Banking Law Prepared by: Yam BahadurMagar

Meaning and Definition of Bank

Banking is an institution, which deals with money and credit. It accepts deposits
from the public and mobilizes the fund to productive sector. It is commercial
institution; it aims at earning profit. Bank is not only confined to accepting deposits
and providing loan. In addition to this, a bank may be engaged in different types of
functions such as remittance, exchange currency, joint venture, underwriting, bank
guarantee, discounting bills etc. banks works as the leading buyers of bonds and notes
issued by government to finance public facilities ranging from hospital and football
stadiums to airport and highway. When business and consumers make payment for
purchase of goods and services it provides cheques, credit or debit cards or electronic
accounts connected to a computer network. Banks are the principal source of credit
for millions of individuals and families and for many units of government. They are
among the most important financial institution in the economy for small local business
ranging from grocery to automobile dealers. There is no exact definition of Bank but
different writer define the definition of bank as their requirement.

According to Dr. Hart,

A person or company carrying on the business of receiving money and collecting

drafts, for customers subject to the obligations of honoring cheques drawn upon them
from time to time by the customers to the extent of amount available on their current
account.1

According to Black’s Law Dictionary,

1
Resham Raj Regmi, Banking Law of Nepal, (2064,LubiniPustakpasal, Kathmandu, page no. 2).

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“A financial establishment for the deposits, loan, exchange, or issue of money and for
the transaction of funds.”2According to sec. 2(ha) of Bank and Financial Institution,
2073, also defined the banking in this regard.

According to Oxford Dictionary,

Bank is an organization or place that provides a financial service.3

Bank means incorporated body established for the financial activities determined by
sec. 47(1).4

2. Origin of the concept of Banking:

Bank is an organization which provides facilities for acceptance of deposits and provision
of loan. The first prototype (model) banks were the merchants of the world, who made grain
loans to farmers and traders who carried goods between cities. This began around 2000 Bc.
In Assyria and Sumeria. The famous Italian bank was established in 1397 and it has been
operating continuously since 1472. The financial crisis of 2007-2008 caused many bank
failures, including some of the world’s largest banks.

Some people have the opinion that the word ”bank” derived from the French words “bancus”
or “banque” which means a ‘bench’. Initially, the bankers, the jewes in Lombardy, transacted
their business on benches in the marketplace and the bench resembled the banking counter. If
a banker failed, his ‘banque’ (bench) was broken up by the people; hence the word the
“bankrupt” has come. In simple term, bankrupt means a person who has lost all his money,
wealth or financial resources, thus, the origin of the bank can be traced as follows:

Bank- German(joint stock Fund)

Banco- Italian (heap of money)

Bancus/Banque - French (bench, a place where valuables are kept)

2
Ibid.
3
HirdayBir Singh, BANKING AND INSURANCE, Fifth Edition, 2010, Asia Publication, ktm, page no. 14.
4
Bank and financial institution Act, 2063, sec.2(b).

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Bank – English common meaning( i.e. as an institution accepting money as deposit for
lending)5. According to Hurlsbury law of England: a banker is an individual, partnership or
corporation, whose sole or predominating business is banking that is the receipt of money on
current and deposit account, and the payment of cheques drawn by and collection of cheques
paid by a customer.

According to, ……….

3. Evolution of Banking System in Nepal

The banking system in past was associated with the business of money changed interest and
lending. History of banking activities, king mandev issued coins named ‘manank’ around
sixth century. ‘tejarath’ was established in 1987 as an independent banking institution at the
time of ranapriministerRanodeepshingh. Nepal Rastra Bank Ltd Is the first modern Bank of
Nepal. It was established in 14thBaishakh, 2013 under the provision of the Nepal Rastra Bank
Act, 2012. It plays very important role for the development of banking system in Nepal. A
sound banking system is important for smooth development of banking system. It can play a
key role in the economy. It gathers savings from all over the country and provides liquidity
for industry and trade. After 2014 Industrial Development Bank was established to promote
the industrialization in Nepal, which was later converted into Nepal Industrial Development
Corporation, 1959. (2016). RastriyaBanijya Bank established in 10thmagh, 2022, under the
provision of rastriyabanijya bank, Act,, 2021.

The wave of liberalization in Banking system also affected in financial sector to

encourage liberalizing banking business with new business idea and new technology. Nepal
Arab Bank Limited was established in 21thAshadh, 2041 B.S. this bank was the first foreign
joint venture bank. Machhapuchre Bank, Himalayan Bank, Laxmi Bank, Siddartha Bank,
Global IME Bank, Ciizen International Bank, Nepal Investment Bank, are some examples of
recent banking in Nepal.

Classification of banks in Nepal

5
K.P. KANDASAMI AND S. NATARAJAN, CHAND AND COMPANY LTD, NEW DELHI, Reprint, 2010, page. No. 2.

3
Central Banks
• Nepal Rastra Bank

Commercial Banks (Class A)

• Nepal Bank Limited
• RastriyaBanijya Bank Limited
• Agriculture Development Bank Limited
• Nabil Bank Limited
• Nepal Investment Bank Limited
• Standard Chartered Bank Nepal Limited
• Himalayan Bank Limited
• Nepal SBI Bank Limited
• Nepal Bangladesh Bank Limited

Commercial (Class A) कमर्सियलबक

ैँ ('क' वर्ि)
Paid up Capital (Rs. In
SN Bank Name Established Headquarter
Crore)

1 Nepal Bank Ltd 1937/11/15 Dharmapath,Kathmandu 804.27

Agriculture Development
2 1968/01/21 Ramshahpath, Kathmandu 1393.79
Bank Ltd

3 Nabil Bank Ltd 1984/07/12 BeenaMarg, Kathmandu 804.32

4 Nepal Investment Bank Ltd 1986/03/09 Durbarmarg, Kathmandu 1064.56

Standard Chartered Bank Nayabaneshwor,

5 1987/02/28 801.14
Nepal Ltd Kathmandu

6 Himalayan Bank Ltd 1993/01/18 Kamaladi, Kathmandu 811.45

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 Paid up Capital (Rs. In
SN Bank Name Established Headquarter
Crore)

7 Nepal SBI Bank Ltd 1993/07/07 Kesharmahal, Kathmandu 804.69

Development Banks (Class B)

1. Narayani Development Bank
2. SahayogiBikas Bank in acquisition process with Citizen Bank
3. KarnaliBikash Bank
4. Excel Development Bank
5. Miteri Development Bank
6. Tinau Mission Development Bank
7. MuktinathBikas Bank

Finance Companies (Class C)

1. Nepal Finance Limited
2. Nepal Share Markets and Finance Limited
3. Goodwill Finance Limited

Micro Credit Development Banks (Class D)

1. Nepal GrameenBikas Bank Limited
2. Solve Nepal Development Bank Limited
3. NirdhanUtthan Bank Limited
4. Rural Microfinance Development Centre Limited

Banks in Public Sector

Public Sector Banks are the banks whose complete or maximum ownership lies with
the government. Orthese are those a bank in which majority of stake is held by the
government. The shares of these banks are listed on stock exchanges. Three large state-
owned banks still dominate the commercial banking sector:

RastriyaBanijya Bank (National Commercial Bank), which is 100 percent government-

owned, Nepal Bank Ltd., which is 40.5 percent government-owned, and the Agricultural
Development Bank, also largely government-owned. In india, SBI, PNB, Syndicate
Bank, Union Bank of India etc are public sector Banking

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Nepal - Banking Systems
The NRB regulates the national banking system and also functions as the
government’s central bank. As a regulator, NRB controls foreign exchange;
supervises, monitors, and governs operations of banking and non -banking financial
institutions; determines interest rates for commercial loans and deposits; and also
determines exchange rates of foreign currencies. As the government’s bank, NRB
maintains all government income and expenditure accounts, issues Nepali bills and
treasury notes, as well as loans to the government, and determines monetary policy.

Commercial lending in Nepal is governed under the Bank and Financial Institutions
Act (BAFIA) of 2017 which supersedes the earlier BAFIA of 2006, the Commercial
Bank Act of 1974, and the Finance Company Act of 1985, which previously governed
commercial lending. The BAFIA authorizes the NRB to issue guidelines to all
commercial banks and financial institutions on interest rates, interest ceilings, and
areas of investment.

Private Sector Banking

Private Sector Banks refers to the banks whose majority of stake is held by the individuals and
corporations.According to a recent World Bank report, banks account for 87% of
financial sectorassets in Nepal. Private equity and venture capital space are still in nascent stages.
The private sector thus largely depends on bank debts, and in their absence, businesses have had
to postpone plans or slow down operations.

The partnership between Nepal and The World Bank Group can be traced back to 1963 when a
team from the Washington, DC-based international development agency visited Nepal for the
first time in November, 1963. The bank in 1971 opened its Nepal office in Kathmandu. Since
then, the World Bank has been a major partner for Nepal providing the country with a range of
support from financial assistance to knowledge services in areas including infrastructure
development, human capacity building, policy formulation, and private sector growth.

NIC ASIA Bank is one of the largest private sector commercial banks in the country in terms of
capital base, balance-sheet size, customer base, number of branch and ATM network. Currently
there are 119 branches, 78 ATM Machine and 4 extension counters are in operation, spread all
over the country.

