Legal and Regulatory Compliance

The process by which people, groups, and companies make sure they abide by laws, rules, standards, and moral behavior pertinent to their sector and jurisdiction is known as Legal and Regulatory compliance. By complying, one can reduce risks, stay out of trouble with the law, and uphold one’s reputation for honesty and responsibility. Basic Features and Compliance requirement as Per:

Industrial Enterprises Act

• Industries and Enterprises are backbone of Nepali National Economy.
• Promotion and development of industry is not easy task.
• Legal Rules and Regulations make the encouraging environment and competitive market
• Globalization, Liberalization and Privatization is basic approach of industrial development.
• National Economic objective is Public, Private and Cooperative sectors involvement and development
  Utilization of resources and economic development and equal distribution.
• Develop free, independent and sustainable National Economy.

Objectives and Compliance of Industrial Enterprises Act

Industrial Enterprises Act, 1992. It has 30 sections.

Objectives of IE Act

• To increase productivity
• Mobilization of resources
• To increases employment opportunities
• To develop the industrial sector
• To reduce trade deficit
• To attract the foreign investment

Compliance of IE Act

• Necessary permission for to establish industry
• Industry may have adverse effect on the security, public health and environment
• Government shall constitute the Industrial promotion Board on the head of Minister or State minister of Industries
• Facilities and concessions to development of industrial sectors

Industrial Promotion Board

• To support for formulate policy/Regulations
• To give guideline to develop the industrial policy
• To give emphasis for environment protection
• To give recommendation for government to classification of industry
• To give instruction in regarding to facilities and concessions
• To exercise functions and powers as prescribed by law

Facilities and Concessions

• Concession of tax and excise duty imposed to cottage industry
• Grant of excise duty for industry established at Remote/undeveloped and underdeveloped area by 35%, 25%, 5% respectively.
• Excise duty and sales tax exemption to five years for fruit based industry established in Himalayan Range.
• Grant for establishment of pollution control system
• Refund of tax and excise for exportable production
• 10% of income tax granted to any industry which used 80% of local material
• Give up 50% of income tax for National priority industry
• To deduct expenses of corporate liability from gross income up to 5%
• To deduct 10% income tax to industry which has 600 or more employee
• No duty and tax shall be levied technology enhancement for sick industry
• No royalty shall be imposed if any industry generates electricity for private use.

Financial Institutions Act

The creation, management, and regulation of financial institutions in a particular jurisdiction are governed by the Financial Institutions Act. By offering a thorough framework for licensing, supervision, and compliance, this legislation seeks to guarantee the stability, openness, and sound operation of the financial sector.

Basic Features of Financial Institutions Act

• Development of National Economy
• Promote and develop modern industry
• More investment of capital and technology
• Bank and Financial institution are major Source of capital
• Bank and Finance company has vital role for overall development of industry
• Main objective of Act is to guide, control, cooperate and manage the Bank and Financial companies.
• The Bank and Financial Institutions Act,2006 Which was replaced by Bank and Financial Institutions Act, 2017.
• It has 134 sections with various legal Provisions in regarding with Bank and Financial Institutions.

Basic Objectives Of Bank and Financial Institutions Act

• To enhance the confidence of the general public towards the overall banking and financial system of the country,
• To protect and promote the rights and interests of depositors,
• To provide quality and reliable banking and financial services to the general public through healthy competition among banks and financial institutions
• To make national economy strong and strengthened,
• To maintain financial stability and make the necessary legal provisions concerning to incorporation, operation, management, regulation, inspection and supervision of banks and financial institutions.

Major Provisions of Bank and Finance Institution Act

• Provisions relating to Registration Process
• Provisions relating to incorporation Bank/Finance Companies
• Memorandum of association
• Articles of Association
• Feasibility study Report
• Personal details of promoters
• Certified copy of agreement
• Provisions relating to approval
• Refusal notice of prior approval
• Provisions relating to registration and incorporation of joint venture Bank
• Power to refuse to give permission for prior approval:

1. If proposed name is same name of earlier registered Bank/Finance
2. If name of proposed Bank/Finance is improper or undesirable for society
3. If objectives are against public policy/morality/Existing law
4. If feasibility study report is not satisfactory
5. If there is not signature of each and every promoter with other details of memorandum and article of association
6. Address and details of witness
7. If there is not clearly specified the number of share for promoter

