Chapter 4 Provisions Relating to Board of Directors and Chief Executive

14. Constitution of Board of Directors: (1) A bank or financial institution shall have a Board of Directors comprising at least five Directors and not exceeding seven Directors.
(2) Subject to this Act and the Articles of Association, the General Meeting of a bank or financial institution shall appoint the Directors:
Provided that,-
(a) Until the First Annual General Meeting of the bank or financial institution is held, promoters shall appoint the Directors.
(b) In case where the position of any Director falls vacant before the holding of the Annual General Meeting, the Board of Directors may appoint a Director until the next General Meeting is held.
(c) In cases where any corporate body has subscribed shares, it may appoint Directors in proportion to the number of shares it has
subscribed and while nominating in such a manner, the same person shall not be nominated to more than one bank or financial institution.
(d) Notwithstanding anything contained in Clause (c), nothing shall prevent from appointing a person, who is a Director in any bank or financial institution as Director of an Infrastructure Development Bank.
(3) The Board of Directors shall appoint at least one independent Director from among the persons possessing qualifications and experience set forth in Section 17 and information thereof shall be furnished to the First General Meeting to be held after such an appointment:
Provided that no promoter, Director or shareholder possessing more than zero point one percent share of a bank and financial institution and his/her member of family may become an independent Director.
(4) Notwithstanding anything contained in Sub-Sections (1) and (3), no more than one member of a family may become a Director of any bank or financial institution at the same time.
(5) A Director chosen by the Directors from among themselves by a majority votes shall be the Chairperson of the Board of Directors.
(6) A company, corporate body, foreign bank or financial institution which has subscribed shares of a bank or financial institution may, while appointing a director in proportion to the shares it has subscribed, appoint an Alternate Director to work in the absence of the Director.
15. Term of Office of the Directors: (1) The term of office of a Director shall be for a maximum period of four years as provided for in the Articles of Association and he/she may be eligible to be reappointed or re-nominated:
Provided that an Independent Director may be appointed for only one term of office.
(2) Notwithstanding anything contained in Sub-Section (1), the Executive Chairperson or Managing Director appointed after the commencement of this Act shall remain in office only for two consecutive terms.
16. Qualifications of Director: (1) A person to be appointed to the office of Director shall have to possess the following qualifications:-
(a) Having work experience of at least five years as a Director or office bearer level of a foreign or local bank or financial institution or corporate body of the related sector or at the officer level of the Government of Nepal, or
(b) Having earned a bachelor degree and having work experience of at least three years as a Director or office bearer level of a foreign or local bank or financial institution or corporate body of the related sector or at least at the officer level of the Government of Nepal, or
(c) Having earned a master degree in the related subject as prescribed.
(2) Notwithstanding anything contained in Sub-Section (1), the academic qualifications and experience of a Director of a financial institution of class “D” will be as prescribed by the Rastra Bank from time to time:
Provided that the qualifications of an independent director shall be as set out in Section 17.
17. Qualifications of Independent Director: While appointing an Independent Director by a bank or financial institution, it shall do so from among the persons having met the following qualifications and experience:-
(a) In the case of a class “A” bank or national level class “B” development bank, having obtained at least master’s degree in a subject as prescribed by the Rastra Bank and experience as prescribed by the Rastra Bank,
(b) In the case of a class “B” development bank and a financial institution of class “C”, other than the class “B” development bank of the national level, having obtained at least bachelor’s degree in a subject prescribed by the Rastra Bank and work experience as prescribed by the Rastra Bank,
(c) In the case of a micro finance institution of class “D”, a person possessing the qualifications and experience prescribed by the Rastra Bank.
18. Disqualification of Directors: (1) The following persons shall not be eligible to become a Director of the a bank or financial institution:-
(a) If he or she has not attained the age of 25 years,
(b) If he or she is of unsound mind or insane,
(c) If he or she has been declared bankrupt in Nepal or abroad for being unable to pay debt,
(d) If he or she has been blacklisted or declared a defaulter in connection with any transaction with any bank or financial institution in Nepal or in abroad, and a period of at least three years has not been lapsed after removal of his\her name from the blacklist or list of defaulter,
(e) An incumbent Director or an employee of any corporate body carrying out transactions of a bank or financial institution or any institution collecting any type of deposits or carrying out transactions relating to insurance,
(f) A borrower or an incumbent auditor or an advisor of the concerned bank or financial institution or a person, firm or company who/which is a partner in any kind of contract with the concerned bank or financial institution or having personal interests,
(g) Who has acquired the membership of the Stock Exchange to act as a securities broker or a merchant banker,
(h) Incumbent Director of a licensed bank or financial institution,
(i) A person, who has not subscribed to the minimum number of shares required to subscribe to be eligible for appointment as a Director pursuant to the Articles of Association of a bank or financial institution,
(j) Incumbent employee of the Government of Nepal, or a corporate body having ownership of the Government of Nepal, or Rastra Bank or of a bank or financial institution,
Provided that nothing in this clause shall prevent from nominating a Director in a micro-finance institution or
infrastructure development bank, of which share has been purchased by the Government of Nepal or an institution having under the ownership of the Government of Nepal or Rastra Bank or bank or financial institution.
