BANKING LAW

Major Banking Laws

 Major Banking Laws

• The following are he major banking laws in Nepal.

• NRB ACT 2058

• BAFIA 2073
• Banking Offense and Punishment Act 2064
• Asset Laundering Prevention Act, 2064
• Foreign Exchange Regulation Act, 2019
• Company Act, 2063

AS we have studied separately for NRB ACT and BAFIA in previous chapters. We are
covering the remaining banking affecting or related acts in this chapter.
 Banking Offence and Punishment Act 2064

• Banking offences are all those unauthorized activities causing loss to the banking
and financial system of the country. They are various illicit acts for obtaining money
and asset owned by the banking institution, they are also termed as banking frauds.
Many stakeholders like directors, employees, customer and other third parties can
commit such criminal activities, which are generally white color crimes.
• To prevent banking system from all type of banking offences and frauds and set a
uniform practice of punishment to anyone who performs such criminal activities, the
parliament of our country has approved Banking Offence and Punishment Act in the
year 2064 and after that it is in strict practice to deal in judiciary proceedings for
such offenses.

• Objectives of the act

• To clearly define the act of banking offence in banking system.
• To promote the trust of general people on banking through imposing punishments for
such offences.
• To protect the rights of depositors and the shareholders
• To provide quality, healthy, reliable and sound banking
• To reduce the risk of financial sectors.
• To make necessary provisions of different punishment based on types of banking
offences committed.
 Salient Features of Banking Offence and Punishment Act 2064
• BOP act has increased its scope from bank and fis to dhukuti, securities market,
insurance, other financial intermediaries, cooperatives , commodity market as well in
its recent amendment.
• As per the act following are the banking offenses;
Section 3: Not to open account and demand cash in unauthorized manner.
a) Opening or knowingly opening account with false documents.
b) Opening or knowingly allow opening account in the name of fictitious person or
organization.
c) Draw cheque to obtain or knowingly make the payment from the account where
he/she has apparent knowledge that the account does not have sufficient balance.
Section 4: Not to obtain or issue cheques, cheque-books or bank statements in an
unauthorized manner:
d) No one shall demand or obtain a cheque, cheque-book or account statement of other person in an
unauthorized manner or by misleading in any manner or by giving an impression that he/she is
the true holder of the same.
e) No one shall, in an unauthorized manner, provide a cheque, cheque-book or account statement to
other person or institution without the request of the concerned person in writing.
Section 5: Not to make unauthorized withdrawals or payment
(a) withdraw money, in an unauthorized manner, from other person's account,
(b) withdraw money by stealing a cheque held by other person or by obtaining the same in any
other manner,

(c) transfer fund, in an unauthorized manner, from customer's account or make unauthorized
payment there from,

(d) obtain or make cash payment by getting any sort of fake or other person's bills of exchange,
cheque, draft or other similar instruments in an unauthorized manner.
 Salient Features of Banking Offence and Punishment Act 2064
Section 6: Not to obtain or make payment by way of abuse or unauthorized use of
electronic means
No one shall, obtain or make payment by way of abuse or unauthorized use of a credit
card, debit card, automated tell er machine(ATM) card or other electronic means.
Section 7: Not to avail or provide loan in an unauthorized manner
(a) Avail or provide loans by submitting a false, fake or unreal financial statement or by
creating artificial business.
(b) Avail or provide over loans by way of unnatural over valuation of collateral security.
(c) Avail or provide loans by way of unnaturally hiking the project cost based on false details.
(d) Avail or provide credit, facility or discounts beyond the authority obtained or limit sanctioned.
(e) Re avail or re provide loans from or by other Bank of Financial Institution without having due
release of the collateral security once provided to a Bank or Financial Institution or in excess
than the amount covered by the collateral security against the same collateral security.
•However, this restriction shall not be applicable in case of release of loans to be provided
under consortium.
f) Avail loans through an entity having established in the name of a person who, in fact, does
not have financial capability to run the business or, who is a person under undue influence or
extend loans knowing the said facts.
g) Extend credit more than the requirement compared to the customer's business transaction.