• Others condition prescribed by Nepal Rastra Bank
• Provisions relating to control and monitoring
• The Nepal Rastra Bank has role and authority to control and monitor of Bank and Financial institution
• Rastra Bank has right to withdraw the Bank License if they breach the rules and regulations
• Provisions relating to accounts/Records/Reports of Bank and Financial institution
• Provisions relating to merger of Bank and Financial institution

Process of Merge of Bank and Financial institution

A joint application has been filed with the necessary paperwork, which includes the audit report, balance sheet, profit and loss account, cash flow statement, and other financial statements, after a special resolution was passed at the general meeting. Additionally, written approval from creditors has been acquired. A copy of the employee decision, the property and liability valuation, and other necessary documents have also been prepared. It is crucial to remember that Nepal Rastra Bank does not authorize bank and financial institution mergers when doing so would give the combined company a monopoly on transactions.

Negotiable Instrument Act

Negotiable Instrument Act was enacted at 1977. Negotiable Instrument Act has 109 sections with provisions relating to definition of various legal terms and others regulatory measures of negotiable instruments. The basic objective of Act is to define negotiable instrument and make other arrangements relating to negotiable instrument in order to systematize the banking transaction

Features of Negotiable Instruments Act

‘Negotiable’ means ‘exchangeable’ or ‘transferable’ and ‘instrument’ means a written document by which a right is created in favour of some person. Negotiable Instruments means a document which can be legally transferred to another party for money.’ It is known as “paper money,” or commercial paper. Negotiable instrument is a document which is given to another person in exchange for money in the business field. It includes Bill of Exchange, Cheque, Promissory Note, Banker’s Draft, Bearer Debentures etc.

Importance of Negotiable Instrument

• Negotiable Instrument is easier means of transfer of money.
• It is easy to transfer one place to another place.
• It helps to flourish the business sector.
• It creates the right of property.
• It has the easy negotiability and some where it provides the security.
• It makes the fast transaction of money.
• It makes security of money as well as personal security in course of transaction of money.

Promissory Note

A promissory Note is an instrument in writing, except government note or bank currency, containing unconditional undertaking signed by the Maker to pay a certain sum of money only to, or to the order of or to the bearer or to a certain person related to the instrument. (Section 2(f) of Negotiable Instrument Act, 2034. The person, who makes the promissory note or promises is called ‘Maker’ and he has to sign that document as debtor. The person to whom payment is to be made is called the ‘payee’.

Bill of Exchange

Bill of exchange is another type of Negotiable Instrument. Nepalese Negotiable Instrument Act, 2034. Section 2(g) defines as “A bill of exchange is an instrument in writing containing an unconditional order, signed by maker, directing a certain person to pay a certain sum of money to, or to the order of person or to person or to the bearer of the instrument”. For Bill of exchange there must be three parties:
Drawer: The maker of a bill of exchange
Drawee: The person who is ordered to pay
Payee: The person who receives the bill of exchange

Cheque

Cheque is an order of any accountholder to any person or institutions for provide money by the Bank where his account is registered.
Cheque means bills of exchange drawn on any bank ordering it to make payment of demand.
There must be Three parties:

• Drawer: The person who draws Cheque.
• Drawee: Drawee is the banker who has the order to give payable amount.
• Payee: The person who receives the sum mentioned in the Cheque.

Sometime drawer and Payee may be the same person.

Meaning of Holder of Negotiable Instrument

The term Holder means a party of Bill of Exchange, Promissory Note or Cheque. Holder means either the payee or the endorsee of instrument. Section 2(k) of Nepalese Negotiable Instrument Act, 2034 has stated “A Holder is a person entitled to the possession of the instrument on his own name and to receive or recover the amount due thereon from the parties.” To be a Holder, the person must satisfy two conditions.
He must be entitled to the possession of the instrument.
He must be entitled to receive or recover the amount.

Meaning of Holder in due course

A holder in due course means the holder who takes the instrument in good faith for value before it is over due.
To be Holder in due course, a person must prove the following qualifications.

