The Supreme Court of Nepal has directed the government to establish a relief fund for victims of cooperative fraud, stating that safeguarding embezzled deposits is a constitutional responsibility of the state.
A division bench of Justices Kumar Regmi and Megh Raj Pokharel issued an eight-point directive, emphasizing that cooperatives should be brought under a regulatory framework similar to banks, while clarifying that they cannot function exactly like banking institutions.
The order comes as the government considers returning funds to small depositors affected by scams in multiple cooperatives. Authorities have already declared 23 cooperatives as problematic, with total liabilities amounting to Rs 39.93 billion.
Key Directives
The court instructed the government to establish the relief fund by confiscating assets of operators involved in problematic cooperatives. It also suggested that a portion of annual financial transactions and the national budget be allocated to sustain the fund, aimed at compensating affected depositors.
In distributing relief, priority should be given to vulnerable groups, including single women, senior citizens, marginalized communities, indigenous populations, and persons with disabilities.
Additionally, the court ordered the creation of a digitized national system to publicly list problematic cooperatives, freezing of assets belonging to suspected operators and their family members, and mandatory external audits for cooperatives handling large financial volumes.
Independent Commission and Legal Reforms
The apex court called for the formation of an independent commission to investigate cooperative-related embezzlement cases from the past decade. It also recommended setting up a dedicated bench at district courts to handle such cases and ensuring free legal assistance for affected depositors.
Governance Reforms
To improve governance, the court directed strict enforcement of rules limiting board membership to no more than two members from the same family. It also mandated a four-year “cooling-off” period and capped officials’ tenure at two terms.
Furthermore, the government has been instructed to propose amendments to the Cooperatives Act, 2017, including provisions for mandatory deposit insurance, personal liability of officials, and a tiered regulatory system based on transaction size.
Writ on Central Bank Approval Scrapped
The Supreme Court also dismissed a writ petition that sought to cancel licenses of cooperatives operating without approval from the Nepal Rastra Bank.
Clarifying the distinction, the court noted that cooperatives handle internal financial transactions among members, unlike banks that collect deposits from the general public, and therefore do not require central bank authorization.
