June 25, Kathmandu – The Federal Parliament’s House of Representatives on Wednesday passed the Cooperative Ordinance Replacement Bill. The bill was approved with new provisions that were not included in the original ordinance. The approved bill includes a provision to collect penalties from cooperative defaulters, which was not present in the ordinance. According to the bill, a penalty of 5 percent on the outstanding interest will be charged to defaulting cooperative borrowers.
Management committees of troubled cooperative institutions have faced difficulties in loan recovery and asset confiscation and sale processes due to issues such as hidden depositor funds. To address these complications, the bill has been enacted.
The passed bill broadens the definition of ‘family,’ allowing legal measures such as confiscation, sale, and recovery if directors or managers are found hiding assets obtained through the misuse of savings. It empowers the National Cooperative Regulatory Authority to take greater responsibility and authority to seize and recover depositors’ money. The bill also stipulates that cases of misuse of cooperative funds due to share division or divorce will not halt recovery efforts. For members of troubled cooperatives, the family definition includes those with shares divided or relationships dissolved.
This expanded family definition applies even if the family has not conducted transactions for two consecutive years or acted contrary to the Cooperative Act. It also applies to cooperatives undergoing liquidation or deregistration. The ordinance expanded the circle of relatives to include uncle, aunt, nephew, niece, grandson, maternal uncles and aunts, in-laws (including brother- and sister-in-law relationships), and their family members, covering employees working in cooperative institutions as well.
Directors, former directors, members of the audit and oversight committee and subcommittee, managers, employees, their families, or relatives who are found to have used depositors’ full or partial savings in any company, institution, or economic activity will have such amounts or resulting assets confiscated, auctioned, or subjected to necessary legal action. The bill grants the management committee the authority to carry out these actions. It also includes provisions for managing revolving funds. The authority has been given powers up to the suspension of cooperative operations.
The bill provides a clear legal framework for the National Cooperative Regulatory Authority to monitor, inspect, and supervise cooperatives engaged primarily in savings and loan activities. Cooperatives will have a maximum dividend limit of 15 percent for their members. Moreover, the passed bill instructs cooperative unions to halt savings and loan transactions and mandates that they cease operations within three years. According to the bill, interest rates will be calculated under Section 50 of the Act, applying the reference interest rate or the previously agreed written rate when it was set before the reference rate. It also clarifies that penalties for recovery shall not exceed 5 percent of the outstanding interest.
Before a cooperative is declared troubled, the registrar or the authority is permitted to freeze the assets of the cooperative’s directors, borrowing members, managers, responsible employees, members of the audit committee, and members in charge of the loan subcommittee, as included in the bill.
