Borrowing & Lending Law in Nepal 2026: Lenden Kanoon Guide

Borrowing and lending — lenden in Nepali — is governed by the Muluki Civil Code 2074 (2017), Chapter 12, Sections 474 to 492. The Code's headline rule sounds simple: any transaction between two persons, where one passes value to the other on the understanding that an equivalent amount or goods will be returned later, must be recorded in a written deed at the time of the transaction. The deed must contain prescribed information about the parties, the amount, the purpose, the repayment date, the interest rate, the witnesses and the place of execution. Without a written deed, recovery is hard; with a properly executed one, recovery follows a well-trodden path through the District Court.

This guide unpacks the lender's side and the borrower's side of the same statutory framework — what the deed must contain, how interest is regulated, what the ten-year limitation in Section 484 means in practice, and how the recovery suit is structured. For the bank-instrument side (cheques, promissory notes under the Negotiable Instruments Act 2034) and the formal banking side (loan agreements with banks under the Banks and Financial Institutions Act 2073), separate procedural tracks apply and are cross-referenced below.

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Our civil litigation team handles lenden recovery files across the District Courts of Bagmati and the other provinces — from straightforward tamasuk recovery to disputed bank-loan defaults to cheque-bounce prosecutions under the NI Act 2034. The most expensive failure we see at first consultation is a deed defective on the face of it — missing witness signatures, missing repayment date, missing interest rate, or executed in pencil. Each defect gives the borrower a procedural escape that can sink an otherwise winnable recovery. The second most common failure is delayed filing — the ten-year window in Section 484 closes silently, and recovery is impossible after limitation regardless of how clear the underlying debt is.

Section 474 — what counts as a transaction (lenden)?

Section 474 of the Muluki Civil Code 2074 captures the full breadth of what counts as a transaction for the purposes of the borrowing and lending chapter. If two or more persons exchange any amount of money or any goods on a condition that the equivalent value will be returned at a later date — with or without interest, with or without security — they have entered into a lenden transaction. The chapter applies whether the loan is between family members, neighbours, business partners, or strangers; whether the amount is small or large; and whether interest is charged or not. The only category carved out is loans by licensed banks and financial institutions, which are governed by the Banks and Financial Institutions Act 2073 and the Debt Recovery Act 2058.

Once Section 474 applies, the rest of the chapter follows automatically. Section 475 imposes the deed requirement — no transaction shall be conducted without first executing a written deed. Section 478 specifies what the deed must contain. Section 480 governs interest. Section 484 sets the limitation. Sections 485 to 492 deal with recovery, attachment and execution.

Section 478 — what the deed must contain

The deed must set out, at minimum, the names, surnames, ages and addresses of all parties (with the names of their parents and grandparents to fix identity in a country with many same-name individuals); the names of the spouses where the parties are married; the reason or purpose for the transaction; the amount or volume transacted; the cost or value where goods are exchanged; the date for repayment; the rate of interest if any is payable; the express clause that the creditor may recover the amount from the borrower's assets on default; the place where the deed was executed; the date of execution; and the signatures of the parties together with at least two witnesses with their names and addresses.

The two-witness rule is the practical heart of the deed requirement. Witnesses are not the parties themselves; they must be independent persons who know both parties and can attest to having seen the parties sign the deed. A deed without two witness signatures is not enforceable as a Civil Code transaction deed — it can still operate as written evidence of the underlying agreement, but the procedural advantages of the Code's recovery framework are lost. The full tamasuk format walkthrough — including the optional Ward Office attestation that strengthens the deed in practice — sits in our tamasuk in Nepal guide.

Interest — what the law allows and what it does not

The Civil Code 2074 permits interest on lenden transactions provided the rate is recorded in the deed. The rate is not free — Section 480 caps the recoverable interest at the rate set by Nepal Rastra Bank for ordinary lending, with the upper bound varying over time as the central bank adjusts the policy rate. Interest above the cap is unenforceable; the court will recover the principal plus interest up to the statutory ceiling, not the contractually agreed higher rate.

Compound interest is not permitted unless specifically agreed in writing in the deed and the agreement is consistent with NRB regulations. Default interest (a higher rate kicking in on missed payments) is permitted within the cap. Penal interest disguised as compensation is treated as interest for the purposes of the cap. Where interest is not specified in the deed, the court will award the statutory simple-interest rate from the date of default to the date of decree.

Section 484 — the ten-year limitation

Section 484 of the Muluki Civil Code 2074 imposes a ten-year limitation on filing a recovery suit, calculated from the date repayment fell due under the deed. The clock starts from the repayment date specified in the deed; for on-demand loans, from the date of demand. After the ten-year period, the right to sue is extinguished — the underlying debt does not vanish, but the courts will not enforce it. A borrower in possession of the deed after limitation can simply plead Section 484 as a complete defence.

