Table of Contents
The banking and financial sector forms the backbone of Nepal's economy, and maintaining trust and integrity in this sector is paramount. The Banking Offence and Punishment Act, 2064 (2008) was enacted by the Legislative Parliament to provide a comprehensive legal framework for addressing offenses committed in the course of banking and financial transactions, thereby protecting the banking system and its stakeholders from financial crimes.
This guide provides a detailed analysis of the Act, including the types of banking offenses, punishment provisions, investigation procedures, and the significant amendments introduced in 2082 (2025) regarding cheque dishonor.
Overview and Objectives
The Banking Offence and Punishment Act, 2064 came into effect immediately upon its authentication on 2064.10.23 (6 February 2008). The preamble states the Act's primary objectives:
- Promote trust towards the banking and financial system
- Mitigate consequences and risks arising from banking offenses
- Provide legal provisions for banking offenses and punishments
- Protect banks and financial institutions from financial crimes
Scope of Application
The Act has extraterritorial application:
- Applicable within Nepal
- Applicable to persons and institutions residing abroad who committed banking offenses in Nepal
Key Definitions (Section 2)
The Act provides important definitions that form the foundation of its regulatory framework:
| Term | Definition |
|---|---|
| Bank | A bank licensed by Nepal Rastra Bank to carry out "A" category financial transactions pursuant to prevailing law |
| Financial Institution | A financial institution licensed by Nepal Rastra Bank to carry out "B", "C", and "D" category financial transactions |
| Banking Offence | Offenses as stipulated under Chapter 2 of the Act |
| Institution | A firm or company eligible to maintain a bank account, including other organized institutions or agencies established under prevailing laws |
| Borrower | A person, firm, company, or organized institution that has borrowed from a bank or financial institution, including guarantors |
| Cooperative Bank (2082 Amendment) | A cooperative bank established under Section 12 of the Cooperative Act, 2074 |
| Cheque (2082 Amendment) | A negotiable instrument drawn upon a bank, financial institution, or cooperative bank instructing payment on demand |
| Cheque Dishonor/Bounce (2082 Amendment) | A situation certified by bank/financial institution where payment cannot be made to holder due to insufficient funds in drawer's account |
| Holder (2082 Amendment) | A person or institution in whose name the cheque is issued and who is entitled to receive the amount |
Banking Offenses (Chapter 2)
The Act identifies specific acts that constitute banking offenses. These are categorized as follows:
Section 3: Unauthorized Account Opening or Cash Payment Demands
No person shall:
- Open or knowingly allow to open an account by submitting false documents
- Open or allow to open an account in the name of a fictitious person or organization (except where permitted by law)
- Draw a cheque knowing the account has insufficient balance to cover the amount
Section 3A: Prohibition on Issuing Cheque Without Sufficient Funds (2082 Amendment)
No person shall issue a cheque or request payment from a bank in situations where:
- There are no funds in their account
- Available funds are insufficient for payment
Section 4: Unauthorized Cheque/Cheque-Book/Statement Acquisition
No person shall:
- Demand or obtain cheque, cheque-book, or account statement of another person in an unauthorized manner
- Mislead others or give false impression of being the true holder
- Provide cheque, cheque-book, or account statement to others without written request from the concerned person
Section 5: Unauthorized Withdrawals or Payments
No person shall:
- Withdraw money in an unauthorized manner from another person's account
- Withdraw money by stealing a cheque or obtaining it through other means
- Transfer funds in an unauthorized manner from customer's account
- Make unauthorized payments from customer accounts
- Obtain or make cash payment using fake or another person's bills of exchange, cheques, drafts, or similar instruments
Section 6: Electronic Fraud
No person shall obtain or make payment by way of abuse or unauthorized use of:
- Credit cards
- Debit cards
- ATM cards
- Other electronic means
Section 7: Unauthorized Loan Practices
While availing or providing loans, no person shall:
| Clause | Prohibited Act |
|---|---|
| (a) | Avail or provide loans by submitting false, fake, or unreal financial statements or creating artificial business |
| (b) | Avail or provide over-loans by unnatural over-valuation of collateral security |
| (c) | Avail or provide loans by unnaturally hiking project costs based on false details |
| (d) | Avail or provide credit, facility, or discounts beyond authorized limit |
| (e) | Re-avail or re-provide loans without due release of collateral from previous bank (except consortium loans) |
| (f) | Avail loans through entity established in name of person without financial capability or under undue influence |
| (g) | Extend credit beyond customer's business requirement |
| (h) | Accept or provide undue benefit in return for granting credit facility |
Section 8: Misuse of Credit
No person shall misuse credit facilities availed from a bank or financial institution or allow misuse by diverting to purposes other than for which the credit was availed.
