Paper 4: Corporate Laws

Full Marks: 100

Pass Marks: 40

Question 1: Answer the following questions

a) Himalayan Garments Limited has been operating in profit for the last 3 years. The Board of Directors
of the company felt that changed conditions are not favorable to the company’s long term prospects
and thus decided that the company be liquidated voluntarily. Explain in the light of Companies Act,
2063:
i. What are the conditions for the company to voluntarily liquidate?
ii. What is the procedure for voluntary liquidation of the company?
iii.What would be the consequences if it is discovered, during the process of liquidation, that the company
is not able to pay its liabilities in full? (10 marks)

Qno (i)
Section 126 of Companies Act, 2063 provides that expect in case where a company has become insolvent
in accordance with the prevailing law on insolvency, the shareholders of the company may liquidate the
company either by adopting a special resolution in the general meeting or in accordance with the
provisions contained in the memorandum of association, articles of association or consensus agreement.
A company may be liquidated voluntarily in the following circumstance:
a) If the company is able to pay its debts or other liabilities in full,
b) If there exists no situation where an application for the review of insolvency of the company is
pending under the prevailing law on insolvency or where the company would be in any manner
subject to an insolvency proceeding under the prevailing law on insolvency,
c) If the directors of the company after due enquiry have made a declaration in writing that the company
is able to pay its debts and other liabilities in full and that the debts and liabilities to be paid on behalf
of such company can be paid up or can be fully settled in any other process within one year from the
date of the adoption of the resolution to liquidate the company,
d) If the written declaration made by the directors was presented in the general meeting called to discuss
the matter of liquidation of the company or such declaration was made at the time of discussions on
that matter in the general meeting.
Qno (ii)
(ii) A copy of the special resolution adopted with respect to the liquidation of a company pursuant to this
Section and a written declaration of directors shall be submitted to the Office no later than seven days
after the date of adoption of the resolution.
Qno (iii)
(iii) After the liquidator has commenced proceedings of voluntary liquidation of accompany, if he/she is
satisfied that the company is insolvent and is not able to pay debts required to be paid or discharge
liabilities required to be discharged in full, he/she shall make an application to have a review of
insolvency of the company in accordance with the prevailing law on insolvency.

b) Arun had lent NRs. 500 Lakh to Basu Sugar Mills Ltd. for 2 years under a loan agreement which was
around 12% of the total loan of the company. Even after the expiry of the said period, as the company
failed to repay the loan, he served a written notice for the repayment but remained unanswered for three
months. Now Arun wants to sue the company under the Insolvency Act, 2063. Advise him in the
following three issues-
 i. When a company is deemed to be an insolvent?
ii.Who can bring an action against an insolvent company?
iii.What documents required to institute a case against the insolvent company? (10 marks)
Qno (i)
A company shall be deemed to have become insolvent if the company fails to pay the debt within thirty-
five days after the service by the creditor on the company a notice for the payment of the debt or fails to
make an application to the Court within the period to void such notice. Similarly, where it is proved from
any other matter that the liability of the company exceeds the value of the assets of the company or the
company itself admits that it has become insolvent.

Qno (ii)
Pursuant to section 4 (1) of the Insolvency Act, 2063, any of the following persons may make an
application to the Court in the prescribed form:
a. Creditor or creditors who has or have lent at least ten percent of the total loan of the company;
b. Shareholder or shareholders that have or have subscribed at least five percent of shares;
c. Debenture-holder or debenture-holders that has or have subscribed at least five percent of
debentures.
Arun being the creditor lending more than 10% of the total loan of the company can file an application
to the Court for the insolvency proceedings if even after the written notice is given by him pursuant to
Sub-section (2) of the section 4 the company failed to repay the amount with interest. Prior to making an
application to the Court pursuant to Section 4 for insolvency proceedings, a notice shall be sent to the
registered office of the company in the prescribed form for the payment of debt.

