Debt Recovery Process in Nepal

As with the Financial Sector Reform Program, the Debt Recovery Tribunal was established to facilitate an institutional mechanism for recovering non-performing loans (NPLs). It is a dedicated legal body that ensures timely repayment of debts to banks and financial institutions. The tribunal operates under the Act on Recovery of Debt of Bank and Financial Institutions, 2058 (2002) and has authority to manage and enforce debt recovery processes effectively.

Establishment and Jurisdiction of the Debt Recovery Tribunal

The Government of Nepal may establish a Debt Recovery Tribunal by publishing a notice in the Nepal Gazette. This legal notice defines the jurisdiction of the tribunal, which may be expanded depending on the caseload. The government may also establish more tribunals if the workload increases. Tribunals are formed to handle debt recovery cases specifically for licensed banks and financial institutions regulated by Nepal Rastra Bank.

Composition and Tenure of the Tribunal Members

Each tribunal includes three members:

The law member chairs the tribunal. If unavailable, the most senior available member chairs in their place. The term of appointment for each member is five years, and reappointment is allowed.

Role of the Appellate Debt Recovery Tribunal

To ensure fairness in dispute resolution, the Government of Nepal may form an Appellate Debt Recovery Tribunal. This higher body hears appeals against the decisions of the Debt Recovery Tribunal. It is headed by a current or former High Court judge or a legally eligible person, with the same tenure and reappointment provisions as the lower tribunal.

Debt Recovery Filing Conditions and Interim Orders

Banks and financial institutions may approach the Debt Recovery Tribunal only after taking reasonable steps to recover loans. Upon receiving a petition, if there's a risk of the borrower selling or hiding assets, the tribunal may issue interim orders to freeze those assets until the matter is resolved.

Procedure and Timeline for Case Resolution

The tribunal follows structured procedures for handling debt cases:

• Cases must be resolved within 150 days from the date of defense submission or the deadline to submit it.

• All three members deliberate and the majority decision is final.

• If members are absent or if there's a tie, the case is escalated or postponed appropriately.

• The decision is communicated to both parties. If they are absent, it must be delivered within seven days.

Appeals and Timeframe for Resolution

If unsatisfied with a tribunal’s decision, parties can appeal to the appellate tribunal within 15 days. The appeal must be submitted with the required fee and follow the prescribed format.

• The appellate tribunal provides the defendant 30 days to submit a defense.

• An extension of 15 days is allowed for valid reasons.

• The appeal must be resolved within 90 days from the date of defense submission or from the deadline if none is filed.

• To file an appeal under Section 19, the borrower must deposit 30% of the recoverable amount determined by the tribunal.

Provision for Compromise and Settlement

At any stage before final settlement, if both parties agree to a compromise, they may request the tribunal to formalize the agreement. The compromise fee is 0.50% of the claimed amount, shared equally between both parties. The tribunal then instructs the debt recovery officer to implement the terms.

Enforcement of Tribunal Decisions

Once a decision is announced and the appeal period has passed or the appellate decision is received, the tribunal must order the Debt Recovery Officer to execute the recovery. The officer may:

• Auction or seize borrower’s and guarantor’s assets (even if not pledged as collateral)

• Arrest the borrower or guarantor under prevailing laws

Liability of Guarantor and Order Enforcement

A guarantor’s liability is limited to the guaranteed amount. However, this can be enforced directly, regardless of other laws. Any order by the debt recovery officer is equivalent to a tribunal order and must be followed. Non-compliance may lead to contempt proceedings.

Link With Previous Financial Laws and Institutions

The Debt Recovery Tribunal operates in coordination with institutions such as:

• Nepal Rastra Bank

• Licensed banks and financial institutions

• Ministry of Finance and the judiciary

It plays a crucial role in supporting the financial sector reform framework, ensuring the recovery process is transparent, timely, and legally enforceable.

Conclusion

The Debt Recovery Tribunal in Nepal ensures that banks and financial institutions can recover non-performing loans through a streamlined, fair, and transparent legal process. With structured procedures, timely dispute resolution, and legal backing, the system is essential for maintaining financial discipline, reducing credit risk, and promoting trust in the banking sector.