Bank CEO Illegally Arrested Amid Public Savings Risk Over Collateral Auction
The Nepal Police have arrested Jyotiprakash Pandey, CEO of Nepal Investment Mega Bank (NIMB), allegedly unlawfully during the auctioning of collateral to recover Smart Telecom’s loan under the Bank and Financial Institutions Act. Despite Smart Telecom’s license being revoked, legal provisions allow the bank to auction collateral and recover loans, as the company is domestically invested and its assets do not come under government ownership. Both Nepal Rastra Bank and the Bankers’ Association have affirmed banks’ rights to auction collateral for loan recovery, noting that any illegal activities must be thoroughly investigated. (30 Baishakh, Kathmandu)
It has come to light that the Nepal Police arrested NIMB CEO Jyotiprakash Pandey unlawfully under the Bank and Financial Institutions Act and the Secure Transactions Act during the collateral auction. Since Smart Telecom Pvt. Ltd. had long defaulted on its loan payments, NIMB auctioned the telecom company’s towers and equipment, recovering NPR 460 crore in loans. However, following the license revocation, questions arose regarding the legal ownership of the assets and whether the bank’s auction was authorized. Both actions—the bank’s loan recovery via collateral auction and the CEO’s arrest—appear illegal.
Smart Telecom initially obtained a rural telecommunications license and secured a 10-year basic telephone service license on 2 Baishakh 2070 BS. The license was automatically revoked on 2 Baishakh 2080 because royalty payments to the government were not made on time. The Criminal Investigation Bureau (CIB) arrested CEO Pandey, accusing NIMB of auctioning Smart Telecom’s towers and equipment post-license revocation. Police claim that after license cancellation, these assets fall under Nepal Telecommunications Authority’s control and that auctioning government property is unlawful.
However, this claim is inaccurate. According to the Telecommunications Act 2073, license revocation does not automatically transfer private company assets to government ownership—this is a misinterpretation by the authorities. Section 33 of the Telecommunications Act 2053 states that only companies with over 50% foreign investment have their land, buildings, and equipment transferred to government ownership after license expiry. Since Smart Telecom is domestically invested, even after license expiration, the assets remain private, as explained by senior advocate Dr. Gandhi Pandit.
The government issued the Management Rules for Assets of Telecommunications Service Providers whose licenses have been revoked, 2079, granting Nepal Telecommunications Authority the authority to take control of such assets and infrastructure under Rule 18. Nonetheless, Dr. Pandit argues this rule contravenes the Telecommunications Act and is unconstitutional. He asserts, “A government-issued rule cannot override a law enacted by Parliament; that part of the rule is illegal.”
Therefore, Pandey’s arrest lacks legal grounds. According to Dr. Pandit, banks have the legal right to auction such assets to recover loans. Section 57 of the Bank and Financial Institutions Act 2063 empowers banks to recover loans by auctioning collateral if debtors default. Similarly, Sections 28 and 46 of the Secure Transactions Act 2063 authorize banks to sell collateral to recover loans. Nepal Rastra Bank spokesperson Guruprasad Paudel also confirmed banks have the right to auction collateral upon loan defaults.
Paudel stated, “We are not fully aware of the ongoing police investigation details, but Section 57 of the Bank and Financial Institutions Act clearly allows auctioning collateral to recover loans not repaid.” He emphasized that loans are disbursed from public deposits, so collateral auction is the bank’s primary right to reclaim funds.
However, he acknowledged that if any illegal activities occur, the state has the authority to investigate, and cooperation from all stakeholders is vital. Santosh Koirala, president of the Nepal Bankers’ Association, agreed that while banks have the right to recover loans via collateral auction, the CEO’s arrest is unwarranted. He noted, “Auctioning assets created from loans to recover debts is the bank’s primary right. Failure to recover loans risks destabilizing the banking system.”
The police maintain that even if the assets are registered under the state’s name, the bank retains auction rights. They added, “If the state claims ownership, it must also assume associated loan liabilities.” The Nepal Telecommunications Authority’s claim to Smart Telecom’s loans must consider the debt obligations. Assets collateralized before license cancellation remain recoverable by the bank. Both the Bank and Financial Institutions Act and the Secure Transactions Act prioritize banks’ rights to loan recovery. Had the government canceled the company under seizure laws, it could have recovered dues first; the current approach is illegal.
Dr. Pandit warned that denying banks the right to auction collateralized assets would endanger the entire banking system. He cited an example of the Salt Trading Corporation importing salt through banks’ letters of credit; if such loans default, banks must be allowed to auction collateral. NIMB clarified that it sold only equipment acquired to pay loan penalties without selling the license or land.
The bank specified, “Only hypothecated assets registered under the Secure Transactions Act 2063 have been auctioned; no other assets were sold.” It also stated that the auction process was initiated with a 35-day notice under the Bank and Financial Institutions Act 2073, facing no objections from any authority. Nepal Rastra Bank had issued directives related to this in fiscal year 2079/80. NIMB had announced auction details on 3 Ashoj 2082, notifying Smart Cell to clear outstanding payments regarding auctioned materials and properties. However, some landowners have yet to pay, prompting ongoing investigations by the CIB. The bank reported holding NPR 38 crore in deposits from landowners. CIB spokesperson Shiv Kumar Shrestha stated, “Although assets are claimed to be registered in the state’s name, allegations of illegal auction and fraud are under investigation.”