Co-Operative Banking
Cooperative banking is retail and commercial banking organized on a cooperative basis.
Cooperative banking institutions take deposits and lend money in most parts of the world
or in a country.Cooperative banking, includes retail banking carried out by credit
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unions, mutual savings banks, building societies and cooperatives, as well as commercial
banking services provided by mutual organizations (such as cooperative federations) to
cooperative businesses.
A cooperative (also known as co-operative, co-op, or coop) is "an autonomous
association of persons united voluntarily to meet their common economic, social, and
cultural needs and aspirations through a jointly-owned and democratically-controlled
enterprise1”. Cooperatives may include:
• Non-profit community organizations
• Businesses owned and managed by the people who use their services (a consumer
cooperative)
• Organizations managed by the people who work there (worker cooperatives)
• Organizations managed by the people to whom they provide accommodation (housing
Cooperatives)
• Hybrids such as worker cooperatives that are also consumer cooperatives or credit
unions
• Multi-stakeholder cooperatives such as those that bring together civil society and local
actors to deliver community needs
• Second and third-tier cooperatives whose members are other cooperatives
New Cooperative Act 2017 – Highlights and Implications for the Cooperative Sector in
Nepal after 26 years, the Cooperative Act of 1991 has been revised and endorsed on
October 18, 2017. During this period, the Nepalese Cooperative sector grew at an
exponential magnitude. In 1990 (when the Act was last revised); there were 830
cooperative societies and 30+ district unions. As on July 2016, there were 33,599
cooperatives followed by numerous different types of district unions and 22 central
unions. Hence, it was obvious that the old act needed to be updated and replaced by a
new robust act that would enable better regulations and delivery of financial services. The
highlights of the new Cooperative Act are:
i. Comprehensive in nature (20 Chapters, 152 clauses versus 12 chapters and 49
clauses in the previous act)
ii. A separate chapter has been added for Savings and Credit Operations
iii. A separate chapter for Cooperative Banks has been added
iv. Creation of Cooperative Development Fund
v. Provision made for creating a Loan Collection Jurisdictional
Authority(Nyayadhikaran)
vi. Gender friendly (in comparison to the earlier Act)– advocates for
womenrepresentation in the Board
vii. Huge penalties built in to ensure safety of members’ savings

viii. Takes new federal structure into accounts

Incorporation of Banks(Procedures)

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Provisions on Incorporation of Bank or Financial Institution
According to sec 3 of BAFIA, 2073,any person, who is desirous of incorporating a bank
or financial institution to carry on financial transactions according to this Act shall have
to incorporate it by getting such bank or financial institution registered as a public limited
company in accordance with the prevailing laws. The official authorized under the laws
in force to register a company shall have to register the company subject to Section 4.
Prior-approval to be obtained to incorporate bank or financial institution, The person or
institution willing to incorporate a bank or financial institution under Section 3 shall,
while submitting application for getting such bank or financial institution registered
according to the prevailing laws, have to submit an application to the Rastra Bank along
with the prescribed fee for obtaining prior approval having enclosed therewith the
following documents:-
(a) Memorandum of Association of the proposed bank or financial institution,
(b) Articles of Association of the proposed bank or financial institution,
(c) Feasibility study report of the proposed bank or financial institution,
(d) Personal details of applicants in the form as prescribed by the Rastra Bank,
(e) A certified copy of the agreement, if any, made between the applicants prior to
incorporation of the bank or financial institution in relation to incorporation of the
bank or financial institution,
(f) Evidence of the statement disclosing the sources of incomes and of tax clearance by
the applicants up to the fiscal year immediately preceding for making of application
pursuant to this Section,
(g) Details as to whether or not the applicant of the proposed bank or financial institution
is declared bankrupt in Nepal and abroad, whether or not he/she has borrowed any
loan from any bank or financial institution, whether or not person has been blacklisted
in any transaction with a bank or financial institution, if so, whether or not a period of
three years is passed after having such blacklisting,
(h) Self-declaration of the applicant stating that no action has been taken and no
punishment has been imposed against the applicant in Nepal or abroad for being
involved in cheating, fraud or criminal offence as per the prevailing laws,
(i) Details as to whether or not action has been taken against the applicant in Nepal or
abroad by any regulating or supervisory authority or whether or not license of the
company or bank or financial institution in which he/she is associated with has been
suspended, revoked or subjected to mandatory dismissal or is in the course of being so
(j) Details as to name and address and relationship of the members of family of applicant;
significant ownership and capacity of each of them and if any of them is a Director,
official or employee in any institution, details as to the title of posts each of them
holds, Provided that in case the applicant is a body corporate, details as to the person
having substantial ownership or capacity in that body corporate, the audited financial

8
 statements of the last three years as well as the tax clearance certificate of that
corporate body shall also be enclosed.
(k) Written authority given to the Rastra Bank to allow it to conduct or to cause to
conduct an inquiry as to the financial and professional background of the applicant
and to share such notice and information,
(l) An undertaking that the deposits to the limits as prescribed by the Rastra Bank will be
guaranteed/insured,
(m) Other details or documents as specified by Rastra Bank from time to time.

if it finds appropriate to grant approval upon the examination of the application submitted
for prior approval and enclosed documents, grant its approval to incorporate such
bank or financial institution within one hundred twenty days after filing of the
application, with or without prescribing any conditions. no prior approval shall be
given to incorporate a bank or financial institution to the following persons and the
firms or companies having substantial ownership of such person and of the member of
their family:-
(a) Subjected to regulatory actions of the Rastra Bank,
(b) Punished in banking offence,
(c) Punished in cheating, fraud, forgery,
(d) Punished in the offence of money laundering and terrorist financing,
(e) Punished in the offence of corruption,
(f) Punished in the serious types of offences such as human trafficking, kidnapping,
hostage, and rape.

Prior Approval to be obtained for Incorporation of Bank or Financial Institution on

Foreign Investment:(sec.5)
Any foreign bank or financial institution shall, prior to incorporation of a bank or
financial institution as a subsidiary company under this Act in joint venture with a
body corporate registered in Nepal or a Nepali citizen or to maintain the share capital
as specified by the Rastra Bank, have to submit the following documents and details
as well along with the fee specified by the Rastra Bank while submitting an
application pursuant to sub-Section (1) of Section 4:-
(a) The Memorandum of Association, Articles of Association of foreign bank or financial
institution and a copy of the certificate of incorporation of the bank or financial
institution in the concerned country and capital structure thereof,
(b) Copy of license of the foreign bank or financial institution obtained from concerned
country for carrying on banking and financial transactions,
(c) Details as to the principal place of business,

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(d) Certified copy of the audited balance-sheet and profit and loss account of latest three
years of the foreign bank or financial institution,
(e) Details as to proposed business plan in Nepal, business strategies and types of
transaction to be carried out, internal control, and risk management,
(f) Decision made by the foreign bank or financial institution as per the prevailing laws of
concerned country to open bank or financial institution in Nepal and authority granted
by regulatory body of concerned country.

Rastra Bank may, if it finds appropriate to grant approval upon examination of the
application submitted for prior approval pursuant to Sub-Section (1) and enclosed
documents, grant its approval to foreign bank or financial institution for incorporation
of bank or financial institution in joint venture or within the prescribed share limit
within one hundred twenty days after filing of the application, with or without
prescribing any conditions.
A foreign bank or financial institution may, with approval from the Rastra Bank, take
share ownership of local bank or financial institution having been in operation, as a
joint venture by completing the procedures as prescribed by the Rastra Bank.

The investment made by any foreign bank or financial institution or other foreign
institution by getting approval pursuant to prevailing laws before commencement of
this Act shall be deemed to have been continued.

Functions of Banking
Primary Functions of Banking
Account
A bank account is a financial account maintained by a financial institution for a customer. A
bank account can be a deposit account, a credit card account, a current account, or any other type
of account offered by a financial institution, and represents the funds that a customer has
entrusted to the financial institution and from which the customer can make withdrawals.
Alternatively, accounts may be loan accounts in which case the customer owes money to the
financial institution. The financial transactions which have occurred within a given period of
time on a bank account are reported to the customer on a bank statement and the balance of the
accounts at any point in time is the financial position of the customer with the institution.

Current Account
Current bank account is opened by businessmen who have a higher number of regular transactions with
the bank. It includes deposits, withdrawals, and contra transactions. It is also known as Demand

10
Deposit Account..Current Accounts are basically meant for businessmen and are never used for the
purpose of investment or savings. These deposits are the most liquid deposits and there are no
limits for number of transactions or the amount of transactions in a day. Most of the current
accounts are opened in the names of firm / company accounts. Cheque book facility is provided
and the account holder can deposit all types of the cheques and drafts in their name or endorsed
in their favour by third parties. No interest is paid by banks on these accounts. On the other
hand, banks charges certain service charges, on such accounts.

(a) The main objective of Current Account holders in opening this account is to enable them
(mostly businessmen) to conduct their business transactions smoothly.

(b) There are no restrictions on the number of times deposit in cash / cheque can be made or the
amount of such deposits;

(c) Usually banks do not have any interest on such current accounts. However, in recent times
some banks have introduced special current accounts where interest (as per banks' own
guidelines) is paid

(d) The current accounts do not have any fixed maturity as these are on continuous basis
accounts

Savings Account
A bank account on which interest is paid, traditionally one for which a bankbook is us
ed torecord deposits, withdrawals, and interest payments.

These deposits accounts are one of the most popular deposits for individual accounts. These
accounts not only provide cheque facility but also have alot of flexibility for deposits and
withdrawal of funds from the account. Most of the banks have rules for the maximum number
of withdrawals in a period and the maximum amount of withdrawal, but hardly any bank
enforces these. However, banks have every right to enforce such restrictions if it is felt that the
account is being misused as a current account.

Deposit Accounts
These are popularly known as a special kind of Term Deposits and are suitable for people who
do not have lump sum amount of savings, but are ready to save a small amount every
month. Normally, such deposits earn interest on the amount already deposited (through
monthly installments) at the same rates as are applicable for Fixed Deposits / Term
Deposits. These are best if you wish to create a fund for your child's education or marriage of
your daughter or buy a car without loans or save for the future.

Advancing of Loans

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The deposits received by banks are not allowed to remain idle. So, after keeping certain cash
reserves, the balance is given to needy borrowers and interest is charged from them, which is the
main source of income for these banks.

