Banks and Financial Institution Act, 2073 (Part-8)
Chapter-13: Provision relating to Offence, Prosecution & Penalty
99. Regulatory Action
1. Depending upon the nature and seriousness of the breach committed, by BFI, of this Act, NRB Act, rules, regulations, direction, or order issued under the same, NRB can take one or more of the following action:-
a. Giving written warning or notifying about the same;
b. Making the promise by BOD for steps of improvement;
c. Issuing written order, not to breach this Act, NRB Act, rules, direction or order issued under the same or to take necessary steps for improvement;
d. Imposing restriction on distribution of dividend to the shareholders of BFI or issue of bonus shares or acts of distributing dividend or issuing bonus share by BFI;
e. Specifying limitation or imposing restriction on acceptance of deposit or extension of credit by BFI;
f. Imposing partial or whole restriction on the transaction of BFI.
2. NRB can suspend or cancel the license issued to BFI for carrying on banking and financial transaction in the following circumstances:-
a. If banking and the financial transaction has not been started within 6 months from the date of obtaining a license for carrying on banking and financial transaction;
b. If banking and financial transaction is ceased to be carried on without obtaining the approval from NRB;
c. If banking and the financial transaction has been carried on against the interest of depositors or matured or called deposit is not refunded or cannot be refunded;
d. If NRB Act, this Act, rules, regulations, direction, an order made under such Acts or terms and conditions prescribed by NRB are not followed or breached;
e. If the license of BFI is found to be obtained by submitting false particulars;
f. Deposit is not insured as per the prevailing law.
3. Depending upon the nature and seriousness of the breach committed, by the promoter, shareholder, director, CEO, officer, employee, or any concerned person of any BFI of this Act, NRB Act, rule, regulation, direction, or order issued under the same, NRB can take one or more of the following action:-
a. Forfeiting or freezing the shares in BFI of such person and giving direction to the BOD to sell such shares to any other person;
b. Giving direction to BOD to freeze or suspend the sitting fee, monthly remuneration, or all the benefits entitled to be received by BOD, director, officer, and any other employee of BFI;
c. Removing chairman, director, CEO, or any person or employee acting in the capacity of chief an executive from such post by giving written notice to such person if such person is found not to be acted in the interest of depositors, shareholders, or the licensed institution during the inspection and supervision of NRB; However, a time period of 3 to 15 days shall be provided to such person to submit his/her justification of the accusation. Such person shall not be entitled to receive any compensation or benefit mentioned in Employee By law and shall be disqualified to hold the office for service in any BFI licensed by NRB for a period of 5 years.
d. If during the actions under Clause (d), the director, officer, or any other employee refuses to receive the letter of action or justification after receiving such letter justification is not submitted, NRB can give the information about such action through public notice;
e. If any BFI is found to have accepted or provided salary or any other benefit against this Act or of an unreasonable amount, such benefit or an amount equivalent to such benefit and interest applicable as per the prevailing law shall be recovered from such person providing such benefit;
f. Giving order to BFI for sending out the written recommendation, for action against the director, officer, or employee of BFI, to the institution where such person is engaged professionally;
4. NRB can give the order to recover from such director, officer, or employee any amount that has to be paid by BFI due to the negligence or malafide intention of any director, officer, or employee;
5. Such director, officer, or employee shall have to pay the amount personally within 35 days of receipt information regarding the order under Sub-section (4);
6. In case of default in payment by such director, officer, or employee under Sub-section (5), it shall be recovered as government dues from any bank account in any BFI of such person or family members of such person or from any movable or immovable assets of such person or his/her family members;
7. Such BFI shall have to bear the expense of publishing or transmitting information by NRB after regularization, inspection, supervision, or any other action of BFI.