Section 9: Misuse of Banking Resources
The following persons shall not misuse resources of a bank or financial institution:
- Promoters
- Directors
- Shareholders with financial interest
- Chief Executive Officers
- Employees
- Advisors
- Managing Agents
- Associated persons or organizations
- Family members or close relatives of such persons
Exceptions:
- Loans/advances to CEO or employees under employee facility schemes as per prevailing laws
- Credit/facility to close relatives with Board of Directors approval
Definition of Family Members and Close Relatives
Family Members: Husband/wife, son, daughter, adopted son, adopted daughter, father, mother, step mother, and taken-care siblings.
Close Relatives: Separated siblings, in-laws (brother's wife, sister's husband), nephew/niece (from uncle or sister), grandchildren, grandchildren's spouses, uncle, aunt, maternal uncle/aunt, and father/mother-in-law.
Section 10: Acquisition by Borrowers with Overdues
A borrower with overdues shall not:
- Open account with local or foreign bank without settling dues
- Continue or operate such account
- Purchase movable or immovable assets
- Acquire title or possession over assets
Any assets or amounts received must be used for repaying overdues.
Section 11: Stopping Credit Facility to Harm Borrower's Project
A bank or financial institution that has provided first installment after approving credit facility for a project shall not, without sufficient basis and considerable reason, stop remaining installments in a way that causes loss to the borrower's working project.
Section 12: Forgery and Fraud
No person shall, with motive of self-benefit or to cause loss/benefit to others:
- Commit forgery by tampering with documents, accounts, or ledgers
- Remove or rewrite matters to mean different sense
- Commit fraud by misleading others about untrue or non-existent facts
- Get documents signed with alterations in date, number, or particulars
Section 13: False Valuation
A valuer shall not cause loss to a bank or financial institution by deriving excess, low, or false valuation of:
- Movable or immovable assets held as collateral security
- Non-banking assets of the bank/financial institution
- Assets being valued for auction or other purposes
Section 14: Irregular Economic/Financial Transactions
No person shall, with motive to cause harm or loss to a bank or financial institution:
- Get something done or undone
- Bargain or forbid bargaining
- Take or give amounts or goods/services free of cost
- Take or give charity, grant, gift, or donation
- Execute or translate false deeds
- Do work with ill intention to cause illegal benefits or losses
Punishment Provisions (Chapter 3, Section 15)
The Act prescribes punishments based on the nature and severity of offenses:
Category 1: Minor Offenses
For offenses under Section 3(a), (b), (c), Section 4, or Section 11:
Punishment: Fine up to NPR 10,000 depending on degree of offense
Category 2: Major Offenses Based on Suit Amount
For offenses under Sections 5, 6, 7(d)-(h), 8, 9, 10, 12, or 14:
| Suit Amount | Imprisonment |
|---|---|
| Up to NPR 1 million | Up to 1 year |
| NPR 1 million to 5 million | 1 to 2 years |
| NPR 5 million to 10 million | 2 to 3 years |
| Above NPR 10 million | 3 to 5 years |
The claimed amount must be recovered, and fine is imposed in addition to imprisonment.
