit,
3. Bids that have been withdrawn (section 19),
4. Bids not acceptable upon examination as per section 23(2),
5. If bidders have colluded in the bidding process.
6. Where the Evaluation Committee has found that pre-qualification was not attained by the bidder.

Section 25: Evaluation of bids (the evaluation is intended to determine the least priced
fundamentally responsive bid)
1. The entity should arrive at the price for each bid and determine which bid has the lowest price.
2. Consistency of the qualification of bidder with the required bidding-related document as well as
prequalification should be checked.
3. Whichever bid has:
a. The lowest price and,
b. The consistent qualification of bidder, is deemed to be the least priced substantially
responsive bid.

Section 26: Rejection of (all) bids or cancellation of procurement proceedings

In the following conditions, the public entity can reject all the bids or cancel the proceedings:
a. Where all bids were found substantially non-responsive during the examination phase
(section 23)
b. Where none of the responsive bidders could come to an agreement,
c. Where the maximum estimated price was higher than the least priced substantially
responsive bid,
d. Where the required procurement of goods or services are no longer required.
However, the public entity cannot do this just because only some or one of the bids were
substantially responsive.

Section 27: Bid accepted and furnishing of performance security

Amount of performance security is calculated as:
a. If agreed price is not less than 85% of estimated price--5% of agreed price, and,
b. If the agreed price is less than 85% of estimated price – 5% of agreed price + 50% of
amount less than 85%.

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Section 28: Two stage bidding
1. Two stage bidding can be invited:
a. When it is not possible to fully identify the requirements and specification of the project,
or,
b. When it is necessary for public entity to discuss about the nature and problems of the
procurement due to its complex nature.
2. Public entity publishes bidding-related documents containing expected performance, broad
specifications, etc. first.
3. Bidder is not required to state bid prices but only technical proposals to solve the problems.
4. Discussions can be made with the bidders as well. After acquiring proposals and discussing, the
public entity can:
a. Cancel bids that are non-responsive due to non-fulfillment of basic requirements such as
work, time period or conditions.
b. Changing or improving the procurement contract to increase competitiveness,
c. Evaluating the proposals based on different alternatives received from bidders.
5. Now, public entity can publish revised bidding-related documents and invite second stage bid
(along with prices) from the remaining bidders.

Consultancy Service
Section 29: Consultancy service procurement
Consultancy service can be procured only if:
a. Human resources of the PE cannot perform the work,
b. If such service is required as per the agreement with a donor.

Section 31: Documents for proposal of service procurement

Method of evaluation of service proposal:
a. Quality and cost method,
b. Quality method,
c. Fixed budget method,
d. Minimum cost method.

Section 35: Evaluation of financial proposal

1. Evaluation should be done by providing markings provided based on which method of evaluation
was opted:
a. For quality and cost method- whichever scored highest on evaluation of both technical
and financial proposals,
b. For quality method- Whichever scored highest on technical proposal,
c. For fixed budget method- Proposals with price above fixed budget are removed and
highest scorer of technical proposal,
d. For Minimum cost method: Whoever passed the technical evaluation and has the least
price.

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Section 36: All Proposals can be rejected or procurement proceedings can be cancelled (like bids
are cancelled s. 26)
1. If all the proposals are substantially non-responsive,
2. If the cost is substantially high than budget or estimate,
3. If service is no longer required,
4. If proposals are proved to have been submitted by mutual collusion.

Section 41: Provision for direct procurement

1. Amount of purchase up to prescribed amount,
2. If there are no alternatives for the procurement due to rights,
3. If procurement is from one public entity to another,
4. If such purchase has to be made in a rate agreed as per international agreements,
5. If there are no alternatives in terms of quality of procurement,
6. If purchase under special circumstances.
7. If it is absolutely necessary to procure services from a person with unique qualifications.

Section 52: Procurement contract

1. Except for miscellaneous purchase, procurement contract must be made.
2. May contain the following matters:
a. Details of person to contact for the parties involved,
b. Jurisdiction of contract,
c. Work completion,
d. Supply date, time for completion of work and whether time can be extended,
e. Amount of the contract agreement,
f. Conditions in which the goods or services are acceptable,
g. Adjustment allowed in price or not,
h. Insurance matters,
i. Cancellation of contract,
j. Laws governing contract,
k. Others as prescribed.

Section 61: Conduct of official involved in the procurement

1. Procurement should be competitive and unbiased,
2. Proceedings should operate in public interest,
3. Personal interest should not be conflicted with procurement,
4. Information of bidder or proposer should be kept secret,
5. Should not conduct business for up to 2 years with any private organization where the official
was involved,
6. If any bidder is a close relative then inform an officer above one-level and dismiss from
participation in the procurement,
7. Nothing against the law,
8. No corruption,
9. No collusion so as to deprive from competition.