100. Penalty can be Imposed
1. NRB can charge a penalty as follows to the BFI not providing the information or not submitting documents or particulars that need to be submitted within the prescribed time or any documents, statistics, or records asked by NRB or officer deputed by NRB during the monitoring, inspection or supervision are not made available within prescribed time under this Act or NRB Act or rules, regulations, directions, or orders issued under such Acts:-
a. Rs. 1,00,000/- per day up to 2 weeks from the due date;
b. Rs. 1,25,000/- per day up to 1 months from the due date;
c. Rs. 1,50,000/- per day after the expiry of the period under Clause (b).
2. NRB depending upon the nature and seriousness of breach can impose a penalty up to Rs. 10,00,000/- on breach of this Act or NRB Act or rules, regulations, directions, orders, or conditions under such Acts by the promoter, shareholder, director, CEO, officer, employee, or any other concerned person of BFI or noncompliance to the direction given u/s 99(3)(b).
3. If the penalty imposed under Sub-section (1) is not submitted by BFI to NRB within 30 days of receipt of information of such decision, such shall be recovered from the account opened with NRB by such BFI.
4. The amount of penalty to be received under Sub-section (1) & (2) shall be admitted to the government fund.
101. Procedure for taking Action
1. Except otherwise mentioned in this Act, while taking action u/s 99 and imposing penalty u/s 100 NRB shall follow the following procedure:-
a. Before taking proposed action or imposing a penalty, a written notice, describing the nature of the offense, a summary of such offense and proposed action that can be taken or amount of penalty that can be imposed to accused BFI or person, of 7 days shall be given to submit its/him/her justification;
b. Concerned BFI or person shall submit justification in writing within 7 days from the receipt of written notice under Clause (a);
c. If the written justification received under Clause (b) is found to be decent NRB can modify, limit or cancel such accusation;
d. If the written justification received under Clause (b) is not found to be satisfactory NRB can take action u/s 99 or impose a penalty u/s 100 to such BFI or person.
2. Other procedure that is required to be adhered by NRB while taking action or imposing penalty under this Act shall be as prescribed by NRB.
102. Control Over Licensed Institution
1. Notwithstanding anything contained in this Act, any licensed institution is found to have breached this Act, NRB Act, rules or regulations formed under such Acts, or direction or order issued under such Acts, or NRB is satisfied based on the report of inspection and supervision that the licensed institution is unable to discharge its liability or there exists a probability of inability discharge liability or BFI is not operating smoothly or act has been carried out against the interest of shareholders or depositors, NRB can take over such licensed institution by suspending its BOD for a maximum of 3 years.
2. After taking under its control any licensed institution by NRB under Sub-section (1), management of such licensed institution can be carried on by NRB itself or any suitable person, firm, company or institution can be appointed.
3. Within 1 year from managing the licensed institution under Sub-section (2) by NRB itself or by any person, firm, company, or institution appointed by NRB, financial and management audit of such concerned institution shall be conducted or cause to be conducted and such report shall be published publically.
4. If based on the audit report under Sub-section (3), NRB is convinced that such a licensed institution is capable of discharging its liability or capable of operating smoothly, NRB can do as follows:-
a. Vesting the responsibility of the management of such licensed institution again to suspended BOD by releasing the suspension of BOD under Sub-section (1); or
b. Removing the BOD suspended under Sub-section (1) and forming a new BOD among the shareholders of such licensed institution and vesting the responsibility of the management of such an institution on newly formed BOD; or
c. Vesting the responsibility of the management of the licensed institution to a newly formed BOD by calling the GM of such institution; or
d. Any taking any other seemed appropriate by NRB.
5. NRB can take any of the following 2 actions if NRB is convinced, based on the report under Subsection (3), that the concerned institution is unable to discharge its liability or is unable to operate smoothly;-
a. Initiating the process of compulsory cancellation as per the provision of Chapter 12; or
b. Initiating the process of resolution as per the provision of NRB Act, 2058.
6. Depending upon the situation NRB shall provide a time period of up to 15 days to submit the written justification to the concerned licensed institution before taking into its control the licensed institution under Sub-section (1).