Qno (iii)
The documents required to institute an action against the insolvent company are provided under Sub-
section 3 of Section 4 of the Insolvency Act, 2063. Which are as follows:
a) Where the company itself which has become insolvent makes such application:
i. A document certified by the board of directors of the company, mentioning that the company
has become insolvent;
ii. A special resolution adopted by the board of directors of the company to institute the insolvency
proceedings pursuant to this Act;
iii. Certified copies of the balance sheet and audit report of the company available at the time of
making application for the institution of insolvency proceedings.

b) Where the creditor of a company which has become insolvent makes such application:
i. A statement of the principal and interest of the debt which the creditor claims to be due and
payable by the company;
ii. The date on which the company borrowed the debt claimed by the creditor and the reason why
the debt was borrowed;
iii. Description that the amount referred to in Clause (1) is due and such amount is payable
immediately;
iv. That the debtor believes or the reason and ground the debtor has to believe that the company in
respect of which demand is made for insolvency proceedings has become insolvent.

(c) Where the liquidator makes such application:

i. Evidence that the company in respect of which application is made for insolvency proceedings has
appointed the liquidator for the purposes of liquidation of the company; and
ii. The opinion expressed by the liquidator on the matter that the company in respect of which application
is made for insolvency proceedings has become insolvent, and the ground for such opinion.
`
 Notwithstanding anything contained elsewhere in this Section, any shareholder or debenture-holder of a
company shall obtain permission of the Court to make an application for insolvency proceedings, and
the shareholder or debenture-holder may, if so permitted, make an application on such terms and
conditions as may be specified by the Court. The Court shall not give permission unless and until
sufficient evidence proving that the company has become insolvent is produced.

Question 2: Answer the following questions:

a) Mr. 'X' and 'Y', were elected from amongst the Chartered Accountant and the Registered Auditors as a
council member for three years respectively. Among them Mr. 'X' died due to Novel Corona (Covid-
19) after his two years and one month service as a member. Mr.' Y' resigned from the member after his
one and half years’ service as a member due to his non-possession of qualifications required to be a
Council Member. Suggest the Institute of Chartered Accountants of Nepal (ICAN) that how the
vacancy of membership including those is fulfilled? What is the validity of the acts and actions of the
Council that Mr.'Y' has been involved'? Write your answer in accordance with the relevant provision
of the Nepal Chartered Accountants Act, 2053. (7 marks)
Pursuant to Section 9 of the Nepal Chartered Accountants Act 2053, any post of the Council member is
deemed to be vacant due to:
 death, or
 resignation, or
 disqualification to continue as a member of the Institute.
Provision of the fulfillment of the remaining terms:
As per Section 9:
1. The Council shall, if any seat of any Council member elected pursuant to clause (a) or (b) of sub-
section (3) of Section 7 turns vacant due to death or resignation or disqualification to continue as a
member of the Institute pursuant to the other provisions of this Act, designate any member as Council
member for the remaining term of office, provided the remaining period of such vacated office is of
less than a year; and if such term is of more than a year, the vacancy shall be filled through election.
2. A seat, falling vacant owing to death or resignation of any Council member, nominated pursuant to
clause (c) of sub-section (3) of Section 7, shall be fulfilled, for the remaining term of office, as per
the procedure set forth in the same section.

Fulfillment of the vacancy of remaining post:

Section 9 As mentioned above a membership is vacant due to the death of Mr. 'X'. The Council may
fulfill the vacant post fulfilling the legal requirements as provided in the Section 9 of the Act. Less than
one year is remained in case of Mr. 'X'. If any post of the membership is vacant less than a year then the
Council may designate any Chartered Accountant member of the Council.
For fulfillment of the member that is vacant due to the resignation of the Mr. 'Y', Council may determine
the remaining terms of the member so fulfilled. Referring to the case of the question, more than a year
has been remained in the tenure of the member. Therefore, the Council may elect a member amongst the
registered auditors for the remaining tenure pursuant to the section 9.
Validity of the actions:
Section 12 Section 12 has expressly provided that any action undertaken according to decision of the
Council, where any seat of any Council member has remained vacant or a person, without possessing
qualifications required to be a Council member, has been elected or nominated as the Council member,
 shall not be invalid merely on the ground thereof. As having the reference of the provision that the action
taken by the Council, in presence of the member Mr. 'Y' though his qualification is questioned, is valid.

b) Ms. Gyanu is an insurance agent of an insurer. She has heard that in order to foster female participation
in the decision-making level of insurance field, the new Insurance Act 2079 has seats reserved for
women in the Board of Directors of the Nepal Insurance Authority.
Clarify her if it is true in accordance with Insurance Act, 2079. (5 marks)
Section 6 of the Insurance Act, 2079 has prescribed following provision regarding the composition of
the Board of Directors:
1) The Nepal Insurance Authority shall have a Board of Directors as follows:
a. Person appointed by Government of Nepal -Chairperson
b. Joint Secretary, Ministry of Finance -Member
c. Joint Secretary, Ministry of Law, Justice and Parliamentary Affairs -Member
d. One person from amongst the persons having special knowledge in life insurance business –
Member
e. One person from amongst persons having special knowledge in non-life insurance Business-
Member
2) While appointing members pursuant to clause (d) and (e) of sub-section (1), at least 1 woman shall
be appointed.
3) The officer level employee designated by the Authority shall act as the secretary of the Board.