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Section 62: Conduct of the bidder or proposer
1. Inducing anyone improperly (offering bribes),
2. Producing improper facts or information,
3. Fraud or corruption,
4. Intervening in the bidding process of others,
5. Coercing or threatening anyone,
6. Colluding as to remove open competition,
7. Affecting any proceedings relating to evaluation of bids.

Section 63: Blacklisting and exclusion from the blacklist

1. Suppliers can be blacklisted from 1 to 3 years:
a. If proved they have worked against the conduct,
b. If the selected bidder or proposer does not make contract,
c. If the quality of the procurement is not as per the contract,
d. If proved guilty of any criminal proceedings liable to disqualify from taking part as per
this act,
e. If has signed the contract by misrepresentation,
f. Others as prescribed.
2. Person blacklisted by BFIs for non-payment of loans is automatically blacklisted till s/he is
removed from that.

Section 67: Where the procedures as per this act may not be followed (may not be important)
1. Procurement for national security by GON,
2. Procurement by GON from donor within procurement guidelines,
3. Prescribed goods or services to compete with private sector,
4. Procurement in foreign country for any fares (of importance) conducted in foreign country,
5. Purchase by embassy in other countries,
6. Purchase of aviation equipment by such PE approved to conduct aviation.

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Securities Act, 2063 (Up to Some amendments Act, 2072)
Section-wise Note

Definitions:
Private placement: Proposal sent to maximum 50 people for sale of securities.
Public issue: Proposal to the general public for sale of securities by publishing prospectus.
Collective Investment Scheme: Name suggests (Mutual funds included)
Byapar: Securities Trading (buying and selling securities)
Byabasaya: Securities Business (any business related to securities including consultancy, brokerage,
etc.)

Section 7: Appointment of Chairperson

1. Chairperson is nominated among the person recommended by the recommendation committee so
formed for that purpose. Chairperson should have at least Master’s degree and 7 years’
experience in the field.
2. Such committee should recommend at least 3 qualified names.
3. The Chairperson of the Securities Board has a 4-year tenure and s/he may be re-nominated for a
maximum of 4-year period.
4. GON can remove the Chairperson of the Board by forming an inspection committee and on the
basis of the findings of such committee. Removed if done anything against the interest of the
securities market or the Board itself.

Section 11: Disqualification of the Chairperson and members

1. An officer of a political party (not member, however, Director of NRB cannot even be a
member),
2. Persons involved in securities business.
3. Insolvent person,
4. Insane person,
5. Convicted of moral turpitude.

Section 22: Fund of the securities board

1. Fund can be credited by various amounts like
a. Donation from the GON,
b. Donation from national and international organization with approval of GON,
c. Fees from licensing,
d. Fees from registration of securities,
e. Service fees from securities transaction,
f. Fines imposed by the Board,
g. From any other source.
2. All expenses of the Board will be borne from this fund. Amounts must be deposited in any
commercial bank.

Securities should be registered before they are issued in the SEBON. Application along with
documents of the company should be given. After allotment and sale of securities, information of
such should be given to the Board.

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Section 29: Public issue of securities If securities are to be sold to more than 50 persons at a time, then it
should be issued publicly.

Section 30: Prospectus should be issued for public issue of securities.

For public issue, prospectus which is first approved by the board must be issued. But, in the
following cases, prospectus need not be issued:
a. Securities issued by NRB,
b. Securities issued with full guarantee of GON,
c. Maximum 50 persons have been proposed for sale,
d. Issued to its employees,
e. If permitted by the board to do so.

Section 33: Liability of matters contained within prospectus

1. The entity, director and the experts preparing the prospectus are liable for matters contained
therein. Any loss due to information of prospectus should be borne by them.
2. However, such person who resigns before decision or who proves of no such information is
not liable.

Securities Market
Section 38: Approval will be given to an applicant securities market if it is in the best interest of
investors and if the application contains all of the following:
1. That its chief objective is to operate securities market,
2. The Paid-up capital of the market is as prescribed by the SEB not less than 5 crores,
3. If the market has all the required infrastructures,
4. Listing or similar provisions for trading securities is available,
5. The fact that the market will operate regularly,
6. Books of accounts will be properly kept,
7. Proper investigations can be made regarding investments by the members,
8. Liabilities are not fulfilled by the member investors as per their contracts will be punished
properly.

