Kathmandu University School of Management

Significance of the Banking Offence and Punishment Act, 2064 in the present
context.

A Term Paper Submitted to

Dr. Hari Sharan Chakhun

Faculty (KUSOM)

In partial fulfillment of the requirements for the course of

Legal Environment for Business in Nepal (GEM 502)

Submitted by:

Sankarshan Gautam (21111)

MBA Fall- 2021

23 January, 2022
 ACKNOWLEDGEMENT

I would like to extend my sincere gratitude to a number of people whose help was
valuable in this term paper. Firstly, I would like to acknowledge Kathmandu University
School of Management (KU SOM) for designing Legal Environment for Business in
Nepal course in our program and for encouraging and providing valuable opportunities
that will be very helpful and beneficial in the near future.

Similarly, I would like to express my gratitude and sincere appreciation to Dr. Hari
Sharan Chakhun, our course facilitator at Kathmandu University School of Management,
who generously provided encouragement, insightful comments, support and guidance.
This term paper wouldn’t have been possible without his continuous assistance, advocacy
and feedbacks.

Lastly, I would also like to express my appreciation to all my friends and family for their
support, cooperation and motivation without which the completion of research would
have been incomplete.

Sincerely,

Sankarshan Gautam

Degree Candidate.

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Contents

ACKNOWLEDGEMENT....................................................................................................................2

LIST OF ABBREVIATIONS.................................................................................................................4

CHAPTER ONE.................................................................................................................................5

Introduction....................................................................................................................................5

1.1. Background of the Study.................................................................................................5

1.2. Brief Review of Literature...............................................................................................7
CHAPTER TWO..............................................................................................................................10

Legal Provisions and Significance with Cases of Banking Offence and Punishment Act, 2064..10
2.1. Existing Domestic Legal Provisions of the Act....................................................................10
2.2. Significance of the Act in Present Context and some real cases........................................14
2.3. International Scenario of the Subject Matter....................................................................19
2.3.1. International Scenario of India........................................................................................19
2.3.2. International Scenario of California................................................................................21
CHAPTER THREE............................................................................................................................23

Conclusion and Recommendation............................................................................................23

3.1. Conclusion.........................................................................................................................23
3.2. Recommendations.............................................................................................................24
REFERENCES.................................................................................................................................26

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 LIST OF ABBREVIATIONS

NRB- Nepal Rastra Bank

BAFIA- Bank and financial institution Act.

IMF- International Monetary Fund

WTO- World Trade Organization

IPC- Indian Penal Code

LOU- Letter of Understanding

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 CHAPTER ONE
Introduction
1.1. Background of the Study
Banking offence is such unauthorized activities, that make losses to the banking system.
It is also known as banking fraud. Banking fraud is the use of potentially illegal means to
obtain money, assets and other property owned by financial institutions.

There are certain types of offences, that are carried out by bankers, the board of directors’
valuators, bank clients in the operation of the banking business. Some of them are:
misuse of authority, misuse of credit, unauthorized withdrawal and payment, abuse of
electronic means, wrong valuation, violation of banking norms and rules, alteration of
BFI’s account or making fraud, forgery in account, misuse of banking means, property
and resources, unauthorized act against the interest and right of depositors and
shareholders, not to repay interest, principles and charges, etc. In order to tackle with
problems, certain punishments are also set. Depending on the root cause of offense,
punishment is made stricter, in expectation of making the person, or an organization, an
entity, etc. realize and not repeat the mistake in future.

With a motive of increasing trusts towards the banking industry and mitigating the risks
associated in the banking industry, Government of Nepal has introduced Banking Offense
and Punishment Act, 2063. Multiple cases of banking fraud have led to take necessary
steps and enactment of this act to curb such activities and increasing trusts and thus
increasing the rate of development of Nepal through pooling of resources in the bank and
lending it to priority sectors. So, some of the objectives of this act are mentioned below:

i. clearly define the act of banking offence in the banking system.

ii. promote the trust of the general public in the overall banking and financial system
of the country.
iii. protect and promote the rights and interest of depositors and shareholders.
iv. provide quality and reliable banking through healthy and sound banking.
v. minimize risk relating to the banking and finance sector.
vi. make necessary legal provisions relating to the punishment on banking offences.

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Moreover, certain amendments have been made in this act, on 2073/06/18, for the first
time. The few changes that can be found in the amended act are:

i. In Section- 2 of the act, more clarity is added as a definition of Banks and

Financial Institutions (BFI’s) closers person, Banking System, “Dhukuti Karobar”
etc.
ii. New amendment widens the scope of Banking Offense and Punishment Act by
covering Dhukuti. Securities. Insurance, Financial intermediary, Cooperatives,
Banks and Financial Institutions (BFI’s), Commodity market etc.