Category 3: Valuation and Loan Fraud Offenses
For offenses under Section 7(a), (b), (c) or Section 13:
- Fine equivalent to value of collateral security
- Imprisonment up to 5 years
- Valuer may be restricted from valuation work for up to 3 years
Category 4: Unestablished Suit Amount
Where suit amount cannot be established:
- Fine up to NPR 1 million
- Imprisonment up to 2 years
Organizational Liability
If an organization commits an offense:
- The concerned office bearer or employee committing the offense shall be liable
- If that person cannot be identified, the organization head at time of offense shall be liable
Attempt and Assistance
Persons attempting to commit a banking offense, indirectly involved, or assisting in commission shall be punished with half the punishment applicable to the principal offender.
Cheque Dishonor Provisions (2082 Amendment)
The Second Amendment to the Banking Offence and Punishment Act, published on 24 Baisakh 2082 (6 May 2025), introduced comprehensive provisions for cheque dishonor cases. This amendment repealed Section 107A of the Negotiable Instruments Act, 2034.
Certification Process for Cheque Dishonor (Section 3A)
The amendment introduces a formal certification process:
| Step | Procedure |
|---|---|
| 1 | If cheque cannot be honored due to insufficient funds, bank returns cheque to holder |
| 2 | Holder requests bank to formally certify dishonor |
| 3 | Bank issues notice to account holder (cheque drawer) granting up to 45 days to deposit required amount |
| 4 | Bank maintains record of notice through any appropriate means |
| 5 | If funds not deposited within notice period, bank marks cheque accordingly and returns to holder |
| 6 | Bank formally certifies dishonor and returns cheque within 3 days with written endorsement stating dishonor was due to insufficient funds |
Punishment for Cheque Dishonor (Section 15(1A))
Upon certified cheque dishonor, the account holder shall be liable for:
Civil Liability
- Repay the full cheque amount to the holder
- Pay statutory interest from date of cheque issuance to date of actual repayment
- Pay 5% penalty of the dishonored amount
Criminal Liability (Imprisonment)
| Cheque Amount (Suit Amount) | Imprisonment Term |
|---|---|
| Up to NPR 15 lakh (1.5 million) | Up to 1 month |
| NPR 15 lakh to 50 lakh (1.5 to 5 million) | 1 to 3 months |
| NPR 50 lakh to 1 crore (5 to 10 million) | 3 months to 1 year |
| NPR 1 crore to 10 crore (10 to 100 million) | 1 to 2 years |
| Above NPR 10 crore (100 million) | 2 to 4 years |
Enhanced Punishment: If the person committing the offense is the Chairman, Director, or Chief Executive Officer of the concerned institution, they shall be imprisoned for an additional 1 year.
Limitation Period for Cheque Dishonor Cases
- FIR Filing: Within 1 year from date of certified dishonor
- Court Case Filing: Within 6 months from date of FIR filing
- Cases filed before the concerned District Court
Investigation Authority
With the 2082 amendment, only the police are now authorized to investigate cheque bounce cases and initiate legal proceedings. Previously, individuals could directly file such cases in court.
Compromise (Milapatra) Mechanism
One of the notable features of the 2082 amendment is the formal recognition of compromise as a legitimate resolution mechanism:
Procedure for Compromise
- During Investigation: Parties can submit joint application for compromise to Government Attorney through investigating officer
- After Case Filed (Sub Judice): Application submitted to Court through Government Attorney
Effect of Compromise
- Upon verification of full payment to cheque holder, matter can be amicably settled
- Once compromise approved, accused not subject to further prosecution or punishment
- Investigating officer facilitates execution and maintains records
- Court facilitates compromise in accordance with prevailing law
Proceedings and Disposal of Suits (Chapter 4)
Time Limitation for FIR and Suit (Section 17)
For general banking offenses (other than cheque dishonor):
- FIR: Within 1 year from date offense comes to knowledge
- Suit: Within 6 months from date of FIR filing
- Court designated by Government of Nepal through Nepal Gazette notification
Exception: A lawsuit may be initiated at any time against an employee or office-bearer of a bank/financial institution who caused misappropriation or loss during their service, even after retirement.