(k) Who, having a liability to pay taxs pursuant to the laws in force, has failed to pay the same
(l) If he or she has not completed a period of ten years after serving out the sentence upon being convicted of an offence of theft, cheating, forgery, fraud, corruption, any offence involving moral turpitude or a banking offence from a court of Nepal or that of a foreign country,
(m) If action had been taken against him or her by a regulatory agency as per the law for committing an act in contravention of the law and if he or she has not completed a period of five years after being taken such action,
(o) In the case of an independent Director, If he or she is a promoter or a shareholder holding ownership of more than 0.1 % share of the concerned bank or financial institution,
(p) If he or she has not served the full sentence or is yet to clear the dues of the fine imposed by a court of law or if he or she is in arrears to pay a government due.
(2) Notwithstanding anything contained in Clause (e) of Sub-Section (1), an official or employee of a bank or financial institution may work as a Director of a subsidiary company of the same bank or financial institution.
19. Ineligibility to Remain in Office of Director : (1) No person shall remain in the office of Director of a bank or financial institution in any of the following circumstances: –
(a) If he or she does not possess the qualifications as referred to in Sections 16 or 17 or is disqualified pursuant to Section 18,
(b) In cases where a motion to remove from the office of a Director is adopted by a majority of the General Meeting at the recommendation of the group from which he/she was appointed to
the office of Director that is passed by the shareholders having representation of at least fifty one percent of the shares of the same group,
Explanation: For the purpose of this Section, “group” means a group of promoters and shareholders from the general public.
(c) If the resignation tendered by a Director from his/her position is approved,
(d) In case he or she commits any act that is not supposed to be committed under this Act or directives of Rastra Bank,
(e) If the Rastra Bank directs to remove from the office stating that since he or she carried out activities against the rights and interests of the bank or financial institution or of the depositors and as such he or she is not competent to perform the functions of a Director of the bank or financial institution.
(2) In cases where a bank or financial institution deems that any of its Directors is disqualified to remain in office of Director according to this Act or the Rastra Bank Act or he or she no more holds the position of Director, written information thereof shall be given to the Rastra Bank within fifteen days.
(3) The Rastra Bank may, if it has received in written form with regard to a Director that he/she is disqualified to remain in office pursuant to Sub-Section (2), issue appropriate direction after carrying out necessary enquiry.
20. Provision Regarding a Person Holding Constitutional Position: No person, who holds a constitutional position shall, so long as he/she is holding such a position, may remain in the Board of Directors or become the Chief Executive of any bank or financial institution.
21. Meetings of Board of Directors: (1) Meetings of the Board of Directors shall have to be held at least twelve times in a year.
Provided that the interval between the two meetings shall not exceed sixty days.
(2) The chairperson shall convene a meeting of the Board of Directors at any time if at least one-third of the Directors make a request in writing to convene a meeting by mentioning the agenda to be discussed in the meeting.
(3) Chairperson shall preside over the meetings of the Board of Directors. In the absence of the Chairperson, a Director selected by majority of the Directors from among themselves shall preside over a meeting.
(4) No meeting of the Board of Directors shall be held unless it is attended by at least fifty-one percent of the total number of Directors.
(5) The decision of a majority in the meeting of the Board of Directors shall be prevailed and in the event of a tie, the chairperson may exercise the casting vote.
(6) Minutes regarding the names of the Directors attending the meeting of the Board of Directors, the agenda discussed and the decisions taken thereon shall be recorded in a separate book, and such minutes shall be signed by all Directors attending the meeting:
Provided that if any Director puts forward any dissenting opinion in the decision of the Board of Directors, he/she may record his or her dissenting opinion in the minutes by putting his or her signature.
22. Functions, Duties and Powers of Board of Directors: (1) All functions, duties and powers to be exercised by a bank or financial institution, except those functions to be performed by the General Meeting, shall be vested in the Board of Directors subject to this Act, the prevailing laws and the Memorandum of Association and Articles of Association.