Evergreening of loan is something, that’s found quite common these days in different
BFI’s. With the easiness of evergreening facility, BFI’s mask their loan default, probable
default by disbursing new loans to assist delinquent borrowers pay back their old and due
loans or interest. It's actually a malpractice whereby the BFIs extend more loans to highly
leveraged firms and clients to assist them repay those pending accounts and, in turn,
receive lavish returns. Evergreening is a serious act yet covert issue that is difficult for
the regulators and also BFIs to exactly demarcate. Regulators and other enforcing
agencies have used the Banking Offences and Punishment Act 2064, mandatory
provision of multiple banking, consortium financing agreement and CIC (Credit
Information Company) reporting mechanism to enervate the evergreening practices in the
banking industry. However, the implementation and operational mechanism to
complement the policy reforms is still lacking, which is regarded as one of its major
limitations. (Shrestha, 2016).

Hence, from listing different banking offences to setting certain punishments for such
offences, to listing different proceedings and disposal of the suits, this act has provided a
clear picture on different legal provisions on banking offences and punishments and
helped promoting public trust from general public creating transparency in every
transaction of Banks and Financial Institutions.

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1.2. Brief Review of Literature
The meaning of a banking offence in Nepalese law is ambiguous. Rather than defining
particular laws governing financial offenses, the Banking Offence and Punishment Act of
2064 has established actus reus of banking offenses. Banking offence is defined in
Section 2(b) of the Act as an offense listed in Chapter 2. In general, a banking offense is
defined as the committing of crimes involving a bank or financial organization. Different
laws in Nepal have attempted to control crimes involving banks and financial institutions.

The Banking Offence and Punishment Act, 2064, which was signed into law on October
23, 2054, failed to specify what constitutes a banking offense in Nepal. It has specifically
identified the sorts and practices that will be considered banking offenses in Nepal. It
offers a wide range of punishments for many types of banking offenses. Its first
modification, ratified on 2073/6/18, added to Chapter 2 of the main Act various more
categories of banking offenses. (Atri, 2020)

Banking offenses involve a wide spectrum of criminal offenses committed against the
country's sound and regulated financial system. To achieve their malicious aim, both
bank and financial institution employees and customers may commit banking offenses.
Banking offenses are committed through the use of banks and financial institutions. (Atri,
2020)

Banking offences are not new in Nepalese legislative history, according to the paper
"Study Report on Effect of Laws to Banking Offence 2074" developed and released by
the Office of Attorney General Nepal. Before the Banking Offence and Punishment Act
of 2064, it was governed by a variety of laws. The report makes recommendations to
several government and legal institutions at various levels. (Office of Attorny General,
2074).

Talking about one of the cases that relates to this act, The Supreme Court of Nepal
concluded in Maheswor Lal Shrestha v. Bishnu Maharjan 2070, decision number 8950,
that the drawer did not properly draw a cheque with the amount, date, and his or her
signature to whom he or she owes nothing. Similarly, the court determined that writing a

3
check to a person notwithstanding the fact that there are insufficient funds in his or her
account causes distrust in the banking system.

As per the research of (Acharya, 2020) ,"Legal measures of Banking infraction and
punishment system; A reference of Nepal." The study's goal was to determine which
types of financial fraud were covered and criminalized by the Banking Offense and
Punishment Act of Nepal. According to the data, the number of cases of banking fraud
has been constantly increasing. Customers of banks and financial institutions, as well as
employees and designated individuals, are on the rise. Individuals, IT experts,
professional hackers, and foreign nationals are all included. Involved in such crimes NIC
Asia received USD 4.4 million on a public holiday. Using rapid technology, funds were
fraudulently transported to Singapore and six other countries. The central bank of
Bangladesh is also a direct victim of such fraud. As a result, periodic checks and IT
audits should be carried out by a professional team with relevant industry knowledge.
Regulators and individuals who are concerned should be concerned.

Another study can be taken as a reference from, (Bhasin, 2016), "Frauds in the Banking
Sector: Experience from a Developing Country.” The purpose of the study was to learn
how people perceive bank fraud and what factors determine how much they comply.
According to the poll, bank managers, offices, and clerks have poor hiring processes and
lack proper staff training, as well as overworked employees, weak internal control
mechanisms, and a low level of compliance. Bank authorities are less limited by national
bank rules when it comes to the administration of passbooks, checks, inter-bank and
internal account management, and deposit account management. According to the report,
junior bank officials are less aware and prepared in terms of frauds and central bank
norms than mid and senior managers.

Similarly, (Singh & Nayak, 2015) conducted an interview-based study on Banking

Frauds and found a number of factors for unethical behavior in the financial industry. The
financial industry is massive in size, complicated in design, and has a global reach. There
is a lack of a shared ethical culture because industrial norms differ from country to
country. In addition, most business contacts are depersonalized, which encourages

4
unethical behavior. According to the paper, the industry should teach its employees about
the ethical code, and those who violate it should be banned.

(Khanna & Arora, 2009) investigated the causes of bank frauds and the implementation of
preventive security controls in the Indian banking industry, highlighting the disparity
between employees' adherence to central bank guidelines, as well as the importance of
experienced and trained officials in combating fraudulent activities.