7. All the expenses of actions taken after taking into control the licensed institution under its control by NRB shall be borne by such institution.
8. NRB shall notify GON & Ministry of Finance after taking into its control any licensed institution under Sub-section (1).
103. Offense
1. Any of the following acts done by any person against this Act, rules, regulation, direction, order, terms, or conditions issued under this Act shall be deemed to be an offense:-
a. Carrying on banking and financial transactions without obtaining the license;
b. Obtaining a license for carrying on banking and financial transaction by submitting incorrect or false particulars;
c. Carrying on banking and financial transaction against the terms and conditions of license of carrying on banking and financial transaction;
d. Dealing in forex without a license;
e. Extending credit or investing against this Act;
f. Doing irregularity while extending credit, valuating collateral, recovering credit or any other functions related to it, valuing fictitiously while auctioning the collateral or accepting it as NonBanking Asset (NBA) or selling it after accepting as NBA;
g. Doing irregularity by any director, officer, employee, and any other person during merger, acquisition, cancellation, or audit;
h. Aiding and abetting for offense mentioned in Clause (a) to (g).
2. It shall be deemed that the offense under Sub-section (1) has been done by the director, officer, or employee holding the office or person aiding and abetting for such offense unless such person proves that such offense has been committed without his/her consent or such person has done everything in his/her power to prevent such offense from being committed.
3. It shall be deemed to be an offense if any officer or employee of the branch of any foreign bank transfers or approves the transferor gives authority for such or does any act to aid such act the assets of such branch to any other country.
104. Penalty
1. Following shall be the penalty for doing the following offenses:-
a. Forfeiting the amount involved and penalty up to 3 times the amount involved and imprisonment up to 5 years for offense u/s 103(1)(a);
b. Forfeiting the amount involved and penalty up to 2 times the amount involved and imprisonment up to 2 years for offense u/s 103(1)(b);
c. Forfeiting the amount involved if any and penalty up to the amount involved and imprisonment up to 1 year for offense u/s 103(1)(c)(d)(e)(f)(g);
d. Forfeiting the amount involved if any and half the imprisonment as compared to the principal offender for offense u/s 103(1)(h).
2. While calculating the amount involved for the purpose of Sub-section (1) entire amount of the transaction shall be taken into account.
3. While imposing fine under Clause (a) to (d) of Subsection (1) the fine to be imposed shall be the amount involved if it is clear and if not then from Rs. 10 Lakhs to Rs. 50 Lakhs.
4. Punishment for the person committing an offense u/s 103(3) shall be fine as per amount involved and imprisonment up to 5 years.
5. If any offense u/s 103 has been committed by any firm, company, or institution, the concerned director, officer, employee or any other concerned person shall be liable for the punishment and if such person could not be identified, the chief executive of such firm, company, or institution shall be punished.
6. If any person has committed an offense u/s 103 and such person has kept or hidden assets in his name or in the name of his family members, relatives, or any other person, such assets shall be forfeited along with any amount earned by such assets.
105. Appeal
1. BFI and its director, officer, shareholder, or employee can appeal to the court within 45 days from the date of receiving the order if aggrieved by any action taken by NRB u/s 99 & imposing fine u/s 100.
However, while making an appeal by the shareholder of BFI against which action has been taken u/s 99 & fine u/s 100 has been imposed, it shall be made by the representative chosen among the shareholders representing at least 25% of paid-up share capital.
2. While making an appeal under Sub-section (1) against the personal action or fine by any director, officer, employee, or any other person, the bond of at least 50% of the amount of fine shall be kept.
3. No person removed from the post of director, officer, or employee of any BFI shall be eligible to be director, officer, or employee of any other BFI till 5 years from the date of such action or if an appeal has been filed since then the date of obtaining clearance from the court.
106. No Restriction to take Action
It shall not be deemed to be restricted to take action against any person who has committed an offense u/s 103 even if such person is no longer in office or is retired from such office.