Government as Plaintiff (Section 18)
In lawsuits under this Act:
- Government of Nepal shall be the plaintiff
- Cases included in Schedule-1 of Act Relating to Government Cases, 2049
Detention Provisions (Section 19)
The investigation and inquiry officer may detain an offender in custody if:
- There is adequate ground to believe the person may destroy evidence
- Person may create hindrances in investigation
- Person is a non-resident who can be subject to imprisonment of 6 months or above
Detention Procedure
- Initial detention: 24 hours without approval
- Extended detention: Requires adjudicating officer's approval
- Maximum detention per approval: 45 days at a time
- If satisfactory progress: Not exceeding 10 days at a time in multiple instances
Punishment for Creating Hindrance (Section 16)
Anyone creating hindrance in investigation proceedings may be punished with:
- Imprisonment up to 6 months, OR
- Fine up to NPR 5,000, OR
- Both
Miscellaneous Provisions (Chapter 5)
Cooperation Requirement (Section 20)
It is the duty of banks, financial institutions, and concerned individuals to extend necessary cooperation to investigation officers during inquiries.
Protection for Whistleblowers (Section 21)
If a bank/financial institution employee provides information on an offense or potential offense, no action shall be taken against them on grounds of breach of secrecy in terms of their service rules.
Notice Delivery to Foreign Individuals (Section 22)
Notice to foreign individuals shall be delivered:
- To their office or representative in Nepal (if any)
- If no representative exists: To main business place, permanent residential address, or mailing address through telex, telefax, telecommunication, or registered post
- If treaty exists: As specified in the treaty
Public Notice (Section 23)
If notice cannot be delivered because address cannot be identified:
- Publish in national-level newspaper at least 2 times
- For foreigners: Publish in English daily
- Grant 30 days period with abridged case particulars
- Such publication deemed valid delivery
Encumbrance on Foreign Individual's Assets (Section 24)
If a foreign individual does not appear despite notice, investigation officer may order:
- Not to take assets outside Nepal
- Create encumbrance over property, entitlement, interest, or concern held in Nepal
- Non-compliance: Fine up to NPR 100,000
- Any losses to Government or public institution shall be recovered
Proceedings Not Affected by Death (Section 25)
Adjudication proceedings and disposal of cases shall not be affected even if the offender dies.
Waiver of Punishment Claim (Section 26)
Investigation officer may provide waiver (full or partial) to a person who extends cooperation and is presented as witness. However, lawsuit may be re-registered if:
- Cooperation cannot be established from other evidence
- Person makes statement against cooperation extended
Disqualification from Banking Employment (Section 27)
Important: A person convicted with imprisonment under this Act shall be considered ineligible to work as an employee of any bank or financial institution.
Application of CIAA Act (Section 28)
For offenses involving persons holding public position or civil servants, if prosecutable under:
- Commission for Investigation of Abuse of Authority Act, 2048
- Corruption Prevention Act, 2059
Action and punishment shall be in accordance with those Acts.
Key Takeaways
| Aspect | Provision |
|---|---|
| Scope | Applicable in Nepal and extraterritorially to persons who committed offenses in Nepal |
| Maximum General Imprisonment | 5 years (for suit amount above NPR 10 million) |
| Maximum Cheque Dishonor Imprisonment | 4 years (for amount above NPR 100 million); +1 year for executives |
| FIR Limitation | 1 year from knowledge of offense |
| Suit Filing Limitation | 6 months from FIR |
| Cheque Dishonor Notice Period | 45 days for account holder to deposit funds |
| Compromise Available | Yes, for cheque dishonor cases |
| Whistleblower Protection | Protected from breach of secrecy claims |
| Consequence of Conviction | Disqualified from banking employment |
Related Services
For assistance with banking law matters and legal compliance:
- Banks and Financial Institutions Act Nepal
- Corporate Law Firm Nepal
- Company Registration in Nepal
- Alternative Dispute Resolution Nepal
- Contact Us
Disclaimer
This guide provides general information about the Banking Offence and Punishment Act, 2064 and its amendments. Laws and regulations may be amended from time to time. For specific legal advice regarding banking offenses, cheque dishonor cases, or compliance matters, please consult with qualified legal professionals or contact our law firm.
