By

Resham Raj Regmi

Advocate
Email: reshamraj@gmail.com
 To incorporate different elements of CG
Government of Nepal has initiated different
reform programs in Nepalese Economy.
Consequently, different new laws are came into
force.
 At the same time institutional reform also
taking place and regulatory regime of the both
corporate and financial sector is strengthened.
 We can divide these reforms in two category
i.e.
◦ Legislative Reforms
◦ Regulatory Reforms
 Different changes are made in existing
laws and some new legislative
instruments are also came into force.
 Good Governance Act, 2064 came into
force to ensure good governance in
public sector.
 New Companies Act, 2063 came into
force replacing the existing Companies
Act, 2053.
 The Securities Act, 2063 came into force
by replacing the Securities Exchange Act,
2040.
 Insolvency Act, 2063 came into force.
 Competition Promotion and Market
Protection Act, 2063 came into force.
 New Nepal Rastra Bank Act, 2058
came into force.
 Different banking institution related
laws were repealed by introduction of
the Bank and Financial Institutions
Act, 2073.
 Chartered Accountant Act, 2053 was
amended in 2059.
 Right to information Act, 2064 came
into force.
 Insurance Act, 2049 was Amended in
2058
 Trade Union Act, 2049
 Consumer Protection Act 2054, and
 Other related laws also contributing
for the protection of rights of different
stakeholders
 The objective of this new Act is to make
operation of company more simple, easy and
transparent.
 Signatory directors are responsible for any mis-
information in prospectus. (Sec. 24)
 Provisions about the reduction of capital of the
company (Sec. 57).
 Buyback of its own share by the company (Sec.
61).
 Prohibition in landing or providing other financial
assistance to any body for the purpose of buying
its own share (Sec 62).
 Prohibition of issuing and selling of share in
discount (Sec 64).
 Responsibility of directors in case of
reduction of property of company (Sec 60).
 Procedure for both annual general meeting
and special general meeting and other matter
are mentioned in chapter five of the Act.
 Right to vote and participate in general
meetings and right to vote for directors of
shareholders is guaranteed (Sec 70,71,72,)
 Number of directors and constitution of
board of directors in both public and private
companies are also determined by the Act.
 The number of directorship is determined by
memorandum of association of corporation
but it will not be less than three or more than
eleven for public companies. (Sec 83)
 Incorporation women director
 Incorporation of qualified and independent
directors is ensured. (Sec 86)
 Section 164 makes provision for
compulsory Audit Committee for the
companies having more than three crores
issued capital.
 Qualification of members of audit
committee and power, function and duties
of audit committee are also mentioned in
the same chapter. (Sec 165)
 There is a separate chapter dealing with
protection of the interest of shareholders
in the new Companies Act.
 Provisions of the Chapter 12 authorized
shareholders to stop the directors to
commit unauthorized action by knocking
the door of court.
 Shareholders can get compensation from
such wrongdoers.
 They are also authorized to sue on behalf
of the company.
 Voluntary and compulsory liquidation are
recognised as two way of exit.
 In Voluntary liquidation shareholders can decide
for it by passing special resolution in the general
meeting. Directors have to inform the Registrars
Office about the decision of voluntary liquidation
with their declaration.
 Company can be send to liquidation by the
decision of Registrars Office (Sec 126). This
process is called compulsory liquidation.
 Provision for revival of the liquidated company in
case of its viability is also incorporated in the Act
(Sec 137).
 Provision for the establishment of
commercial bench in different court is
incorporated.
 Five different benches were established in
five High Court viz. Biratnagar, Hetuda,
Patan, Butwal and Nepalgunj.
 The Company Law Advisory Board is
established for advise necessary during
administration of company.
 The main objective of this Act is to protect the
interest of investor by managing and regulating the
issue, transaction, exchange, securities markets
and person related with it for the circulation of
capital to economic development of nation.
 The Act has established Securities Board as
regulatory authority. Every aspect of securities is
under the purview of this Board. Corporations have
to register and get permission of the Board for the
public issue of shares and other securities.