In a nutshell, these are some of the national as well are international literatures that
relates to the Banking Offence and Punishment Act, 2064.

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 CHAPTER TWO
Legal Provisions and Significance with Cases of Banking Offence and Punishment
Act, 2064
2.1. Existing Domestic Legal Provisions of the Act
In Nepal, there are various laws that regulate banking offenses. In this field, the Banking
Offense and Punishment Act of 2064 is considered a special act. Notwithstanding
anything contained elsewhere under this Act, in the offence committed in the
involvement of a person holding a public position under the prevailing laws or a civil
servant, if the offence is prosecutable or punishable pursuant to the Commission for the
Investigation of Abuse of Authority Act, 2048, and the Corruption Prevention Act, 2059,
the action shall be initiated and the punishment shall be given in accordance with the
same Acts, says section 28 of the Act.

The following 14 types of financial offenses are listed in the Banking Offence and
Punishment Act of 2064:

I) Section 3, opening an account or demanding cash payment in an unauthorized manner.

Section 3 forbids to open or allow an account to be opened by submitting fake
documents(a), to open an account in name of fictitious or other person’s or organization
name(b), to make payment from the cheque where one knows that the account doesn’t
have sufficient balance to cover withdrawn cheque(C).

II) Section 5, making unauthorized withdrawals or payments. Section 5 prohibits in

withdrawing money in unauthorized manners from other’s account(a), or by stealing a
cheque held by other person(b), to make payment from fake or other person’s cheque,
bills of exchange in unauthorized manner(c).

III) Section 6, obtaining or making payment by way of abuse or unauthorized use of

electronic means.

IV) Section 7, making available or providing loans in an unauthorized manner. Section 7

forbids acts like (a) providing loans by submitting false fake financial statement or
creating artificial business, (b) providing over loans by way of unnatural or valuation of
collateral security, (c) providing loans by unnaturally increasing the project cost based on
6
false details,(d) providing credit or discounts beyond authority,(e) re providing the loans
without clearing the due of the collateral security provided to financial institution(not
applicable in case of release of loans to be provided under consortium),providing loans to
a person who doesn’t have financial capability to run business or has undue influence(f),
extending the credit more than the requirement of customers business transactions(g),
providing undue benefit in return for grant of credit facility(h).

V) According to section 8, misusing credit facility.

VI) According to section 9, misusing banking resources, means and assets. This section
forbids misuse of the resources of a bank and financial institution to the CEO, employee,
advisor, managing agent or family member, close relatives to provide a credit facility
(Sec 1) but it will be prohibited if proper approval from BOD or financial institution is
taken. Also, under employee’s facility scheme the CEO or employees don’t have
obstruction.

VII) Section 10, acquiring assets or opening account by borrower having over dues.

VIII) Section 11, stopping credit facility in the way to lose working project of borrower.

IX) Section 12, making loss by altering account or ledger or by committing forgery or
fraud.

X) Section 12, doing transaction by misrepresenting bank or financial institution or

cooperative institution(a)

XI) Section 13, deriving excess, low or false valuation.

XII) Section 14, carry out or causing to carry out irregular economic or financial

transactions.

XIII) According to section 14, DHUKUTI transaction(a).

XIIII) According to section 14, Illegal banking transaction (b). According to commonly
reported news and cases handled at various levels of courts, the following are the major
categories of banking offenses that Nepalese law faces:

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Cheques that have been dishonored:

The elements of a cheque bounce are as follows:

1) When someone writes a check and presents it to someone, they are aware that the
account balance is insufficient to cover the payment.

2) The drawee presents the check to the bank for the purpose of collecting the amount
mentioned on the check.

3) Due to inadequate funds on the drawer's account, the payee bank is unable to pay the
drawee.

A person can solicit a loan or borrow money by producing fake documents or financial
transaction records. Simultaneously, fake documents might be utilized to take advantage
of an already granted credit facility. This is a type of banking crime that entails the use of
loans and borrowings. The current trend in the Nepalese legal system is to seek redress
under the Banking Offence and Punishment Act, 2064, Sections 5, 7, 8, 12, 12(a), 13, 14,
15. Under section 249 (3)(b) of the MULUKI Criminal (Code) Act, 2074, anyone who
obtains a loaner borrowing facility by using a false collateral security document may be
prosecuted.

Following the introduction of the Banking Offence and Punishment Act, 2064, cases of
dishonored can be tried under Section 3(c) of the Act, with punishment demanded under
Section 15 of the Act. As a result, the Police consider a First Information report of a
dishonored check to be a public offense. Simultaneously, under Section 107(a) of the
Negotiable Instrument Act, 2034, a person may file a case directly with the court on a
dishonored or forged check. Prior to the first amendment to the Banking Offence and
Punishment Act, 2064, the Supreme Court of Nepal established the principle that the
victim of dishonored checks should seek redress under the provisions of the Negotiable
Instrument Act, 2034, by declaring this Act to be a special law to deal with the case. After
this verdict, dishonored of cheque was considered as private criminal offence in which
the victim party has to be file a case to the court in according to the provision of
Negotiable Instrument Act, 2034. (NKP, 2072- Decision no-9452.)

