Nepal Rastra Bank Act, 2058 (2002)

Nepal Rastra Bank Act, 2058 (2002)

		Date of Authentication and publication
			17 Magh 2058 (January 30, 2002)
Amending Act			Authentication and Published date
1.	Nepal Rastra Bank (First Amendment) Act, 2007 (2063)^É			2073.07.23
2.	Republic Strengthening and some Nepal Laws Amendment Act,2066^®			2066.10.07
3.	Nepal Rastra Bank (Second Amendment) Act, 2073.			2073.07.29

Preamble:

Whereas, it is expedient to establish a Nepal R a s t r a B a n k to function as the Central B a n k ^E … . . ^p to maintain stability of price and balance of payment and stability of the entire financial sector to support sustainable development, of ……⁼Nepal,

Now, therefore, be it enacted by Parliament in the first year of reign of His Majesty the King Gyanendra Bir Bikram Shah Dev.

Chapter-1

Preliminary

Securities Section 2(o)

"Securities" means share, stock bond, debenture, debenture stocks issued by any corporate body or a certificate of unit saving scheme or collective saving scheme (mutual fund) or transferable certificate of deposit issued by a corporate body in accordance with laws, and this expression also include the securities or receipt of deposit (pledge) of such securities, and interest in securities prescribed by Government of Nepal upon publishing notification in the Nepal Gazette.

Chapter - 2

Establishment, Objectives and Functions, Duties and Powers

Objectives of the Bank Section 4:

(1) The objectives of the Bank shall be as follows:-

(a) To formulate necessary monetary and foreign exchange policies in order to maintain the stability of price and balance of payment for ^E … . . ^p economic stability and sustainable development of economy, and manage it;

(b) To increase the access of the financial service and increase the public confidence towards the banking and financial system by maintaining stability of the banking and financial sectors,

(d) ^E …..

(e) ^E … .

(2) The Bank shall, without any prejudice to the objectives referred to in Sub-section (1), extend co-operation in the implementation of the economic policies of Government of Nepal.

Functions, Duties and Powers of the Bank Section 5:

(1) In order to achieve the objectives referred to in Section 4, the functions, duties and powers of the Bank shall be as follows:

(a) To issue bank notes and coins;

(b) To formulate necessary monetary policies in order to maintain price stability and to implement or cause to implement them;

(d) To determine the system of foreign exchange rate;

(e) To manage and operate foreign exchange reserve;

(f) To issue license to commercial banks and financial institutions to carry on banking and financial business and to regulate, inspect, supervise and monitor such transactions;

(g) To act as a banker, advisor and financial agent of Government of Nepal;

(h) To act as the banker of commercial banks and financial institutions and to function as the lender of the last resort;

(i) To establish and promote the system of payment, clearing and settlement and to regulate these activities; and

(i1) To operate open market transaction through necessary instruments for liquidity management,

(j) To implement or cause to implement any other necessary functions which the Bank has to carry out in order to achieve the objectives of the Bank under this Act;

(2) While exercising the powers conferred by this Act or any other prevailing law, the Bank shall have power to carry out other functions and take actions, which are incidental thereto Act.

(3) No one shall violate powers conferred on the Bank under this

Functions not to be Carried out by the Bank Section 7:

(1) Except otherwise provided for in this Act, the Bank shall not carry out the following functions:-

(a) Providing any loan, accepting any type of deposit or making any type of financial gift;

(b) Purchasing shares of any commercial bank, financial institution, public corporation or a company or acquiring any type of proprietary right in any financial, commercial, agricultural, industrial or other institution;

(d) Acquiring right over movable and immovable property by way of purchase, lease or in any manner whatsoever.

Provided that the Bank may acquire such property as required for carrying out its function or for achieving its objectives.

(2) Notwithstanding anything contained in Sub-section (1), the Bank may carry out the following functions: -

(a) To provide loan to and invest in the shares of the institutions which carry out the functions helpful in carrying out the function of the Bank or in attaining its objectives, not exceeding ten percent of the total capital of such institutions.

Explanation: For the purpose of this Clause, "institutions which carry out the functions which are helpful in carrying out the functions of the Bank or in attaining its objectives" means any institutions, companies which are exclusively engaged in evaluating, managing, protecting the security, restructuring and transferring the securities of commercial banks or of financial institutions, carry out the function of credit rating, exchange of credit information, process and transmit data, print financial instruments, clearing payments, liquidate property, produce bank notes and coins and act as trustee and any other institution or companies established for carrying out similar function and prescribed by the Bank.

(b) To provide loan to its own employees.

Privileges and Facilities to the Bank Section 8: Notwithstanding anything contained in the prevailing laws, the Bank shall be entitled to the following privileges and facilities: -

(a) Exemption from all types of taxes, fees and charges on the incomes, capital transactions, houses, land, assets etc.;

(b) No requirement for the payment of registration fee for registration of the deeds of loan or refinance to be given by the Bank;

(d) There would be no tax, fee, charge, duty on the export and import of bank notes, coins, gold, silver and the paper, metal, chemicals, and other materials to be used for printing bank notes and minting coins.

International Cooperation and Relationship Section 11:

(1) The Bank shall represent Nepal ⁼in international organizations and associations on the matters within the jurisdiction of working areas of the Bank such as monetary policy, foreign exchange policy, and the balance of payment, bank supervision and other related matters.

(2) The Bank may provide the services of banking and payment to foreign government, foreign central banks, foreign bank and international organizations, or associations, and obtain similar type of facilities from them.

(3) The Bank shall take part in international organizations or associations working for the financial and economic stability through international monetary cooperation.

(4) The Bank, while taking part in international organizations or association as a representative of ⁼Nepal, shall assume the responsibility and undertake the functions to be carried out on behalf of the country.

Operation of Accounts Section 13: The Bank may open and operate account for Government of Nepal and other governmental bodies, commercial banks and financial institutions, public corporations, foreign diplomatic missions, foreign central banks, foreign banks and international organization, associations. The procedures for opening and operating such accounts shall be as prescribed by the Bank.

Provided that, the Bank shall not operate account for any individual, industry and political organization.

Chapter -3

Formation and Functions, Duties and Powers of Board

Formation of the Board: There shall be a Board of Directors in the Bank consisting of the following members section 14:-

(a)	Governor	-Chairperson
(b)	Secretary, Ministry of Finance	-Member
(c)	Two Deputy Governors	-Member

(d) Three Directors appointed by the

Government of Nepal from amongst the

persons renowned in the fields of Economic,

Monitory, Banking, Finance and

Commercial Law -Member

Appointment of the Deputy Governor Section 16:

(1) Government of Nepal, the Council of Ministers shall, on the recommendation of the Governor, appoint Deputy Governor.

(2) The Governor shall, while making recommendation for appointment of Deputy Governor pursuant to Sub-section (1), recommend names, double in number of the post falling vacant from among the special class officers of the Bank on the basis of their performance and capability.

(3) Person appointed in the post of Deputy Governor under this Section shall be deemed to have been automatically retired from the service of the Bank.

Appointment of the Directors Section 17:

(1) Government of Nepal, the Council of Ministers shall appoint Directors.

(2) Government of Nepal, the Council of Ministers shall, while appointing Directors, appoint them each representing different sectors from amongst the persons renowned in economic, monetary, banking, financial, commercial, management and commercial law sectors.

Tenure of Office of the Directors Section 18:

(1) The tenure of Office of the Governor, Deputy Governor and Directors shall be of five years.

(2) Government of Nepal may, reappoint the retiring Governor for one term and the retiring Directors for any term, if it is deemed necessary.

Qualifications of the Directors Section 20:

In order to be appointed to the post of Governor, Deputy Governor and Directors, a person shall have to meet the following qualifications:-

(a) A Nepalese citizen;

(b) Having higher moral character;

(c) Having work experience in economic, monetary, banking, financial and ^µ commercial law sectors after having attained at least master's degree in economics, monetary, banking, finance, commerce,

management, public administration, statistics, mathematics and law.

Explanation:- For the purpose of this Clause, "work experience" means the experience of works in the post of special class of Government of Nepal or of the Bank or in the post of a university Professor or in the post of Executive Chief of class 'A' of a commercial bank or of a financial institution or in the equivalent post or in the post higher than those in terms of the order of protocol.

(d) Not disqualified under Section 21.

Disqualification of the Directors Section 21:

None of the following persons shall be eligible for appointment to the Office of the Governor, Deputy Governor and Director:-

(a) Member or official of a political party, or

(b) The person blacklisted in relation to transaction with a commercial bank or financial institution, or

(d) A person having five percent or more shares or voting right in a Commercial Bank or financial institution, or

(e) A person rendered bankrupt for being unable to pay debts to creditors, or

(f) A insane person, or

(g) A person convicted by a court in an offence involving moral turpitude.

Grounds f o Removable of the Director s from Office Section 22:

(1) Government of Nepal, the Council of Ministers shall remove the Governor, Deputy Governor and Director on conditions stipulated under Sub-section (5).

Provided that Government of Nepal shall not deprive the concerned person from a reasonable opportunity to defend himself/herself prior to remove him/her from his/her office.

(2) Government of Nepal shall, remove the Governor from his office pursuant to Sub-section (1), on the recommendation of an inquiry committee constituted under Section 23.

(3) While removing a Director or Deputy Governor pursuant to Sub-section (1), Government of Nepal shall cause to conduct an inquiry by committee and remove him/her from the office on the basis of the recommendation made by the committee.