Hence, Ms. Gyanu has heard a true statement that while appointing members from among the persons
having special knowledge in life and non-life insurance business respectively, at least 1 woman shall be
appointed as a member of the Board.

c) Mr. Expert is an active Facebook user. He wants to buy shares of a listed company XYZ Ltd. However,
its market price is very high in the stock exchange. So, he wrote a misleading statement in his Facebook
page stating that “Market price of XYZ Ltd is going to be decreased drastically due to internal conflict
of management. Hence, in order to preclude loss, it would be better if its shareholders sell shares as
soon as possible”. On the ground of such statement, the Securities Board of Nepal is planning to conduct
an investigation and file case to punish him.
Give your opinion regarding the validity of SEBON’s plan for imposing such punishment in accordance
with the Securities Act, 2063. (5 marks)
Section 97 of the Securities Act, 2063 states if a person intentionally commits any of the following acts
to incite others to purchase or sell securities, such a person shall be deemed to have committed an act of
misleading:-
a. To make or publish any statements or projection related statements with knowledge that such a
statement is false, misleading or fake,
b. To hide any fact or information with mala fide intention,
c. To make or publish a false or misleading statement, promise or projection with mala fide intention.

Further, section 102 of idem Act prescribes about the following provision regarding the investigation
and filing of a case:
 1) If a complaint is made by any one that any one has committed the offense referred to in Sections 91,
94, 95, 96, 97, 98, 99 and 100 or the Board receives in any manner an information relating to such
an offense or the Board believes that any one has committed such an offense, the Board may
designate any officer as an investigating authority to conduct investigations of the case relating to
such an offense.
2) The investigating authority designated pursuant to Sub-section (1) shall conduct investigations as
prescribed in relation to such an offense and file a case in the concerned District Court within 35
days after the date of completion of investigations.
3) The investigating authority designated pursuant to Sub-section (1) may, in the course of conducting
investigation, make necessary inquiry with, take depositions of, any person or body related with the
offense or demand necessary documents, statements and records from such person or body.
4) The designated investigating authority shall, in conducting investigation of and filing a case pursuant
to this Section, shall obtain advice of the government attorney.

In the given case, Mr. Expert is an active Facebook user. He wants to buy shares of a listed company
XYZ Ltd. However, its market price is very high in the stock exchange. So, he wrote a misleading
statement in his Facebook page stating that “Market price of XYZ Ltd is going to be decreased drastically
due to internal conflict of management. Hence, in order to preclude loss, it would be better if its
shareholders sell shares as soon as possible”. On the ground of such statement, the Securities Board of
Nepal is planning to conduct an investigation and file case to punish him.

As per section 97 of idem Act, publishing a misleading statement about XYZ Ltd by Mr. Expert with an
intention to incite others to sell its securities shall be deemed to have committed an offense of misleading.
In such case, the Board may designate any officer as an investigating authority to conduct investigations
of the case relating to such an offense and file case to the District Court under section 102 of the Act.
Hence, in my opinion, the plan of SEBON to conduct an investigation against the misleading information
of Mr. Expert and file case to punish him is valid in accordance with section 97 and 102 of the Securities
Act, 2063.

d) What are the functions not to be carried out by NRB under the Nepal Ratsra Bank Act, 2058? (3 marks)
 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;
c) Carrying out any type trade; and
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.)
Exceptions:
1) 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 10% 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 as prescribed by the
Bank.

2) To provide loan to its own employees.