Securities Business
Section 57: Application should be given to SEB to operate securities business. Application contains
various information about business as follows:
1. Type of securities business.
2. Matters relating to the appointment of agent,
3. Recommendation of securities market if it must operate within a market,
4. Other prescribed matters.

Section 61: License period and renewal

1. Valid only for the fiscal year in which it is issued.
2. Within 3 months of the end of FY, prescribed fees should be paid and license renewed.
3. If renewal is not done within limit, then additional 25% fine should be paid within the next 3
months for renewal. If this is not done, then the license will be cancelled.

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Section 63: List of types of securities businesses (see s. 58(3))
1. Brokerage (can be done by a sole proprietor),
2. Trading,
3. Issue and sales management,
4. Investment management,
5. Investment consultancy service (can be done by a sole proprietor),
6. Collective investment fund management,
7. Securities registration, Securities central deposit service (Nikshep/Depository) or Custodial
service,
8. Settlement of securities transactions,
9. Market maker,
10. Other activities as prescribed.

Section 64: Agent is required for securities businesses (as below).

1. At least one formal agent for security broker,
2. One formal agent for security trader,
3. One for plan management,
4. Prescribed procedures and qualification for appointing agent.

Section 65: Formal agent is an agent of the securities business registered by the SEB.

Section 72: Approval to operate Collective Investment Scheme (CIS)

1. Scheme manager, which is an entity qualified to give investment service should give
application to SEB for approval.
2. Inquiries can be made into it. Board should give license if appropriate within 90 days of
application. Board can specify conditions and make alterations to them as well.

Section 73: Operation of CIS

Single or multiple named or typed schemes can be operated by the scheme manager.
However, prescribed agreement should be made with a depository first.

Section 74: SEB can cancel/revoke permission

1. Approval given to scheme manager to operate CIS can be revoked if:
a. If conditions specified are not fulfilled satisfactorily,
b. If it is in the best interest of investors to revoke the permission, or
c. If regulations are breached or false information is provided.
2. Proper inquiry should be made by SEB before revocation.
3. In cancelling the approval of the scheme management, SEB can appoint another manager to
operate the scheme (pool of money) or can make settlement payments to investors.

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Section 76: Principles related to securities business (general, such as fair business, investors’
interest, as per regulations, etc.)
1. To maintain high quality of securities business,
2. To use skill and knowledge to conduct business,
3. To maintain high moral code,
4. To provide service to customers as is required,
5. To not allow conflict of interest with the customers,
6. To keep records relating to business well,
7. To provide training to employees,
8. To follow necessary principles relating to securities business.

Section 77: Contract notes of securities transactions

Contract notes contain:
1. Place and type of securities business,
2. Name and address of person to be given the note,
3. Date of contract and date of creation of contract note,
4. Type and quantity of securities,
5. Payment for contract, rate of securities, fees, settlement date.

Section 82: FS should be submitted by securities businessperson to SEB and Securities Market
1. Within 3 months of FY ended. Another 3 months can be added on application to SEB. If the
FS are not submitted even in extended time, fine from 5000 to 25000 can be imposed.
2. If the FS are not submitted due to not being audited within the time period, it should submit
its unaudited FS for the time being and submit the audited FS after audit has been completed.

Section 91: Insider trading

If a person uses any unpublished information to trade securities or gives such information to
other person except in course of duties, then is deemed as insider trading.

Section 92: Persons who may be involved in insider trading

1. Director, employee or such other person who can get such information,
2. Person who receives information while providing professional services,
3. Persons who have direct or indirect or indirect contact with the above persons.

Section 94: False trading is done

1. If actual ownership does not change despite the sale or purchase transactions,
2. A purchase or sale done upon knowing a price offered on another sale or purchase.

Section 95: Fluctuation in price

If a person causes stability, increase or decrease in price by doing false trading, then fluctuation in
price is deemed to have been done.

Section 96: Affecting stock market in any way

Section 97: Making false statements (to cause a person to buy or sell securities)
Section 98: Fraudulent transaction (done by misleading a person in any way)
Section 99: Sale or purchase cannot be done by involving any king of fraud or misrepresentation.

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Section 100: Concealment/destruction of records or documents when inspections are made as per
this act must not be done.

Section 101: Penalties (Important)

1. Insider trading (s. 91)– Amount of controversy caused or 1-year max. imprisonment or both.
2. Fluctuation of prices (s.94), False trading (95), Affecting stock market (96) – 50000 to
100000 or one-year max. imprisonment or both.
3. Fraud (s. 97, 98 & 99) or concealment (s. 100) - 100000 to 300000 or max. 2-years
imprisonment or both and compensation to damage caused to such person
4. Not making, keeping or submitting records or keeping false records- 50000 to 200000.
5. Causing damage to any person by acting against the directions or orders given as per this act-
50000 to 150000 and compensation to the damage caused to the person.
6. If any security is issued without fulfilling the procedures as per the act and its rules- 50000 to
150000.
7. Not fulfilling any duties to be fulfilled as per this act or any conditions as per this act – 25000
to 75000.