Loans
Loan is the amount borrowed from bank. The nature of borrowing is that the money is
disbursed and recovery is made in installments. While lending money by way of loan,
credit is given for a definite purpose and for a pre-determined period. Depending upon
the purpose and period of loan, each bank has its own procedure for granting loan.
However the bank is at liberty to grant the loan requested or refuse it depending upon its
own cash position and lending policy. There are two types of loan available from banks:

(a) Demand loan, and

(b) Term loan

(a) A Demand Loan is a loan which is repayable on demand by the bank. In other words,
it is repayable at short-notice. The entire amount of demand loan is disbursed at one
time and the borrower has to pay interest on it. The borrower can repay the loan either
in lumpsum (one time) or as agreed with the bank. For example, if it is so agreed the
amount of loan may be repaid in suitable instalments. Such loans are normally granted
by banks against security.The security may include materials or goods in stock, shares
of companies or any other asset. Demand loans are raised normally for working
capital purposes, like purchase of raw materials, making payment of short-term
liabilities.

(b) Term Loans: Medium and long term loans are called term loans. Term loans are
granted for more than a year and repayment of such loans is spread over a longer.

According to sec. 76 of NRBA, 2058, Bank's Approval Required for Accepting Deposits
or Giving Credits: Any person, firm, company or institution shall, in order to accept any
type of deposit or to provide loan, obtain approval from the Bank as may be prescribed.

The Bank, while giving approval may subject the approval to the terms and conditions
prescribed by the Bank and it shall be the duty of the concerned person, firm, company or
institution to abide by such terms and conditions.

Meaning of Loans and Advances

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 The term ‘loan’ refers to the amount borrowed by one person from another. The
amount is in the nature of loan and refers to the sum paid to the borrower Thus.
From the view point of borrower it is ‘borrowing’ and from the view point of bank,
it is ‘lending’. Loan may be regarded as ‘credit’ granted where the money is
disbursed and its recovery is made on a later date. It is a debt for the borrower
while granting loans; credit is given for a definite purpose and for a predetermined
period. Interest is charged on the loan at agreed rate and intervals of payment.
‘Advance’ on the other hand, is a ‘credit facility’ granted by the bank. Banks grant
advances largely for short-term purposes, such as purchase of goods traded in and
meeting other short-term trading liabilities. There is a sense of debt in loan,
whereas an advance is a facility being availed of by the borrower however like
loans, advances are also to be repaid. Thus a credit facility- repayable in
instalments over a period is termed as loan while a credit facility repayable within
one year may be known as advances. However, in the present lesson these two
terms are used interchangeably

Utility of Loans and Advances

Loans and advances granted by commercial banks are highly beneficial to

individuals, firms, companies and industrial concerns. The growth and
diversification of business activities are effected to a large extent through bank
financing. Loans and advances granted by banks help in meeting short-term and
long term financial needs of business enterprises.

(a) Loans and advances can be arranged from banks in keeping with Loans and
Advances : the flexibility in business operations. Traders, may borrow money
for day to day financial needs availing of the facility of cash credit, bank
overdraft and discounting of bills. The amount raised as loan may be repaid
within a short period to suit the convenience of the borrower. Thus business
may be run efficiently with borrowed funds from banks for financing its
working capital requirements.

(b) Loans and advances are utilized for making payment of current liabilities, wage
and salaries of employees, and also the tax liability of business.

13
(c) Loans and advances from banks are found to be ‘economical’ for traders and
businessmen, because banks charge a reasonable rate of interest on such
loans/advances. For loans from money lenders, the rate of interest charged is
very high. The interest charged by commercial banks is regulated by the
Reserve Bank of India.

(d) Banks generally do not interfere with the use, management and control of the
borrowed money. But it takes care to ensure that the money lent is used only for
business purposes.

(e) Bank loans and advances are found to be convenient as far as its repayment is
concerned. This facilitates planning for future and timely repayment of loans.
Otherwise business activities would have come to a halt.

(f) Loans and advances by banks generally carry element of secrecy with it. Banks
are duty-bound to maintain secrecy of their transactions with the customers.
This enhances people’s fith in the banking system.

Guarantee
Contract of guarantee is a special type of contract. Especially it is mostly used in
banks, finance company and cooperative and occasionally, between creditor and
debtor or in carriage of goods. There is provision relating to sec. 563 to 570 in
Civil Code, 2074. Guarantee means assurance. A contract of guarantee is a promise
to be responsible for something to perform the promise, Or to discharge the
liability of a third person, in case of his default. Such a contract involves three
parties: the creditor, the surety and the principal debtor.
Creditor: The person to whom the guarantee is given.
Surety: The person who gives the guarantee.
Principal Debtor: The person, in respect of whose default, the guarantee is given.
According to sec. 563 (1) of Civil Code, 2074, Guarantee contract means “A contract of
guarantee is a contract, by which a person promises to repay the loan obtained or fulfill
the obligation accepted by a third person in case of his default”. According to sec. 126 of
Indian contract Act, “A contract of guarantee is a contract to perform the promise or
14
discharge the liability of a third person in case of his default. The person who gives the
guarantee is called the surety, the person in respect of whose default the guarantee is
given is called the principal debtor and the person to whom the guarantee is given is
called the creditor.” “A guarantee may be either oral or written”.
According to Black’s Law Dictionary Guarantee means “The assurance that a contract or
a legal act will be duly carried out or something given or existing as security, such as to
fulfill a future engagement or a condition subsequent”.

Guarantee is sometimes spelt "guarantie" or "guaranty". It is from an Old French form of

"warrant", from the Germanic word which appears in German as wahren: to defend or make
safe and binding.[citation needed]

In English law, a guarantee is a contract to answer for the payment of some debt, or the
performance of some duty by a third person who is primarily liable for that payment or
performance. It is a collateral contract, which does not extinguish the original obligation for
payment or performance. It is rendered null and void if the original obligation fails. The
liabilities of a guarantor in law depend upon those of the principal debtor, and when the
principal's obligations cease the guarantor's do too,except in certain cases where the discharge of
the principal debtor is by the operation of the law. If, for example, a person wrongly supposes
that someone is liable to them, and a guarantee is given on that erroneous basis, the guarantee is
invalid by virtue of the law of contracts, because its foundation (that another was liable) failed.

In the United States, but not apparently elsewhere, there is a distinction between a surety and a
guarantor. A surety is usually bound with the principal, at the same time and on the same
consideration, while the contract of a guarantor is his own separate undertaking and the
guarantor is not liable until due diligence has been exerted to compel the principal debtor to
make good any default. There is no privity of contract between a surety and the principal debtor.
Rather, the surety contracts with the creditor and is not jointly liable to the credito.

Financial Transformation
The Transformation Fund is used to support – voluntary exit schemes –across the public sector. The
Transformation Fund is financed from borrowing under the Reinvestment and Reform Initiative (RRI). A
process whereby a financial institution capitalizes between the two sides of its balance sheet (assets and
liabilities). Financial intermediaries conduct several types of financial transformation: (1) size
transformation; (2) maturity transformation; (3) credit transformation; (4) liquidity transformation; and
(5) risk transformation.

• Size transformation: small amounts from saver-lenders (surplus units) are aggregated into large
amounts in order to meet the needs of borrower-spenders (deficit units) for financing.
• Maturity transformation: the liabilities of intermediaries, such as banks, are typically much more
short-term than their assets. However intermediaries pool deposits (short-term sources of funds)

15
 in order to meet the demand of borrower-spenders for long-term funds. In other words, maturity
transformation involves the financing of long-term assets with short-term liabilities.

• Credit transformation: the process of enhancing credit quality by means of the securitization. This
involves the pooling of assets, and then the tranching of these pools into separate sets of claims
with different priorities. It also encompasses the re-allocation of specific cashflows from loans to
different claims, within different ranges of seniority and duration, along with an associated range
of risk and return, from short-term investment-grade liabilities down to equity.
• Liquidity transformation: the funding of illiquid assets (long-term loans) with liquid liabilities
(short-term deposits). Liquidity transformation and maturity transformation lead to similar results
but each uses its own means. For example, a bank can create a liquid security from a pool of
illiquid collateral assets by playing on credit rating to lessen the information asymmetry between
deficit units (borrowers) and surplus units (lenders).
• Risk transformation: financial intermediaries hold assets with higher risk of default than their
own liabilities. They can reduce these risks to a minimum level and gain from yield differentials
by applying a combination of techniques such as diversification, pooling, screening and
monitoring of assets, formation of reserves, and so on.

Remittance
A remittance refers to money that is sent or transferred to another party. The term is
derived from the word remit, which means to send back. Remittances can be sent via
a wire transfer, electronic payment system, mail, draft, or check.

Remittances can be used for any type of payment including invoices or other
obligations. But the term is typically used to refer to money sent to family members
back in a person's home country. Remittances play an increasingly large role in the
economies of small and developing countries. They are also seen as an important part
of disaster relief and often exceed official development assistance (ODA).
Remittances are often used as a way to help raise the standard of living for people
abroad and help combat global poverty. In fact, since the late 1990s, remittances have
exceeded development aid, and in some cases make up a significant portion of a
country's gross domestic product (GDP).

dictionary meaning of remittance is an amount of money that you send to someone: the act of
sendingpayment to someone:

A remittance is a transfer of money by a foreign worker to an individual in his or her home country.
Money sent home by migrants competes with international aid as one of the largest financial inflows
to developing countries. Workers' remittances are a significant part of international capital flows,
especially with regard to labour-exporting countries. In 2014, $436 billion went to developing
countries, setting a new record. Overall global remittances totaled $582 billion in 2015. Some
countries, such as India and China, receive tens of billions of US dollars in remittances each year
from their expatriates. In 2014, India received an estimated $70 billion and China an estimated $64
billion.According to the World Bank's 2019 Migration and Development Brief, $529

16
 billionin remittances were sent to low- and middle-income countries in 2018—an
increase of 9.6% over the previous record high of $483 billion in 2017.