(4) Once Government of Nepal initiates the process for removing the Governor, Deputy Governor and Director pursuant to Sub-section (1), they shall be deemed to have been ipso facto suspended from the office.

(5) The Governor, Deputy Governor and Director shall be removed from the office on any of the following grounds:-

(a) If one is disqualified to become a Director pursuant to Section 21; or

(b) The lack of capability to implement or cause to implement the functions which the Bank has to carry out in order to achieve the objectives of the Bank under this Act; or

(d) If one is found to have acted dishonestly or with mala fide intention in any transaction related to the business of the Bank; or

(e) If professional license is revoked or prohibited from carrying out any profession rendering disqualified to be engaged in any trade or profession on the ground of gross misconduct; or

(f) If one is absent for more than three consecutive meeting of Board without a genuine reason;

(6) Except on the grounds referred to in Sub-section (5), no Governor, Deputy Governor and Director shall be removed from office.

Meeting of the Board Section 28:

(1) The Governor shall preside over the meeting of the Board.

(2) The meeting of the Board shall be held as per the requirement of the Bank. Provided that the Board meets at least once in a month.

(3) The Governor shall call the meeting of the Board. Provided that in case of a written request from three Directors of the Board to call the meeting of the Board, the Governor shall call the meeting of the Board.

(4) The Board may frame a separate Bye-law with regard to the procedures for calling the meeting of the Board, conducting the meeting, voting, keeping minutes and for other matters.

(5) The presence of at least three Directors and of the person presiding over the meeting of the Board shall constitute the quorum for the meeting of the Board.

Provided that out of the three Directors present in the meeting at least one director should be the director appointed under Clause (d) of Section 14.

(6) The decision of the majority shall be the decision of the Board. In the event of a tie of votes for and against a resolution, the person presiding over the meeting shall exercise a decisive vote.

Functions, Duties and Powers of the Governor Section 30:

1. The functions, duties and powers of the Governor shall be as follows:-

(a) To implement the decisions made by the Board;

(b) To operate and manage the Bank;

(d) To represent and cause to represent on behalf of the Bank in international organizations and associations;

(e) To implement and cause to implement the policies relating to monetary and foreign exchange matters;

(f) To formulate necessary policy on rates of interest for deposits and loan with commercial banks and financial institutions;

(g) To formulate necessary policies with regard to the rates of interest to be paid by commercial banks and financial institution on deposit and loan or the rate of interest to be charged by them on deposits and loan;

(h) To formulate necessary policies relating to liquidity to be maintained by commercial banks and financial institutions;

(i) To make necessary arrangement with regard to the basis, amount, methods, conditions and duration of compulsory deposit to be maintained by commercial banks and financial institutions, and its use;

(j) To fix the terms and conditions relating to adequacy of the capital fund of commercial banks and financial institutions;

(k) To take decision with regard to the procedures and terms and conditions to be followed while purchasing and selling gold and other precious metals;

(l) To fix the charge on the services to be provided by the Bank;

(m) To take decision for opening and closing branch offices and other offices of the Bank as may be necessary;

(n) To establish and close the agency of the Bank;

(o) To make necessary arrangement for development and operation of information system of the Bank;

(p) To make necessary arrangement for supervision of commercial banks and financial institutions;

(q) To take decision with regard to revocation of the license provided to commercial banks and financial institutions;

(r) To take decisions on any other matters subject to the powers delegated by the Board of Directors;

2. The powers to be exercised by the Governor of a Central Bank in accordance with international practice shall be vested in the Governor.

Prohibition on Vested Personal Interests Section 32:

1. After appointment to the office of Governor, Deputy Governor or Director shall, in each six months, should disclose, as prescribed to the Board about any direct or indirect commercial interest of himself/himself or of his/her family members.

2. Where any resolution involving personal interest of the Governor, Deputy Governor or Director, shall disclose to the Board about his personal interest on any matter to be discussed in the meeting of the Board, prior to the beginning of discussion on such matters. No such Director shall take part in that meeting.

3. ^E ………………..

4. The Governor and Deputy Governor should make public the details of property held in his/her name and in the name of his/her family members within one month from the date of appointment and retirement.

Management Committee Section 33: (1) There shall be a Management Committee, to remain under the Board to be chaired by the Governor in order to conduct the business of the Bank in a smooth manner. The two Deputy Governors shall be other members of the Management Committee, and one senior officer of the Bank designated by the Governor shall act as the member-secretary of the committee.

(2) The functions, duties and powers of the Management Committee formed pursuant to Sub-section (1) shall be as prescribed.

(3) Notwithstanding anything contained in Sub-section (1), the Governor may invite any of the officers to take part in the meeting of the Management Committee.

(4) The Committee shall, in connection with discharging its functions, evaluate the country's monetary and financial condition on a periodic basis. For this purpose, the Management Committee shall, at least once in a month, submit a report to the Board on the Bank's administration and operation, operation of monetary and other regulatory policies, the soundness of the banking system of the country, condition of money, capital and foreign exchange market, implementation of such policies and impact they may have and situation on the banking system, and on the significant events.

Audit Committee Section 34 : The Board shall constitute an Audit Committee as

follows, which will be accountable to the Board :-

(A) One Director designated by the Board - Coordinator

(B) One subject expert designated by the Board - Member

Functions, Duties and Powers of the Audit Committee Section 35: (1) The

functions, duties and powers of the Audit Committee shall be as follows:-

(a) To sub mit its report and recomme ndations to t he Board on accounts, budget and audit procedures and control system of the Bank;

(b) To ascertain whether or not the audit and preparation of periodic balance sheet and other documents of the Bank have been carried out properly;

(d) To audit managerial and performance of works of the Bank in order to be assured that the prevailing laws applicable to the Bank have been fully complied with;

(e) To frame bye-law for auditing o f t h e Bank i n accordance with the prevailing laws and international auditing standard and to submit it to the Board for approval.

(2) The Audit Committee shall, while submitting the report and recommendations to the Board pursuant to Clause (a) of Sub-section (1), furnish the information thereof to the Governor.

Chapter - 4

Financial Provisions

Capital of the Bank Section 39: (1) The Capital of the Bank shall be ^¥five billion rupees.

(2) The Capital of the Bank shall be received from Government of Nepal and this Capital shall not be transferred or any burden of debt be placed upon it.

(3) Government of Nepal may alter the capital referred to in Sub-section (1). Government of Nepal shall have consultation with the Bank while altering the capital.

Computation of net profit and loss Section 40: (1) The Bank shall prepare the account of its profit and loss in each fiscal year.

(2) While preparing the account of profit and loss as per Sub-Section (1), it shall be prepared as per Nepal accounting standard.

(3) Notwithstanding whatever has been written in Sub-Section

(2), in connection to the sectors, which have not been included into Nepal accounting standard, international accounting standard shall have to be taken as a basis.

(4) While preparing the account of profit and loss, net profit shall have to be made sure by deducting bad or doubtful debts and cutting depreciation of property upon making adjustment of the profit made by the Bank, loss sustained or yet to be sustained and net valuation profit or loss.

Allocation of net profit Section 41: (1) If the Bank makes net profit in any fiscal year, allocation and use of such profit shall have to be made as follows :

(a) The amount equal to revaluation profit from the net profit shall have to be separated and kept in revaluation reserve fund.

(b) Five percent distributable amount of the net profit remained after separating the amount as per Section (a), shall have to be kept in monetary liability fund; the amount fixed by the Board so as not to be reduced from ten percent in general reserve fund; five percent amount in financial stability fund and the amount as fixed by the Board shall have to be kept in net accumulated savings fund.

(c) After the amount is appropriated as per Section (b), the Board shall have to submit the rest of the amount remained after appropriating the amount to other funds from the rest of the saving to the Government of Nepal.

(d) While allocating the amount in the general reserve fund, an additional amount shall have to be appropriated to cover up to the capital expenses as well referred to in the annual

budget of the Bank.

(2) The amount of general reserve fund and accumulated savings fund can be used for the sake of increasing the capital of the Bank as well.

(3) Regarding the amount, except what is allocated to the funds as per Sub-Section (1) and (2), it shall be as per the provision made in the Rule.

Allocation of net loss Section 42: (1) If loss of the Bank exceeds in comparison to the profit in any fiscal year, the surplus net loss amount shall have to be allocated as follows :-

(a) If revaluation profit is also included in the net loss, revaluation profit shall have to be kept in revaluation reserve fund.

(b) If revaluation loss is also included in the net loss, revaluation loss shall have to be written as loss in revaluation reserve fund. If revaluation loss exceeds the amount remained in revaluation reserve fund, the surplus loss amount shall be written as loss in the following fund and account in a sequence of priority:-

(1) In accumulated savings fund, up to the amount deposited in accumulated savings fund,

(2) In general reserve fund, if loss amount remains after the adjustment in the accumulated savings fund as per Sub-section (1), and

(3) In capital account, if loss amount remains after adjustment in accumulated savings fund and general reserve fund as per Sub-section (1) and (2).

(c) The operation except for the revaluation profit as per Section (A) and revaluation loss as per Section (B), as well as other loss shall have to be written as loss in accumulated savings fund.

(d) If loss amount is more than the amount remained as deposit in accumulated savings fund, the surplus loss amount shall have to be written in following fund and account as loss in a sequence of priority :-

(1) In general reserve fund, up to the amount deposited in general reserve fund,

(2) In capital account, if loss amount remains after the adjustment in the general reserve fund as per Sub-

section (1),

(2) The Government of Nepal shall bear the loss that could not be adjusted while allocating loss as per Sub-Section (1).