Need legal advice on investment, banking, or financial regulations in Nepal? Court Marriage in Nepal Pvt. Ltd. provides expert legal counsel on financial compliance, investment structuring, and banking law. Contact us today.
Frequently Asked Questions
The Banking Offence and Punishment Act, 2064 (2008) is a comprehensive legislation enacted by Nepal's Legislative Parliament to provide legal provisions for banking offenses and their punishments. The Act aims to promote trust in the banking and financial system by mitigating risks and consequences arising from offenses during banking transactions. It came into effect immediately upon authentication on 2064.10.23 (6 February 2008). The Act has extraterritorial application, applying within Nepal and to persons residing abroad who committed banking offenses in Nepal.
Banking offenses under Chapter 2 include: opening accounts with false documents or in fictitious names, drawing cheques knowing insufficient balance, unauthorized acquisition of cheques or account statements, unauthorized withdrawals or fund transfers, electronic fraud using credit/debit/ATM cards, fraudulent loan practices including false financial statements and over-valuation, misuse of credit facilities, misuse of banking resources by insiders, acquisition of assets by borrowers with overdues, wrongfully stopping credit to harm borrower projects, forgery and fraud in banking documents, false valuation of collateral, and irregular economic transactions causing loss to banks.
Punishments vary by offense severity. Minor offenses (Sections 3, 4, 11) carry fines up to NPR 10,000. Major offenses (Sections 5, 6, 7(d)-(h), 8, 9, 10, 12, 14) carry imprisonment based on suit amount: up to 1 year for amounts up to NPR 1 million, 1-2 years for NPR 1-5 million, 2-3 years for NPR 5-10 million, and 3-5 years for amounts above NPR 10 million. Valuation and loan fraud offenses (Sections 7(a)-(c), 13) carry fines equivalent to collateral value plus up to 5 years imprisonment. Valuers may be restricted from work for up to 3 years.
The Second Amendment published on 24 Baisakh 2082 introduced comprehensive cheque dishonor provisions. It added definitions for "cheque," "cheque dishonor," "cooperative bank," and "holder." It established a formal certification process where banks must give 45-day notice to account holders before certifying dishonor. The amendment introduced graded punishment: up to 1 month (up to NPR 1.5 million), 1-3 months (NPR 1.5-5 million), 3 months-1 year (NPR 5-10 million), 1-2 years (NPR 10-100 million), and 2-4 years (above NPR 100 million). It also repealed Section 107A of the Negotiable Instruments Act, 2034.
Under Section 3A (2082 amendment), when a cheque cannot be honored due to insufficient funds: First, the bank returns the cheque to the holder. Second, the holder requests formal certification of dishonor. Third, the bank issues notice to the account holder granting up to 45 days to deposit required funds and maintains record. Fourth, if funds are not deposited, the bank marks the cheque accordingly. Fifth, within 3 days after the notice period expires, the bank formally certifies the dishonor and returns the cheque to the holder with written endorsement stating dishonor was due to insufficient funds.
Upon certified cheque dishonor, the account holder faces both civil and criminal liability. Civil liability includes: repaying the full cheque amount to holder, paying statutory interest from date of issuance to actual repayment, and paying 5% penalty of the dishonored amount. Criminal liability (imprisonment) is graded: up to 1 month for amounts up to NPR 1.5 million, 1-3 months for NPR 1.5-5 million, 3 months-1 year for NPR 5-10 million, 1-2 years for NPR 10-100 million, and 2-4 years for amounts above NPR 100 million. Executives (Chairman, Director, CEO) face an additional 1 year imprisonment.