(2) It shall be the duty of the Board of Directors to operate the bank or financial institution in the interests of depositors, costumers and general shareholders by taking the overall risks management of the bank or financial institution and to give guarantee not to intervene in the day to day of business of the bank of financial institution in matters such as collecting, deposits, lending, making investment, managing personnel, making expenses from budget by maintaining appropriate corporate governance in the bank or financial institution.
(3) Other functions, duties and powers of the Board of Directors shall be as
follows:-
(a) To frame the necessary Byelaws, Directives, procedures subject to this Act, the prevailing laws and directives of the Rastra Bank and
to enforce them in order to carry out the functions of the bank or financial institution in an orderly manner,
(b) To prepare and enforce the internal control system and risks management guidelines for avoiding the emergence of risk or risk-prone situations in the transactions of the bank or financial institution and to carry out banking and financial transactions carefully according to its policies and strategies,
(c) To make the necessary policy for carrying out all the business of the bank or financial institution and to operate the bank or financial institution in an orderly and rational manner by carrying out regular monitoring of such business,
(d) To prepare the organizational structure of the bank or financial institution clearly and frame policies and implement them accordingly,
(e) To submit the General Meeting the audit report along with the annual progress report of the bank or financial institution,
(f) To carry out other functions as may be specified by the Rastra Bank from time to time.
23. Responsibility and Accountability of Director: (1) A Director shall not commit or cause to be committed any act for personal benefit through a bank or financial institution or in the course of the business of the bank or financial institution.
(2) A Director shall be personally liable for any act carried out exceeding his/her authority as of a Director of a bank or financial institution.
(3) A Director of a bank or financial institution shall assume responsibility with regard to the risks management and internal control by following sound business strategies of the institution.
(4) A Director shall not intervene in the day to day businesss and activities of the management of a bank or financial institution.
(5) A Director shall have to fully comply with the directives issued by the Rastra Bank from time to time.
24. Details of Directors to be Collected: A bank or financial institution shall collect the following details of a Director: –
(a) Name, surname, address, academic qualifications, occupation and experience of its Director,
(b) Details as to the designation and responsibility if he/she has worked earlier as a Director, official or employee of any other entity,
(c) Details as to name and surname of the family of the Director and the relevant person’s details and financial interests of himself/herself or his/her family in a bank or financial institution or other entities, share ownership in his/her name and names of the family of the said institution,
(d) Details as to the shares and debentures subscribed by the Director or his/her family members in the bank or financial institution or its holding or subsidiary company,
(e) Details of the family members working as office bearer or employee in the bank or financial institution, if any,
(f) Details as to whether the concerned bank or financial institution has, or is going to have, any type of contract with himself/herself or his/her family member,
(g) Details as to whether there is any type of interests or concerns with regard to the appointment of the Chief Executive, Company Secretary and Auditor,
(h) Written authority given to the Rastra Bank to allow it to conduct an inquiry or to cause to be conducted the inquiry into the financial and professional background of the Director,
(i) Self-declaration that he/she is qualified to be a Director pursuant to this Act,
(j) Any other details as may be specified by Rastra Bank from time to time to be furnished before the Rastra Bank and the Board of Directors.
25. Information of Director and Record: (1) A Director shall have to submit the details referred to in Section 24 to the bank or financial institution within seven days of his/her appointment.
(2) The bank or financial institution shall separately maintain the records of the details submitted pursuant to Sub-Section (1).
(3) In case a Director or any member of his/her family has substantial ownership of or any type of interests in the bank or financial institution directly or indirectly, such a Director shall provide the full details thereof at the first meeting of the Board of Directors.
(4) A Director shall, in cases where discussions are to be held as a meeting of the Board of Directors or of any other sub-committee on any subject concerning any interests of the Directors concerned, disclose about such interests at the very beginning of the meeting and he/she shall not take part in the discussions or restrain from voting on such subjects.
(5) In cases where there is any change in the details as referred to in Sub-Section (1) or a Director has been changed, information thereof shall be submitted to the Rastra Bank within fifteen days.
(6) The Rastra Bank, if it deems it appropriate to conduct an inquiry into the information forwarded pursuant to Sub-Section (5), shall have the powers to conduct or cause to be conducted inquiry into the same.
26. Power to Constitute Sub-Committees: (1) Except as expressly provided for in this Act that particular work shall be carried out by any particular entity or official, the Board of Directors may constitute one or more sub-committee(s) for any specific purpose subject to the directives of the Rastra Bank:
Provided that the Chairperson of the Board of Directors shall not be on the sub-committee.