h) Accept or provide any sort of undue benefit in return to granting credit facility.
Section 8: Not to misuse credit
No one shall misuse the credit facilities availed from a bank or financial institution or let the same
be misused by diverting in the purpose other than for which the credit facilities were availed.
 Salient Features of Banking Offence and Punishment Act 2064
Section 9
• Not to misuse banking resources, means and assets
Section 10: Borrowers are not allowed to withdraw money and acquire property
No borrower who has over dues shall remit money to a bank by opening an account with a
local or foreign bank or financial institution or continue such account or operate the
account or purchase any movable or immovable assets in any manner or acquire title or
possession over such assets in any manner without settling the dues payable to a bank or
financial institution. In case any borrower, before over due, has obtained any moveable or
immovable asset or continued account operation, the borrower must use the amount to be
received from such asset or bank account in repaying the over dues.
Section 11
• Not to stop credit facility in the way to loss working project of the borrower
Section 12
• Not to make a loss by making an alteration in account or laser or by committing
forgery or fraud
Section 13
Not to derive a false valuation
Section 14
Not to carry out and cause to carry out irregular economic or financial transaction
a) Not to carry out Dhukuti transaction
b) Not to carry out an illegal economic and financial transaction
 Major Provisions of Punishment under Banking Offence and
Punishment Act 2064
• For opening an account or demand cash payment in an unauthorized manner-recover
the claim amount, fine as per claim amount and imprisonment up to 3 months
(punishment for offences under Section 3
• For not to stop credit facility in the way to loss working project of the borrower-
recover the claim amount, fine as per claim amount depending upon the offence
committed ( punishment for offence under section 11)
• For rest of the offenses of section 5,6, clauses d,e,f,g,h,j of 7, 8, 9, 10, 12 and
section 14, s/he will be punished with a fine and imprisonment as stipulated on the
basis of claimed amount and depending upon the degree of offense committed

Claim Amount Imprisonment Fine Compensation

Up to 10 lakh Up to 1 year As per claim amount As per claim amount

10-50 lakh 2-3 years As per claim amount As per claim amount

50-100 lakh 3-4 years As per claim amount As per claim amount

100-1000 lakh 4-6 years As per claim amount As per claim amount

1000-5000 lakh 6-8 years As per claim amount As per claim amount

5000 lakh-1 arab 8-10 years As per claim amount As per claim amount

Above 1 Arab 10-12 years As per claim amount As per claim amount
 Major Provisions of Punishment under Banking Offence and
Punishment Act 2064

• If anyone commits any offence specified under clause a,b,c of Section 7 or section
13, s/he shall be punished with the fine equivalent to claim amount and
imprisonment up to 4 years
• If anyone commits any offence specified under Section 12a, 14a and 14b; shall be
punished with the fine equivalent to claim amount and;
– if the claim amount up to 50 Lakh- 1 to 3 years of imprisonment
– if the claim amount from 50 Lakh to 5 crore- 3 to 5 years of imprisonment
– if the claim amount from 5 crore to 50 crore- 5 to 7 year imprisonment and
– if the claim amount is above 50 crore- 7 to 9 year of imprisonment
• For assistant half the punishment of main convicted
• If claim amount is not clear, 10 Lakh fine and 2 years imprisonment
• If anyone involved only in an attempt of banking offence, s/he will also be punished
 Asset Laundering Prevention Act 2064

Money laundering refers to underlying primary profit making crime such as corruption, drug
trafficking, fraud, tax evasion along with the intent to conceal or divulge the proceeds of the
crime or to further fund the terrorist acts. Such activities generate financial flows that
involve the manipulation of resources away from economically and socially productive uses
and these manipulations may have adverse impact upon the whole financial sector and
financial stability of the country. Because of the negative consequences of this form of
financial crimes, every country has to work against these crimes with enactment of anti
money laundering act along with its proper implementation. If this act is effectively enacted
and implemented, it will radically mitigate the adverse effect of criminal activities over the
economy and promote integrity and stability in financial markets