Chapter - 5

Monetary Functions and Operation of Open Market

Operation of open market transaction Section 45: (1) After forging agreement, the Bank shall operate the open market transaction so as to immediately purchase or sell the debenture issued on behalf of the Government of Nepal or the debenture issued or fixed by the Bank, or to purchase or sell later.

(2) While operating open market transaction as per Sub-Section

(1), the Bank can also carry out the work of short-term liquidity management by forging repurchase agreement or reverse repurchase agreement upon the security of the debentures of the Government of Nepal or the letter of credit issued by the Bank itself.

(3) The Bank can issue other appropriate instruments for the sake of the operation of the open market transaction."

Discount Operation Section 48: (1) The Bank may conduct discount transaction on the following negotiable instruments submitted by the commercial bank and financial institutions who maintain their accounts with the Bank:-

(a) A promissory note or bill of exchange signed by at least two parties including a commercial bank payable in Nepal ⁼ …..within six months.

(b) Debt bond issued by Government of Nepal or the Bank payable within Nepal ⁼ …..and within six months from the date of acquisition by the Bank.

(2) The discount rates, terms and conditions and procedure of operating discount transaction shall be as prescribed by the Bank.

Loan and Refinance to Commercial Banks and Financial Institutions Section 49: (1) The Bank may, subject to the terms and conditions prescribed by it, make available loan and refinance to commercial banks and financial institutions for a maximum period of ^¥one year against the security of the following assets:-

(a) International negotiable instrument referred to

in Clause (e) of Sub-section (1) of Section 66;

(b) The debt bond issued by Government of Nepal payable within Nepal;

(d) The bill of exchange or the promissory notes referred to in Sub-section (1) of Section 48;

(e) Other securities as prescribed.

(2) Notwithstanding anything contained in Sub-section (1) of the Bank may provide any type of credit to a commercial bank and financial institution for a maximum period of one year in cases where Government of Nepal has, for the sake of public interest and welfare, deemed it appropriate to provide loan and has requested the Bank therefor and Government of Nepal has given a guarantee of securities of prevailing market rate for such loan or in extraordinary circumstances where the Bank has to work as a lender of the last resort.

^p (3) The credit offered as per Sub-Section (1) or (2) can be renewed for additional one year upon remaining under the conditions as per prescribed.

Chapter 6

Monetary Unit, Banknote and Coins

Power to Issue Banknotes and Coins Section 52: (1) The Bank shall have monopoly over the issue of banknotes and coins in Nepal. Such notes and coins shall be legal tenders in ⁼Nepal.

(2) The Bank shall issue notes pursuant to Sub-section (1), only against the security, and the liability of such issued notes shall be equal to the value of property kept as security. At least fifty percent of the property to be kept as security shall be one or more of gold, silver, foreign currency, foreign securities, and foreign bills of exchange and the remaining percentage shall be one or more of the coins (Mohar Double or coins of higher denomination) the Debt Bond issued by Government of Nepal, the promissory note or bills of exchange payable in Nepal within a maximum of eighteen months from the date of repayment by bank.

Provided that with the permission of the Government of Nepal the ratio of property kept as security may be at least forty percent one or more of gold, silver, foreign currency, foreign securities, and foreign bills of exchange and the remaining percentage shall be one or more of the coins (Mohar Double or coins of higher denomination) the Debt Bond issued by Government of Nepal, the promissory note or bills of exchange payable in Nepal within a maximum of eighteen months from the date of repayment by bank.

(3) For the purpose of Sub-section (2), the valuation of property shall be made as follows:-

(a) The price of gold at the rate fixed by Government of Nepal on the recommendation of the Board;

(b) The price of silver at the rate deemed appropriate by the Board;

(d) The Debt Bond issued by Government of Nepal, the foreign securities and Bills of Exchange at the rate deemed appropriate by the Board on the basis of market rates;

⁼Deleted by Republic Strengthening and Some Laws Amendment Act, 2008.

(e) Coins at the rate of face value.

(4) The Bank shall issue the bank notes of various denominations as may be necessary. While issuing banknotes in this way, the figures appearing in the notes, size and denominations shall be as approved by Government of Nepal and the figures, internal security arrangements, the materials for printing banknotes and other materials shall be as decided by the Board.

(5) Government of Nepal may, in consultation with the Board, declare that banknote of any denomination shall cease to be legal tender in any place other than the prescribed place or office having published a notification in the Nepal Gazette.

(6) The Bank shall not reissue the notes, which are torn, defaced or excessively soiled.

(7) The Bank may, with the approval of Government of Nepal, mint and bring into circulation the coins of whatever metal or mixture of metals or bring into circulation having minted them in Mint on specials occasions. The Bank may, if it deems appropriate, cause such coins minted in any foreign Mint.

Provided that, if coins minted once with the approval are to be re-minted, no approval of Government of Nepal shall be required.

(8) The Bank may, with the approval of Government of Nepal, mint the coins sent for minting by a foreign government.

(9) The Bank shall be responsible for payment of the banknotes issued by the Bank and the banknotes issued by Government of Nepal prior to the establishment of the Bank.

(10) No liability other than the liability referred to in Sub-section (9) shall be borne from the property given as security for issuance of banknotes.

Soiled or Counterfeit Currency Section 57: (1) The Bank may withdraw, destroy or replace the soiled currency with other banknote or coin.

(2) Notwithstanding anything contained in Sub-section (1), the Bank may deny to replace the banknote or coin the design of which has been deleted, or which is torn, defaced or more than fifty percent of its portion has been destroyed.

(3) The Bank may withdraw or destroy such banknotes or with or without compensation to the owner of the banknotes or coins referred to in Sub-section (1).

(4) No owner of the lost or stolen banknotes or coins shall be entitled to a reimbursement from the Bank. The Bank may forfeit without any compensation, the coins or notes the outer appearance of which is changed, or which is counterfeit coins or fake note.

Explanation: For the purpose of this Section, "Counterfeit coin" means a duplicate coin minted copying the coin issued by the Bank or a counterfeit coin or prepared by melting or manipulating or a coin prepared by cutting and breaking into two or more places a coin issued by the Bank or the coin the figures, letters and signs in which have been defaced.

Currency Recall or Withdrawal Section 60: (1) The Bank may recall the bank notes and coins in circulation within ⁼Nepal by issuing in exchange there for other bank notes and coins in equivalent amount. The Bank shall publish and transmit pubic notice clearly specifying the period during which the bank notes or coins must be presented for exchange and where they are to be so presented.

(2) Notwithstanding anything contained in Section 53, upon expiry of the time prescribed pursuant to Sub-section (1), bank notes and coins to be exchanged shall cease to be a legal tender.

(3) The Bank may cut, break or demolish or destroy in any manner whatsoever, the banknotes and coins withdrawn from circulation and the currency with defect, as prescribed.

Reproduction and Counterfeiting of Currency Section 61: (1) No one shall

commit or cause to commit any of the following acts:- (a) To forge, counterfeit or alter banknotes and coin in circulation as legal tender in ⁼Nepal or any cheques or payment card or to do any other act relating to it or to assist in any of such acts;

(b) To possess, transport or issue any banknote or coin or cheque or payment card with the knowledge that such

banknote or coin, cheque or payment card was falsely made, forged, counterfeited or altered or to assist in such acts in any manner;

(c) To possess, transport any sheet of metal, stone, paper, die or any other material or substance with the knowledge that it was destined to be used in falsely making, forging, counterfeiting or altering any banknote or coin, cheque or payment card or to assist in any of such acts.

(2) Any reproduction of banknotes, coins, checks, securities or payment cards, denominated in Rupee, and the creation of any objects that by their design imitate any such banknote, coin, check, security or payment card, shall require the prior written authorization of the Bank.

(3) The Bank may take appropriate action to prevent the issue of fake note or counterfeit currency or duplicate cheque or payment. The Bank may issue necessary order, directives or notices while taking such actions.

Chapter - 8

Relation with Government of Nepal

Credit to Government of Nepal and Purchase of Government Debt Bonds Section 75: (1) Except otherwise provided in this Act, the Bank shall not provide any type of financial assistance to Government of Nepal or an institution under the full or substantial or partial ownership of Government of Nepal.

(2) Subject to the limits specified in this Section, the Bank may extend credit to Government of Nepal with a condition to repay within one hundred eighty days.

(3) Notwithstanding anything contained in Sub-section (2), the Bank may extend a special credit of long term to Government of Nepal only on account of subscription and similar payments resulting from or incidental to the membership of Nepal with international organization.

(4) The Bank shall disburse credit to be extended to Government of Nepal or an institution under full or substantial or partial ownership of Government of Nepal only in Nepalese rupees. Such credit shall be certified by negotiable debt bond issued by Government of Nepal and delivered to the Bank. Such debt security should have the maturity corresponding to the maturity of the extension of credit and should bear the interest at market rate. There must be a written agreement executed between Government of Nepal and the Bank. Such agreement should clearly stipulate the principal amount of the loan or limit on a line of credit, the maturity, and the applicable rates of interest and other charges.

Explanation: For the purpose of this Section, "Negotiable Debt Bond" means the debt bond issued in the form of promissory note.

(5) At no time the amount of overdraft provided by the Bank to Government of Nepal shall be more than five percent of the revenue income of Government of Nepal in the proceeding fiscal year. While computing such revenue income, the amount of borrowing, grants or any other form of financial assistance or income received from the sale of property shall not be included.

