Lenden Kanoon - Borrowing and Lending Law in Nepal Explained

Lenden Kanoon ( Borrowing and Lending Laws / Transactions Law ) in Nepal is guided by Muluki Civil Code 2074.

Lenden is a Nepali word, that refers to "borrowing and lending" In other words, it refers to a process where the money, goods, or service is provided in credit on the agreement that the repayment of the amount or equivalent value should be performed after some time, which is in the common practice of both formal and informal financial systems.

Formal contexts of Lenden derive from within the legal framework, coming from contracts, banking regulations, and financial laws, to be transparent and enforceable. This is a situation whereby it emanates informally out of mutual trust or community conventions, especially in rural or traditional settings. If there is a give-and-take of any amount or goods between two or more persons subject to any condition, the transaction is said to be made between them.

Borrowing of Loan

If a person is obligated to pay an amount or goods to another person, it is considered a loan and must be returned to the recipient.

Transaction not to be carried on without executing a deed

Muluki civil code defines "Deed" as any document that substantiates a transaction including a cheque, bill, voucher, and receipt. The paper should be created while carrying out the transaction. No one shall conduct a transaction without first executing a legally binding deed.

Matters to be set out in Deed

• The Name, surname, age, and address of each individual included in an exchange, as well as the name of his or her father, mother, grandfather, and grandmother. Given that within the case of a married individual, the name of his or her spouse or spouse, as the case may be, should be mentioned.
• Reason for the transaction.
• The volume of transactions,
• In the case of an exchange of any good, the cost of such goods,
• In the case of the exchange of any products by way of borrowing, loan, or something else, the matter to that effect,
• Details of the products, in the event that any, are exchanged,
• Date for repayment of the transacted amount,
• Rate of interest, if any, payable on the transaction,
• Matter that the creditor may recover the amount involved in the transaction from the borrower's assets in the event of failure to repay such amount within the specified time or to fulfill the other conditions set forth in the deed,
• Place of the deed executed,
• Date of the deed executed,
• Such other things as required to be set out concurring to the nature of the exchange

A creditor entitled to collect interest from the Debtor

• If a deed on transaction provides for the payment of interest, the creditor may collect the interest from the debtor as outlined in the deed.
• The amount of interest that the creditor is entitled to collect from the debtor shall not exceed ten percent of the principal per annum.
• If the deed on the transaction does not provide for the payment of interest, the the creditor shall not collect interest from the debtor.
• If the executed deed does not provide for the rate of interest but only for the payment of interest, the creditor may collect interest from the debtor at the rate of ten percent of the principal per annum.
• If the executed deed provides for the payment of profit instead of interest but does not specify the amount of such profit, the creditor may collect such profit from the debtor as if it were interest.
• If the deed on the transaction does not provide for the payment of interest, the creditor shall not collect interest from the debtor.
• The creditor shall not collect interest in excess of the principal.

Compound interest is not to be collected

The creditor shall not collect compound interest from the debtor.

Procedures to be fulfilled in paying and collecting principal and interest

1. If the debtor fully repays the principal and interest, the creditor must sign and return the deed to the debtor by tearing it out or indicating repayment on the reverse side.
2. If the deed is not found when repaying the principal and interest the creditor will provide the debtor with a receipt indicating the amount received on the specified date.
3. When repaying a portion of the principal and interest, the creditor must indicate the amount received from the debtor on the reverse side of the deed. If the deed is not immediately available, the creditor must obtain the debtor's signature and issue a separate receipt for the amount owed.

Period of a deed executed in household:

The period of a deed executed in a household shall not exceed ten years. If a debtor repays or extends the term of a deed within ten years, another ten years will be added from the date of repayment or extension, as applicable.

If the court passes a judgment on a lawsuit, if any, made within the period then the creditor is entitled to recover interest as well, the creditor shall be entitled to the interest as of the date of recovery according to the judgment.

Transaction carried on with incompetent or quasi-competent person not to be recognized

Recovery of an amount not available from the property in common:

• If a transaction does not include the signature of the head of the family, the creditor cannot recover funds until the debtor establishes their right to the property in common.
• If the person acting as the head of the family repays such an amount, the creditor may recover the same.
• If any person is not able to recover the amount from the debtor on the occurrence of the circumstance, then the creditor shall make a lawsuit against the debtor and maintain his or her right within a period of ten years.
• In the event of the maintenance of the right with the debtor, the creditor may recover his or her amount from the debtor in accordance with law after his or her right in the property in common has been established.

Recovery of amount if the transaction appears to have been carried on:

Even if no person executes a deed in accordance with the procedures and if it appears from any deed, banking transaction, negotiable instrument, cheque, voucher, or book of account that a transaction occurred with any person, the court may order the recovery of such amount from the debtor to the lawsuit maker based on such deed, banking transaction, negotiable instrument, cheque, voucher, or book of account.

Statute of Limitation

There shall be no statute of limitation for making a lawsuit in the matter of a transaction carried on with intent to take rights to, misappropriate, cause loss to, or disorder, the property of an incompetent and quasi-competent person or in the matter of collection of compound interest or collection of interest in excess of ten percent.

Borrowing And Lending Lawyer in Nepal

At Alpine Law Associates, we understand that borrowing and lending are not just financial actions—they carry legal weight that can deeply impact individuals, families, and businesses alike. As a fully licensed and trusted law firm in Nepal, we specialize in the legal intricacies of borrowing and lending (Lenden) under the Muluki Civil Code 2074. Whether you're drafting a transaction deed, recovering a loan, disputing interest charges, or needing to enforce or defend a financial claim, our legal experts provide comprehensive assistance from start to finish.

We offer more than just legal advice—we provide end-to-end solutions that include contract drafting, deed execution, dispute resolution, representation in court, and compliance with all statutory requirements. Our seasoned attorneys have successfully handled a wide range of Lenden-related matters, from informal community lending to complex banking and credit disputes. With Alpine Law Associates, you're not just hiring a lawyer; you're securing peace of mind with a firm that prioritizes your financial rights and legal protection. Trust us to guide you through every legal step involved in borrowing and lending in Nepal.

Conclusion

Borrowing and lending in Nepal, while common in both personal and commercial settings, is governed by detailed legal provisions that must be carefully understood and followed. The Muluki Civil Code 2074 clearly lays out how transactions should be documented, how interest can be charged, and what protections both creditors and debtors have under the law. Whether you're lending money to a relative, borrowing from a friend, or entering into a formal financial agreement, it's crucial to know your legal rights and obligations.

If you're unsure about drafting a transaction deed, enforcing a loan, or resolving a lending dispute, don’t hesitate to seek professional legal help. At Alpine Law Associates, our team is here to support you every step of the way with sound legal advice, expert documentation, and strong representation in court when needed. Protect your interests—handle your borrowing and lending matters the right way, with clarity, compliance, and confidence.