Secondary Functions:
A Credit Card
A credit card is a payment card issued to users (cardholders) to enable the
cardholder to pay a merchant for goods and services based on the cardholder's
promise to the card issuer to pay them for the amounts so paid plus the other
agreed charges. The card issuer (usually a bank) creates a revolving account and
grants a line of credit to the cardholder, from which the cardholder can borrow
money for payment to a merchant or as a cash advance. In other words, credit cards
combine payment services with extensions of credit.[2] Complex fee structures in
the credit card industry may limit customers' ability to comparison shop, help
ensure that the industry is not price-competitive and help maximize industry
profits. Because of this, legislatures have regulated credit card fees.
A credit card is different from a charge card, where it requires the balance to be
repaid in full each month.[4] In contrast, credit cards allow the consumers a
continuing balance of debt, subject to interest being charged. A credit card also
differs from a cash card, which can be used like currency by the owner of the card.
A credit card differs from a charge card also in that a credit card typically involves
a third-party entity that pays the seller and is reimbursed by the buyer, whereas a
charge card simply defers payment by the buyer until a later date.
In addition to the main credit card number, credit cards also carry issue and
expiration dates (given to the nearest month), as well as extra codes such as issue
numbers and security codes. Not all credit cards have the same sets of extra codes
nor do they use the same number of digits.

Stock Investments
Definition: Shares, often called stocks or shares of stock, represent the equity ownership of a
corporation divided up into units, so that multiple people can own a percentage of a business.
When a business decides to incorporate, a corporate charter is filed with the state government.

Stocks are an equity investment that represents part ownership in a corporation and entitles you
to part of that corporation's earnings and assets. Common stock gives shareholders voting rights
but no guarantee of dividend payments. Preferred stocks provides no voting rights but usually
guarantees a dividend payment. In the past, shareholders received a paper stock certificate --
called a security -- verifying the number of shares they owned. Today, share ownership is usually

17
recorded electronically, and the shares are held in street name by your brokerage firm. Investing
in stocks can be tricky business. In fact, it's best to treat all of your investment pursuits as a
business. Heck, that's what Benjamin Graham (Warren Buffett's stock market mentor)
recommended. Before you buy your first stock, you should master the basics of stock investing.
This won't make you a great investor overnight, but only when you understand the fundamentals
of investing can you learn how to invest in stocks with confidence.

The first rule is to invest in what you know, but it’s actually not that simple. It’s not enough to
simply understand the underlying business…you have to understand what makes a good
investment, well, a good investment. There exist different schools of thought here, and investing
is part art and part science. You can predict and hypothesize as much as you desire, but no one
really knows exactly what’s going to transpire. Some different styles of investing include:

Swing Trader

A swing trading position is held longer than a day trading position, but shorter than a buy and
hold investment strategy that can be held for months or years. Typically, a tradable asset would
be held for days at a time in order to profit from price changes or 'swings.’ Profits can be attained
by either buying an asset or by short selling.
Value Investing

A value investor believes that the market overreacts to both good and bad news. He/she would
look for stocks that they believe the market has undervalued; thereby profiting by buying when
the price is deflated.
Growth Investing

Growth investors invest in companies that show above-average growth. Growth investing
focuses on capital appreciation. Growth investing kind of contrasts with value investing.

Great chess players don't sit at a board and just…play. Masters of the game have a
very concrete plan of how they intend to play. They decision-making that can adapt to whatever
their opponents throw at them. Investing is no different: you need a plan to guide your
investment decisions!

How to Buy Stock

1. Learn the basics
2. Figure out your investment goals
3. Determine your risk tolerance
4. Find your investing style & strategy
5. Learn the costs
6. Find a broker/adviser
7. Pick your investments

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 8. Keep your emotions separate
9. Review and adjust your portfolio

Finding Good Stocks

Within each stock sector, the ultimate goal is to find the stocks that are showing the greatest
price appreciation. In the same way that one would pay attention to sectors, multiple timeframes
should also be examined to make sure the stock in question is moving well over time. There are
two main things to keep an eye on when selecting stocks:

Liquidity

It isn’t smart to invest in a stock that has very little volume. What if quick liquidation is
required? Selling it at a fair price will be extremely difficult if not impossible. Unless you are a
seasoned trader, invest in stocks that trade at least a couple hundred thousand shares per day.
Save yourself the headache.
Price

Trade in stocks that are at least $5. Don’t shy away from a stock just because of its high price.
Don’t buy a stock just because of its low price.

Safe deposit vault

Safety Deposit Vaults is a convenient, high security storage facility. It was designed
for the protection and safekeeping of documents, valuables, collectables and art ...
which you can trust that your items are safe, secure and will remain in perfect
condition.
Safe Deposit Vault provides the equivalent of a physical Safe Deposit Box at a Bank for your
digital content. This allows you to place your important digital content, such as a Last Will and
Testament, Inventory of Physical Property, Financial Accounts, Passwords etc., in a place that
you, your family, friends, and associates can locate should something happen to you or your
home. The digital content that is placed into the Vault is encrypted to protect your privacy. In
addition the content is also digitally signed by you and cryptographically time stamped by our
service. This will provide a legally binding (In most locations worldwide) proof that the digital
content removed from the Vault has been signed by you and is an exact copy of content you
placed in the Vault, and the date and time when you signed and placed the content in the Vault.

Worldwide, financial institutions turn to International Vault for the highest level of security
available today. At International Vault, Inc., we solve one problem: keeping your wealth and

19
sensitive possessions secure. From precious metals and jewels to military munitions, we have
custom and modular solutions that meet the needs of the largest financial institutions, the most
discriminating estates, and even the security demands of the Pentagon.

Cost-effective pricing, along with the highest quality standards - including a GSA approval
rating and UL underwriting- make International Vault the leader in modular vault technology.

Safe custody
Safe Custody is the safe keeping of important documents and valuables. Items commonly
requested by customers to be held in safe custody by the bank include property deeds, a Will as
well as other valuables and documents. Stockholding & Investments, holding by financial
institutions of customers' valuable documentsthe holding of stock certificates, deeds, wills, or a
locked deed box on behalf of customers by a financial institution. Securities are often held under
the customer's name in a locked cabinet in the vault so that if the customer wishes to sell, the
bank can forward the relevant certificate to the broker. A will is also usually held in this way so
that it may be handed to the executor on the customer's death. Deed boxes are always described
as "contents unknown to the bank." Most institutions charge a fee for this service.

Pension payment
A pension is a fund into which a sum of money is added during an employee's employment
years, and from which payments are drawn to support the person's retirement from work in the
form of periodic payments. A pension may be a "defined benefit plan" where a fixed sum is paid
regularly to a person, or a "defined contribution plan" under which a fixed sum is invested and
then becomes available at retirement age. Pensions should not be confused with severance pay;
the former is usually paid in regular installments for life after retirement, while the latter is
typically paid as a fixed amount after involuntary termination of employment prior to retirement.

The terms "retirement plan" and "superannuation" tend to refer to a pension granted upon
retirement of the individual. Retirement plans may be set up by employers, insurance companies,
the government or other institutions such as employer associations or trade unions. Called
retirement plans in the United States, they are commonly known as pension schemes in the
United Kingdom and Ireland and superannuation plans (or super) in Australia and New Zealand.
Retirement pensions are typically in the form of a guaranteed life annuity, thus insuring against
the risk of longevity.

A pension created by an employer for the benefit of an employee is commonly referred to as an

occupational or employer pension. Labor unions, the government, or other organizations may
also fund pensions. Occupational pensions are a form of deferred compensation, usually
advantageous to employee and employer for tax reasons. Many pensions also contain an
additional insurance aspect, since they often will pay benefits to survivors or disabled

20
beneficiaries. Other vehicles (certain lottery payouts, for example, or an annuity) may provide a
similar stream of payments.

The common use of the term pension is to describe the payments a person receives upon
retirement, usually under pre-determined legal or contractual terms. A recipient of a retirement
pension is known as a pensioner or retiree.

According to sec. 15 A of Employee provident fund Act, 2019,

Any employees shall get refund of lump sum of all amounts including the principal
and interest deposited in his or her account immediately when he or she is relieved
of service for any reason.

Types of pensions
Employment-based pensions

A retirement plan is an arrangement to provide people with an income during retirement when
they are no longer earning a steady income from employment. Often retirement plans require
both the employer and employee to contribute money to a fund during their employment in order
to receive defined benefits upon retirement. It is a tax deferred savings vehicle that allows for the
tax-free accumulation of a fund for later use as a retirement income. Funding can be provided in
other ways, such as from labor unions, government agencies, or self-funded schemes. Pension
plans are therefore a form of "deferred compensation". A SSAS is a type of employment-based
Pension in the UK.

Social and state pensions

Many countries have created funds for their citizens and residents to provide income when they
retire (or in some cases become disabled). Typically this requires payments throughout the
citizen's working life in order to qualify for benefits later on. A basic state pension is a
"contribution based" benefit, and depends on an individual's contribution history. For examples,
see National Insurance in the UK, or Social Security in the United States of America.

Disability pensions

Some pension plans will provide for members in the event they suffer a disability. This may take
the form of early entry into a retirement plan for a disabled member below the normal retirement
age.