(6) Government of Nepal shall make the payment of the overdraft referred to in Sub-section (5) within one hundred eighty days at the prevailing interest rate either in the form of cash or marketable debt bond.

(7) The total amount of debt bond purchased by the Bank from Government of Nepal and taken into its ownership shall not be more than ten percent of the revenue income of the proceeding fiscal year.

(8) In the following circumstances, the debt bond issued by Government of Nepal and purchased by the Bank shall not be treated as the credit extended under Sub-section (7):-

(a) If the purchase is made in the secondary market for the operation of open market consistent with the monetary policy of the Bank;

(b) If the purchase is made in the primary market, when it is necessary in the opinion of the Bank, to maintain stability in the market at the time of primary issue of such securities and such securities are divested within 60 days of purchase.

(c) The debt bond purchased by the Bank from Government of Nepal and retained in its ownership prior to the commencement of Sub-section (7).

Chapter - 9

Regulation, Inspection and Supervision of the Banks

Regulatory Powers of Bank Section 79: (1) The Bank shall have full powers to regulate the functions and activities of commercial banks and financial institutions.

(2) For the purpose of the regulation under Sub-section (1), the Bank may frame rules and bye-laws on the matters which the Bank deems appropriate and issue necessary order, directives and circular and it shall be the duty of the concerned commercial bank and financial institution to abide by such Rules, Bye-laws, order, directives and circular. (3) The Bank shall issue appropriate directives to commercial banks and require them to submit the following particulars:-

(a) Its balance sheet accounts, off balance sheet commitments, statement of income and expenditures and their ratio among accounts or items.

(b) Prohibitions, restrictions or conditions concerning specific types or forms of credit or investments, or of credit or investments, forms of commitments of a risk-bearing nature which are not matching as to maturity of assets and liabilities and off-balance-sheet items, foreign currency, spot or advance rate of interest, swap, option or similar instruments or access to the payments system through electronic or other means.

(4) Bank may issue necessary directives to commercial banks on the following matters and require to submit particulars on the following subjects:-

(a) Books and accounts, profit and loss account, balance sheet and off-balance-sheet transaction and commitment, statement of income and expenses and their ratio among accounts or items.

(b) Prohibitions, restrictions or conditions concerning specific types or forms of credit or investments, loan and investment in excess of the ceiling prescribed by the Bank, risk bearin g commitment, position of foreign exchange, payment and electronic and other means of payment.(c) Other particulars and documents prescribed by the Bank.

^p(4a) For the purpose of preventing financial investment in the money laundering and terrorist activities, the Bank can give necessary directives to the commercial banks and financial institutions regarding providing financial information unit established as per existing law relating to money laundering prevention, knowing the customers and classifying and managing the risk of the customers, the description of the limit including money transfer, deposit, or doubtful transaction.

(5) The Bank shall have the following powers with reg ar d to commercial banks and financial institutions:-

(a) To enforce authority and responsibility granted under this Act and any other Act enacted for licensing, supervising and regulating commercial banks and financial institutions and to revoke the license of commercial banks and financial institutions and to take over or to provide in trusteeship the commercial banks or financial institutions which have been declared insolvent or are on the verge of insolvency;

(b) To investigate or inspect, or supervise or to cause to investigate, inspect or supervise by any official of the Bank or the person designated by the Bank the books and accounts, records, documents or register of commercial banks or financial institutions in order to find whether or not any commercial bank or financial institution has conducted business and transaction in accordance with the provision made under this Act or the Rules, Bye-laws framed thereunder and an order or directive issued thereunder;

(c) To issue order to the member of the Board of Directors, official or employee of any commercial bank or financial institution to provide necessary information about the bank or institution in cases where it is necessary to inspect and supervise the transaction of such bank or financial institution.

Credit to Prescribed Sectors Section 81: (1) Commercial banks and financial institutions shall advance credit to the sectors prescribed by the Bank from time to time for a prescribed period and in the manner prescribed by the Bank.

(2) In cases where any commercial bank or financial institution does not advance the credit pursuant to Sub-section (1) or advance credit less than prescribed amount, the Bank may recover as fine an amount equal to the interest which a commercial bank or financial institution would have charged for the amount of credit not advanced or advanced less than the prescribed amount from the concerned commercial bank or financial institution.

Inspection and Supervision Section 84: (1) The Board shall frame and implement inspection and supervision bye-law confirming to international standard for inspection and supervision of the commercial banks and financial institutions licensed by the Bank.

(2) The Bank may, at any time, inspect and supervise or cause to inspect and supervise any of the offices of commercial banks or financial institutions. Such inspection and supervision may be carried out by the deputed official of the Bank or an expert designated by the Bank at the office of the commercial bank or financial institution or by asking the concerned institution to submit detailed particulars and information to the Bank itself.

(3) It shall be the duty of the concerned commercial bank and financial institution or Directors, officials or employees of such commercial bank and financial institution to make available the statement, data, record, information, particulars necessary for computer and auditing and other programs and particulars developed through the electric system and financial control system or necessary other documents to such official, expert or the Bank or to enable such official or expert to review or to examine them within the time prescribed by such officer or expert.

(4) The inspecting and supervising official or the Bank under this Section may cause to record written statements of any Director, official or employee of the commercial banks or financial institutions with regard to the functions and proceedings which are deemed necessary in course of inspection and supervision.

(5) The Bank or the inspecting and supervising official may issue necessary directives to the commercial bank or financial institution on the matters deemed necessary while inspecting and supervising. It shall be the duty of the concerned commercial bank or financial institution to abide by the directives issued by the Bank or by the inspecting or supervising official. The inspecting or supervising official shall inform the Bank as soon as possible about the directives so given.

^¥(6) The official or the expert who carries out inspection and supervision as per this Section shall have to submit the report of the inspection and supervision carried out by him/her to the Governor within the stipulated deadline.

(7) The report submitted pursuant to Sub-section (6) should be submitted in the next meeting of the Board.

(8) The Board may, after making appropriate decision on matters contained in the report submitted pursuant to Sub-section (7), issue appropriate directions to the Governor about the actions to be taken in the matter. It shall be the responsibility of the Governor to implement or cause to implement such directions.

Commercial Banks and Financial Institutions to Provide Information to the Bank Section 86A: Commercial bank or financial institution shall inform to the bank within fifteen days about the situation of insolvency or state of dissolution under the prevailing law or incapability to pay the debt or materially unable to discharge any or all liabilities by any commercial bank or financial institution.

Commercial Bank and Financial Institution Deemed to be Problematic Section 86B: Bank shall declare any commercial bank or financial institution problematic by providing written notice to it when bank is convinced that the following conditions are prevailing in any commercial bank or financial institution on the basis of information received under Section 86A or from the report of inspection and supervision conducted under Section 84 or from any other means.

(a) In case any action against the interest of the depositors, shareholders, creditors, or general public is evident,

(b) In case of not fulfillment of any financial liabilities or not having probability to do that or not payment of due amount,

(d) In case of non-compliance with or breach of this Act, prevailing law related to bank and financial institution, other prevailing law, terms of license or regulation, directives or order of bank,

(e) In case it is evident that the license h a s b e e n

obtained on the basis of submitting false,

fraudulent, wrong document or data,

(f) In case of inability to maintain the capital fund as per this Act, prevailing law related to bank and financial institution and directives issued by the bank at time to time,

(g) In case of the initiation of legal proceedings for liquidation ^p or resolution or insolvency of any commercial bank or financial institution under the prevailing law,

(h) In case of undue delay in the process of voluntary liquidation where such proceeding has been initiated,

(i) For the commercial bank or financial institution established with the joint venture of the foreign commercial bank or financial institution, while such foreign commercial bank or financial institution is insolvent or liquidator is appointed for the liquidation or the license of such commercial bank or financial institution is terminated under the provision of the law of respective country or transaction is banned either fully or partially or where it is evident that operation of banking transaction is done in association with such commercial bank or financial institution, or

(j) If the bank is convinced that commercial bank or financial institution is unable to pay its due or can make negative effect in its liability or duties, which it has to perform.

Bank to Take Action Against Problematic Commercial Bank or Financial Institution Section 86C: (1) Notwithstanding anything contained in the Companies Act or other prevailing law, the bank can take any or all of the following actions ^E …..^p by taking up management of such commercial bank

or financial institution under its control or against the Board of Directors of the commercial bank or financial institution concerned which is declared problematic under the provision of Section 86B.

(a) To increase the paid u p capital by issuing new shares or by receiving due amount of issued capital.

(b) To suspend the right to vote or other rights of shareholder.

(d) To determine limitation to the amount of bonus, salary, compensation and other expenses for the director and other high level management officials.

(e) To make necessary arrangement for the corporate governance, internal control and risk management of commercial bank or financial institution.

(f) To prohibit or make limitation in collection of deposit, credit supply or investment .

(g) To maintain sufficient capital and high proportion of liquidity or prohibit business transaction or determination of other necessary terms.

(h) To limit transaction of the commercial bank or financial institution or prohibit sale of property or expansion of branch office or close any domestic or international branch.

(i) To maintain necessary arrangement for reduction of risk of the properties which are materially doubtful or securities without proper evaluation or other properties

(J) To prohibit any action carried out illegally by breaching the prevailing law and regulation of the bank that is against the interest of commercial bank or financial institution.