8
In a banking offense, the Nepalese government is the plaintiff. The banking offense is
being prosecuted by the public prosecutor. Within a year of receiving knowledge about a
banking offense, anyone can file a First Information report with the nearest police station.
The police will investigate the First Information Report, and the case must be filed in a
court of law within six months of receipt of the report. The case should be filed in the
court designated by the Nepalese government, which will be announced in the Nepal
Gazette. The Nepalese government has designated the commercial bench of the high
court as the court of first instance to hear cases of banking fraud. As a result, the
commercial bench established in high courts has jurisdiction over banking offense cases.

According to Chapter 3 Section 15, If a person violates any of the provisions of Section 3
(a), (b), (c), Section 4 or Section 11, he or she may be fined up to ten thousand rupees,
depending on the severity of the offense. Sub sec 2, If anyone violates Sections 5, 6, 7,
(d), (e), (f), (g), or (h), or Sections 8,9,10,12, or 14, he or she shall be punished with a
fine and imprisonment as specified under on the basis of the claimed amount, after
recovering the claimed amount, if any, and depending on the severity of the offense
committed. If the suit is for less than one million rupees, imprisonment is for one year(a),
If the suit is for more than one million rupees and up to five million rupees, imprisonment
is for two years (b)If the suit is for more than five million rupees and up to ten million
rupees, imprisonment is for two years to three years(c) If the suit is for more than ten
million rupees, imprisonment is for three to five years. Anyone who violates Sections
7(a), (b), (c), or 13 is subject to a fine equal to the value of the collateral security and
imprisonment for up to five years, depending on the severity of the offense, and the
Adjudicating Officer may issue an order restricting such valuer from capping such
collateral security, depending on the severity of 14 the offense. Sub section 4, If the claim
amount is not clear, there will be a fine of ten lakhs and two years in prison. According to
sec 5, If the concerned office bearer or employee committing the offense can be
identified, he or she will be held accountable; if the office bearer or employee cannot be
identified, the person operating in the position of the organization head at the time of the
infraction will be held guilty. Similarly, according to Section-6, the individual or group
who is attempting to conduct a banking offense, or who is indirectly involved in such an
act or the person assisting in the commission of such an act, or the employees, Chief

9
Executive Officer, or Office Bearer of such an assisting organization, shall be penalized
with half of the punishment that the perpetrator may face. Section-6, Based on the report
of the officer involved in the investigation and inquiry, the adjudicating officer may
punish any person who causes a hindrance protest in the investigation and inquiry
proceedings undertaken under this Act with imprisonment up to six months or a fine up
to five thousand rupees, or both.

So, these are the punishments that’s given if banking offences are done, that are
mentioned under the Banking Offence and Punishment Act, 2064.

2.2. Significance of the Act in Present Context and some real cases.
In the current situation, Banking Offense and Punishment Act plays an indispensable
role. It improves consumer transparency and gives customers the ability to bank in total
privacy. It also aids in avoiding the use of banks for unlawful purposes such as money
laundering. The act establishes fair and equitable banking opportunities. It does,
however, prevent further offerings and aids in the prioritization of bank loans based on
economic and social needs. It also aids in the prioritization of bank loans based on
economic and social demands. It also aids in debt collection and discourages banks from
making improper loans to insiders like officers and key shareholders. It also makes it
easier for customers to file legitimate complaints.

The majority of financial crimes these days are performed by acquiring unauthorized or
illegitimate access to a bank's information and using it to transfer millions of rupees from
one account to another in a fraction of a second. As a result, new sorts of financial
offenses occur as technology evolves, and they are criminalized under banking crime and
punishment law in circumstances of dysfunction, malfunction, mala fide intentions,
corporate governance abuse, and power abuse for selfish goals.

As a result, the Banking Offense and Punishment Act contributes to public confidence in
the country's entire banking and financial sector while also assisting in the establishment
of a specific definition of a banking offense inside the banking system.

10
Moving on, some of the decisions that are made using this law, under different cases of
people are mentioned and explained below:

A. Government of Nepal v. Indraprasad Humagai et.al. (Source: NKP 2073,

decision Number 9645-page 1406)
On 2067/4/4, Indraprasad Humagai, managing director of Infrastructure
Development Bank, and 93 others are charged with violating section 3(c), 7(a),
and penalty under section 15(1) and d15 (3). They are accused of receiving
payment from the Public Development Bank Limited Banepa branch without
having enough money in their account and taking out a loan on the basis of a
surety check. The accusation was filed following the settlement of loans on
December 22, 2065, and July 24, 2065, as well as a warning from Nepal Rastra
Bank to banks and financial institutions, including the defendants, under section
74(4) of the Banks and Financial Institutions Act of 2063. 
In light of this, the Supreme Court of Nepal examined Section 3(c) of the Banking
Offence and Punishment Act, 2064, which states that drawing a cheque to obtain
or knowingly making payment from an account where he or she has an apparent
knowledge that the account does not have sufficient balance to cover the amount
of the cheque drawn, and Section 7(a) states that act to obtain or provide loans by
submitting a false or unreal financial statement by creating artificial business.
The charge sheet filed against the defendants makes no mention of the defendants
receiving money by check with no balance or taking credit by filing a fraudulent
or unreal financial statement by constructing a fake firm. The Banking Offence
and Punishment Act of 2064 classifies some offenses as economic crimes. The
banking offence is a serious criminal offense involving financial irregularities and
credit misuse. The regulatory agency, Nepal Rastra Bank, stipulates that cheque
realization must be completed within 90 days of credit and that any action taken
in response to a baking offense will not be transmitted owing to loan settlement
within the time frame. It is not legally proper, reasonable, or logical to declare
that the offence is constituted as included in the charge sheet when the institution
acting as the first information reporter determines that the case does not fall under

11
 banking offence and corresponds as such. The prosecutor's job is to objectively
prove the commission of a major crime like banking fraud.
Therefore, the documents contained in the case filed do not prove that the
defendants have committed the offence mentioned in the charge sheet, the
decision of the Nepal Rastra Bank not to forward action under banking offence,
the situation of payment of loan prior to filing the charge - sheet, and the
prosecutor's failure to particularize loss, the decision of the Appellate Court Patan
cannot be said otherwise.

Along with this, some other acts can also be linked with the Banking Offence and
Punishment Act. Assets (Money) Laundering Prevention Act, 2064 is another act that
can be linked.

The purpose of this Act is to prohibit the laundering of unlawfully obtained funds as well
as terrorist financing. Money laundering is punishable by (a) a double fine of the amount
involved in the crime and (b) two to 10 years in jail, depending on the severity of the
crime. (Section-30). Baking offences are prosecuted and settled in according to this Act.

There comes a question again, what’s the significance of this act in relation to banking
offence and punishment act? Well, it is the responsibility of banks and financial
institutions to identify their clients, but if they fail to do so, duplicate customers may
manage banking transactions, resulting in public loss. At the same time, unlawful use of
an ATM card to withdraw cash is becoming a more common banking offense. So, some
banking offenses are investigated and prosecuted under this law- Money Laundering
Prevention, and the interpretation of the supreme court of Nepal on it is mentioned in
Chapter 4, and its also important in the present context to consider all these cases.

Moving on, talking about the real scenario, i.e., cases, where, Charges of banking
offences are filed claiming punishment in according to provision of Assets (Money)
Prevention Act, 2064, one of the cases is mentioned and analyzed below.

A. Government of Nepal v. Om Prakash Kushwaha et.al. (Source: Case number:

070-CR-0744 (decided on 2072/08/07).

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 Money laundering is charged under sections 4(e) and 28 of the Assets (Money)
Laundering Act, 2064, with a demand for penalty under section 30(2) of the same
Act. Defendant Jitendra Kumar failed to prove lawful source of financial
transaction of Rs. 4,00,16,233/45, amount found from him Rs. 3,43,750, and
amount deposited in his accounts Rs. 18,330/72, according to the Special Court.
His action is in violation of section 3 of the act, and he faces a year in prison, a
fine equal to the amount in question, and confiscation of the money found with
him and placed in his accounts. Other defendants were found not guilty of the
accusation, and their bank deposits tied to ATM cards were seized.
The case was heard by the Supreme Court of Nepal as an appeal by the Nepalese
government. The appellant contended that the special court's ruling was
insufficient to acquit the other defendants in the case. The evidence and
involvement of the other accused were assessed by the Nepalese Supreme Court,
which found no direct involvement in the crime's commission. As a result, it
upheld the decision of the immediate court, which denied the government of
Nepal's claim to exist.

Now, let’s talk about the case, where misuse of foreign exchange can happen. Parliament
passed the first amending bill to the Banking Offence and Punishment Act in 2073.
Under section 3(c) of the Act, a banking offence is defined as "drawing a cheque
knowingly that the account does not have adequate balance to meet the amount of the
cheque drawn," and under section 15 of the Act, a banking offence is defined as "drawing
a cheque knowingly that the account does not have adequate balance to meet the amount
of the cheque drawn" (1). The following penalties are stipulated in Section 15(1) of the
Criminal Code for this offense: recovery of the money in question, a fine equal to the
amount in question, and imprisonment for up to three months. The victim of a dishonored
check cannot seek interest under the "Banking Offence and Punishment Act of 2064,"
despite the fact that the Negotiable Instrument Act permits an interest remedy.

Similarly, there is one case with NIC Asia bank as well. NIC Asia Bank, a Nepalese
commercial bank, began transferring $4.4 million to six other countries, including the

13
United States, the United Kingdom, Japan, and Singapore. The NIC Asia Bank, on the
other hand, immediately notified the Nepalese central bank of the event. It was able to
reclaim $3.9 million from an overseas bank via administrative and diplomatic procedures.