Question 3: Answer the following questions

a) Explain the provisions relating to formation and functions, duties and powers of Accounts Supervision
Committee under the Cooperatives Act, 2074. (7 marks)
Formation of Accounts Supervision Committee: (Section 48)
1) In order to strengthen the internal control system in a Cooperative Organization, the General Meeting
shall form through election an Accounts Supervision Committee comprising of one convener and
two members having met the prescribed qualifications.
2) More than one member of the same family shall not stand as candidate or get elected at the same
tenure as a director or convener or member of the Accounts Supervision Committee of the same
Cooperative Organization.
Functions, duties and powers of Accounts Supervision Committee: (Section 49)
1) The Functions, duties and powers of the Accounts Supervision Committee shall be as follows:-
a) To conduct or cause to be conducted internal auditing of the Cooperative Organization in every
quarter;
b) To comply with or cause to be complied with the basic principles of auditing while conducting
internal auditing;
c) To inspect and evaluate and cause to be inspected or evaluated financial transactions;
d) To have regular supervision of the actions and activities of the Board and to provide necessary
suggestions to the Board;
e) To monitor whether or not directives issued or decisions made by the General Meeting and
decision of the Board have been implemented;
f) To submit to the General Meeting accounts report and annual report on supervision of the
functions of the Board;
g) To recommend the Board to call meeting of the extraordinary General Meeting showing the
reasons thereof that adverse impact is caused in the interests of any Cooperative Organization
due to non-compliance of the recommendations made by it frequently; that there have been
 embezzlement or massive misuse of cash or kind assets of such organization or in case the
organization is likely to undergo serious financial crises.
h) To make recommendation of names of three persons to be appointed as internal auditor, if
required.
2) The convener and members of the Accounts Supervision Committee shall not be involved in daily
and administrative functions of the Cooperative Organization.

b) What is a two-stage bidding? Explain the legal provisions of two-stage bidding as provided in Public
Procurement Act, 2063. (6 marks)
The two-stage Bidding is one where the bidding process is divided in two (2) stages. The first stage
involves the issuance by the Procuring Entity of bidding documents with technical specifications that are
not yet well defined and merely in the form of performance criteria, and the submission by the bidders
of their respective Letters of Intent, eligibility requirements, if needed, and initial Technical Proposals
without price. This allows the Procuring Entity to receive inputs from the eligible bidders whose
Technical Proposals meet the minimum performance standards (a meeting/discussion may be held with
these bidders), for purposes of drawing up the final revised technical specifications/requirements of the
contract. The second stage involves the release of the well-defined technical specifications by the
Procuring Entity, followed by the conduct of the regular procedure for public bidding with all the bidders
identified during the first stage, who shall then be required to submit their respective revised Technical
Proposals including their Financial Proposals.

Section 28 of the Public Procurement Act, 2063 has laid down the following provisions on two-stage
bidding:
1) Two-stage biding may be invited in the following conditions:
 When it is not feasible to define fully the technical aspects of the goods or construction works
or services to be procured or the terms and conditions of the procurement contract at the time of
the invitation to bid, or
 Because of the complex nature of the goods or construction works or services to be procured, if
it is necessary for the Public Entity to discuss with the bidders about how to resolve the problems
related to various technical aspects or the procurement contract and about such technical aspects
and conditions of contract and benefits accruing therefrom.
2) While inviting the first stage bid pursuant to this Section, the bidding documents shall state the
purpose of procurement, expected performance, broad specifications and other broad features and
the qualification of bidders, and state that bidder shall not be required to quote the price in his/her
bid and shall submit only technical proposal and comments on the terms and conditions of the
proposed procurement contract.
3) The Public Entity may hold discussions with any or all bidders in relation to the bids submitted in
response to the invitation to bid made pursuant to Sub-section (2).
4) The Public Entity may, also taking into account the discussions held in pursuance to sub-section (3),
do the following in relation to the bids submitted pursuant to sub-section (2):
 Canceling a proposal relating to a bid that fails to meet the basic requirements required to be met
in relation to procurement or fails to make minimum performance or fails to complete the work
within the specified period or that cannot be modified to meet such requirements or to make such
performance or to complete the work within the specified period or due to any other weakness,
  Modifying or improving the technical specifications, evaluation criteria and terms and conditions
of the Procurement contract in order to increase competition,
 Determining the evaluation system in order to determine the appropriateness of various options
submitted by the bidders.
5) After the completion of the acts as referred to in sub-section (4), the Public Entity shall make
invitation to second stage bid. In making such invitation to bid, the bidders whose bids have not been
cancelled pursuant to the said sub-section shall be invited to submit bid along with price in
accordance with revised bidding documents.