(K) To prohibit from doing some specific business among the businesses allowed to commercial bank or financial institution for specific time.

(l)	To r e c e i v e	prior	approval o f	the b a n k	for
	major capital	expenditure, substantial commitments
	having major	liabilities	or for the	expenditure	of

contingent liabilities.

(m) To issue order to remove from the post to single or more director or manager or employee as per the necessity.

(n) Bank can remove the director or manager or

employee i n case of n o t discharge of the order made under Clause (m) by respective commercial bank or financial institution.

(o) To suspend board of director of the commercial bank or financial institution and takeover the management of such commercial bank or financial institution in self control or operate the management and transaction of such commercial bank or financial institution by appointed official.

Clarification: “Appointed Officer” means any person, firm, company or organization appointed by the bank for the management and operation of transaction of the commercial bank or financial institution which is in the control of bank under the provision of this Clause.

(p) To order commercial bank or financial institution,

which is listed in Stock Exchange for the application of de-listing.

(q) To prohibit payment of interest and principal for time bond auxiliary loan without having securities of commercial bank or financial institution.

(r) To take any other action as bank feels necessity and proper.

(2) While removing the directors, managers or employee of the

commercial bank or financial institution from their post as per the order of Clause (n) or to suspend the board of director of commercial bank or financial institution by taking the charge of management under Clause (o) of Sub-section (1) reasonable opportunity of hearing shall be provided to the director, manager or employee or board of directors of the commercial bank or financial institution before.

Provided that if such opportunity of hearing can makes negative effect to the interest of the commercial bank or financial institution or its depositors, shareholders, creditors or general public, no provision of prevailing law can de barred to r e mo v e i mme d ia t el y to t h e director, manager or employee from their post or to suspend the board of directors by providing opportunity to hearing after such decision.

(3) During the hearing of the action under the proviso of the Sub-section (2) if such action does not seems reasonable bank can annul, change or make necessary decision to the order under Clause (n) or (o) of Sub-section (2).

(4) Respective commercial bank or financial institution have to bear all the expenditure while bank take the control of management of any

commercial bank or financial institution under the provision of Clause (o)

of Sub-section (1) and makes arrangement for the management and operation of transaction.

(5) The order of the bank issued under Sub-section (1) Clause (o) shall generally remain valid for two years from the date of issue unless it is not renewed by the bank.

(6) In case of control of any commercial bank or financial institution by the bank under the provision of Clause (o) of Sub-section (1), the preliminary and annual report prepared by the bank or the officer appointed by the bank shall be submitted to the government of Nepal.

(7) In case of necessity bank can revoke or nullify its order issued under the provision of Clause (m), (n), (o) and (p) of Sub-section (1) by issuing another order. Such order shall contain the basis and reason and other necessary information regarding the need of issuing such order.

(8) The directors, managers, or employees removed by the bank under the provision of the Clause (n) of Sub-section (1) are not allowed to work or involve in transaction in the same commercial bank or financial institution as director, manager or employee or any other post of any commercial bank or financial institution or any other way being involved directly or indirectly.

(9) The directors, managers, or employees removed by the bank under the provision of the Clause (n) of Sub-section (1) or suspended member of board of directors under the provision of Clause (o) are not allowed to receive or claim any remuneration or compensation under the provision of prevailing law or agreement held directly or indirectly from the date of such order.

(10) Determination of the capital and valuation of assets and liabilities of any problematic commercial bank or financial institution shall be based on the basis, process and standard determined by the bank.

Power of the Bank for Corrective Action Section 86F: (1) Bank has to publish in public the report of management auditing or auditing within one year of the control of the commercial bank or financial institution which declared problematic under the provision of Clause (o) of Sub-Section (1) of Section 86C either conducted itself or by others.

(2) Whatever may be mentioned in the Companies Act or any other prevailing law, on the basis of the management auditing or auditing report under Sub-section (1) if bank convinced that the controlled commercial bank or financial institution can operate properly it can carry out following corrective actions as per necessity:-

(a) Issue order to manage and operate the transaction to the board of director by releasing the suspension order issued under the provision of Clause (o) Sub-Section (1) of Section 86C,

(b) Assign the management and operation of transaction to the new board of director formed among the shareholders of such commercial bank or financial institution by removing suspended board of director under the provision of Clause

(o) of Sub-section (1) of Section 86C,

(c) Call or cause to call the general meeting of the shareholders of such commercial bank or financial institution to elect the new board of director for the management and operation of transaction after removing suspended board of director under the provision of Clause (o) of Sub-section (1) of Section 86C, or

(d) Carry out any other corrective measures, which the bank thinks appropriate.

¥ (3) By remaining under the standard fixed on the ground of assessment of the management or audit report or the report of official appointed by the Bank as per Sub-Section (1), the Bank can give order as per necessary by publishing public notice for any shareholder to sell, distribute and transfer the ownership of the share remained on his/her name to any person deemed appropriate by the Bank so as to obtain payment of the price determined by the committee formed by getting the representatives of the Nepal Security Board and Institute of Chartered Accountants of Nepal as well as other external experts involved.

(4) Bank can confiscate the shares which are not sold, distributed and transferred because of any reason under Clause (a) of Sub-section (3), and bank can sell, distribute and transfer such share any manner which it think proper to anyb ody with the advice of the committee constituted under Clause (a) of Sub-section (3).

(5) Bank may provide reasonable opportunity of hearing to the stakeholder about the proposed issue before taking any decision against any commercial bank or financial institution under Sub-section (3).

Provided that, if the bank feels that prior opportunity of hearing can make negative effect to the interest of such commercial bank or financial institution, its depositors, shareholders, creditors or general public, the bank can provide opportunity of hearing as soon as possible after making such decision and if the bank satisfied with the reason and basis presented during the time of hearing it can change or repeal the decision as per necessity.

Can be subject of Resolution Section 86G: While taking action upon any problematic commercial bank or financial institution as per Section 86 C. or adopting reformative measure as per Section 86 E. or carrying out remedial work as per Section 86 F. as well, if the Bank believes in the matter that such commercial bank or financial institution is not able to fulfill the liability to be fulfilled or has fallen into the condition of not being able to operate properly, the Bank can take decision to subject such commercial bank or financial institution of the process of clearing and settlement.

Right to Appeal Ag ainst the Order of the Bank Section 86I: (1) Only the representative of shareholders of the commercial bank or financial institution can appeal to the committee within fifteen days against the action, order, decision or Proceedings of the bank or the official appointed by the bank, under Section 86C, 86D, 86E, 86f and 86h, if not satisfied with such action, order, decision or proceedings.

Clarification: For the purpose of this Section "shareholders representative" means representative elected among the shareholders having minimum twenty five percent of prevailing share.

(2) No appeal will be entertained without having the representation of twenty five percent of prevailing shares within the time of Sub-section (1.)

(3) In case of the appeal under the provision of Sub-section (1), the committee has to approve, review or cancel the action, order, decision or proceedings done by the bank or the official appointed by the bank, within thirty days of receipt of such appeal by giving related proof, basis and reasons.

(4) Bank may provide information about the decision made under Sub-section (3) within fifteen days of such decision to the respective representative of the shareholders.

(5) The action, order, decision or Proceedings of the bank or the official appointed by the bank shall remain continue unless the committee under Sub-section (3) cancel it.

(6) The decision of the committee under Sub-section (3) on the appeal of the shareholders representative shall be final.

Establishment of Information Network Section 87: (1) The Bank shall, in order to promote banking and financial system of ⁼Nepal, establish and operate information network as prescribed.

Establishment of Credit Information Center Section 88: (1) The Bank shall establish or cause to establish one credit information Center for the following purposes:-

(a) To obtain information on the flow of credit from commercial banks and financial institutions in order to ensure fairness and appropriateness in credit flow;

(b) To require the exchange of the information received pursuant Clause (a) amongst the commercial banks and financial institutions for the purpose referred to in that Sub-Section;

(d) To require to obtain on compulsory basis the information from the Center prior to makin g investment or advancing loan of an amount more than the limit prescribed by the Bank;

(e) To have the name-list received pursuant to Clause

(f) To submit report to the Bank, on the exchange of information among the commercial bank and financial institution and use such information while making loan investment on the basis of inspection, supervision and monitoring.

(2) The Bank shall regulate and manage the functions referred to in Sub-section (1) as specified.

Chapter-9 A.

Provisions relating to resolution

88A. Power of the bank to carry out work of resolution : (1) On any of the following conditions, the Bank can further the work of resolution by taking up any commercial bank or financial institution under its control :-

(a) If its liability of payment cannot be made fully or partially,

(b) If there is condition of not being able to fulfill the liabilities to be paid, on the ground of supervisory analysis, within ninety days from the date of the completion of the work relating to such analysis,

(d) If sustained loss that cannot be covered up even by all kinds of capital and funds prescribed by the Bank,

(e) If the Bank makes decision to take to the process of resolution as per Section 86 G.

(2) Only the bank shall have the power to carry out, or get the resolution carried out, of the claim of the depositor and secured creditor remained upon any commercial bank or financial institution.

(3) Total expenses incurred while carrying out work relating to resolution of the commercial bank or financial institution shall have to be borne out of the amount received after selling out the properties of the commercial bank or financial institution concerned.

88 B. Provision relating to the formation of the Special Administration

Team : (1) If decision is made to further the work of resolution of any commercial bank or financial institution as per Section 88 A., the Bank can further the work of resolution by forming Special Administration Team comprised of maximum three persons from among the persons having qualifications as per prescribed for this purpose, and by taking up the concerned commercial bank or financial institution under its control through this.