 Operation, management and establishment of
securities markets participants is not possible
without getting permission of the Board.
Following acts are considered as crime by this
Act and both fine and imprisonment can be
levied.
◦ Insider trading of securities (Sec 91)
◦ Influence in price through false transaction (Sec 95)
◦ undue influence in securities market (Sec 93)
◦ Misinformation and cheating (Sec 97)
 If any person deals in securities or causes
any other person to deal in securities on the
basis of any insider information or notice
that are unpublished or communicates any
information or notice known to such a
person in the course of the discharge of his
or her duties in manner likely to affect the
price of securities such a person shall be
deemed to have been committed an insider
trading in securities.
(a) A director, employee or a person, who can
obtain any information or a notice in the
capacity of a shareholder of that body
corporate,
(b) A person who can obtain any information
or a notice in the capacity of a professional
service provider to that body corporate,
(c) A person who can obtain any information
or a notice having a direct or indirect
contact with the person or source as
specified in Clauses (a) and (b).
 This Act is the first legal instrument in
Nepalese legal system dealing with the legal
aspects of corporate insolvency. It has three
basic substances:
◦ Determination of insolvency procedure.
◦ Reconstruction of sick companies.
◦ Protection of creditors’ right during this process.
 Insolvency process can be start only following the
order of court. (Sec 3)
 Company itself, creditors, shareholders, debenture
holders, liquidator and regulator can apply for
insolvency. (Sec 4)
 Insolvency procedure shall be fair and transparent.
Court can always make vigil eye on the process.
(Sec 13)
 Creditors meeting shall be called for decision in
any issue and restructuring of the company. (Sec
21, 24)
 Creditors will get priority during the payment of
liabilities.
 This Act redefine the objectives of the
central bank.
 This Act made NRB fully autonomous. To
bring professionalism in the board of NRB
itself by specifying qualifications and code
of conduct for governor, deputy governors
and other directors.
 Provision of audit committee in the NRB
board of become compulsory to enhance
good corporate governance.
 Different powers like, supervision, regulation
and power to frame rules and bye-laws and
issue necessary orders, directives and circulars
as mandatory also vested in the NRB by this
Act.
 The recent amendment which substituted the
existing section 86 of the Act has further
strengthened the supervisory authorities of
NRB.
 After this amendment the NRB can declare any
bank or financial institutions as problematic
and initiate necessary punitive and reformative
actions.
 The Bank and Financial Institution Ordinance,
2060’ was promulgated as integrated law for
all types of financial institutions in January
2004,
 The renewed version of the Ordinance of 2060
was changed as Bank and Financial Institutions
Act, 2063.
 This Act make unified legal provision for all
types of financial institution.
 All the aspect of operation and management of
the banking companies except the process of
incorporation were regulated by this Act.
 Recently BAFIA, 2073 was promulgated by
parliament replacing the older Act.
 NRB is authorised as regulator and supervisor
of the financial sector.
 Constitution of board of directors, number,
qualification, power etc are determined by
this Act.
 Appointment of chief executive officer,
 Criteria for licensing to operate banking
business,
 Classification and conditions for grading and
rating on the basis of performance and
capital,
 Minimum capital requirement and different
funds,
 Activities allowed and not allowed,
 Maintenance of accounts in the standard
determined by the NRB and Accounting
Standard Board,
 Preparation of reports and records,
 Appointment of auditors and auditing,
 Merger and acquisition.
Different regulatory instruments were amended
and new regulations came into force as the
consequence of regulatory reform.
◦ The Securities Board is institutionally empowered for
the regulation of the securities market.
◦ Company Registrar’s Office is empowered as
administrator of the company.
◦ NRB is empowered and issued directives for Corporate
Governance.
◦ Insurance board is empowered as regulator of
Insurance sector.
◦ Accounting Standard Board is constituted for the
determination of national accounting standard.
◦ Auditing Standard Board is constituted for the
determination of the national auditing standard.
◦ Corporation co-ordination division (MOF)
 Different prudential regulations were
determined for the regulation of securities
market.