c) Ms. Dikshya Sapkota, working as an employee of Venus Decorators Pvt. Ltd. has accumulated home
leave of 100 days and sick leave of 50 days at the end of financial year 2078-79. Her last drawn basic
salary for the month of Ashad, 2079 was basic salary Rs 30,000 and allowance Rs 20,000. She asked
management of the company to pay her the en-cashable leave money with respect to accumulated home
leave and sick leave as on 31st Ashad 2079, however the management refuses to pay. As a friend of
Ms. Dikshya, advise whether she is eligible to en-cash money of unused home leave and sick leave in
accordance with the provision of the Labour Act, 2074. (7 marks)
According to section 49 of the Labour Act, 2074, a labour is entitled to accumulate the home leave and
the sick leave for up to 90 days and 45 days respectively. Where a labour is relieved from the service for
any reason or dies, she or such family member of her as prescribed shall get the lump sum amount to be
set by the last basic remuneration being drawn by her for her accumulated home leave and sick leave.

A labour whose accumulated leave exceeds the period specified i.e. 90 days for home leave and 45 days
for sick leave, shall, at the end of each year, get the amount to be calculated by her basic remuneration
for the leave of such excess period. In the given case, Ms. Dikshya Sapkota has accumulated home leave
of 100 days and sick leave of 50 days at the end of financial year 2077-78. Her last drawn basic salary
in the month of Ashad, 2078 is 30,000. She will be eligible to en-cash, if it exceeds 90 days against home
leave and 45 days against sick leave so she can en-cash money against excess home leave of 10 days and
sick leave of 5 days.

Total en-cashable Amount = Last drawn basic salary x (no. of en-cashable home leave + no. of en-
cashable sick leave) = 30,000 x (10 days + 5 days) / 30 days = 15,000/- Hence, Ms. Dikshya Sapkota,
will be eligible to en-cash 15,000 from the company and the refusal of company management to pay the
eligible leave encashment money is invalid.

Question 4: Answer the following questions

a) Money Laundering and Terrorist financing both are considered as predicate offenses under the Money
Laundering Prevention Act, 2064. Explain the basic differences between the two offenses. (6 marks)
Basis Anti-Money Laundering Terrorist Financing
Objective Profit motive. Ideological motive
Value Large amounts Small amounts
Source of Funds Illegal Both legal and illegal
Requirements Disguise illegal origin of funds For destructive activity
Impact Economic loss Human/Social/Property loss
Detection Relatively easy to detect Very difficult to detect
 Preferred Channel Cash Transfers/remittance
Vehicle used Front Companies Charities/Trusts/Individuals

b) Explain the procedure a foreign investor can invest in Nepal according to the Foreign Investment and
Technology Transfer Act, 2075? State the foreign investment approving authority under the Act. (6
marks)
Section 15 of the Foreign Investment and Technology Transfer Act, 2075 provides that any foreign
investor desirous of making foreign investment pursuant to this Act may file an application in the
prescribed form together with the relevant documents for approval of foreign investment to the Foreign
Investment Approving Body. The timeline for the investment to be made in the industry and the work
plan of the investment shall also be submitted.
After processing of the application and making necessary inquiry, if it is deemed appropriate, the Foreign
Investment Approving Body shall grant approval for foreign investment in the prescribed format within
7 days of receiving of application. If it is not appropriate to grant approval for foreign investment, the
Foreign Investment Approving Body shall give information to the applicant within 7 days along with
necessary grounds and reasons.
If the concerned investor is not satisfied with the decision of the Body, such an investor may make an
application to the Ministry for the review of such decision. The Ministry shall make decision within 30
days of receipt of application.

Section 16 of the Act provides that after obtaining the approval for foreign investment, the foreign
investor shall give information in writing along with the self-declaration to the effect that the amount of
such investment has been earned from any legitimate source to Nepal Rastra Bank. After giving such
information, the foreign investor may bring the amount of such investment into Nepal.