(2) If the work of all or any member of Special Administration Team is not satisfactory, the Bank can dismiss him/her from the post as per prescribed.

(3) Before dismissing him/her from the post as per Sub-Section

(2), he/she shall have to be given the opportunity of hearing by being allowed reasonable time.

(4) If the Bank dismisses the member of the Special Administration Team before accomplishing the work relating to resolution, it can appoint another person having the qualification for that post as per prescribed.

(5) The remuneration of the member of Special Administration Team shall be as per prescribed so as to be associated with work performance.

88C. Function, duty and power of Special Administration Team : (1) Special Administration Team shall have the total power, which is allowed to be exercised by the general meeting, Board of Directors, Chief Executive Officer and other lien on posts of the commercial bank or financial institution concerned.

(2) By remaining under the Sub-Section (1), the Special Administration Team shall have the following power regarding to manage the movable and immovable assets, to carry out resolution of any property and liability of the commercial bank or financial institution concerned and to operate such commercial bank and financial institution :-

(a) To sell all or partial share of the commercial bank or financial institution remained to be sold to new person,

(b) To allow any institution the responsibility to carry out operation of transaction and to carry out particular work that can be operated regularly with systematic perspective, or to establish separate bridge institution or unit for some period for the sake of carrying out such operation,

(c) To sell any or all transactions or properties of the commercial bank or financial institution concerned or any subsidiary company of such commercial bank or financial institution,

(d) To sell the properties or rights of the commercial bank or financial institution concerned, which remain under any other persons or institutions.

(3) Regarding the commercial bank or financial institution remained under the process of resolution, Special Administration Team shall have other powers as follows :-

(a) To get the documents, which the Special Administration Team deems necessary to further the act and action of resolution, submitted by the person concerned,

(b) To transfer, or get the ownership of the shares or other instruments issued by the commercial bank or financial institution concerned, transferred,

(c) To transfer certain power, properties or liabilities of the commercial bank or financial institution concerned to another person,

(d) To revoke the shares or other instruments issued by the commercial bank or financial institution concerned,

(e) To alienate the shares issued by the commercial bank or financial institution concerned or the shares or other ownership owned by any or all of its shareholders to the name of any other person on the ground as per prescribed,

(f) To issue preference shares or other instruments relating to capital,

(g) To move all the steps seen necessary to protect and take care of the properties of the commercial bank or financial institution concerned.

(4) While carrying out the work relating to resolution of the commercial bank or financial institution as per this Section, Special Administration Team does not need to carry out the following works :-

(a) To obtain prior approval of any persons of public or private sectors including the shareholders, depositors or creditors of the commercial bank or financial institution, which is under the process of resolution,

(b) To notify any person, firm, company or institution except mentioned otherwise in this Chapter.

(5) Special Administration Team shall have to accomplish within one year of the commencement of the work relating to resolution as per this Act.

Provided that, if any work related to resolution being carried out by the Special Administration Team cannot be accomplished within the stipulated time, the Bank can extend the tenure of the Special Administration Team on the ground of necessity and justification.

(6) Special Administration Team can carry out any or all of the following works on behalf of the commercial bank or financial institution concerned:-

(a) To continue other works and actions being carried out by commercial bank or financial institution except for collecting the deposit and providing any credits,

(b) To postpone or halt any works and actions being carried out by the commercial bank or financial institution,

(d) To prevent the payment of the liability of the commercial bank or financial institution or to determine limit for this,

(e) To appoint or dismiss the lien on post, the staff or the professional consultants necessary for the sake of commercial bank or financial institution,

(f) To summon assembly of the depositors and creditors for the purpose of holding discussion and making decision on the issue deemed necessary by the Special Administration Team,

(g) To make legal defense on the name of commercial bank or financial institution, or

(h) To carry out or get other necessary works related to resolution carried out.

(7) Special Administration Team shall have full power to access and control over the commercial bank or financial institution concerned and its subsidiary company office, account book, record, property and information technology system.

(8) If Special Administration Team deems appropriate to merge all or major property of the commercial bank or financial institution, which remains under its control, into any other commercial bank or finance company, or to merge into each other by acquiring the property of any other commercial bank or financial institution, application along with proposal regarding this shall have to be furnished to the Bank as per existing law. After receiving the application along with the proposal thus, the Bank shall have to make decision regarding accepting or refusing such application.

(9) By preparing the account of the estimated expenses to be spent on the process of resolution out of the amount available on the ground of financial condition of the commercial bank or financial institution, and the amount that may be needed for the sake of other expenses as per existing law, management should be arranged to return or pay the amount for such liability at a time or on installment out of the amount that can be available to pay for the liability of the deposit that has been matured. While paying as such, the depositors and creditors of the same grade shall have to be treated equally.

(10) The procedure relating to the determination of the validity of the claim laid by the depositor and creditor upon the commercial bank or financial institution concerned, payment of the claim, determination of liability and returning of the personal property of the client shall be as per prescribed.

(11) Notwithstanding whatever matter has been written in existing law, while selling the property of the commercial bank or financial institution, the Special Administration Team can sell by adopting transparent and professional perspective with more than one ways of auction, sealed bid, negotiation and so on, after determining minimum price on the ground prescribed.

(12) Special Administration Team shall have to submit to the Bank, from time to time as per prescribed, the description along with the financial account of the commercial bank or financial institution, the plan of the sale of the property of such institution and its perspective regarding this, prior estimation of the liability of such institution or the mode of payment of this, actual transfer of the property and estimation of the liability.

(13) If the Special Administration Team deems necessary to issue new share of the commercial bank or financial institution concerned, sell the property, unify the properties for the sake of securitization, to manage to make prior estimation of the liability or to manage such works, Special Administration Team can bestow responsibility to anybody or company, which has been established to carry out works relating to the management of the property as per existing law, to carry out such works. It can also transfer power to such body or company to sell the passive credit, the property, which is hard to be evaluated, and liability of the commercial bank or financial institution concerned.

88 D. Power to be automatically suspended during the period of

resolution : (1) The power of the Directors, Chief Executive Officer and other lien on post of the commercial bank or financial institution, which is under the process of resolution, shall be held ip so facto suspended during the period of resolution.

(2) Despite whatever matter has been written in Sub-Section

(1), Special Administration Team can depute all or any of the Directors, Chief Executive Officer and other lien on posts for the work relating to resolution by releasing the suspension for the sake of carrying out works prescribed by it.

(3) The Special Administration Team can dismiss the person at any time, who does not abide by the directives given to get deputed for the work as per Sub-Section (2) at any time.

(4) The person dismissed as per Sub-Section (3) shall not obtain any remuneration and facility from such bank or financial institution.

88 E. Notice and registration of the work relating to resolution : (1) Special Administration Team shall have to provide every office of the commercial bank or financial institution with the notice along with following description within two days from the commencement of the works relating to resolution :-

(a) Date and time of the works commenced after taking the commercial bank or financial institution concerned under its control,

(b) Description of the revoked authority and responsibility of the previously authorized person, who used to carry out economic transaction of the commercial bank or financial institution concerned or manage it or give directives relating to it.

(c) Method, time and venue for the depositor to present their claim on their deposit remained in the commercial bank or financial institution concerned, and their claim remained exceeding the insurance and secured amount prescribed,

(d) Method, time and venue to re-obtain their deposit insured and secured by the depositors, and

(e) Method, time and venue to present his/her claim to be obtained by the secured creditor from the commercial bank or financial institution.

(2) The notice along with the description as per Sub-Section (1) shall have to be published publicly so that the stakeholders of the commercial bank or financial institution concerned can get information. Such notice shall have to be published in national daily newspaper by publishing it every week until four weeks.

(3) Special Administration Team shall have to send the information relating to the condition of the commercial bank or financial institution that is subjected to the process of resolution, and the change made in authorized person of such commercial bank or financial institution and in his/her authority to the Bank, Company Registrar's Office, Stock Exchange Market concerned and the institution established to secure deposit as per existing law and other bodies concerned as well.

New balance sheet to be Prepared Section 88F: (1) Special Administration Team shall have to prepare new balance sheet on the following grounds so as to reveal actual condition of the commercial bank or financial institution that is subjected to the process of the resolution as per Section 88 A :-

(a) On the ground of the net price of the property to be obtained,

(b) By adjusting the price of the liability to be distributed on the ground of priority as per Section 88 I,

(2) While preparing new balance sheet as per Sub-Section (1), the method to determine liability shall be as per prescribed.

(3) The balance sheet prepared as per Sub-Section (1) and detailed account relating to it shall have to be submitted to the Bank as per prescribed.

88 G. Recommendation may be made for improving financial condition of the commercial bank or financial institution : (1) If it is seen that negative effect shall be incurred in overall financial stability or system while accomplishing the process of resolution commenced regarding any commercial bank or financial institution as per this Chapter, Special Administration Team shall have to submit the report, along with the steps to be moved in future, by mentioning such description, including the condition of the properties and liability of such institution so as not to let such condition be created.

(2) After receiving the report as per Sub-Section (1), if negative effect is seen to occur in entire financial stability and system while carrying out resolution of such commercial bank or financial institution by the Bank, and if it is seen that financial condition can be improved when the Government of Nepal invests in such commercial bank or financial institution, the Bank shall recommend such description, along with its opinion, before the Government of Nepal.