Under the 2082 amendment, FIR concerning cheque dishonor must be filed within 1 year from the date of certified dishonor (when the bank formally certifies that the cheque was dishonored due to insufficient funds). Following the FIR, a lawsuit must be filed in the relevant District Court within 6 months from the date of the FIR. With the amendment, only the police are authorized to investigate cheque bounce cases and initiate legal proceedings; individuals can no longer directly file such cases in court.
The 2082 amendment formally recognizes compromise as a legitimate resolution mechanism. During investigation, parties can submit a joint application to the Government Attorney through the investigating officer. After the case is filed (sub judice), the application is submitted to the court through the Government Attorney. Upon verification of full payment to the cheque holder, the matter can be amicably settled. The investigating officer facilitates execution and maintains records. Once compromise is approved, the accused is not subject to further prosecution or punishment under the Act.
Section 9 prohibits misuse of banking resources by insiders including: promoters, directors, shareholders deemed to have financial interest, Chief Executive Officers, employees, advisors, managing agents, associated persons or organizations, and family members or close relatives of such persons. "Family members" includes spouse, children, adopted children, parents, stepmother, and dependent siblings. "Close relatives" includes separated siblings, in-laws, nephews/nieces, grandchildren, grandchildren's spouses, uncles/aunts, and parents-in-law. Exceptions exist for employee facility scheme loans and credit to close relatives with Board approval.
Under Section 15(5), when an organization commits a banking offense, the concerned office bearer or employee who committed the offense shall be held liable if they can be identified. If the specific person cannot be identified, the person working in the capacity of organization head at the time of offense occurrence shall be held liable. This ensures individual accountability for organizational misconduct and prevents hiding behind corporate structures. Persons attempting offenses or assisting in commission are punished with half the punishment applicable to principal offenders.
Under Section 19, investigation officers may detain offenders in custody if there are adequate grounds to believe the person may destroy evidence, create hindrances in investigation, or if a non-resident can be subject to imprisonment of 6 months or above. Initial detention is limited to 24 hours without approval. Extended detention requires adjudicating officer's approval after presenting the detainee. Maximum detention per approval is 45 days at a time, or if progress is satisfactory, not exceeding 10 days at a time in multiple instances. The officer must clearly state charges, basis, justification, and any statements obtained.
Section 21 provides whistleblower protection. If a bank or financial institution employee provides information about an offense or potential offense to initiate legal proceedings or prevent occurrence, no action shall be taken against them on grounds of breach of secrecy in terms of their service rules. This protection encourages internal reporting of banking crimes without fear of employment repercussions. The provision recognizes that employees often have the best knowledge of irregular activities and should be protected when they report in good faith.
Section 27 provides that a person convicted with imprisonment under the Banking Offence and Punishment Act shall be considered ineligible to work as an employee of any bank or financial institution. This disqualification serves as both punishment and protection, preventing convicted financial criminals from future access to banking positions. Additionally, convicted persons must pay fines, claimed amounts must be recovered, and in valuation fraud cases, valuers may be restricted from carrying out valuation work for up to 3 years.
Section 22 provides a hierarchical delivery system. Notices are first delivered to the foreign individual's office or representative in Nepal if any exists. If no representative exists, notices are delivered to the main business place, permanent residential address, or mailing address provided during business through telex, telefax, recordable telecommunication, or registered post. If Nepal is party to a treaty with separate notice provisions, those provisions apply. Section 23 allows public notice in national newspapers (English daily for foreigners) at least 2 times with 30 days period if address cannot be identified.
No. Section 25 specifically provides that adjudication proceedings and disposal of cases initiated or to be initiated under the Banking Offence and Punishment Act shall not be affected even if the offender dies. This ensures that legal proceedings continue and allows for recovery of amounts, protection of victims' rights, and completion of justice even in the offender's absence. This provision is particularly important for banking offenses where substantial sums may be involved and victims (including depositors and financial institutions) deserve recourse regardless of the offender's death.