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Bonus Act, 2030 (Up to amendment 2066)
Section-wise notes

Definitions:
Salary and wages: Any amount payable in cash for work. Does not include electricity, water,
medical, travel, bonus, provident fund or gifts for the purpose of this act.
Most other definitions as per labour act.

Section 3: All branches and sub-branches are considered as single enterprise for the purposes of
this act.

Section 4: Within 6 months of end of the reporting period of the enterprise, it should send a copy of
its financial statements to the labour office.

Section 5: Profitable enterprise should distribute bonuses

1. 10% of net profit should be allocated as bonus. (Excess bonus distributed in previous year when
estimated profit was used as per section 11 should be deducted from net profit (of income tax) of
the current year.)
2. Bonus for GON owned enterprises will be as decided by GON.

Section 6: Bonus should be given (to)

1. Any employee working half the required working time in the fiscal year will be eligible for
bonus. Except, casual and substitute employees are always ineligible.
2. Following will also be counted as working time:
a. Employee kept in reserve period as per labour act,
b. Paid leaves,
c. Disabled leave caused during duty.

Section 7: Calculation of bonus amounts

1. Bonus % amount of employee = Bonus amount set aside *100
Total salary of the employees eligible for bonus
2. Bonus however, should not exceed as follows:
a. For employee whose monthly salary is up to two times the minimum salary prescribed by
GON: 6 months’ salary (Rs. 13450 for other, 10781 for tea estate): 8 months’ wages
b. Above that mentioned in a.: 3 months’ salary: 6 months’ wages
3. Bonus received (by any employee) as per b. should not be less than that of maximum bonus
received by anyone in a. (Employees receiving higher salaries should receive higher bonuses.)

Section 8: Bonus should not be distributed (to)

Following employees will be eligible to receive bonus up until before, but not after, committing
the following acts (for the year):
a. Theft or damage to enterprise’s assets,
b. Does or provokes illegal strikes,
c. Riot or breaking discipline.

Section 9: Types of bonus and period for distribution

1. Bonus should be paid in cash.

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 2. Within 8 months from the end of fiscal year, bonus should be distributed.
3. If bonus is not distributed in the above time limit, then by making application to the labour office,
office can either extend another 3 month or cause the enterprise to distribute bonus in the next
fiscal year lumpsum.

Section 10: Order of bonus for nominee if not specified is given in act. (Read if required) Relatives
of same order get proportionate amount. If not satisfied, then complain in labour court. Decision is
final.

Section 11: Advance bonus can be distributed (due to issues related to FS)
1. If due to inability to send FS to office or due to delay in examining FS by Labour Office bonus
cannot be distributed, 5% of an estimated net profit should be distributed as bonus.
2. If upon finalizing FS, bonus distributed was less, proportionate bonus should be distributed.
3. If it was more, then the excess amount should be deducted from the net profit of next year.

Section 12: Bonus should be deducted from the employees in proportion of days not counted as
worked. (Working half working period only makes eligible to obtain half the entitled bonus)

Section 12A: Illegal strike if done by employee, bonus should be deducted in proportion of the days
strike was done.

Section 13: Welfare fund (of labour act)

1. Bonus amount that was not distributed should be deposited in funds.
2. 70% should be deposited in Welfare fund created as per prevailing laws and,
3. 30% in the National level welfare fund of GON.

Section 14: Report of bonus should be sent within 7 days of distribution to labour office.

Section 15: Documents related to bonus should be kept.

Section 16: Disagreement related to bonus

1. If there is any conflict related to bonus between management and employees, Labour Office
should solve this through negotiation.
2. If not solved through negotiation, decision can be given by the Office based on documents.
3. Dissatisfied party should appeal in labour court within 35 days. Decision is final.

Section 17, 18, 19 deleted

Section 20: Fine as per the act is only up to 5000 rupees levied by the Office.

Section 21: Appeal towards fine can be made in court within 35 days.
Section 22 deleted
Section 23: If an entity is held punishable, the manager is part of it.
Section 24: Work done in good faith is protected.
Section 25: GON can give orders to solve any problems related to implementation of the act.
Section 26 deleted
Section 27: GON can make rules
Section 28: Saving

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