(3) If financial condition of any commercial bank or financial institution is improved after investing by the Government of Nepal in such commercial bank or financial institution upon the recommendation of the Bank as per Sub-Section (2), the Government of Nepal shall have to recover its invested amount within maximum of five years from the date of improvement by selling to the private sector through bid.

88H. Bridge Institution or Unit may be Established : (1) If it is seen appropriate to operate work relating to resolution by establishing or fixing bridge institution or unit as per Section (b) of Sub-Section (2) of Section 88 C., Special Administration Team can request to the Bank. If such request seems to be reasonable, the Bank can grant permission to carry out work relating to resolution by establishing or fixing such bridge institution or unit.

(2) It is deemed that the institution or unit established as per Sub-Section (1) shall have the power, liability property of the commercial bank or financial institution concerned and the membership of any payment, clearing or settlement system as well.

(3) The shareholders, creditors or any other persons of the institution or unit established as per Sub-Section (1) shall not have any kind of right on the property or power of the commercial bank or financial institution concerned.

(4) The function, duty and power of the bridge institution or unit and remuneration and facilities to be obtained by the lien on post of such institution or unit shall be as per prescribed by the Bank.

(5) None of the following matters shall be needed for the sake of transferring the property and liability of the commercial bank or financial institution concerned into the bridge institution or unit or any other institution :-

(a) Obtaining consent of the creditor or any affiliated party,

(b) Fulfilling the process prescribed by existing law relating to company and stock, or

88 I. Sequence of priority of payment : (1) After evaluating the amount received from the sale of the property of the commercial bank or financial institution remained under the process of resolution by depositor, creditor and Special Administration Team, the work of payment and allocating amount for the other persons seen to be paid shall have to be done on the ground of priority as follows :-

(a) Necessary expenses incurred in the process of resolution including the expenses spent by the Bank and Special Administration Team for the sake of implementation of the provision of this Act, expenses for the remuneration and facility of the staff, fee of the professional employed for the work regarding this and other related expenses,

(b) The amount up to insurance security held as per existing law so as not to exceed the limit of the total claimed amount of the depositor or the amount equal to the payment if that has been made for the depositor by the institution established as per law that carries out insurance security,

(d) Approved claim of the persons valid as insured creditors as per law.

(2) If the amount of approved claim of any grade is insufficient to be paid off while paying as per the sequence of priority mentioned in Sub-Section (1), the amount shall have to be proportionately distributed to the claimants of the equal grades.

(3) While paying to the depositors or secured creditors for the claim, payment should be made equally without discriminating on any ground such as nationality, place of domicile or jurisdiction.

(4) The approved claim of the secured creditors, who submit claim on time, shall have to be paid, by keeping in the first priority, if the amount received from the sale of the property remained in security covers up. The claim that is not covered up by such security shall be equal to the claim of other creditors.

(5) For the purpose of bearing liability relating to economic compensation that can be incurred as per Sub-Section (4) of Section 88 L., Special Administration Team shall have to deposit two percent amount out of the amount received from the sale of the property of such commercial bank or financial institution, by setting up separate account.

(6) The amount remained after allocating the amount as per Sub-Section (5) upon paying to the depositors and secured creditors, the tax, charge, fee to be paid and submitted as per existing law shall have to be proportionately distributed by the liquidator appointed as per Sub-Section (3) of Section 88 O. to the other creditor or approved claimants and shareholders or that commercial bank or financial institution, or the persons having ownership by other ways on the ground of priority prescribed as per existing law.

88 J. Effect after Special Administration Team takes bank or financial

institution under control : (1) After the Special Administration Team takes any commercial bank or financial institution under its control, any work of maintaining rights upon the properties of such institution regarding the claim of the depositors and creditors and any dues of which payment could not be obtained as per Section 88 I shall be automatically postponed.

(2) Notwithstanding whatever matter has been written in Sub-Section (1), the works relating to transaction and transfer of property with the person involved with clearing, payment and settlement, and the acts and matters not related to the process of resolution shall not be deemed to be postponed.

(3) Except for the right of any liability or security upon commercial bank or financial institution six months before Special Administration Team is formed for the purpose of taking any commercial bank or financial institution into the process of resolution, it shall not be deemed that right shall be created for anyone upon any property, liability or security of such commercial bank or financial institution.

(4) Notwithstanding whatever matter has been written in Sub-Section (3), any kind of liability or security created by Special Administration Team upon the property of the commercial bank or financial institution, on which the process of resolution is undergoing, shall not be deemed to have been prevented.

(5) After the formation of the Special Administration Team, all the rights of the owners of the commercial bank or financial institution concerned or the persons having any other kinds of ownership shall be held ip so facto passive until the process of resolution is complete.

(6) In connection to the commercial bank or financial institution remained on the process of resolution upon forming Special Administration Team, the provisions remained in the existing law relating to stock shall not be applied.

88 K. Actions prior to the commencement of the action relating to resolution to be inactive : (1) Special Administration Team can inactivate the transaction which affects in the properties of the commercial bank or financial institution or the transfer related to the third party in the following conditions :-

(a) The transactions carried out or agreements forged before the commencement of the process of resolution so as to become against the welfare of the depositors or creditors of the commercial banks or financial institutions concerned,

(b) Any transfers made for any shareholders, Directors, lien on posts or their relatives by the commercial bank or financial institution without any price until before five years from the date of the commencement of the process of resolution,

(c) Any transfers made for any third party by the commercial bank or financial institution without any price before three years from the date of the commencement of the process of resolution,

(d) The transactions concluded in such a way of receiving lesser outcome by the commercial bank or financial institution or providing more outcome to the other party comparatively until before three years from the date of the commencement of the process of resolution,

(e) Any acts done so as to become against the welfare or affect the rights of the depositors of the commercial bank or financial institution until five years before, from the date of the commencement of the process of resolution,

(f) Transfer of property having on the name of creditor with the purpose of giving benefit to any person for the loan to be paid by the commercial bank or financial institution concerned or with the purpose to increase the amount to be received by the creditor in the process of liquidation until the six months before, from the date of the commencement of the process of resolution.

Provided that, the provision of this Section shall not be attracted regarding the payment for the deposit made not exceeding the amount covered up by each deposit insurance and security.

(2) Special Administration Team can revoke the transaction made with the director, lien on post of the commercial bank or financial institution or his/her close relative, till one year before the date of the commencement of the process of resolution, so as to become against the welfare of the depositor and the creditor of the institution, or can recover the amount for this.

(3) Notwithstanding whatever matters have been written in Sub-Sections (1) and (2), Special Administration Team shall not revoke the transaction, which was made by the commercial bank or financial institution in course of its general transaction or in which appropriate and sufficient price was exchanged, or on which payment was not made until before such institution underwent resolution.

(4) The person who obtains property from the transaction or transfer as per Sub-Section (1) and (2) shall have to return such property immediately. If the person, who has obtained the property, no longer possesses such property shall have to deposit the amount equal to the price of such property in the commercial bank or financial institution concerned. In connection to the person who carries out such transaction with any wrong intention, who does not immediately return the property or the price equal to it to the commercial bank or financial institution concerned after the transaction has been revoked, claim shall be fixed upon him/her as equal as the secured creditor.

(5) In connection to any property, which has been unnaturally transferred to any person for less price from the commercial bank or the financial institution concerned, and which has been transferred to the third person even from such person, Special Administration Team can take it back by paying for investment cost of it.

(6) While operating the process of resolution, Special Administration Team can send by writing to the body concerned to transfer any kind of movable or immovable property or rights. When the Special Administration Team sends by writing thus, the body concerned shall have to get such movable or immovable property or rights alienated or transferred on the name of the commercial bank or financial institution.

(7) When Special Administration Team is on the process upon being formed for the sake of resolution for any commercial bank or financial institution, no one is supposed to interrupt or get other goods and service such as electricity, water, telephone, house and land, means of vehicle provided prior to this interrupted, simply because of not obtaining the amount for such goods and service. In connection to the payment for the goods and service obtained thus, Special Administration Team shall have to pay the service provider concerned with the arrears fixed before undertaking the process of resolution.

88 L. Other provisions relating to resolution : (1) Notwithstanding whatever matter has been written in existing law, regarding all the claims related to the commercial bank or financial institution, which is under the process of resolution, shall be as per this Act.

(2) No one is supposed to bar, obstruct, interrupt or interfere or get the right to access and control of the Special Administration Team barred, obstructed, interrupted or interfered. If anybody commits or gets such works committed, Special Administration Team can request the administration or the police concerned for necessary help. If requested as such, the body concerned shall have to help to maintain access and control of the Special Administration Team upon the office, property, record, and account book and information technology system by managing essential security.

(3) If Special Administration Team submits the report to the Bank, or if the Special Administration Team is dissolved due to any reason, any party, who has been in loss by the act and action carried out by the Special Administration Team or the Bank as per this Chapter, can furnish application to the court within sixty days from the date of dissolution for the sake of compensation.

(4) The court can get economic compensation paid to the party in loss on the following conditions:-

(a) If any act carried out or action taken place by surpassing jurisdiction in course of resolution,

(b) If the process of resolution is not accomplished as

per this Act,

(5) While exercising the power obtained as per this Act, Special Administration Team shall have to exercise in transparent and justified manner so that it shall benefit the depositors and other claimants.

(6) In course of the process of resolution, the remuneration and facility to be obtained by the person who represents the Bank or Special Administration Team or the person who helps him/her, shall be as per determined by the Bank.