Chapter-14: Miscellaneous
107. Special Provision related to IDB
1. NRB can provide special policy or give direction in respect of for the incorporation, operation, regulation, supervision, action, merge, acquisition, or cancellation of IDB based on nature, the extent of investment in such IDB.
2. Notwithstanding anything contained in this Act, incorporation of IDB or maximum shares that a shareholder can subscribe or limit investment in shares, debentures, or other financial instruments of such IDB by any foreign BFI or other organizational institution shall be as prescribed by NRB from time to time.
108. Insurance of Deposit
The licensed institution shall ensure the deposit as per the prevailing law or the amount in a specified deposit account with NRB.
109. Maintenance of Banking Privacy
1. No other person except for the concerned person shall be given information about the relationship with BFI and customer and books of accounts, accounts, records, ledger, documents, and particulars of BFI.
2. Notwithstanding anything contained in Sub-section (1), information or particulars of any person with BFI provided as following shall not be deemed to be a breach of privacy:-
a. Information or particulars have been provided, to NRB as per this Act, NRB Act or rules, regulations, directions, or orders under such Acts or in between BFI during the exchange of credit information;
b. Information or particulars have been provided to the court about any case or legal action;
c. Information or particulars of the concerned party have been provided to the inquiry committee or any other officer authorized to investigate as per the prevailing law about an investigation or examination as per the prevailing law or provide such information to supervising authority;
d. Any information or particulars provided to the auditor during the audit;
e. Any information or particulars provided to the foreign state as per the prevailing law of mutual legal assistance;
f. NRB has directed so on the request received from GON, Ministry of Finance for the details of accounts, with BFI, of any particular person, firm, company, or institution or the details of accounts of BFI, along with reason thereof during the process of crime investigation of special nature.
3. Information or particulars obtained as per Sub-section (2) shall not be disclosed or caused to be disclosed to any unauthorized person.
4. Except in the situation mentioned in Sub-section (2), director, officer, CEO, employee, auditor, consultant of BFI and any concerned person shall not breach or cause to breach the privacy of books of accounts, ledger, records, documents, accounts, or any other confidential matters causing disruption in the relationship between the BFI and its customers.
110. Direction to Freeze the Account
1. NRB can at any time, in the following situation, give an order to the concerned BFI to freeze the account of any person, firm, company, or institution in such a way that no payment or transfer can be made in any way:-
a. During the course of any investigation of an offense the authorized officer has requested NRB to do so;
b. To prevent money laundering and offense related to financing terrorist activities, to maintain national interest by controlling corruption, organized crime, and offense during banking and financial transaction.
2. It shall be the duty of every BFI to follow the order given by NRB under Sub-section (1).
111. Claim over Deposit
1. No person other than the person keeping such deposit shall have the right to claim over the deposit kept with BFI.
2. Nominated person shall have the right to claim over the deposit at the event of death of the depositor and if no nominee was declared or such nominee is also dead, the first right to claim over such deposit shall be of the following persons alive as per the order of priority:-
a. Spouse not separated;
b. Undivided son or daughter, adopted son or daughter or widow daughter-in-law;
c. Undivided father, mother, grandson, or granddaughter;
d. Separated spouse, son, daughter, mother or father, son, daughter-in-law or married daughter;
e. Undivided grandfather, grandmother, brother, nephew, niece, sister, separated grandfather, grandmother;
f. Undivided step-mother separated grandson from son or granddaughter;
g. Separated brother, nephew, niece, sister;
h. Undivided uncle, widowed aunt, daughter-in-law from brother or granddaughter-in-law;
i. Married sister, separated granddaughter-in-law.
3. If no claim over the deposit has been received because of lack of person as per the priority under Sub-section (2), such amount shall be deposited in the Banking Development Fund of NRB and used for the same.
4. Notwithstanding anything contained as per the prevailing law, a deposit with BFI shall not be paid to any other person without obtaining prior approval of the concerned person having a claim over such deposit as per Sub-section (2).