Mutual Arrangement Schemes

The development of the mutual fund industry is the greatest investment success story of the
twentieth century in United States and this industry also emerged as the most dynamic segment
of the Indian financial system on that time. But the history of mutual fund in Nepal started only

21
with the establishment of "NCM Mutual Fund 2050" in 1993. Currently there are ten mutual
fund schemes listed and traded in Nepal Stock Exchange that provide investment opportunities
for investors in mutual funds market. In this context, the purpose of this paper is to provide
necessary facts and figures related to the mutual fund schemes in Nepal based on secondary data.
The paper includes mutual fund companies, development mutual funds and review of empirical
studies on mutual funds as preliminary discussion, and includes current mutual fund schemes;
funds sizes, maturity periods, market price, net asset value and dividend income of mutual fund
schemes on analytical section.

A mutual savings bank is a financial institution chartered by a central or regional government,

without capital stock, that is owned by its members who subscribe to a common fund. From this
fund claims, loans, etc., are paid. Profits after deductions are shared among the members.

Securities Board of Nepal (SEBON) was established by the Government of ... Register mutual
funds, grant permission to operate collective investment schemes, ... Discharge or
make arrangements for discharging such other functions .

The institution most frequently identified as the first modern savings bank was the "Savings and
Friendly Society" organized by the Reverend Henry Duncan in 1810, in Ruthwell, Scotland. Rev.
Duncan established the small bank in order to encourage his working class congregation to
develop thrift. Another precursor of modern savings banks were the ideas Friedrich Wilhelm
Raiffeisen that led to rural credit unions and cooperative banks. European voluntary
organizations and "friendly societies" provided the inspiration for their state incorporated
American counterparts.UNIFIED DIRECTIVES Issued by Nepal Rastra Bank to the Licensed
Banks and Financial Institutions in 2010.
1. Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC)
came into being on 6 June 1997 through the Bangkok Declaration. It mainly aims to create an
enabling environment for rapid economic development; accelerate social progress; and promote
collaboration on matters of common interest in the Bay of Bengal Bangladesh, Bhutan, India,
Myanmar, Nepal, Sri Lanka and Thailand are its member states. Its Secretariat is seated in Dhaka.
Nepal joined BIMSTEC on 8 February 2004.
2. BIMSTEC has 14 priority areas of cooperation, namely (i) Trade and Investment (ii) Technology
(iii) Energy (iv) Transportation and Communication (v) Tourism (vi) Fisheries (vii) Agriculture
(viii) Cultural Cooperation (ix) Environment and Disaster Management (x) Public Health (xi)
People-to-People Contact (xii) Poverty Alleviation (xiii) Counter Terrorism and Transnational
Crime and (xiv) Climate Change.

The Summit was held under the theme “Towards a Peaceful, Prosperous and Sustainable Bay of
Bengal Region”. With the conclusion of the Summit, the Chairmanship of BIMSTEC was handed
over to Sri Lanka.

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Types of Accounts
CURRENT ACCOUNT

It is an account specially designed for business transactions. There are no restrictions on

number of credit/ debit transactions. No interest is paid on current account.
Current Account can be opened by:
o By a person in his/her own name or jointly with other individual(s).
o In the name of firm, Club and association, society.
o In the name of Private and Public Limited Company.
o In the name of trustee, liquidator etc.
o By any other institution etc.
It is essential that the prospective customer should be introduced by an existing account
holder. It is preferable that introducer should come to the bank for introduction. However
in case it is not possible for the introducer to come to the bank, it is very important that
signature of the introducer should be verified with utmost care and if possible the
introduction may be confirmed with the introducer on telephone/in writing.

SAVINGS ACCOUNT

The account scheme is supposed to facilitate easy and regular withdrawal of funds as and
when required and simultaneously earning of income on the balance that is kept in the
account. Any person having a savings account is allowed to deposit money and withdraw
to the extent of balance freely from his/her account. Individual banks however put a
restriction on number of withdrawals and amount for each transaction in saving account.

According to sec.2(ff) of BFIA 2073, “Saving Account” means the account containing details of the
amount deposited by any customer for saving in a bank or financial institution. Saving account is
an interest bearing account. The interest is paid on the basis of day end balance. The
advantage of Savings account is that an individual can utilize the bank account for
various payments while the balance in the account earns interest. The scheme is designed
to encourage small savings . The interest in saving account is paid on quarterly basis.

Savings accounts are allowed to be opened only by individuals singly or jointly. Other
than individuals, any organization or body of persons (e.g. society etc.) can open a
savings account if they are a charitable organization and are exempt from income tax on
their income.

23
FIXED ACCOUNT

The account scheme allows a customer to earn higher rate of interest for those amounts,
which a customer is confident that he will not require the amount for certain period. The
scheme offers higher rate of interest than savings account. The interest rates vary with the
period for which amount is kept in fixed deposit. The interest rates vary from time to
time.

Procedure for opening of Account

What documents do you need to open bank account?
1. Certified True copy of Identification Document, Citizenship Certificate, or Passport, or
Driving License or any other identification document issued by the government. ...
2. Copy of Proof of Address Document (eg. recent utility bill)
The following is the step by step guide to open one bank account:

• Visit a bank branch nearest to your residence or your work place

• Obtain one application form - say savings deposit application form
• Fill up the application form and sign in the appropriate places
• Sign the specimen signature card provided by the bank at appropriate places
• Affix photos in the specified places in the application form and specimen signature
card
• Enclose copy of the document for address proof - AADHAAR card/Voter id
card/Driving licence - any one document
• Enclose copy of the document for identity proof - AADHAAR card/Voter id
card/Driving licence/PAN card - anyone document
• The bank official will verify the above documents and once found correct, he will
advise you to remit the minimum amount to the teller
• Now the account is opened with the bank
• The bank official will provide a kit consisting of pass book; debit card; PIN number in
a closed cover; instructions for operations in the account; instructions for using debit
card etc.,

Closer of Account
Banks usually require an account holder to visit a branch in order to close a bank account. A
formal request made to terminate an accounting balance is called closer of account.For example,
a close account request might be used by the finance department of a business to close down an
account held at a bank, credit card company or securities broker, or to reset an income or
expense account to zero ahead of a fresh accounting period.If the account is with an online bank,

24
person and other members of the joint account may be asked to enter individual login
information to close the account.

Four Steps in Preparing Closing of account

Close all income accounts to Income Summary

Close all expense accounts to Income Summary

Close Income Summary to the appropriate capital account

Close withdrawals to the capital account/s (this step is for sole proprietorship and partnership
only)

Appointment of Nominees and succession to Account

Nomination is the right conferred upon the bank account holder to appoint one or more persons
who will be entitled to receive monies upon his death.Nomination is the right conferred upon the
holder of a bank account to appoint one or more persons who will be entitled to receive monies
upon the death of the account holder. In the event of death of an account or locker holder, the
bank can release the account proceeds or contents to the nominee without insisting upon a
succession certificate, letter of administration or court order.

Methods of Remittance
Money transfer generally refers to one of the following cashless modes of payment or payment
systems: Electronic funds transfer, an umbrella term mostly used for bank card-based payments;
Wire transfer, an international expedited bank-to-bank funds transfer. IME (International Money
Express) is the best option for sending money abroad? Compare your options to make sure you
get the best exchange rate and lowest price.

There are different types of methods for remittance to the trusted and popular ways by which
people abroad send money:

Money Orders:

These money orders are provided by the banks, can send money to the loved ones. You can
easily buy one from your local bank and send it via mail. This is a secure method to send money,
but it takes time.

Foreign Currency Cheques:

This is the simplest process of remittance. You just have to write a cheque and deliver it to the
recipient. The recipient can cash it from his bank. However, the whole process may take more
than 20 days. You can send the cheque via overnight courier services to reduce the time period.

25
Foreign Currency Drafts:

This method is similar to sending a bank draft. This is normally preferred by businessmen. It is a
time consuming but safe method. On an average, foreign currency money drafts take around
some days to reach.

Remittance Card:

This is a like debit card. You can buy a card on behalf of the recipient. The recipient or the
family member can use this as an ATM card and shopping card. All you have to do is to recharge
it regularly. It is the least time consuming method of money remittance.

Direct Deposit:

This method is good for those people who have to send money home on a regular basis. In this
method, it allowbank to withdraw money from foreign bank account. The recipient can collect
that money from the bank.

Investment policy of Banks: Objectives, procedure for

investment
A bank makes investments for the purpose of earning profits. First it keeps primary and
secondary reserves to meet its liquidity requirements. This is essential to satisfy the credit needs
of the society by granting short-term loans to its customers. In the study of the financial
institutions, the investment and investment problems will revolve around the concept of
managing the surplus financial assets in such a way, that will lead to the wealth maximization
and providing a significant further source of income. Thus the investment is the management of
the surplus resources in such a way that it works for providing benefits to the supplier of the
funds that is the banks. However, the investment needs to be a procedural task. It must follow a
definite process, to ensure the formulation of proper investment policy. Banks are disbursing
their money as investment in trade business and industry. Therefore, banks should be following
the principle of investment for profit. An investment policy should ensure maximum profit and
minimum Risk. A huge collection and investment policy plays vital role for the economic
development of whole economy. The main focus of this study will be towards the investment
practices of the banks. The study suggests the way to the policy makers to improve the
management of investment policy and recommends suggestions to raise the profit.