Similarly, some other banking offences that occurred in Nepal, which are explained
below:

According to the Kathmandu Post, the central investigation Bureau detained the former
CEO of Bank of Kathmandu and 11 others on July 9, 2021 for their alleged involvement
in a banking infraction of at least Rs 45 million. According to the Central Investigation
Bureau, the debtors devised a scheme with bank employees to fabricate a bogus land
registration and use it as collateral to secure a loan. Surendra Shrestha, the debtor, was
unable to pay the interest on the bank loan. When the bank attempted to sell the land used
as collateral to recoup the money, it discovered that the documents supplied to the bank
were forged. As a result, the loan looked to be approved for a business purpose.

On August 19, 2019, Khadka Bahadur Khatri, the Karnali province's sacked minister of
physical infrastructure development, was charged with providing a forged bank guarantee
of Rs.10 million to the District Technical Office Bhojpur in order to obtain advance
mobilization, which is a payment made to the contractor before they begin work. Other
five people were also implicated in fabricating two distinct Agricultural Development
Bank advance payment guarantees totaling Rs. 5.55 million and Rs. 5.53 million,
respectively, and presenting them to the District Technical Office Bhojpur on June 10 and
November 4, 2016. In connection with this case, the government filed a banking offense
case against Khatri, Raju Prasad Shrestha, Chaabi Lal Dhakal, Rhandir Tumba, and Dev
Jung Shahi.

In a nutshell, it’s quite clear that, there is a huge significance of Banking Offence and
Punishment Act, 2064 in present context as well, since offences are still happening and
improves consumer transparency, also, it gives customers the ability to bank in total
privacy and also establish fair and equable banking opportunities.

14
2.3. International Scenario of the Subject Matter
Well, talking about the international laws, relating to the Banking Offence and
Punishment Act,2064, let’s start with the cases of India. India does not have formed
separate law in order to control banking offence. Indian Penal Code is used to control
banking offences. The following sections cover some of the key provisions of the IPC
(Indian Penal code) in this regard:

2.3.1. International Scenario of India

Dishonest misappropriation of property (section 403 of the Indian Penal Code):
According to this regulation, anybody who dishonestly misappropriates or converts any
movable property to his or her personal use is punishable by imprisonment for a term up
to two years, a fine, or both. For instance, A steals B's property in good faith, believing
that it belongs to him. Misappropriation is not a crime committed by A. However, if A
dishonestly misappropriates the property for his own use after discovering his mistake, he
is in violation of this provision. According to Explanation 1 to the section, a dishonest
misappropriation is a misappropriation within the meaning of this section. A person who
dishonestly misappropriates property for his personal benefit commits an offense under
this provision. According to Explanation 1 to the section, a dishonest misappropriation is
a misappropriation within the meaning of this section. A is not guilty of an offense if A
finds a property and takes it with the intention of returning it to its lawful owner.
Nonetheless, if he takes it for his own use without first seeking to locate the owner, he
commits the crime.

Criminal breach of trust, Section 405 of the IPC (Indian Penal code):

This provision states that anyone entrusted with property dishonestly misappropriates or
converts to his own use, or dishonestly uses or disposes of that property in violation of
any 3 direction of law prescribing the mode in which such trust is to be discharged, or of
any legal contract he has made touching the discharge of such trust. Section 406 of the
Penal Code states that a criminal breach of trust is punishable by up to three years in
prison, a fine, or both. Criminal breach of trust by a public worker, banker, merchant, or
agent is punishable by up to ten years in jail under Section 409 of the IPC.

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Section 415 of the IPC (Indian Penal code)– Cheating

Whoever, by deceiving any person, fraudulently or dishonestly induces the person so

deceived to deliver any property to any person, or consent that any person shall retain any
property, or intentionally induces the person so deceived to do or omit to do anything
which he would not do or omit if he were not so deceived, is guilty of cheating and which
18 act or omission causes or is likely to cause damage or harm to that person in body,
reputation or property, commits cheating.

Section 463-Forgery

It is defined as- “Whoever makes any false document or false electronic record or, part of
a document, or electronic record, with intent to cause damage or injury, to the public or to
any person, or to support any claim or title, or to cause any person to part with property,
or to enter into express or implied contract, or with intent to commit fraud or that fraud
may be committed, commits forgery”. The Madras High Court in AIR 1968 Mad 349
held that in order to constitute an offence under this section, the document must be false
and it must have been made dishonestly or fraudulently and it must have been made with
one of the intentions specified in Section 463.The Supreme Court declared in AIR 1979
SC 1890 that just delivering a lottery ticket to the state authority that is later discovered to
be counterfeit does not constitute forgery. The ability to recognize a fake paper is a must.
Forgery is punishable under Section 465 by a sentence of imprisonment of up to two
years, a fine, or both.