In Nepal our legislature parliament has enacted Asset Laundering Prevention Act in the year
2064, which has been applied all over Nepal and be equally applicable to any person
committing the offence of money laundering or terrorist financing irrespective of where such
person is located in Nepal or outside Nepal.
Objectives of the act
A. To prevent and control money laundering and terrorist financing
B. To punish the criminal according to the law
C. To confiscate and seize the property obtained from the way of money laundering and
terrorist financing
D. To prevent the country’s financial sectors from being utilized in an act of money
laundering and terrorist financing
E. To deal with any other issue connected with money laundering in Nepal
 Salient Features of Asset Laundering Prevention Act 2064
 It provides clear provision of not to launder property
 Provision of not to commit offence of terrorist financing
 Provision about the act committed in foreign state to be an offence
 Provisions on customer identification and transaction with contains the following major concern;
 Provision on anonymous or fictitious accounts
 Prohibition against Shell Bank
 Special provisions for identification of politically exposed person
 Provision of enhanced customer due diligence simplified customer due diligence and customer due
diligence of existing customers
 Identification and verification by third party
 Obligations regarding wire transfers
 Provision on cross-border correspondent banking
 Compliance with obligations by foreign subsidiaries and branches
 Obligation to report suspicious transactions
 Provision of regulation and supervision of reporting entities
 Provision of functions responsibilities and powers of the regulator
 Provision of regulatory actions and sanctions
 Provisions for national coordination committee and financial information unit
 Provision of function duty and power of national coordination committee
 Provision of functional responsibility and power of FIU
 Provision on investigation and inquiry
 Functions, duties and powers of the investigation officer
 Special provision on freezing of property and funds
 Punishment in the offence of money laundering and terrorist financing as well as concealing or
destroying evidences
 Provision of confidentiality etc
 Punishments Under Asset Laundering Prevention Act 2064
Punishment to the Offender:

1. Anyone committing offence under Section-3 shall be punished as follows, in accordance with the degree of
offence committed:-
(a) Fine equal to the amount involved in the offence or imprisonment from one year to four years or both
punishments to any person or staff of a bank, financial institution or nonfinancial institution who has
committed offence or in case such staff is not identified for the person working as a chief at the time of
committal,
(b) In case an office bearer, chief or staff of a bank, financial institution or non-financial institution or public
servant has committed offence, ten percent more than the punishment mentioned in Clause (a).
2. The person assisting or provoking to commit or causing to commit an offence under this Act shall be punished
half of the punishment to be done to the offender.

Imposing Fines:
3. There shall be a fine of five hundred thousands rupees to a bank or financial institution and from twenty five
thousands to one hundred thousands Rupees to a non-financial institution as per the degree of offence for the act
of not submitting documents to the Financial Information Unit pursuant to Section 7 and Clause (a) of Section
10.
4. The Financial Information Unit shall punish pursuant to Sub-Section (1) and person not satisfied with the
punishment may appeal to the Appellate Court within thirty five days of such punishment.
 Punishments Under Asset Laundering Prevention Act 2064
Punishment for Concealing or Destroying Evidences

Any person who commits the offence of concealing or destroying evidence related to acts deemed to be an offence
under this Act shall be liable for the imprisonment from one month to three months or fine from fifty thousand rupees
to one hundred thousands rupees fine or both in accordance with the degree of offence committed and person assisting
for committing such act shall be punished half of such punishment.

Punishment for Creating Obstacles:

If any person creates obstacles in the proceedings of investigation and inquiry undertaken under this Act, the
adjudicating officer may punish him/her with an imprisonment up to six months or a fine up to five thousand rupees or
both based on the report of investigation Officer.

Assets to be Confiscated:
1) Any assets obtained from an offence under this Act and assets accumulated thereof and assets utilized for
committing such offence shall be confiscated.
2) In case entitlement to assets pursuant to Sub-Section (1) has been transferred to someone else and an amount has
been quoted in such act of transfer, the amount shall be dealt as per the deed with security (Kapali).