26
SUGGESTION FOR SOUND INVESTMENT POLICY
A sound lending & investment policy is not only prerequisite for a bank’s profitability
but also crucially significant for the promotion of commercial savings of a developing
country like India. Therefore, the following principles or features of investment policy
must be abidedby the commercial banks in order to achieve the goals.
1. Safety and security:
Commercial banks must pay a special attention to the principle of safety and security. In
a developing country like India in case there is any kind of loss than it will lead to
decrease in public faith towards banks and impacts the overall deposits of the banks.
So, the banks must ensure investing the amount in safe and secure sectors. Investment
in unsafe and insecure sectors with the hope of getting more returns is to compromise
with the security of capital.
2. Profitability:
The profit of commercial bank mainly depends on the interest rate, volume of loan, its
time period and nature of investment in different securities. It is a fact that a
commercial bank can maximize its volume of wealth through maximization of return
on their investment and lending so, they must invest their funds to gain maximum
profit. Ambition of profit to commercial bank seems reasonable as the bank has to
cover all the expenses and make payment in the forms dividend to the shareholders
who contribute to building up of bank’s capital and interest to the depositors. For this
the bank calculates the cost of fund and likely return..
3. Diversification:
“A bird should not lay all its eggs in the same basket.” This saying is very important to the bank
and it should be always careful not to grant loan in only one sector. To minimize risk, a bank
must diversify its investment on different sectors. Diversification of loan helps to sustainloss
according to the law of average; if the security of a company is divided off there may be an
appreciation in the securities of other companies

Commercial banks is the most important part of financial intermediaries. Banks form a
significant part of the infrastructure essential for breaking vicious circle of poverty and
promoting economic growth. So from my study, it is known that the banks are not investing in
the private company.It helps in Industrial development and it increases standard of living. And

27
this investment is must for the developing country like us for our development. It will also bring
down the inflation rate prevailing in our country. So the money value will increase.This will
enhance the development of our country in the nearby future.

Manual Investment
The manual is the formal written document that details the criteria, processes and operational
procedures attendant in carrying out the Investment Process. From pre application to monitoring
and evaluation including: client selection criteria, the application process, investment plan
development, procurement, investment disbursement and the monitoring and evaluation of the
investments.
The purposes of this Investment Operations Manual are to:
1) Guide the Board of Directors, Finance Committee, Investment Committee, Staff, asset
managers, and consultants in effectively managing, monitoring, and evaluating the
investments,
2) ensure compliance with fiduciary and prudent investor responsibilities,
3) Educate new Directors, Staff, Committee members, and Organizational Units, as well as
consultants and investment managers, in order to maintain the consistency in IEEE (Institute
of Electrical and Electronics Engineers) investment processes necessary to produce good long-
term results,
4) Set forth a structure for managing IEEE’s investments, including a spending rule, strategic
asset allocation and permissible ranges, that, when combined, are expected to produce an
adequate level of return at an acceptable level of risk, which will be mitigated through
sufficient diversification and
5) Provide transparency and understanding of the IEEE’s investment policies.

Traditional Vs Modern Banking

The differences between traditional banking and Internet banking on the basis of presence, time,
accessibility, security, finance control, expensive, cost, customer service and contact are
differentiated as follows:

28
Traditional Banking vs E-Banking

Basis of
Traditional Banking Internet Banking
Difference

Banks exist physically for Internet banks do not have physical presence
Presence
serving the customers, as services are provided online.

It consumes a lot of time as It does not consume time as customers do not

customers have to visit banks to have to visit banks to check bank balances or
carry out bank transactions like to transfer money from one account to
Time
— checking bank balances, another. Customers can access their account
transferring money from one readily from anywhere with a computer and
account to another. internet access.

People have to visit banks only Internet banking is available at any time and
Accessibility
during the working hours. it provides 24 hours access.

Online banking is the tempting target for

hackers. Security is one of the problems
Security
Traditional banking does not faced by customers in accessing accounts
encounter e-security threats. throu h internet.

Customers who often travel

Finance abroad cannot pay close Customers who often travel abroad can have
Control attention and control of their greater control over their finances.
finances.

Customers do not have to spend money for

visiting banks. They can avoid bank charges
that may be charged for certain teller
Customers have to spend money
Expensive transactions or when they pay bills
for visiting banks.
electronically — directly from their account
to the merchant. It helps to save money on
postal charges.

The cost incurred by traditional

Such costs are eliminated as the banks do not
Cost banks includes a lot of operating
have physical presence.
and fixed costs.

29
Basis of
Traditional Banking Internet Banking
Difference

ln traditional banks, the

In online banking, the customers do not have
Customer employees and clerical staff of
to stand in queues to carry out certain bank
Service the bank can attend only few
transactions.
customers at a time.

Customers can have face to face Customers can have only electroonic
Contact
contact in traditional banking. contacts.

NRB lending and Investment Functions

According to sec. 76. Of Nepal Rastra Bank Act, 2058, any person, firm, company or institution
shall, in order to accept any type of deposit or to provide loan, obtain approval from the Bank as may
be prescribed.The Bank, while giving approval, may subject the approval to the terms and conditions
prescribed by the Bank and it shall be the duty of the concerned person, firm, company or institution
to abide by such terms and conditions.
Like wise sec, 79 provide the Regulatory Powers of Bank. The Bank shall have full powers to
regulate the functions and activities of commercial banks and financial institutions. credit or
investments, loan and investment in excess of the ceiling prescribedby the Bank, risk bearing
commitment, position of foreign exchange, paymentand electronic and other means of payment.

Securities
A security is a financial instrument, typically any financial asset that can be traded. The nature of
what can and can’t be called a security generally depends on the jurisdiction in which the assets
are being traded. According to Sec. 2 (q) of NRB Act, 2058. "Securities" means shares, stock
bonds, debentures, debenture stocks issued by any corporate body or a certificate of unit saving
scheme or collective saving scheme (mutual fund) or transferable certificate of deposit issued by
a corporate body in accordance with laws, and the word also include the securities or receipt of
deposit (pledge) of such securities, and interest in securities prescribed by Government of Nepal
by publishing notification in the Nepal Gazette.
Types of securities are:

• Equity securities – which includes stocks. Equity almost always refers to stocks and a
share of ownership in a company (which is possessed by the shareholder).

• Debt securities – which includes bonds and banknotes. Debt securities differ from equity
securities in an important way; they involve borrowed money and the selling of a
30
 security. They are issued by an individual or company and sold to another party for a
certain amount, with a promise of repayment plus interest. They include a fixed amount
(that must be repaid), a specified rate of interest, and a maturity date (the date when the
total amount of the security must be paid by).

• Derivatives

Derivatives are a slightly different type of security because their value is based on an
underlying asset that is then purchased and repaid, with the price, interest, and maturity
date all specified at the time of the initial transaction.

Nature of Securities
English legal scholarship has seen a debate on the nature of securities. One school of thought
classifies them as property. The other school of thought classifies them as obligations. The
distinction is of interest because certain rules of law are said to apply to assets that are
classified as property, but do not apply to obligations. It has also been argued that the rule in
Hunter v Moss, which makes it possible for property rights to arise when securities form part
of a bulk, finds an explanation in the proprietary nature of securities.
This paper will put forward the thesis that securities are neither property nor obligations.
Relying on 18th and 19th century German and English scholarship it will argue that
securities are assets of their own kind. They will be referred to as circulating rights. They are
assets invented by market participants. They are fungibles and have been created to circulate
in liquid markets. Securities enable issuers to raise money from the public. The rules
governing securities are designed to facilitate this purpose and to make the circulation of
them cost efficient.
This has resulted in rules that allocate the legal risk involved in the transfer away from the
purchaser of such securities. It will be argued in this paper that this point on taxonomy helps
to explain the rules on quasi-negotiability of registered securities that have emerged in
English law and provides an argument for the continued application of these rules. It will also
be argued in this paper that classifying securities as assets of their own kind which are
different from tangibles and intangibles helps to explain the rule in Hunter v Moss.

Section I analyses the rule in Hunter v Moss and explains the rules on quasi-negotiability.
The German and Austrian theories that place securities in a legal category of their own kind
will be analysed in section II. Section III will discuss an English contribution that uses a
similar taxonomical argument in relation to negotiable instruments. Sections IV and V will
explain in greater detail the characteristics of securities that justify placing them in a legal

31
 category that is different from tangibles and intangibles. Section VI will present the
implications of this point on taxonomy for the analysis and the development of modern
English law.

Negotiable Instrument
Meaning and Features of Negotiable Instrument

The term ‘negotiable’ means exchangeable by delivery and ‘instrument’ means a written
document. Negotiable instrument literally means transferable written document for money.
Thus, negotiable instrument is a document which is given to another person in exchange for
money. Such an instrument creates a right in favour of a person to whom it is transferred for the
value thereof. It includes bill of exchange, cheque, promissory note or any document which is
transferable in exchange for money.
According to Sec. 2® of Nepal Rastra Bank Act, 2058 defines Negotiable Instrument means
‘the act of transferring an instrument to any person having the right to hold Negotiable
Instrument enabling him or her to become a bearer. Sec. 2 (s) of same Act defines, negotiable
instrument means ‘letter of credit’, bill of exchange.
Indian Negotiable Instrument Act 1881, states- “A negotiable instrument means a promissory
note, a bill of exchange or a cheque payable either to an order or to a bearer.”
A document a negotiable instrument if it satisfies the following conditions:
• It is a form which is capable of being used by the holder for the time being in his own
name.
• It is transferable like cash by delivery.
Features
1. Negotiable Instrument must be in writing
2. Property Right and title is created
3. Better title to a bonafide transferee
4. Holder of negotiable instrument can file a law suit
5. Easy negotiability
6. Legal presumptions (legal formalities)
7. Essential Features of Negotiable Instruments are given below:

1. Writing and Signature:

Negotiable Instruments must be written and signed by the parties according to the rules
relating to Promissory Notes, Bills of Exchange and Cheques. Demand Drafts are also

32
 construel as Negotiable Instruments in the limiting case as they have the same property as
N.I. Instruments.
2. Money:
Negotiable instruments are payable by legal tender money of India. The liabilities of the
parties of Negotiable Instruments are fixed and determined in terms of legal tender money.
3. Negotiability:
Negotiable Instruments can be transferred from one person to another by a simple process. In
the case of bearer instruments, delivery to the transferee is sufficient. In the case of order
instruments two things are required for a valid transfer: endorsement (i.e., signature of the
holder) and delivery. Any instrument may be made non-transferable by using suitable words,
e.g., “pay to X only.”
4. Title:
The transferee of a negotiable instrument, when he fulfils certain conditions, is called the
holder in due course. The holder in due course gets a good title to the instrument even in
cases where the title of the transferrer is defective.
5. Notice:
It is not necessary to give notice of transfer of a negotiable instrument to the party liable to
pay. The transferee can sue in his own name.
6. Presumptions:
Certain presumptions apply to all negotiable instruments. Example: It is presumed that there
is consideration. It is not necessary to write in a promissory note the words “for value
received” or similar expressions because the payment of consideration is presumed. The
words are usually included to create additional evidence of consideration.
7. Special Procedure
A special procedure is provided for suits on promissory notes and bills of exchange (The
procedure is prescribed in the Civil Procedure Code). A decree can be obtained much more
quickly than it can be in ordinary suits.
8. Popularity:
Negotiable instruments are popular in commercial transactions because of their easy
negotiability and quick remedies.