A foreign investor shall bring the amount to be invested in convertible foreign currency through the
banking system upon completion of such procedures as determined by Nepal Rastra Bank. However, an
Indian investor may also make investment of such amount in Indian currency through the banking
channel.
Section 17 of the Act has mentioned the foreign investment approving authority. The Department of
Industries shall approve the foreign investment not exceeding six billion Rupees. The Investment Board
under the Investment Board Act, 2011 (2068) shall approve the foreign investment exceeding six billion
Rupees.

c) Pratigaman Limited is a Company in which Government of Nepal holds 65% shares. Who will appoint
the statutory auditor of the Company and who will the auditor submit his report to? (3 marks)
Pratigaman Limited is a company in which GoN has majority stake (65% shareholding). Hence, as per
section 11(1) of Audit Act 2075, the statutory auditor of the company shall be appointed by the company
subject to principle prescribed by the Auditor General. However, such auditor shall be appointed after
consulting the Auditor General [section 11 (2)]. After the completion of audit, the corporate body shall
deliver to the Office of the Auditor General a copy of the audit report submitted by the auditor appointed
in consultation with the Auditor General [u/s 11(3)]. The Auditor General may issue directives to the
concerned corporate body and auditor in respect of the irregularities observed in the report received and
it shall be the duty of concerned organization to abide by such directives [u/s 11(4)].
 Question 5: Answer the following Questions (5*3=15 marks)
a) State the order of priority in settlement of liabilities of a bank or financial institution undergoing
compulsory liquidation as provided in Banks and Financial Institution Act, 2073.
According to section 94 of Banks and Financial Institutions Act, 2073, the bank or financial institution
undergoing compulsory liquidation shall settle the liabilities according to following order of priority:-
a. Expenses incurred for compulsory liquidation,
b. Amount up to deposit insurance collateral, pursuant to prevailing laws in force, not exceeding the
limit of total approved claim amount of depositors or if such amount is paid to institute established,
as per prevailing law relating to deposit amount, for deposit insurance collateral amount equivalent
thereto,
c. Deposit remaining after payment pursuant to clause (b),
d. Amount payable to employees of bank or financial institution for salary, allowance and other
liability,
e. Amount payable to Nepal Government, Local Government Bodies or Rastra Bank,
f. Amount payable to other bank or financial institution for outstanding fee or valuation,
g. Amount payable to other creditor or for other claim,
h. Shareholders pursuant to prevailing laws in force,

(2) Notwithstanding anything mentioned elsewhere in this Chapter, any assets unsold or undistributed
while selling or distributing pursuant to section 91, if any creditors agrees and make an application for
accepting the assets for an amount receivable by him or her from the bank or financial institution than
the liquidator can handover the assets to such creditors, subject to the criteria of such assets value
determined by the Rastra Bank.

(3) Notwithstanding anything mentioned elsewhere in this Chapter, if any asset is kept as security for
secured creditors than such assets shall be used only for fulfillment of liabilities of them.

b) What is international financial transaction? State Bank of Gujarat (SBG) is willing to carryout
international financial transactions. Give your advice as to the authority that grants a license to SBG
and also state the formation of the authority granting license for the international financial transaction
under the International Financial Transaction Act, 2054.
Section 2(a) of International Financial Transaction Act, 2054 (IFTA) has defined the term "International
Financial Transaction" as any financial transaction carried out by any license holder entity under this
Act. In accordance with section 3 of the IFTA the Accreditation Committee grant a license and to regulate
to an international financial entity interested to carryout international financial transactions.

The formation of Accreditation Committee as mentioned in the section 11 of the Act is as follows:
a. Governor, Nepal Rastra Bank - Chairperson
b. Secretary, Ministry of Finance - Member
c. Secretary, Ministry of Law and Justice - Member
d. One person nominated by Government of Nepal from among Chartered Accountants - Member
e. One person nominated by Government of Nepal from among Economists - Member
 The Accreditation committee may invite national or foreign experts or advisors involved in international
financial transactions to participate at its meetings as observers. An officer-level employee of Nepal
Rastra Bank as designated by the Accreditation Committee with the consent of the Nepal Rastra Bank
shall act as Secretary of the Accreditation Committee.