Seizure of Passport
Notwithstanding anything mentioned in prevailing laws, the Department may issue an order to the concerned office for
not issuing new passport or to seize already issued passport if so required as per the circumstance, and degree of the
offence.
 Foreign Exchange Regulation Act 2019 BS
Foreign exchange regulation act is a regulatory mechanism that empowers the
Nepal Rastra bank to pass guidelines and the government of Nepal to pass rules
in relating to foreign exchange on top of the foreign trade strategy of the nation.
This act has been enacted in the year 2019 across Nepal and also apply to all
citizens of Nepal who reside outside of Nepal and all forms companies bodies and
branches and agencies of such firms companies or bodies which have been
registered in Nepal and operating in any place outside of Nepal.
Nepal is a country with import based economy. To conduct import business we
need foreign currency reserves but our sources for gaining foreign currency is
very limited. This is why our country has to wisely decide regarding the expenses
in foreign currency and we cannot let the use of foreign currency freely otherwise
it will create a huge economic problem to our nation like recent problem in
Srilanka.
Objectives of the act
1) To regulate foreign exchange related transactions
2) To maintain the economic interest of the general public
3) To promote the use of foreign exchange for the payment and receive of
foreign trade
4) To determine the value of foreign investment
5) To promote foreign investment and technology transfer
6) To promote the use of foreign currency in loan exchange
7) To maintain the balance of payment of the nation
 Salient Features of Foreign Exchange Regulation Act 2019

 The provision relating to a license for the transaction of foreign exchange

 Foreign exchange regulation act assigned to NRB as a regulation for foreign
exchange transactions
 The provision relating to the use of foreign exchange in foreign trade to pay or
receive.
 Provision relating to lending borrowing loan, repatriation (sending of money
back to one’s own country) of investment and payment on technology transfer
in the form of foreign exchange
 Provision relating to investigation and seized of confiscation of suspicious
foreign exchange which is used by violating the legal provision
 Provision relating to the permission of NRB to be obtained for opening the bank
account in abroad by Nepali citizen
 Provision of reward to information provider up to 20% of the claim amount
realized by the court
 Provision of punishment on foreign exchange related offence maximum fine up
to three times of claim amount and imprisonment up to three years
 Person, banks and Fis, firms or company must make foreign exchange
transaction only with the licensed company
 Punishment under Foreign Exchange Regulation Act 2019

 Act doing foreign exchange transaction by violating the provision of

acts/rules and directing by any person, firms of an institution is called
foreign exchange related offence such as Hundi----- fine three times
of claim amount. If the claim amount is not clear then fine up to 2
lakhs.
 In case of violation of export fine up to two times of claim amount
 In case of import fine up to three times of claim amount for main
convicted, for accomplice half the punishment of the convicted.
 For a constitutional person and politically appointed authority, double
the punishment but imprisonment only up to extra two years.
 Company Act 2063
• A company is a legal entity incorporated by a group of people to take involved in and
operate a business, industrial or commercial enterprise under the provision of
company law. It can also be said legal or artificial person which is governed by
various laws such as tax law, company law, banking law (for Bfis) etc.
• In every country, purpose of formation and implementation of company law is to
regulate incorporation of a company, responsibilities of a company, its directors,
dissolution of a company.
• To meet the standard of governing companies in Nepal it had been necessary to
make and consolidate the law relating to companies in order to bring about
dynamism in the economic development of the country by promoting investment in
the industry, trade and business sector through economic liberalization and make the
import incorporation, operation and administration companies much easier, simpler
and more transparent. In the same line the legislature parliament of our nation has
enacted the Company Act in the year 2063. It has 186 sections in 21 chapters.

Objectives of the act

• To create dynamism into the economic development of the nation by promoting
investment in industry trade and business.
• To promote the use of economic liberalization
• To make legal provision relating to incorporation, operation, management and
administration of the company more simpler, easier and more transparent.
 Various Important Provisions of Company Act 2063
Incorporation of Company
Any person desirous of incorporating a company pursuant to this act shall make an application
to the office, in such format and accompanied with such fees as prescribed under this act.
Where an application is made for the incorporation of the company, the office, after making
necessary inquiries, have to register such company within 15 days after the date of making of
the application and grant the company registration certificate.