Section 489-ACounterfeiting of currency notes

This section provides that whoever counterfeits, or knowingly performs any part of the
process of counterfeiting, any currency notes or bank note, shall be punished for
imprisonment for life, or with imprisonment of either description for a term which may
extend to ten years, and shall also be liable to fine.

Moving on, some of the cases related to Banking offences and punishment in India are
mentioned below:

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Let’s talk about the Yes Bank initially. Rana Kapoor, the bank's founder, is charged with
money laundering in the Yes Bank fraud case. Rana Kapoor, his wife, and their daughters
were also allegedly implicated, according to the CBI. Dewan Housing Finance
Corporation Limited (DHFL) Promoter Director Kapil Wadhawan conspired with Rana
Kapoor to obtain financial support for DHFL through Yes Bank Ltd. The CBI has
charged the Kapoor’s, Wadhawan’s, and their firms under sections 120-B and 420 of the
Indian Penal Code, as well as Sections 7, 12 and 13 (2) of the Prevention of Corruption
Act, 1988, and 13 (1) (d) of that Act. (The Economic Time, 2021)

Vijay Mallya fraud was also suspected of defrauding SBI and its consortium of about
9,000 crores. (P Amaraveni, 2017)Similarly, In Nirav Mode fraud case, The CBI is
probing the largest scam of 11,400 crores from PNB Brady House branch by issuing
unsuitable bank guarantees in the form of bogus Letters of Credit (LC). (Singh, Srivastav,
Gupta, & Garg, 2020). 2G Spectrum Scam also prevailed. Here, the CAG reported that
the money received during the 2G spectrum allotment in 2008 differed by 1.76 lakh
crores from what was mandated to be collected. The Supreme Court found the spectrum
allotment unlawful and arbitrary in 2012, and 120 licenses were invalidated as a result.
(Sukhtankar & Vaishnav, 2014)

2.3.2. International Scenario of California

There has been an increase in the number of bank fraud cases in California. In California,
bank fraud happens when someone obtains assets or money from a bank or other
financial institution through illicit means. Bank fraud differs from bank robbery in that
the perpetrator conceals the crime in the hopes of going undetected. Bank fraud can also
refer to attempts to deceive a bank's depositors by impersonating a financial institution or
a bank in California. Some of the major bank frauds are: Bank impersonation, Forgery,
Stolen checks, Fraudulent loans, etc.

Moving on, some of the penalties that happened in California are:

Check fraud, which is illegal in California, as stated by Penal Code Section 476. This
offence demonstrates that someone intended to deceive someone else by using a check as
a payment method. This type of violation includes forging a check's name, changing the

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amount mentioned on the check, or fabricating a counterfeit check. This is a wobbler
offence in California that can be charged as a misdemeanor or felony. The culprit might
face a year in prison and/or a $1,000 fine if charged as a misdemeanor. The culprit might
face a term of sixteen (16), two (2), or three (3) years in jail, as well as a $10,000 fine, if
the crime is classified as a felony.

Similarly, there can be Securities fraud, which refers to a type of commercial transaction
in which a person gains ownership or a share in a firm. This can include assets like
equities and investments, for example. Selling “unqualified” stocks, selling securities that
do not fulfill qualification terms, providing deceptive information or behavior when
selling or buying securities, making false statements during a transaction, and insider
trading are all examples of this violation. Not completing out the required paperwork or
correctly disclosing facts regarding securities might lead to a securities fraud charge. The
California Corporate Securities Law of 1968 contains the majority of the information on
securities and fraudulent activities.

Lastly, there is credit card fraud. It basically refers to fraudulent action involving a
credit or debit card, as defined by Penal Code Sections 484e–484i. Using another person's
credit or debit card without their permission, selling or buying counterfeit credit or debit
cards, or even using your own credit or debit card after it has expired or been cancelled
are just a few examples. Due to the many sorts of credit card fraud offenses, the
defendant may face a variety of penalties. Depending on the facts of the case, a credit
card fraud

In a nutshell, these are some of the international scenarios, that can be related with
Banking Offense and Punishment Act, 2064.

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 CHAPTER THREE
Conclusion and Recommendation
3.1. Conclusion
In order to maintain great governance in the financial industry and maintain trust in the
financial system, Nepal has adopted a number of banking legislation. The Banking
Offenses and Punishment Act of 2064, as amended in 2073, is established as the primary
regulating law for reducing the impact and danger of banking offenses on the banking
and financial system, as well as maintaining public confidence in banks and financial
institutions.

Banking offenses such as fraud or conspiracy involving land or gold offered as security
for the use of credit facilities were more common in the past, but today, due to
technological advancements, it is critical to introduce new banking-related technology
while also minimizing the risks associated with such technologies. New rules are
essential to govern the financial offense when new technology emerge. The majority of
financial crimes are now committed by acquiring illicit or unauthorized access to bank
information and leveraging it to transfer millions of dollars from one account in a fraction
of a second.

