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Chapter 4 Legal Aspects of Professional Engineering in Nepal
Chapter 4 Legal Aspects of Professional Engineering in Nepal
Chapter 4 Legal Aspects of Professional Engineering in Nepal
Engineering in Nepal
(Chapter 4; 9 hours)
December 2015
Legal Aspects of Professional
Engineering in Nepal
4.1 Introduction to Nepalese legal system
4.2 Essentials of a valid contract
4.3 Void and voidable contracts
4.4 Significance of a contract
4.5 Factors to be considered in preparing a contract document
4.6 Interpretation of contractual clauses
4.7 Liability under contract, criminal law and tort
4.8 Duties and liabilities of designers and professionals
4.9 Conditions for establishment of professional negligence (duty, breach,
proximate cause and damage)
4.10 Types of business enterprises: sole, partnership and limited company)
4.11 Intellectual property right (copy right, patent, design and trademark)
4.1 Introduction to Nepalese legal system
Components of a Legal System
1. The legal system of a nation includes:
2. acts/laws, court decisions/precedents (ain, kanun, nirnaya/najir)
3. rules, regulations, bylaws, directives (niyam, biniyam, nirdeshika)
4. treaties, conventions, policies, (sandhi, prachalan, niti)
5. formation orders, ordinance, promulgations, (adesh, adhyadesh, ghoshana,)
6. access to justice, freedom to choose legal advisor,
7. concepts of “innocent until proven guilty”, and
8. implementation aspects of 1 to 6 above.
• Special Court
• Arbitration
• provision to establish special types of courts or tribunals for
the purpose of hearing special types of cases by the law:
four Revenue Tribunals, one Administrative Court, one
Labor Court, one Debt Recovery tribunal and one Debt
recovery Appeal Tribunal and one special court.
(http://www.supremecourt.gov.np/main.php?d=general&f=preliminaries)
Acts related to Engineering Professional Practice
in Nepal
The Patent, Design and Nepal Engineering Council Act,
Trademark Act, 1965 1999
Labor Act, 1992 Nepal Arbitration Act 1999
Insurance Act, 1992 Local Self Governance Act, 1999
Immigration Act, 1992 Construction Business Act, 1999
Foreign Investment and Copy Right Act, 2002
Technology Transfer Act, 1992 Income Tax Act, 2002 &
Industrial Enterprises Regulation
Development Institute Act, 1996 Company Act, 2006
Value Added Tax (VAT) Act, 1997 Public Procurement Act, 2007
Environmental Protection Act (amendment 2012)
1997 International laws/ conventions,
Contract Act, 1999 Bilateral agreements (WTO (23
Arp 2004), ILO, BIPPA)
4.2 Essentials of a valid contract
• Offer and acceptance: An offer is a promise made by a party/person to
another party/person with an intention of getting approval over his/her
promise. A tender submitted by a contractor is considered as offer. The
client, after due consideration and evaluation of the offer, provides
acceptance of the offer.
• Mutual intent to enter into contract: An agreement between two (or
more) parties is not automatically a contract. A contract requires the
parties intention to establish a legal relationship. The parties’ intention of
entering into contract should be clearly reflected in the agreement.
• Consideration: All the concerned parties of the contract should get
something of value for fulfilling the terms and conditions of the contract.
• Capacity to contract: A party (or person) entering into a contract should
be of legal age and should be under his/her own control.
• Lawful purpose: The objective of a contract must be lawful to be valid.
• Free consent: The parties in a contract should have consented freely to
enter into the contract. A contract signed under coercion, undue influence,
fraud, misrepresentation etc. are invalid.
4.3 Void and voidable contracts
4.3.1 Void Contracts:
Characteristics of Sole Business Concern: registered under Private Firm Registration Act 2014
• Sole ownership, management and control: A single person establishes, owns, manages
and controls all aspects of the business.
• No separate existence of business and owner: Owner and business do not have separate
identity; the owner represents the business; insolvency of owner dissolves the business.
• Unlimited liability: The sole owner is liable to pay debt not only from business property,
but also from personal property, if needed.
• Ownership and risk: The owner bears sole risk and owns total profit.
• Individual capital investment: Capital is invested by owner only from personal property.
• Freedom of Occupation: Easy to form and less capital needed. Can choose occupation
best suited to situation.
• Limited area of operation: Due to limitation of financial and human resources, the area of
operation is limited.
• Less legal formalities: The requirements to establish and operate sole business concern
are much less compared to other forms of business.
• Voluntary origin and end: The owner can start and end business, by fulfilling certain legal
formalities.
Advantages and Disadvantages of Sole
Business Concern
Advantages Disadvantages
Easy to form or establish Unlimited liability
Effective management and control Limited capital
Easy to dissolve Limited management
High flexibility Limited expansion
Quick decision Absence of legal status
Sole claim on profit Chances of wrong decisions
Secrecy Lack of specialization
Benefit of inherited goodwill Loss in the absence of a key
Credit Standing person
Direct relationship with customer Uncertain future
Social and National advantage
Stability and Continuity
Characteristics of Partnership Business
Organization: registered under the Partnership Act
2020 BS (1964)
– Plurality or association of persons
– Joint ownership
– Unlimited liability
– Sharing of profit and loss
– Established on the basis of agreements and between
the persons
– Members do not have separate existence
– Joint management and control
– Joint agentship
– Partnership right cannot be transferred/ No transfer of
interest
Advantages of Partnership Business Concern
Easy to form: relatively easy to form and register
Capital and credit: better than Sole Business Concern
Advantages of Division of Labor: each partner can lead in his/her
specialization
Integration of Ability and Skill: Knowledge, ability and skill of multiple
investors/partners can be utilized.
Quick Decision Making: Relatively quicker decision making process compared
to limited company
Incentive to work hard: Since profit is to be shared only among partners, there
is incentive to work hard.
Flexible: Can change mode of business based on changes in market situation,
without much difficulty.
Safeguard of the interests of minorities: Decisions are normally taken with
consent of all, hence smaller partners also have equal say in decision making.
Reduced risk: Risk is reduced, compared to Sole Business Concern, because risk
is distributed among partners.
Possibility of Expansion: Partners can be added, which increases possibility of
more fund for expansion of works.
Disadvantages of Partnership Business Concern
Unlimited liability: Partners are individually and jointly liable for the
full amount of loss.
Uncertain existence: Partnership business can suddenly collapse due
to conflict among partners or due to sudden demise of a partner or
due to certain action of a partner.
Limited resources (financial and human): Compared to a joint stock
company, the resources are limited in partnership business.
Possibility of misunderstanding/disagreement and friction among
the partners: Due to different interests of each partner, there is
possibility of misunderstanding/disagreement and conflict/friction
among partners, which can negatively impact PBO.
Difficulty in transferring ownership: Consent of other partners is
required for transfer of ownership, so one partner cannot sell his/her
ownership to anyone whom he/she likes.
Slow decision making compared to Sole Business Concern: Decisions
are made by consent, so the decision making can be slow.
Less of public faith: Financial status statements are not made public,
hence there is less public faith in PBO.
Limited Company (Joint Stock Company)