• He must be entitled to possession of instrument
• The Holder who acquires Negotiable instrument after maturity can not be a holder in due course.
• If Negotiable instrument contains any material alteration can not become holder in due course.
• He must exercise great care and take all necessary precautions in finding out if the transferor’s title was defective.

Right to Information Act

Right to Information Act was enacted at 2007. Right to Information Act has 38 sections with provisions relating to definition of various legal terms and others regulatory measures in regarding to right to information.

Basic Objectives of Act

• To make the functions of the sate open and transparent in accordance with the democratic system
• To make responsible and accountable to the citizen
• To make the access of citizens simple and easy to the information of public importance held in public bodies
• To protect sensitive information that could make adverse impact on the interest of the nation and citizen,
• To protect the right of the citizen to be well-informed

Basic Features Right to Information Act

• Constitutional Provisions: Every citizen shall have the right to demand and receive information on any matter of his or her interest or of public interest. Article 27 of Constitution of Nepal
• Right to information denotes the right to request and obtain information of public and individual importance held in public agencies
• First time, it is recognized by Constitution of 1990 as fundamental right of citizen in Nepal
• Every citizen is empowered to seek information of his/her individual interest as well as information of public interest
• Right to information Act, 2007 has incorporated provisions in regarding to Right to Information
• Procedure for obtaining information
• Classification of information
• Protection of information
• Protection of whistleblower
• Proactive disclosure of information

Conditions of not Dissemination of Information

• Which seriously jeopardize sovereignty, integrity, national security, public peace, stability and international relations
• Which directly affects to investigation, inquiry and prosecution of crime
• Which seriously affects to national eco-interest
• Which directly jeopardize the harmonious relation of society
• Which interfere individual privacy and security
• Public office shall designate the information officer

Major Provisions

Process of Acquiring Information

The information officer must receive an application and give the requested information either right away, within 24 hours, or within 15 days, depending on the type of information. When a citizen requests to view documents, the information officer must also set up a convenient time for this purpose.

Provision Regarding Commission

• An independent National Information Commission for Protection, promotion and practice of right to information.
• A Chief information Commissioner and two commissioner.
• Nepalese Citizen, at least Bachelor degree and at least 15 years working experience are basic qualification of commissioner of National Information Commission.

Function and Duties of National Information Commission

• To observe records and document in public institution.
• To issue order to enlist and manage public information.
• To issue order to publish information for public.
• To prescribe the time frame to release the information.
• To order for concerning party for fulfill the Liability.
• To provide necessary suggestions and recommendation for government to adopt policies in regarding to right to information.
• To issue appropriate order in regarding to protection, promotion and exercise of right to information.

Provisions Relating to Punishment

National Information Commission may impose fine Rs 1000 to 2500 for refusing to give information without valid reasons or partial or wrong information. A fine of Rs 200 for per day for delay to provide information. Public body shall take departmental action after the order of National Information commission. Fine between 5000 to 25000 for misuse of information. Fine up to 10,000 for violation of the Act.

Consumer Protection Act

Consumer Protection Act enacted by Nepal Government at 1998. It has various legal provisions relating to consumer protection under 30 sections.

Basic Objectives of Act

• To make provisions for protecting consumers from irregularities concerning the quality, quantity and prices of goods or services,
• To ensuring that no one lowers or reduces the quality or value of goods or services,
• To preventing circumstances in which monopolies and unfair trade practices as well as false and misleading propaganda of goods or services,
• To ensure safe and quality goods or services,
• To protect the rights and interests of consumers

Basic Features of Consumer Protection Act

• Consumer Protection Act enacted to protect from irregularities relating to quality, quantity and prices of goods and services
• Main objectives of Act to make environment for selling, supply, importing, exporting and storing safe and quality goods or services
• Protection of rights and interest of consumer

Consumer Protection Council

• Council formed for formulates policies and offer suggestions to government of Nepal in regarding to rights and interest of consumer
• To inform to consumers about prices, quality, quantity and purity of goods and services
• To monitoring the matters relating to consumer protections
• To discharge function prescribed by Government of Nepal

Government can conduct inquiry and inspections:

• Government of Nepal may conduct necessary inquiry and inspection in regarding to consumer protection.
• Government of Nepal can take necessary action against any producer, dealer, agent, verdure, individual or institution found guilty through inquiry and inspection.
• Government of Nepal may appoint or designate inspection officer.

