KATHMANDU, May 12: Authorities in Nepal are investigating the controversial auction of assets belonging to Smart Telecom, but the case has triggered a much larger legal battle over whether the government can claim ownership of the company’s infrastructure without also accepting responsibility for its debts and liabilities.
The Central Investigation Bureau (CIB) has arrested three individuals, alleging that Smart Telecom’s telecommunications infrastructure had already become government property after the company’s telecom license was canceled and the Nepal Telecommunications Authority (NTA) took control of its operations. According to investigators, the subsequent auction of those assets amounted to an illegal sale of state-owned property intended to deprive the Government of Nepal of its ownership rights.
However, the core dispute now emerging is not simply about the legality of the auction — but about whether the state can selectively inherit Smart Telecom’s assets while ignoring the financial obligations attached to them.
The CIB’s charge sheet focuses entirely on the telecom infrastructure, networks and systems that allegedly came under government control after the takeover. Legal experts, however, point out that the investigation makes no mention of Smart Telecom’s liabilities including billions of rupees in outstanding bank loans secured against those same assets.
Ncell preparing to extend service period by acquiring Smart Tel...
The controversy stems from loan agreements signed in 2019 between Smart Telecom and Nepal Investment Mega Bank. The telecom company had borrowed up to Rs 5.2 billion through overdrafts, long-term loans, letters of credit and guarantees to finance telecom infrastructure imports. In return, Smart Telecom pledged all of its machinery and equipment as collateral.
Under the loan agreements, the company was required to maintain insurance, pay applicable taxes and fees and could not sell or transfer the pledged equipment without written approval from the bank. The bank also retained the legal right to inspect and recover the collateral in the event of default.
After Smart Telecom failed to renew its telecom license, the license was automatically canceled in 2023 under Nepal’s telecommunications laws. Once the company defaulted on its loans, the bank initiated auction proceedings to recover outstanding dues through the sale of pledged assets.
That sequence of events has now become the center of a major legal contradiction.
The government argues that the telecom infrastructure automatically became state property once the NTA assumed control after the license cancellation. But legal and banking experts argue that ownership transfers do not erase existing debt obligations or invalidate creditors’ security rights.
According to legal experts, if the government accepts ownership of Smart Telecom’s assets, it must also accept the liabilities tied to those assets. Under Nepal’s company laws and secured transaction laws, creditors retain priority claims over pledged collateral even if operational control of a company changes hands.
Experts note that Nepal Investment Mega Bank had already established a first legal claim over Smart Telecom’s machinery and infrastructure long before the government takeover. Therefore, they argue, the bank’s recovery process through auction cannot simply be treated as an illegal disposal of state property.
The case has raised serious concerns within Nepal’s banking and legal sectors. Bankers warn that if governments can assume ownership of collateralized assets without recognizing associated liabilities, it could undermine the country’s entire credit system.
One banking expert Republica talked to warned that banks lend public depositors’ money — not private capital — and rely on legal protections under the Bank and Financial Institutions Act to recover bad loans through collateral auctions. If such recovery efforts later become grounds for criminal prosecution, banks may become increasingly reluctant to finance large-scale business projects in the future.
Lawyers following the case say the Smart Telecom dispute could ultimately set a major precedent for how Nepal handles corporate takeovers, creditor rights and government intervention in private-sector assets.