c) Phungling Financial Care, an institution, has been operating as a financial intermediary after obtaining
license from Nepal Rastra Bank. In order to expand the working area, financial strength & transactions
of the institution, majority of its members attended in the Annual General Meeting of F/Y 2074/75
resolved to merge it with another institution Myanglung Financial Support. Is this decision valid?
Would your answer be different, if the institution had resolved to merge with another social
organization which has not obtained license of financial intermediary from Nepal Rastra Bank? Give
your opinion in accordance with Acts relating to Institutions acting as Financial Intermediary, 2055.
As per section 33A of the Act relating to Institutions acting as Financial Intermediary 2055,
notwithstanding anything contained in the Societies Registration Act 2034, if two-third members of the
total number of members present at the general meeting of the institution carrying out the act of financial
intermediation pursuant to this Act supports a proposal to merge another institution to it or be merged to
another institution, the proposal shall be deemed to have been passed by the general meeting.
Provided that, no proposal may be passed in a manner to merge or be merged to any institution that has
not carried out the act of financial intermediation.
Such proposal for the merger shall be submitted to the office registering the institution to be merged &
the Nepal Rastra Bank. After the receipt of approval separately from that office and the Nepal Rastra
Bank, the legal identity of such an institution shall be deemed to have ipso facto lapsed. The properties
of the institution to be such merged shall be transferred to the merging institution, and the merging
institution shall bear all liabilities of that institution.
In the given case, majority members of Phungling Financial Care resolved to merge it with another
Myanglung Financial Support.
Hence, it has not fulfilled the criteria of two-third members’ support pursuant to section 33A of the Act.
Hence, the decision is not legally valid. If the institution had resolved to merge with another social
organization which has not obtained license of financial intermediary from Nepal Rastra Bank, it would
be against section 33 of the Act. Hence, even in the second case, the decision shall not be legally valid.

Question 6: Answer the following Questions

a) Explain the powers of the Arbitrators exercised in the arbitration process as provided in Arbitration
Act, 2055. (3 marks)
Section 21 of the Arbitration Act, 2055 provides that except when otherwise provided for in the
agreement, the powers of the arbitrator shall be as follows:
a. To direct the concerned parties to appear before him/her to submit documents, and record their
statements as required.
b. To record statements of the witness.
c. To appoint expert and seek their opinion or cause examination on any specific issue.
d. In case party is a foreign national so that the decision pronounced by the arbitrator is not likely to be
implemented for that reason, to obtain a bank guarantee or any other appropriate guarantee as
determined by the arbitrator.
 e. To inspect the concerned place, object, product, structure, production process or any other related
matter which are connected with the dispute on the request of the parties or on his/her own initiative
if he/she so deems appropriate, and in case there is any material or object which is likely to be
destroyed or damaged, to sell them in consultation with the parties, and keep the sale proceeds as a
deposit.
f. To exercise any specific power conferred by the parties.
g. To issue preliminary orders, or interim or inter locating orders in respect to any matter connected
with the dispute on the request of any party, or take a conditional decision.
h. To issue certified copy of document.
i. To exercise the other power conferred by this Act.

b) Define ‘Dhukuti Transactions’ and state the punishments relating to offense of ‘Dhukuti transactions’
pursuant to Banking Offenses and Punishment Act, 2064. (4 marks)
Section 2(g) of Banking Offense and Punishment Act, 2064 defines ‘Dhukuti Transaction’ means
transaction of raising fund from each other and taking or providing loan on rotation basis on the basis of
agreement. Section 14A of the Act provides that no one shall carry or caused to be carried out ‘Dhukuti
transactions’. If anyone commits any offense of ‘Dhukuti Transactions’ he/she shall be punished with
fine and imprisonment as stipulated on the basis of the claimed amount, after recovering the claimed
amount, if any and depending upon the degree of the offense committed:
Claim amount Imprisonment Fine Compensation
Upto Rs. 50 lakhs Up to 1-3 year As per claim amount As per claim amount

50 -500 lakhs 3-5 years As per claim amount As per claim amount

5 -50 crore 5-7 years As per claim amount As per claim amount

Above 50 crore 7-9 years As per claim amount As per claim amount

c) Explain the provision on reward to be provided to the informant under Foreign Exchange (Regulation)
Act, 2019. (3 marks)
Section 20 of the Foreign Exchange Regulation Act, 2019 has mentioned the provision on reward to the
informant.
According to this provision if any person provides the Government of Nepal or the authority authorized
by the Government of Nepal information that any person has done any act in contravention of this Act
or Rules, Bye-laws, orders notices or directions or license framed or issued under this Act and the foreign
exchange is seized and the offence proved on the basis of the information so given, twenty percent of the
amount in question set by converting such seized foreign exchange into the Nepalese currency shall be
given as a reward to such informant. The amount of reward to be given shall be given from the amount
to be set by converting such seized foreign exchange into the Nepalese currency after the finality of the
case.