(7) No depositor, shareholder or creditor shall be allowed to file lawsuit of any kinds against any works performed to help in the process of resolution by the Directors or lien on posts of the commercial bank or financial institution concerned in course of implementing the decision of the Bank or Special Administration Team.

(8) Notwithstanding whatever matter has been written in existing law, the Bank can obtain the information and description related to any commercial bank or financial institution regarding the process of resolution of such institution from any person, firm, company or institution of government or private sector. If the Bank gives order, the major managerial information, the description of including the place where the technology of any commercial bank or financial institution is located, and sensitive and major works performed by such institution shall have to be submitted to the Bank. To provide any information sought by the Bank thus shall be the duty of the person, firm, company or institution concerned.

88 M. Final description of the work relating to resolution to be submitted : (1) After Special Administration Team concludes the work relating to resolution, or after the tenure of such Group is over, or within fifteen days of the dissolution of such Group due to any reason, it shall have to submit the report to the Bank, along with the description relating to the work and action accomplished by it and account of profit and loss of the commercial bank or financial institution concerned, source of financial transaction and its utility, after preparing and getting it tested, and including it as well. Necessary recommendation shall have to be included in such report regarding the steps to be moved in the future in the context of such institution by the Bank.

(2) After the report is received as per Sub-Section (1), the Bank shall have to make necessary decision, by considering including the recommendation mentioned in such report, on the issue of arranging the operation of management as per Section 88 G or furnishing application to the court for the sake of liquidation of such commercial bank or financial institution as per Section 88 O.

88 N. Exchange of Reciprocal Assistance : (1) In course of moving forward the process of resolution of any commercial bank or financial institution upon obtaining prior approval of the Bank, Special Administration Team can request the related body of foreign country for the sake of help as per necessary.

(2) By obtaining prior approval of the Bank regarding the process of resolution of any commercial bank or financial institution, Special Administration Team can help in the act and action being performed in another country, or can move forward the necessary action to validate the act and action being performed by authorized body of another country on the ground of reciprocity. Claimants shall have to be treated equally while extending such assistance, or validating such act and action.

(3) Except in the condition that confidentiality shall have to be maintained and sensitive data shall have to be protected, Special Administration Team can exchange information, upon obtaining prior approval of the Bank, with the related body of the foreign country regarding recovery of dues, resolution plan etc. of the commercial bank or financial institution remained under the process of resolution.

(4) Regarding the resolution of the commercial bank or financial institution having branch or office in the foreign country as well upon being established in Nepal, or any commercial bank or financial institution having branch or office in Nepal upon being established in foreign country, the Bank and the institution that secures deposit insurance also can coordinate and exchange help reciprocally.

(5) After forging reciprocal agreement by the Bank and the institution that secures deposit insurance regarding the resolution being performed by the related body of the foreign country and its plan, if any information or help is sought regarding any incident or problem affecting regarding the commercial bank or financial institution that has fallen into resolution, they can exchange such information or help.

(6) If any help is to be obtained from or coordination is to be done with the central bank, commercial bank or financial institution or the institution that secures deposit insurance of foreign country on the ground of reciprocity as per this Section, if such help and coordination is needed from the government level, the Bank shall recommend in front of the Government of Nepal to arrange the necessary management regarding this.

88 O. Application for liquidation may be made: (1) If the process of resolution, which was started by the Bank regarding any commercial bank or financial institution is concluded or if the Bank believes in the matter, on the ground of the recommendation furnished by Special Administration Team regarding this or on other grounds as well, before that process is concluded, that such commercial bank or financial institution cannot be properly operated, it can furnish application to the court for the sake of liquidating such commercial bank or financial institution.

(2) When the Bank furnishes application for the sake of liquidation as per Sub-Section (1), Sub-Section (3) of Section 10 of Section 13 of Insolvency Act, 2063 shall not be applied regarding such commercial bank or financial institution.

(3) When the Bank furnishes application as per Sub-Section (1), the court can give order to appoint liquidator for the sake of liquidation of such commercial bank or financial institution.

Chapter - 10

Balance Sheet, Auditing and Report

Account system Section 90: (1) The Bank shall have to keep the account of its profit and loss exact so as to reveal the transaction and financial condition as per account system according to Nepal accounting standards.

(2) Notwithstanding whatever matter has been written in Sub-Section (1), international accounting standards shall have to be taken as basis on the sectors in which Nepal accounting standard is not involved.

Annual Report Section 91: (1) The Bank shall prepare an annual report for each fiscal year, which should include the balance sheet, profit and loss ^E … . . ^p

and the particulars relating to it.

(2) The Bank shall submit the annual report referred to in Sub-section (1) to Government of Nepal within four months from the date of completion of each fiscal year.

Submission of Report to Government of Nepal Section 93: (1) The Bank shall have to submit the following reports to Government of Nepal within four months from the date of completion of each fiscal year:-

(a) Auditing Report,

(b) Report on its activities of itself,

(2) The Bank shall publish its monthly balance sheet within fifteen days from date of completion of each month.

Chapter - 11

Offences, Punishment and Proceedings

Acts Deemed to be Offence Under this Act Section 95: (1) Whoever accepts deposits or gives credits or issues debenture or other financial instruments in contravention to this Act or the Rules or bye-law framed thereunder or an order or directive issued thereunder; or whoever charges or gives interest against the policy determined by the Bank or issues fake, fraudulent, counterfeit or duplicate or copied currency or distributes or circulates such currency or is involved in such acts ^E … . . ^p or instead of obtaining license from the Bank as per existing law, if transaction is made without obtaining it, or if obstruction is posed on the process of clearing and settlement as per Chapter-9 A., it shall be deemed to have committed offences under this Act.

(2) Except otherwise provided under Sub-section (1) any person who fail to comply with the provisions made under this Act or rules made thereunder, or bye-laws, or the order or directives issued thereunder, shall commit offence under this Act.

Penalty and Punishment Section 96: (1) The person who commits the crime as per Sub-Section (1) or (2) of Section 95, fine up to three times of the property or imprisonment up to three years, or both the punishments shall be given by confiscating the property related to that crime.

(2) If there is the condition that the property cannot be fixed while punishing as per Sub-Section (1) or (2) of Section 95, fine up to maximum of one million rupees or imprisonment up to three years, or both the punishments shall be given by looking into the extent of crime.

(3) If the crime as per Section 95 is committed by any firm, company or institution, such punishment shall be given to the chief lien on post of such firm, company or institution.

(4) The person, firm, company or institution or the lien on post of such firm, company or institution who attempts to commit the crime as per Section 95 or accomplices to commit such crime shall get half of the punishment which is given to the principal criminal.

Punishment for Violation of Bank's Regulation Section 100: (1) In case any commercial bank or financial institution licensed from the Bank, violates an order or directive issued by the Bank under this Act or under the regulation or bye-laws framed thereunder, the Bank may impose one or more of the following punishment to such commercial bank or financial institution:-

(a) Giving reprimand or written warning;

(b) Obtain an undertaking from Board of Directors for adopting reformative measures;

(c) Issuing written order to end up frequent violations, to abstain from such violation and to adopt reformative measures;

(d) Suspend or terminate the services of the Bank's employee;

(e) Prohibit commercial bank or financial institution to distribute dividend to its shareholders;

(f) Prohibit commercial bank or financial institution to accept deposits or to grant loan and advance;

(g) Imposing full or partial restriction on the transaction of business of the commercial bank or financial institution;

(h) Suspend or revoke license of the commercial bank or financial institution.

(2) Where a Director or official or employee of a licensed commercial bank or financial institution violates an order or directive issued by the Bank under this Act or under the regulation or bye-law framed there under or in cases where, they have acted against the interest of the depositor or general public or where they failed to submit the documents, particulars, data required by the Bank or the inspecting or supervising official within the time prescribed, the Bank may impose the following punishments to such Director, official or employee:-

(a) Giving reprimand or written admonition;

(b) Suspending;

(d) Giving order to the Board of Directors of concerned commercial bank or financial institution to stop payment of all benefits including remuneration and allowances;

(e) Giving order to the Board of Directors of the concerned commercial bank or financial institution to remove Directors from his office of Director or to terminate the services of officer or employee.

Filing Appeals Section 102:

The commercial bank or financial institution or the director or official or employee thereof not satisfying with the punishment imposed by the Bank under Sections 99 and 100 may, within thirty five days from the date of punishment, file an appeal at the ^¥High Court.

Chapter - 12

Miscellaneous

Payment, Clearing and Settlement Section 103:

(1) The Bank shall make necessary arrangement for the clearing and settlement of cheques, payment orders, inter bank payment security transactions made in the currencies prescribed by the Bank and any other payment instrument and carry out the functions of regulation, inspection and supervision thereof.

(2) While carrying out the functions referred to in Sub-section (1), the Bank may prescribe necessary procedures.

(3) For the purpose of clearing and settlement arrangement referred to in Sub-section (1), the commercial bank or financial institution shall, subject to the terms and conditions prescribed by the Bank, open account in the Bank or any other financial institution prescribed by the Bank.

(4) While regulating as per Sub-Section (1), apart from regulating the transaction including the payment, clearing and settlement to be made through agent or external source by the commercial bank or financial institution, the Bank can conduct inspection and supervision of such transaction as per necessary.

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Nepal Rastra Bank Act, 2058 (2002)

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Nepal Rastra Bank Act, 2058 (2002)

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