Power of Inspection Officer

• If there is reasonable ground to believe that there is chance the action against consumer rights and interest, inspection officer may inspect, inquiry and search.
• If there is some irregularity, inspection officer can restrict on production or supply goods.
• Report of inspection to be submitted to Government of Nepal.
• Procedures for inspection or inquiry shall be as prescribed.
• Functions, duties and powers of inspection officer or implementation of report shall be as prescribed.

Labour Act

First time Labour Act was enacted at 1992 with 92 sections by Nepal Government and now that was repealed by the Labour Act 2017.
It has various legal provisions relating to labour issues under 183 sections

Majors Provisions of Labour Act, 2017

• General objective of Labour law is to regulate, control, management and mediate the relationship between works, employers, owner, trade union.
• Labour laws have two categories e.g collective and individual.
• Collective Labour law involves relationship between workers, (Trade Union) and employers.
• Individuals Labour laws concerns with Labour’s rights, duties and benefits.

Provisions Relating to Security of Job

• Classification of Job e.g. workers and employees
• It is duty of proprietor classification of job
• Provisions for probation period
• After probation period employee must be permanent
• Workers or employees deserve facilities as per existing law
• Non- citizens are not permitted for job, except the employee who are not available to technical post for maximum period of up to 5 years
• Not to any effect on the change of ownership of Enterprises
• Proprietor shall maintain the separate register for worker and employers

Provisions Relating to Working Hour

• Worker shall be deployed eight hours per day or forty-eight hours per week.
• One day as weekly holiday for every week.
• Half an hour for tiffin.
• Extra-wages for overtime at the rate of one and half time.

Provisions Relating to Remuneration

• Government of Nepal may fix the minimum remuneration, allowances and facilities on recommendation of minimum remuneration fixation committee.
• Permanent workers/employee shall receive increment in remuneration for each year.

Provisions Relating to Health and Safety

• To keep neat and clean work place.
• To maintain the fresh air, light and temperature.
• To arrange for removal and disposal of waste.
• To arrange necessary fencing and security.
• To make sufficient supply of pure water.
• To make arrange for compulsory check up.
• To make protective arrangement for health.

Provisions Relating to Welfare Fund

• To establish welfare fund.
• To ensure compensation for physically wounded, seriously hurt or die.
• To provide facilities of public holidays, sick leave, annual leave, maternity leave, special leave with remuneration.
• Female workers should be ensuring the facilities for child care.

Provisions Relating about Dispute Settlement

• Labour office has authority to settle the dispute.
• Labour Court has authority to adjudicate the dispute.

Money Laundering Prevention Act

Money Laundering Prevention Act enacted by Nepal Government at 2008.It has various legal provisions relating to Money Laundering issues under 46 sections. Basic Objectives of Act is to provide for legal provisions to prevent laundering of criminally earned money (assets)

Meaning of Money Laundering

Money laundering is the process of washing, concealing, cleaning, converting, criminally earned proceed into legal form by making its source appear to be from legitimate and legal transactions. It is a process by which illegally obtained, earned, received money is transformed into legal money. Money Laundering Prevention Act, 2064 section three has opposed for Money laundering. Predicate offences and Process of laundering of Money.

Basic Features and Regularity Compliance of Money Laundering Prevention Act

• Money Laundering is the attempt to conceal or disguise nature, location, source, ownership or control of money.
• Process of money laundering:
  Placement: Physically placing bulk cash proceeds.
  Layering: Separating the proceeds of Criminal activity from their origins through layers of complex financial transactions.
  Integration: Providing an apparently legitimate explanation for the illicit proceeds
• Laws enacted to cope the problem of money laundering
• The Act shall be applicable through out Nepal.
• Offences must be under jurisdiction of Act.
• KYC (Know your customer) Policy is relating with AML.
• Proper identification and address.
• Verify details with originals.
• Sources of income.
• Precautions for banking transaction.
• Threshold amount for disclose the resource.
• Verify the appropriateness of the transaction.
• To sharing the information (FIU).
• Investigation, Prosecution and Punishment.

Frequently Asked Questions (FAQ)

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