33
9. Evidence:
A document which fails to qualify as a negotiable instrument may nevertheless be used as
evidence of the fact of indebtedness. It is a evidence for the parties.

Types of Negotiable Instrument

Promissory note:-
A promissory note is an instrument in writing, except government note or bank currency,
containing to an undertaking to pay, without any consideration, certain sum of money to pay
particular person referred to in such a instrument or to the person ordered by such person or to
the bearer of such instrument on a fixed date or on demand.
The person, who makes the promissory note or promises is called a ‘maker’ and he has to sign
that document as a debtor, the person to whom payment is to be made (i.e the creditor) is called
the ‘payee’.
Example: (i) I promise to pay HariRs 5000 with 10 percent interest rate for his consideration.
This is valid promissory note
(ii) ‘A’ promises to pay ram Rs. 300 one week after ‘B’’s marriage. It is not a promissory note
because there is the condition of marriage.
Rs. 5000.00 kathmandu
15 ashadh,2070
Thirty days after date, I promise to pay Mr. Hari, the sum of rupees five thousand only with an
interest thereon at 10 percent per annum, for value received.
M & M company Stamp
Bhaktapur, Nepal S/D rajendra

Bill of exchange
A bill of exchange or "draft" is a written order by the drawer to the drawee to pay money to
the payee. A common type of bill of exchange is the cheque, defined as a bill of exchange drawn
on a banker and payable on demand. Bills of exchange are used primarily in international trade,
and are written orders by one person to his bank to pay the bearer a specific sum on a specific
date. Prior to the advent of paper currency, bills of exchange were a common means of
exchange. They are not used as often today.

Cheque

A cheque is a document that orders a payment of money from a bank account. The person
writing the cheque, the drawer, usually has a current account or checking account where their

34
money was previously deposited. The drawer writes the various details including the monetary
amount, date, and a payee on the cheque, and signs it, ordering their bank, known as the drawee,
to pay that person or company the amount of money stated.
Cheque is payable to the order which is expressed to be so payable or which is expressed to be
payable to a particular person, and does not contain words, prohibiting transfer of indicating an
intention that it shall not be transferable. Where a cheque, either originally or by endorsement, is
expressed to be payable to the order of a specified person and not to him or his order, it is
nevertheless payable to him or his order at his option.
Thus, for a writing to be a negotiable instrument under the following requirements must be met:
1. The promise or order to pay must be unconditional;
2. The payment must be a specific sum of money, although interest may be added to the
sum;
3. The payment must be made on demand or at a definite time;
4. The instrument must not require the person promising payment to perform any act other
than paying the money specified;
5. The instrument must be payable to bearer or to order.

Difference between Promissory Note and bill of exchange

Differs in Promissory note bill of exchange

No of parties Two parties- maker & payee Three parties- drawer,
drawee& payee
Promise or order There is a promise to pay There is an order to pay
Liability Primary and absolute liability Secondary and conditional
is of the maker on the liability of a drawer after the
instrument un acceptance of the drawer.
Notice Notice of dishonor to the Notice must be given to all the
maker is not necessary persons liable to pay by the
holder.
Payable to the bearer It cannot be drawn payable to It cannot be drawn payable to
the the
bearer Bearer, it provided payable to
the bearer on demand
Reliability The maker stands in an The maker stands in an
immediate relationship to the immediate relationship with
payee the acceptor and not to the
payee.

35
Endorsement of Negotiable Instrument
Endorsement means the signature of the maker/ drawer or a holder of a negotiable instrument,
either with or without any writing, for the purpose of negotiation.
1. The endorsement may be on the back or the face of the instrument and if no space is left on the
instrument, it may be made on a separate paper attached to it called along.
2. It must be an endorsement of the entire bill. A partial endorsement that is which purports to
transfer to the endorse a part only of the amount payable does not operate as a valid
endorsement.
3. It must be made by the maker or holder of the instrument.
4. It may be made either by the endorser merely signing his name on the instrument or by any
words showing an intention to endorse or transfer the instrument to a specified person.
5. It must be signed by the endorser. It is not necessary to write the full name initial may be
sufficient. Thumb- impression should be attested.
6. It must be completed by delivery of the instrument. The delivery must be made by the
endorser himself or by somebody on his behalf with the intention of passing property therein.

Presentation and Acceptance

Presentment is a demand by which the holder of a negotiable instrument is required to do

something as per the directives of the instrument. It is the showing of the instrument to the
drawee, acceptor or maker for acceptance, sight or payment. Presentment for acceptance refers to
presenting of a bill of exchange to the drawee named in the bill of exchange for his acceptance
and agreement to pay the bill, usually at some time in the future. It is an act which amounts to a
notification of the holding of a bill of exchange with a request to accept, accompanied by the bill.
Where the acceptance of the bill is in writing, the words, "accepted," "seen," "presented," written
on the bill, or on any other paper relating to the transaction, will amount to an acceptance of the
bill.

Dishonor of Negotiable Instrument

Dishonour of negotiable instrument by Non-payment. A promissory note, bill of exchange, or

cheque is said to be dishonoured by non-payment when the maker of the note, acceptor of the

36
bill, or drawee of the cheque commit default in payment upon being duly required to pay the
same.A bill is said to be dishonoured by non-acceptance in the following circumstances.
• When the drawee or one of the several drawees, not being partners, commit default in
acceptance upon being duly required to accept the bill.
• Where presentment is required and the bill remains unrepresented.
• Where the drawee is incompetent to enter into a valid contract.
• Where the bill is given a qualified acceptance.
• If the drawee is a fictitious person.
• If the drawee cannot be found even after reasonable search.
• Where the drawee has either become insolvent or is dead and the holder does not present
the bill to the assignee or legal representative of the insolvent or deceased drawee

Noting and Protesting

• (a) Noting: It is a convenient mode of authenticating the fact that a bill or note has been
dishonoured. When a note or a bill has been dishonoured by non-acceptance or non-
payment, the holder causes such dishonour to be noted by a Notary Public.Noting is a
minute recorded by a notary public on the dishonored instrument. When an instrument,
say a bill of exchange, is to be noted for dishonour, it is taken to Notary public who
presents it once again for acceptance or payment, as the case may be; and if the drawee or
acceptor still refuses to accept or pay the bill, it is noted, i.e., a minute is prepared
containing the date of dishonour, reason for such dishonour, etc.; which is attached to the
instrument; and the facts are’ noted on the instrument.
• (b) Protest - When an instrument is dishonored, the holder may cause the fact not on by to
be noted, but also to be certified by a Notary Public that the bill has been dishonored.
Such a certificate is referred to as a protest. If the creed it or an acceptor of a bill is
shaken by insolvency or otherwise before the date of maturity of the bill, the holder may
cause such a fact also to ‘be noted and certified, Such a certificate is called a protest for
better security.

Banks and It’s Customer

Banking' means accepting, for the purpose of lending or investment, of deposits of money from the
public repayable on demand or otherwise and withdrawable by cheque, draft, order or otherwise.
Customer means A person who buys goods or services from a shop or business.
The term Customer has not been defined by any act, It is generally believed that any individual or an
organization, which conducts banking transactions with a bank, is the customer of bank. However,
there are many persons who do utilize services of banks, but do not maintain any account with the
bank.

37
Individual,Minor, Illiterate, Lunatic
• A minor is a person who does not have the legal rights of an adult. A minor is usually
defined as someone who has not yet reached the age of majority. In most states, a person
reaches majority and acquires all of the rights and responsibilities of an adult when he or
she turns 18 years of age. It is determined by child Act, 2075 and muluki civil code,
2074.
• The word meaning of Illiterate means having little or no education especially or
unable to read or write. They are also being the customer of Bank. They put thumbnail
of illiterate persons at the place of signature.
• Lunatic person: Lunatics are persons of unsound mind. A contract with the insane
person is void ab-initio. Mental incapacity the operation in such customer’s account shall
be immediately stopped. Banks are in such cases relied upon the ‘Guardianship
Certificate’. While dealing with such accounts, bankers need be to extra careful. Any act
of stopping the operation by the bankers on wrong information received by them may put
them in embarrassment and difficulty.

Joint Account, Executors and Administrators, Proprietorship

A bank account held by more than one person, each individual having the right to deposit and
withdraw funds. Joint accounts, when properly used, can be an effective tool for estate
planning. Unfortunately, the law which applies to the transfer of joint accounts on the death
of one account holder is not well understood. This frequently leads to costly court fights
between family members. A joint account is a bank account in two or more names in which
each accountholder has an equal legal right to the entire balance of the account. ...
The right of survivorship makes joint accounts useful in estate planning.
Executors and Administrators. ... An executor or executrix is the person named in a will to
administer the estate. An administrator or administratrix is a person appointed by the court to
administer the estate of someone who died without a will.
An executor is a person charged with carrying out the wishes expressed in a will for the
administration of an estate and the distribution of the assets in the estate.
Many people choose The Bank of Herrin as executor because our financial professionals are:
• Trained, experienced and fully qualified
• Experienced in property management and estate settlement
• Financially responsible and trustworthy
• Unbiased and objective
• Understanding to the needs of your family
• Corporation – so won’t get sick or die.