112. Details of Unclaimed Deposit
1. A licensed institution shall submit to NRB the particulars of deposit accounts which have remained inoperative, and of those the title to which has not been claimed under this Act for ten years, within the first month of each fiscal year.
2. BFI shall publish a notice to receive the amount as per Sub-section (1) in a national daily once every 5 years. The detailed particulars of the same shall be published on the website of BFI.
3. If the amount as per Sub-section (1) is not claimed in 20 years, such shall be deposited in the Banking Development Fund and used in the development of banking.
113. Recovery from or Confiscation of Deposit
If any business or transaction is carried on by pledging as collateral or security the amount deposited with a licensed institution, or if amounts are deposited with a licensed institution with misappropriated funds belonging to the governmental body or anybody fully owned by the Government of Nepal, or with funds obtained by committing any act which is deemed to be an offense under the laws in force, or with funds collected through any activity relating to terrorism or organized crime, such deposits may be confiscated or such collateral or security nor misappropriated or other funds may be recovered from such deposits by the laws in force.
114. Recovery from the Director
BFI shall recover any cash or kind from the director of such BFI if such director was found to have gained such cash or kind using personal gain during the transaction of such BFI.
115. No Claim can be Made
If any person has entered into a transaction with a director or his/her agent knowing the fact or there was sufficient reason to believe that such transaction is being carried out for his/her personal gain or against the interest of BFI, no claim against such transaction can be made on BFI.
116. GON to be Plaintiff
1. Any cases related to an offense u/s 103 shall be filed with the GON being the plaintiff and such cases shall be deemed to be included in the Schedule-1 of prevailing Act related to Government Cases.
2. Any person can complain, along with the evidence, either verbally or in writing to the nearest police office against any director, officer, employee, borrower, or any other person who’s done an offense u/s 103.
3. NRB shall provide necessary assistance during the investigation, inquiry, and filing of the case.
117. Provision related to Transparency
1. BFI or branch of foreign BFI shall at least once in a quarter publish a quarterly report on its financial situation and situation of risk for the sake of transparency of the transaction.
2. Minimum requirement of the report under Sub-section (1) shall be as prescribed by NRB.
118. Provision related to the Protection of the Interest of Customer
NRB can do the following acts to protect the interest of the customers:-
a. Ensuring that the licensed institutions are carrying their financial transaction as per the law and
providing financial service to the customers healthily and transparently;
b. Coordinating in the financial sector for the protection of the interest of the customer;
c. Collecting necessary information to improve the protection of interest of customers in the banking sector and to bring financial literacy.
119. Waiver and Benefit
1. No written registration of movable or immovable property mortgaged as collateral against the credit extended up to Rs. 10 Lakhs to any Nepalese Citizen or institution established as per the prevailing law for the purpose of agriculture, cottage and small industries, irrigation, hydropower, and any other business specified by GON.
2. Maturity period of credit or deposit shall be as specified by the BFI.
3. No revenue stamp is to be pasted on any written agreements with BFI.
120. Expense Management
NRB can give necessary direction in respect of preliminary, incorporation, administrative, operating, management, and other expenses.
121. Particulars of Assets to be Submitted
Director, officer, and CEO shall prepare the statement of all movable and immovable assets in the name of him/her and his /her family and liabilities within 60 days of the end of the FY and submit it to the concerned BFI and notify NRB about the same. While preparing such details source of such shall also be declared.
122. Sale/Purchase of Credit, Liability & Right on the Collateral of Credit
Notwithstanding anything contained in any prevailing law, unless provided otherwise in the credit agreement, any credit extended by any BFI or liability accepted by it and right on the property mortgaged against or for the same can be sold or purchased.
123. Resolution of Conflict
1. Any conflict arisen between BFI shall be resolved by mutual cooperation.
2. If the conflict cannot be resolved through mutual cooperation under Sub-section (1), NRB can resolve the same through the process of resolution or any other means of resolving the conflict as per the prevailing law.
