KATHMANDU, April 13: The Supreme Court (SC) has issued an order directing the government to establish a relief fund for cooperative victims, stating that it is the constitutional duty of the state to safeguard the embezzled deposits of affected cooperative members.
Issuing an eight-point directive order by a division bench of Justices Kumar Regmi and Megh Raj Pokharel, the court said cooperatives need to be brought under a regulatory framework similar to that of banks. However, the justices clarified, “cooperatives cannot be made functional like the banks.”
The directive comes at a time when the government is considering returning money to small depositors who have suffered from scams in several cooperatives. The government has declared 23 cooperatives as problematic, with liabilities totaling Rs 39.93 billion to depositors.
Key Directives
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The Supreme Court has directed authorities to establish the relief fund by confiscating assets of the operators of problematic cooperatives. Additionally, a certain percentage of annual financial transactions and the government’s annual budget can be used to operate the fund, which aims to relieve the victimized depositors.
In returning depositors’ money, the court has stressed giving priority to single women, senior citizens, deprived ethnic groups, indigenous people, and persons with disabilities.
The court's directive also includes several other measures, such as publicly listing problematic cooperatives through a digitized national system, freezing the property of suspicious operators and their family members, and mandating external audits for cooperatives handling large volumes of financial transactions.
Independent Commission and Legal Reforms
The Supreme Court has clearly called for forming an independent commission to investigate cases of embezzlement related to cooperatives over the past decade. It has also recommended establishing a dedicated bench to handle cooperative-related cases at the district court level and providing free legal consultancy to affected depositors.
Governance Reforms
To reform cooperative governance, the court has instructed strict implementation of a rule limiting board membership to no more than two members of the same family. It has also mandated a four-year 'cooling off' period and a maximum of two terms for cooperative officials.
The court further ordered the government to take a proposal to parliament to amend the Cooperatives Act, 2017, by adding provisions for mandatory deposit insurance, personal liability of officials, and stratified regulation based on transaction size.
Writ on Central Bank Approval Scrapped
Meanwhile, the Supreme Court has scrapped a writ seeking to annul the licenses of all cooperatives that have been operating without approval from the Nepal Rastra Bank (NRB). The apex court noted that deposit collection by banks and cooperatives differs in nature.
“As deposit collection by cooperatives is an internal financial transaction among members, while banks collect deposits from the general public, cooperatives are not required to receive permits from the central bank,” the court clarified in its directive order.