 All the participant of the security market need
to get permission from the Board.
 The public companies which are intended to
issue their share/debenture to the general
public need to get permission from the Board.
 Necessary requirements for regular and real
time disclosure are determined.
 Investor Education programs are being
conducted
 Stock Exchange Operation Regulation, 2064
 Securities Businessperson (Stock Broker, Dealer & Market Maker)
Regulation, 2064
 Securities Businessperson (Merchant Banker) Regulation, 2064
 Securities Registration and Issue Regulation, 2073
 Mutual Fund Regulation, 2067
 Central Depository Service Regulation, 2067
 Credit Rating Regulation, 2068
 Mutual Fund Guidelines-2069
 Compliance Guidelines for Securities Broker, 2058
 Securities Issue Guidelines, 2065
 Bonus Share Guidelines, 2067
 Portfolio Management Guidelines, 2067 (2010) Securities Allotment
Guidelines, 2068
 NRB is empowered as regulator of financial
sector with full authority.
 Different types of regulations were
introduced by NRB for banking companies.
 A set of Directives is issued by NRB this set
contents directives for corporate governance.
 Bylaws related to Prompt Corrective Actions,
2074
 Problematic institution resolution bylaw,
2071
 NRB Inspection and Supervision bylaw 2070
 Merger and Acquisition Bylaw, 2073
Previously different set of directives were
issued to maintain sound corporate
governance in different types of financial
institutions. Now these different directives
are integrated in a single directive for all
types of banks and financial institutions. The
directive no 6 makes provisions for different
elements of corporate governance which
Nepalese banking companies have to follow.
 Code of conduct for directors and employees,
 Duties and responsibilities of directors,
 Appointment of managing directors,
 Provision for audit committee,
 Prohibition to lend directors, shareholders
and employees.
 To maintain minimum acceptable conduct,
 Not to be involved in the activities which are
against the interest of the company,
 Not to work part-time in any other banking
companies,
 Not to be a director of any other banking
company except subsidiary,
 Not to work as guardian or administrator of
the customer,
 Not to abuse authority,
 Keep record updated,
 Maintain credibility,
 Fair and equal treatment,
 Report to the NRB.
 Preparation of employee by-law and selection of
competent and qualified human resource for the
perfect operation of the company.
 Constitution of the Audit committee and
preparation of action plan for audit.
 Arrangement for the international audit by
qualified auditor.
 Formation of Risk Management committee and
identifying and managing the risk.
 Preparation of credit, investment policies and
necessary budgetary plan.
 Ensure the compliance of the relevant laws and
directives.
 Be accountable for delegated and its own activities.
 To maintain minimum acceptable conduct,
 Not to be involved in the activities which are
against the interest of the company,
 Not to work part-time without permission of
the company,
 Not to be a director of any other banking
company except subsidiary
 Not to work as guardian or administrator of
the customer,
 Not to abuse authority,
 Not to abuse information received during
their job,
 Keep record updated,
 Maintain credibility,
 Fair and equal treatment.
 Has issued Directive Related to CG in 2069
later revised on 2073
 Code of conduct for different insurance
professionals
 Provision for reporting by insurance
companies.
 Provision for licensing and supervision of
Insurance company by Board.
 Different standards are determined by this
board for different aspects of accounting and
reporting.
 19 standards are compulsory and 7 standards
are voluantary.
 Signing directors are accountable for the
fraudulent reporting.
 46 Different auditing standards are
determined to ensure the independency of
auditing.
 Every auditors need to follow the standard
determined by the board during the process
of auditing.
 The professional regulatory authority can
cancel the license of the of the auditor in case
of fraudulent practice.
This division have following:
Vision
To lessen overviewing burden of State-owned Enterprises by
the government.
Mission
To ensure effectiveness in public enterprise management and
accelerate the divestiture of State owned Enterprises (SOEs) in
order to ease the pressure on public expenditure.
Objective
To promote enterprise efficiency through improved corporate
governance
To promote and accelerate wider participation of the private
sector in the operation of SOEs.
Thank You!