However the office may refuse to register the company in certain circumstances as prescribed
in this act and if the office refuses to register the company, it shall give a notice there of,
accompanied by reasons to the applicant no later than 15 days after the date of application
made.
MOA and AOA
The MOA describes the rationality of the existence of the company along with its objectives. It
is the identity of the organization that provides the name of the company, address of
registered office, figures of authorized capital and the paid capital figure by the promoters as
their contribution

The Article of Association describes how the company is going to attend the objectives set
forth in its MOA and carry out its objectives in a well managed manner. Some matters
described in the AOA are:
 Procedures for general meeting
 The board structure and the tenure of the directors
 Required subscription of shares to become a director
 Qualification and number of independent directors
 Power and duties of the board of directors etc
 Various Important Provisions of Company Act 2063
Provision of Shares and Debenture
The face value of shares of a private limited company shall be as specified in its Articles of Association.
The face value of shares of a public limited company shall be Rs 50.00 or shall be equivalent to such
amount exceeding Rs.50.00 as is divisible by figure 10 as provided in the MOA and AOA.
In inviting an application by the public company for the submission of its shares no amount exceeding
50% of the face value of each share shall be demanded with the application provided however that in
raising capital by a company which has been in operation since at least three years by publishing its
audited financial statements for the last three years, at the time of publication of its prospectus, this
provision shall not be applicable.
If a public company deems necessary to raise loans or issue debentures, it may, specifying the reason
therefore, a work plan will be executed from proceeds and budget necessary for that purpose raise loans
or issue debentures with or without pledging or mortgaging its immovable assets.

Provision related to meetings of company

A public limited company, after receiving license for operating business needs to conduct its first general
meeting within one year, which shall be followed by subsequent annual general meetings within six months of
completing every fiscal year. The Company Act, 2063 also prescribes the procedures for call of the AGM,
discussion and decision at the AGM, legality of the meeting, quorum, operations of AGM, voting rights etc.
Every public company needs to submit the detail of AGM within 30 days including the number of shareholders
present, annual financial statement, reports of director and auditor and the decisions made by the meeting to
the OCR. Private companies need to submit an auditors verified copy of its annual financial report within six
months from the date of completion of the fiscal year.
General meeting other than the first and the AGMs are called the extraordinary general meeting. It is usually
called by the directors to discuss and decide about some special or urgent business issues which cannot be
waited till the next AGM. Such meeting can also be called by the board of directors on the request of auditor.
This Act also allows shareholders holding 10% of the paid up capital or 25% of the total shareholders(in
number) to request an extraordinary general meeting to be called by following certain procedures prescribed
in the Act.
Director may be present in the AGM through video conferencing or similar technology, however ensuring
presence by means of video conferencing or similar technology is allowed in force majeure situations only.
 Various Important Provisions of Company Act 2063
Provision of Board of Directors
 Directors are appointed as provided by the AOA of the company. IN most of the cases, directors
are appointed by the shareholders in the general meeting through a voting process or by the
promoters for the period until the first general meeting or by the board of directors as an
additional director or to feel a casual vacancy or as an alternative director.
 Usually anyone appointed by the general meeting can be a director provided that the person is
more than 21 years of age, has a sound mind has, not been declared insolvent, has not been
convicted of an offence of corruption or other morally degrading offence. Their tenures are as
described in the AOA and for public company the tenure cannot exceed four years.
 Similarly the board meetings in a private company will be carried out as for the provisions in the
AOA. Public companies need to have a minimum of six board meetings in a year with the interval
between any two meetings not exceeding three months. A minimum of 51% of the total board
members need to be present to make the meeting legitimate and all meetings need to be
properly documented with the use of minutes.
Provision of Accounts and Records of Company
Every company shall duty maintain its account in the Nepali or the English language. The account
shall be maintained according to the double entry system of accounting and resemble with the
accounting standards imposed by the competent body under the prevailing law and with such other
terms and provisions required to be observed pursuant to this act, in such a manner as to clearly
reflect the actual affairs of the company.
The following annual financial statement shall be prepared by the board of directors of a public
company every year at least 30 days prior to the holding of its annual general meeting and in the
case of a private company within six months of the expiry of its financial year
 Balance sheet as at the last date of the financial year
 Profit and loss account of the financial year
 Description of cash flow of the financial year
 Various Important Provisions of Company Act 2063
Provision of call for explanation and investigation
Where any matter is unclear in the documents submitted by a company, and such matter has to be
set out or any explanation is necessary in respect of any matter, the office may call on the company
to furnish explanation on such matter within such reasonable period of time as specified by it.

The management of the company shall, within the specified period of time, send proper replies to the
matters with respect to which explanation has been called. If in the course of pursuing explanation,
the office notices any irregularity in the business of the company, it may give necessary directive to
the company to regularize, or cause to be regularized it, and it shall be the duty of the company to
obey such directive.