3. The decision of NRB as per Sub-section (2) shall be final.
124. Not to be Answerable on Acts done in Good Faith
1. Officer or employee of NRB, BFI shall not be personally or jointly answerable for any acts done in good faith according to this Act or NRB Act, 2058 or rules, regulations under those Act or directions or orders under those Acts.
2. In case any case has been filed against the officer or employee of NRB, BFI for any damage caused while following this Act or NRB Act, 2058 or rules, regulations under those Act or directions or orders under those Acts, such legal expense shall be borne by the concerned institution. However, such person shall be personally liable for any acts done with malafide intention or carelessness manner and legal expense shall not be borne by NRB, BFI.
125. Acts not to be Void
Acts done by BOD of BFI shall not be void only on the ground that there has been an irregularity while appointing the directors or formation of BOD and office of director has been vacant.
126. Study Committee or Sub-committee can be Formed
1. NRB can form an Expert Study Committee consisting of representatives of NRB, BFI, other concerned institutions, and experts to study and submit the report to NRB on banking and financial law, credit recovery, stability, and contemporary improvement of the financial sector.
2. NRB can form necessary Sub-committees for the purpose of Sub-section (1).
3. Functions, duties, rights & benefits of the committee under Sub-section (1) & sub-committee under sub-section (2) shall be as prescribed by NRB.
127. Oath taking
1. Every director, CEO, officer, or employee appointed in BFI shall take an oath before taking charge of the position as per the format prescribed in the Annexure.
2. Oath as per Sub-section (1) shall be taken by the Chairman before NRB, CEO before the Chairman, and other officers and employees before CEO or officer prescribed by CEO for the same.
128. Amendment of MOA/AOA
Notwithstanding anything contained in prevailing law, any amendment made in MOA/AOA of BFI shall not be effective unless ratified by NRB.
129. As prescribed by this Act
1. Orders or directions are given as per this Act or rules or this Act, rules, regulations, procedures formed under this Act shall be as per this Act and for any other matters NRB Act, 2058 or other prevailing law will apply.
2. Regulation, inspection, supervision, & resolution of BFI incorporated as per this Act shall be as per NRB Act, 2058.
130. Power to remove Difficulties
1. NRB can issue the necessary order to remove difficulties that arose during the implementation of this Act after obtaining approval from GON.
2. While issuing an order to remove difficulties as per Sub-section (1), the reason and justification of doing so shall also be disclosed.
131. Power to give Order & Direction
NRB can give order and direction being under this Act, rules, or regulations issued as per this Act to BFI.
132. Can formulate Rules & Regulations
1. NRB can issue and implement rules and regulations for any matters necessary to implement this Act.
2. Rules formed under Sub-section (1) shall come into force after GON approves the same.
133. Right to formulate Bye-laws and Procedure
1. BOD of BFI can formulate the following bye-laws to operate the institutional, administrative & business transactions subject to conditions, limit, and benchmarks specified by NRB after getting approval from NRB:-
a. About the appointment, promotion, transfer, remuneration, allowance, gratuity, pension, leave, behavior, discipline & terms of the employment of the employee;
b. Financial administration of BFI;
c. About writing off the credit;
d. Any other matters specified by NRB from time to time.
2. Except for the matters covered by Sub-section (1), BFI can formulate necessary procedures:-
a. About the meeting of BOD & procedure of GM;
b. About the delegation of power by BOD to CEO, officer, or other employees;
c. About conditions of the agreement on behalf of BFI;
d. Concerning the procedure of the use of the stamp of BFI;
e. With the valuation of collateral to be mortgaged at the time of extending credit or NBA to be auctioned;
f. Concerning any other matters to be transacted by BFI under this Act;
g. Concerning the printing of documents;
h. Concerning any other matters specified by NRB from time to time.
134. Repeals and Savings
1. BAFIA, 2063 has been repealed.
2. Matters conducted as per the Act repealed under Sub-section (1) shall also be deemed to be conducted as per this Act.