(2) The functions, duties, powers and rules of procedure of the sub-committee constituted pursuant to Sub-Section (1) and the remuneration or allowances receivable by a member attending its meetings shall be as specified by the Board of Directors and the functions carried out by such a sub-committee and expenditures incurred by it shall be clearly specified in the annual report.
27. Delegation of Power: The Board of Directors may, stating the rational and reasons, delegate any of its powers to any Director, a sub-committee constituted pursuant to Section 26, the Chief Executive or any person acting as the Chief Executive of the bank or financial institution on the conditions that such powers shall be exercised under its supervision or direction.
28. Allowances and Facilities of Director: Meeting allowances and other facilities of a Director for attending a meeting shall be as provided for in the Articles of Association.
29. Appointment of Chief Executive and Terms and Conditions of Service: (1) The Board of Directors shall, subject to this Act, Memorandum of Association and Articles of Association appoint a Chief Executive for the management of a bank or financial institution.
(2) The tenure of office of the Chief Executive shall be for a maximum period of four years and he/she may be re-appointed for one more term of office.
(3) The provisions referred to in Sub-Section (2) shall be applicable only after the commencement of this Act.
(4) Notwithstanding anything contained in Sub-Section (2), the Board of Directors may remove the Chief Executive from his/her office at any time; if his/her work performance has not been satisfactory:
Provided that before removing from him or her office, a reasonable opportunity shall be provided to submit his or her clarification.
(5) While appointing a Chief Executive, a person having possessed the following qualifications and experience shall be appointed and information thereof shall be furnished to the Rastra Bank within seven days from the date of appointment: –
(a) If he or she holds a Master’s degree in management, banking, finance, monetary, economics, commerce, accountancy, statistics, accounting, mathematics, business administration or law,
(b) If he or she has work experience of at least ten years at an officer level or above in the banking or finance sector, government entity, corporate body, university or an international institution or organization performing similar functions after having earning a bachelor’s degree in chartered accountancy or management,
banking, finance, monetary, economics, commerce, bookkeeping, statistics, accounting, mathematics, business administration or law:
Provided that in the case of the Chief Executive of a Class “D” financial institution, he or she shall have to possess the academic qualifications and work experience as specified by the Rastra Bank.
(c) If he or she fulfills the criteria as prescribed by the Rastra Bank with regard to appointment of a Chief Executive,
(d) If he or she is not disqualified pursuant to Sub-Section (1) of Section 18: Provided that the disqualifications as referred in Clauses (i) and (n) of Sub- Section (1) of Section 18 shall not apply to the Chief Executive.
(6) The Rastra Bank may, in cases where, it is found that a Chief Executive appointed pursuant to Sub-Section (1) is not qualified according to this Act, issue an order to the concerned bank or financial institution to remove the Chief Executive and to appoint another person qualified to get appointed in the office of Chief Executive.
(7) The remuneration and terms and conditions of service and other facilities of a Chief Executive shall be as specified by the Board of Directors and the terms and conditions of service and facilities shall be fixed at the time of his/her appointment.
(8) The Chief Executive of any bank or financial institution shall not perform business as the Chief Executive, office bearer, employee or holds any other position in any other business organization:
Provided that nothing in this Sub-Clause prevents from becoming a Director of an Infrastructure Development Bank in which the bank or financial institution has made investment.
30. Functions, Duties and Powers of Chief Executive: (1) The functions, duties and powers of the Chief Executive shall be as follows:-
(a) To exercise the powers delegated by the Board of Directors and to implement decisions of the Board of Directors subject to the Memorandum of Association and Articles of Association and
oversee and control the activities and transactions of the bank or financial institution,
(b) To prepare the annual budget and any action plan of the bank or financial institution and submit to the Board of Directors for approval,
(c) To manage the necessary human resources subject to the Personnel Byelaws of the bank or financial institution,
(d) To implement or cause to be implemented the decisions of the General Meeting,
(e) To operate the institution according to this Act and directives of the Rastra Bank and to carry out effective internal control and risks management,
(f) To submit statements, documents, decisions, etc. to be submitted by the bank or financial institution to the Rastra Bank or any other agency on time subject to this Act, directives of the Rastra Bank and Memorandum of Association and the Articles of Association.
(g) To operate the institution taking into consist optimum protection of interests of depositors, shareholders and the institution itself,
(h) To apply appropriate criteria for senior management subject to the policy as determined by the Board of Directors.
(2) The Chief Executive shall be accountable to the Board of Directors for his or her work.