Provision of voluntary liquidation of company

Notwithstanding anything provided by the Insolvency Act, the shareholders of the company after
passing a special resolution are able to dissolve the company if it is;
 able to pay debt or any other liability
 not declared insolvent
 able to pay all the liabilities within one year
 able to pay all the liabilities when discussing at the matter of dissolution in the general meeting
The decision to liquidation of a company should be accompanied by the appointment of a liquidator.
The liquidator assumes the power of the board of directors and runs the company unless the company
is able to pay off all its debts. Finally all the assets of the company are sold and the proceeds are
used to pay off the debt and the remaining amount if any are returned back to the shareholders.
 Various Important Provisions of Company Act 2063
Provision of Cancellation of registration of company
1. Liquiation by Company Registrar’s Office
It is also called mandatory liquidation or the cancellation of registration of the company. The office can
dissolve the company in the following circumstances.
 In the case of submission of application for dissolution of company by the promoters stating that
the company has not been able to start the transaction.
 If the annual report has not been submitted to the office regularly for three years or the fine
imposed by the office has not been paid.
 If the office believes that the company is not in existence anymore.
2. Liquidation by the order of the court
The court can issue an order for liquidation or cancellation of the company if its shareholders filed suit
claiming that the company is acting against their interest and the claim is deemed true.
Provision of protection of shareholders
If, on behalf of a company, any director or officer of the company does any act beyond his/her
jurisdiction, any shareholder of such company may make a petition to the Court to prevent such act. On
receipt of such petition as referred in this act, the Court may initiate inquiry in the concern company or
its directors or officers and issue an appropriate order.
Provision of holding and subsidiary companies
Holding company may control its subsidiary company as follows:
by holding direct or indirect control over the formation of the board of directors.
by holding majority shares of the company.
If any company becomes a subsidiary company of any other subsidiary company, the former company
shall also be a subsidiary company of the holding company controlling the latter company. No
subsidiary companies shall purchase the shares and debentures of the holding company or make
investment in the holding company in any other manner.
 Various Important Provisions of Company Act 2063
Special provision relating to private company
Notwithstanding anything contained elsewhere in this act, where a consensus agreement
concluded between the shareholders of a private company has a provision that the annual
general meeting of the company shall not be held, such private companies shall not be
required to hold its annual general meeting during the period of such agreement.
Where the consensus agreement is concluded with the provision that the annual general
meeting shall not be held, the company shall also make provisions on the procedure of
making decision on such matters as required to be decided by the general meeting under this
act and on the authority of making such decision.

Provision relating to single shareholder company

Notwithstanding anything contained elsewhere in this Act, except as otherwise provided in the
articles of association of a single shareholder company, no meeting of the board of directors
or general meeting shall be required to be called for all acts and decisions required to be
done.
In the event of death of the shareholder of a single shareholder company, his/her heir or the
person acquiring the title to his/her shares shall acquired the right of shareholder, and such
heir or person shall do all necessary acts, the person so acquiring the title shall make such
decision in writing.
Provided, however, that if no heir to such shareholder is found, the office shall appoint
liquidator and liquidate the company in accordance with the prevailing law. A person acquiring
the title to shares in such situation, shall give information thereof, accompanied by the
evidence of such title, to the office no later than one month after the acquisition of such title.
 Various Important Provisions of Company Act 2063

Provision Relating to Dividend

Except in the following circumstance dividends shall be distributed to the shareholders within
45 days of the decision made to provide dividend. In the event of failure to distribute the
dividend within the time limit the dividend shall be distributed together with the interest
thereon at such rate as may be prescribed.
 If any law prohibits the distribution of dividend
 If the right to receive dividend is subject to any dispute
 If in a circumstance beyond control of the company or for any reason, the dividend
cannot be distributed within the set time limit.

The board of directors of any company may in the following circumstance distribute interim
dividend out of the profits for the previous financial year:
 where the Articles of Association contains a provision on the distribution of interim
dividend;
 where the annual financial statement for the financial year out of the profits of which
year interim dividend is to be distributed has already been certified by the auditor
and approved by the board of directors.