Section 86C: Bank to Take Action Against Problematic Commercial Bank or Financial Institution

1) Notwithstanding anything contained in the Companies Act or other prevailing law, the bank can take any or all of the following actions E 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-up capital by issuing new shares or by receiving the due amount of issued capital.

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

(c) To stop the payment of dividends or any other amount to the shareholders to increase the capital.

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

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

(f) To prohibit or impose limitations on the collection of deposits, credit supply or investment.

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

(h) To limit the transactions of the commercial bank or financial institution, or prohibit the sale of property, the expansion of a branch office, or the closure of any domestic or international branch.

(i) To maintain necessary arrangements for the reduction of the risk of 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 a commercial bank or a financial institution.

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

(l) To receive prior approval of the bank for major capital expenditure, substantial commitments having major liabilities or for the expenditure of contingent liabilities.

(m) To issue an order to remove from the post a single or multiple directors, managers, or employees as per necessity.

(n) The bank can remove the director, manager, or employee in case of non-discharge of the order made under Clause (m) by the respective commercial bank or financial institution.

(o) To suspend the board of directors of the commercial bank or financial institution and take over the management of such commercial bank or financial institution under self-control or operate the management and transactions of such commercial bank or financial institution by an appointed official.

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

(p) To order a commercial bank or financial institution, which is listed on the Stock Exchange, for the application of delisting.

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

(r) To take any other action as the bank feels necessary 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 have a negative effect on the interest of the commercial bank or financial institution or its depositors, shareholders, creditors or general public, no provision of prevailing law can debar to remove immediately to the 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 Subsection (2), if such action does not seem reasonable, the bank can annul, change or make a necessary decision to the order under Clause (n) or (o) of Subsection (2).

4) The respective commercial bank or financial institution has to bear all the expenditure while the bank takes control of the management of any commercial bank or financial institution under the provision of Clause (o) of sub-section (1) and makes arrangements for the management and operation of the 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 the bank does not renew it.

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, the bank can revoke or nullify its order issued under the provisions of Clause (m), (n), (o) and (p) of sub-section (1) by issuing another order. Such an order shall contain the basis, reason, and other necessary information regarding the need to issue such an 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) The determination of 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.