However, as technology advances, legislation such as the Electronic Transaction Act of

2063, the Organized Crime (Prevention) Act of 2070, the Postal Savings Bank Regulation
of 2033, and the Postal Act of 2019 have been adopted. The following laws directly
pertain to overseeing and managing banking offenses in Nepal:

i) Banking offense and punishment Act, 2064

ii) Banking and financial institution Act, 2073

iii) Muluki Criminal (code) Act, 2074

iv) Nepal Rastra Bank Act, 2058

v) Negotiable Instrument Act 2034

vi) Corruption Prevention Act, 2059

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vii) Money Laundering Prevention Act, 2064(under assets money)

viii) Cooperatives Act, 2074

ix) Commission for the investigation of Abuse of Authority Act, 2048.

One of the most important aspects that has been prevailing in the banking industry at the
moment is the Banking Offense and Punishment Act, and one of the reasons for its
enactment is that as a member of the WTO, there are various sectors that must be enacted
by the government in order to maintain consistency with the WTO and the IMF.
Similarly, the IMF's standards are comparable to the money laundering prevention
legislation of 2064, and this banking violation is similar to the IMF's banking business
consistency. In addition, the BAFIA and the NRB Act were both passed in the same year.

The Nepal Rastra Bank Act, 2058, defines offenses and penalties under Chapter 11. The
penalties set out in Section 96 of the Act apply to anybody who violates Section 95 of the
Act. The government of Nepal serves as the plaintiff under Section 97 because the
offenses committed under this law are considered public offences. Though, rather than
initiating action under this statute, it is normal practice to issue a First Information Report
of a financial infraction under the Banking Offence and Punishment Act of 2064. As a
result, an infraction and penalty scheme were developed in Chapter 11 of the Bank and
Financial Institutions Act of 2073. Anyone who violates Section 70 of the Act is subject
to the penalties outlined in Section 71. According to Section 72 of the law, the
government of Nepal is the plaintiff in all lawsuits.

Despite the fact that numerous laws have provided penalties for banking offenses, the
Banking Offence and Punishment Act of 2064 has provided a broader range of penalties,
so prosecutions under other laws such as the Corruption Prevention Act, Nepal Rastra
Bank Act, Bank and Financial Institutions are uncommon.

3.2. Recommendations
In order to solve the concerns and challenges of financial fraud, the following
recommendations are presented below:

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i. When a single subject has many laws and offenses, it creates ambiguity and makes law
enforcement difficult. The Banking Offence and Punishment Act, 2064, should integrate
Sections 95 of the Nepal Rastra Bank Act, 2058, and Section70 of the Bank and
Financial Institutions Act, 2073.

ii. Bringing issues relating to banking offenses such dishonored checks, forgeries, and
organized crime under the jurisdiction of a commercial bench is an acceptable
mechanism for punishing them.

iii. It is critical to determine if an Act (the Corruption Prevention Act, the CIAAA, the
Banking Offence and Punishment Act, or the Muluki Criminal Code Act) should be
invoked in the case of a banking infringement by personnel of government-owned banks.

iv. Consistency should be maintained in judicial decisions or directives. When various

people have different thoughts or reach different conclusions about the same topic, there
is ambiguity.

v. It is necessary to categorize the offenses committed in the financial industry. The

amount of money involved, access to technology, and the presence of documentation or
collateral are all characteristics that might be used to classify a transaction.

Therefore, these are some of the recommendations, that can be presented from
conducting this term paper related to Banking Offense and Punishment Act,2064.

REFERENCES

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Acharya, S. (2020, April). Legal Measures of Banking Offence and Punishment System:
A Reference of Nepal.

Atri, K. (2020). Banking Offence Law in Nepal.

Bhasin, M. L. (2016). Frauds in the Banking Sector: Experience of a Developing

Country. Asian Journal of Social Sciences and Management Studies.

Khanna, A., & Arora, B. (2009). A study to investigate the reasons for bank frauds and
the implementation of preventive security controls in Indian banking industry.
International Journal of Business Science & Applied Management .

Office of Attorny General, N. (2074). Study Report On Effect of Laws relating to

Banking Offence 2074.

P Amaraveni, D. (2017). Finanacial irregularities and frauds in lending corporate

undertaking-A case study. South Asian Journal of Marketing & Management.

Shrestha, P. M. (2016, January 2015). Tight laws in offing against banking fraud.
Kathmandu, Bagmati, Nepal.

Singh, G., Srivastav, S., Gupta, A., & Garg, V. (2020). An Analysis of Financial Fraud
through PNB Bank Scam and its technical Implications. International Conference
on Computation, Automation and Knowledge Management (ICCAKM).

Singh, T., & Nayak, S. (2015). Frauds in Banking: Corporate Governance Issues. IIM
Banglore.

Sukhtankar, S., & Vaishnav, M. (2014). Corruption in India: Bridging Academic

Evidence and Policy Options. National Council of Applied Economic Research.

The Economic Time, s. (2021, December). Rana Kapoor misused official position to get
Delhi property at inadequate consideration: Court. Retrieved from The Economic
Times.

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