The ten-year window is unusual in being long enough that it lulls creditors into inaction; the typical recovery file we see has been sitting in a drawer for seven or eight years before the creditor consults counsel, leaving little margin to file. Limitation is suspended during periods when the borrower acknowledges the debt in writing or makes part-payment — each acknowledgment restarts the clock. Counsel reviews the file for any acknowledgment evidence (a part-payment receipt, a renewed promise, a written reminder responded to) before concluding that limitation has expired.

Recovery — from notice to decree to execution

The standard recovery sequence is notice, plaint, summons, written statement, evidence, judgment, decree, execution. The creditor begins with a written legal notice to the borrower demanding repayment within a reasonable time (typically 7 to 15 days) and warning of court action on failure. The notice serves both an evidential function (showing the creditor's good-faith attempt at amicable settlement) and a cost-shifting function (improving the creditor's position on costs at decree stage).

If the notice fails, the creditor files a civil suit at the District Court of the borrower's residence, the place where the deed was executed, or the place where the cause of action arose, under the venue rules of the Civil Procedure Code 2074. The plaint sets out the deed, the loan, the default, the interest claim, and the prayer for recovery of principal plus interest plus costs. Court fee under the Court Fee Act 2017 is paid on the value of the claim. After summons, written statement, framing of issues and evidence, the court delivers judgment and issues a decree.

Execution of the decree is governed by the Civil Procedure Code 2074. The creditor can attach the borrower's movable property (vehicles, machinery, livestock, bank accounts) and immovable property (land, buildings) and sell at court-supervised auction with proceeds applied to the decree. Where the deed expressly recorded specific property as security, the creditor can proceed against that property first. Where the borrower has insufficient assets, the decree remains live for execution against future-acquired property within the execution limitation.

Cheques and the Negotiable Instruments Act 2034

Where the loan is recorded in the form of a cheque or a formal promissory note rather than a tamasuk, the Negotiable Instruments Act 2034 (1977) applies. A cheque dishonoured for insufficiency of funds gives the holder both a civil claim for the underlying debt and a criminal complaint for cheque bounce — the criminal complaint must be filed within 35 days of the dishonour notice. The cheque-bounce track is faster than ordinary recovery and applies pressure on the debtor through the criminal liability dimension. Detailed treatment in our cheque bounce case in Nepal guide.

The choice between a tamasuk and a cheque-backed loan is a commercial one made at the lending stage. Tamasuk is the default for personal and family loans because it is paper-based, locally familiar, and does not require the borrower to hold a bank account. Cheque-backed lending is the default for trade credit and commercial loans because the cheque itself is a negotiable instrument with the criminal-track recovery option. Many real-world loans use both — a tamasuk recording the underlying transaction plus post-dated cheques as security for instalments.

Bank loans and the Debt Recovery Tribunal

Loans by licensed banks and financial institutions to borrowers fall outside the Civil Code 2074 transaction chapter. They are governed by the Banks and Financial Institutions Act 2073 (BAFI Act), the Debt Recovery Act 2058, and the loan agreement between the bank and the borrower. Bank-borrower disputes for default are heard by the Debt Recovery Tribunal (DRT) — a specialised tribunal with summary procedure, faster timelines than ordinary civil courts, and direct attachment powers over the secured collateral.

The DRT process is not a civil suit; it is a statutory recovery proceeding initiated by the bank under the Debt Recovery Act 2058. The borrower's defences are correspondingly narrower — disputes over the contract terms or the existence of the debt are heard, but procedural objections that work in District Court suits do not transfer cleanly. The full DRT framework and borrower-defence options are covered in our Debt Recovery Tribunal guide.

Why retain counsel for borrowing and lending matters?

Counsel adds value at three points in the lenden cycle. First, at the lending stage — drafting or reviewing the deed (or the loan agreement) so that the elements check, the witnesses, the interest clause and the security clause are all in order at execution. Second, at the default stage — sending the legal notice, calculating the limitation position under Section 484, deciding between the civil-suit track, the cheque-bounce track and (for bank loans) the DRT track. Third, at the recovery stage — drafting the plaint, prosecuting through the District Court or DRT, and executing the decree by attachment of the borrower's property.

Alpine Law Associates handles lenden files end-to-end across all three tracks — tamasuk recovery at the District Court, cheque-bounce prosecutions under the NI Act 2034, and bank-borrower defence work at the DRT. As a full-service law firm in Nepal we coordinate recovery work with the parallel partition, succession or commercial dispute that often surfaces alongside a defaulted loan. Speak with our lawyers today →.

Last reviewed: April 2026