38
 An administrator is a person who is responsible for carrying out the administration of a
business or organization.
Administrator’s duties are:
• Management of office equipment.
• Maintaining a clean and enjoyable working environment.
• Handling external or internal communication or management systems.
• Managing clerical or other administrative staff.
• Organizing, arranging and coordinating meetings.
• Manage and administer day-to-day functions of a bank.
• Ensure qualitative services to bank customers.
• Build customer relationships through best banking practices.
• Assist and support banking staff in handling customers’ requests and needs.
• Sell banking products and services to customers.
• Create and implement innovative methods in banking administration aspects.
• Target and capture customers to increase banking business.
• Prepare annual budget and expenditure budget.
• Forecast projections, objectives and goals.
• Motivate banking staff to achieve hundred percent outcomes.
• Organize all databases relating to customers.

Proprietorship
. The sole proprietorship is the simplest business form under which one can
operate a business. The sole proprietorship is not a legal entity. It simply
refers to a person who owns the business and is personally responsible for its
debts. A sole proprietorship can operate under the name of its owner or it can
do business under a fictitious name, such as Nancy's Nail Salon. The
fictitious name is simply a trade name--it does not create a legal entity
separate from the sole proprietor owner.

The sole proprietorship is a popular business form due to its simplicity, ease
of setup, and nominal cost. A sole proprietor need only register his or her
name and secure local licenses, and the sole proprietor is ready for business.
A distinct disadvantage, however, is that the owner of a sole proprietorship
remains personally liable for all the business's debts. So, if a sole proprietor
business runs into financial trouble, creditors can bring lawsuits against the
business owner. If such suits are successful, the owner will have to pay the
business debts with his or her own money.
39
Customers Attorney
The key to maintaining a constant stream of clients in the legal business goes beyond just
providing a reliable service and hiring competent people – it also relies on client service.
A power of attorney (POA) or letter of attorney is a written authorization to represent or act
on another's behalf in private affairs, business, or some other legal matter. The person
authorizing the other to act is the principal, grantor, or donor (of the power). The one
authorized to act is the agent, attorney, or in some common law jurisdictions, the attorney-in-
fact.
Formerly, the term "power" referred to an instrument signed under seal while a "letter" was
an instrument under hand, meaning that it was simply signed by the parties, but today a
power of attorney does not need to be signed under seal. Some jurisdictions require that
powers of attorney be notarized or witnessed, but others will enforce a power of attorney as
long as it is signed by the grantor.

Partnership
A Partnership Firm is an entity created by two or more persons as partners for Profit. It is very easy to
create a Partnership Firm. Partners have unlimited liability in a partnership firm. In Nepal it is
regulated by Partnership Act, 2020.

• A partnership is an arrangement where parties, known as partners, agree to cooperate to advance their
mutual interests. The partners in a partnership may be individuals, businesses, interest-
based organizations, schools, governments or combinations. Organizations may partner to increase the
likelihood of each achieving their mission and to amplify their reach. A partnership may result in issuing
and holding equity or may be only governed by a contract.
• Business: two or more companies join forces in a joint venture[6] or a consortium to i) work on a project
(e.g. industrial or research project) which would be too heavy or too risky for a single entity, ii) join forces
to have a stronger position on the market, iii) comply with specific regulation (e.g. in some emerging
countries, foreigners can only invest in the form of partnerships with local entrepreneurs.[7] In this case, the
alliance may be structured in a process comparable to a Mergers & Acquisitions transaction.
• Politics (or geopolitics): In what is usually called an alliance, governments may partner to achieve their
national interests, sometimes against allied governments holding contrary interests, as occurred
during World War II and the Cold War.
• Knowledge: In education, accrediting agencies increasingly evaluate schools, or universities, by the level
and quality of their partnerships with local or international peers and a variety of other entities across
societal sectors.
• Individual: Some partnerships occur at personal levels, such as when two or more individuals agree to
domicile together, while other partnerships are not only personal, but private, known only to the involved
parties.

Government agency
A government or state agency, sometimes an appointed commission, is a permanent or semi-
permanent organization in the machinery of government that is responsible for the oversight
and administration of specific functions, such as an intelligence agency. There is a notable
variety of agency types. Although usage differs, a government agency is normally distinct both from a

40
 department or ministry, and other types of public body established by government. The functions of an
agency are normally executive in character, since different types of organizations (such as commissions)
are most often constituted in an advisory role—this distinction is often blurred in practice however.
A government agency may be established by either a national government or a state government within a
federal system. The term is not normally used for an organization created by the powers of a local
government body. Agencies can be established by legislation or by executive powers. The autonomy,
independence and accountability of government agencies also vary widely.
The Ministry of Agriculture and Livestock Development is a governmental body
of Nepal responsible for the growth and development of agriculture sector in the
country. Local areas each have a District Agriculture Development Office (DADO).The
Ministry of Agriculture and Livestock Development is the central apex body of Government
of Nepal to look after the agriculture and allied fields.
Ministry of Finance is the central authority of Government of Nepal charged with the
responsibilities for maintaining both micro and macro economic stability in the country. The
position of finance minister in Nepal is currently held by Bishnu Prasad Paudel appointed on
14 October 2020.
The Ministry of Forests and Environment (Nepali: वनतथावातावरणमन्त्रालय) is a
governmental body of Nepal responsible for the conservation of forests and managing the
environment in the country. Its main purposes are to enhance sustainable growth of the forest
and water sectors and to manage the biodiversity, flora and fauna and also to increase the
development of forest related enterprises in order to combat poverty throughout the rural
areas of Nepal.

Corporate Body

A legal entity (such as an association, company, person, government, government agency, or

institution) identified by a particular name. Also called corporation, corporate body or
corporate entity.An organization or group of persons that is identified by a particular name
and that acts, or may act, as an entity. Typical examples of corporate bodies are associations,
institutions, business firms, nonprofit enterprises, governments, government agencies,
religious bodies, local churches, and conferences. It is a group of natural persons but separate
and distinct from the persons who are its members. Company may be defined as a voluntary
association for profit with capital, divisible into transferable shares with limited liability,
having a corporate body and common seal.A commercial business,
firm, business, corporation, house, establishment, agency, office, bureau, institution, organiza
tion, operation, concern, enterprise, venture, undertaking, practice.

Non-resident
A person who lives somewhere permanently or on a long-term basis is called resident.
A person who is not staying or living in or at a place or a person who does

41
 not live permanently in a particular country and who is in a special position in relation to
the payment of tax. A non-resident is an individual who mainly resides in one region or
jurisdiction of state but has interests in another region or state. In the region where
they do not mainly reside, they will be classified by government authorities as a non-
resident. For example, many individuals live in one state but have business in another
region and derive income from sources within that region. A non-resident who has
worked in a state where they are a non-resident for more than 184 days will have to
file two tax returns – a resident return and a non-resident return. A taxpayer who lives
in New Jersey but commutes to New York daily for work would file a non-resident
return in New York and a resident tax return in New Jersey. A non-resident only has
to file in the state of non-residency if they earned income there. So, a snowbird who
escaped Chicago during the frigid winter months to a vacation home in Houston may
not need to file taxes in Houston since they only lived there briefly and earned no
income from working there. However, certain types of income are taxable to non-
residents even though an individual does not work in a state. A taxpayer may find that
they owe taxes to the government through income such as:

Sanima NRN Deposit product is specially designed to cater Non Resident

Nepalese considering their specific requirements. For extending specialized
banking service to the NRNs Sanima has introduced various types NRN deposit
account schemes.

Commercial Bank
A commercial bank is a type of bank that provides services such as accepting deposits,
making business loans, and offering basic investment products that is operated as a business
for profit.
It can also refer to a bank, or a division of a large bank, which deals with corporations or
large/middle-sized business to differentiate it from a retail bank and an investment bank.

• Commercial banks make money by providing loans and earning interest income from
those loans. ... Customer deposits, such as checking accounts, savings accounts, money
market accounts, and CDs, provide banks with the capital to make loans. ... In a fractional
reserve banking system. For e.g., Nepal Bank Limited, RastriyaBanijya Bank Limited,
Agriculture Development Bank Limited, Nabil Bank Limited, Nepal Investment Bank
Limited, Standard Chartered Bank Nepal Limited, Himalayan Bank Limited, Nepal SBI
Bank Limited
• ...SEE Sec. 49 of BAFIA, Bank or Financial Institution may carry on Banking and
Financial Transactions: There is the categories of the class “A” “B” “C” and “D” banks
under the Memorandum of Association and Articles of Association and limitation,
conditions imposed and direction issued by the Rastra Bank.

42
Agricultural Development Bank
Agricultural Development Bank Limited (ADBL) is an autonomous organization largely
owned by Government of Nepal. The bank has been working as a premier rural credit
institution since the last three decades, contributing a more than 67 percent of institutional
credit supply in the country.

Development Bank (class B’)

Development bank is essentially a multi-purpose financial institution with a broad development
outlook. A development bank may, thus, be defined as a financial institution concerned with
providing all types of financial assistance (medium as well as long term) to business units, in the form
of loans, underwriting, investment and guarantee operations, and promotional activities —
economic development in general, and industrial development, in particular....SEE Sec. 49 of
BAFIA.

• Nepal Industrial Development Corporation

• Uddyam Development Bank Limited
• Malika Development Bank Limited
• Siddhartha Development Bank Limited
• United Development Bank Limited
• Manakamana Development Bank Limited
• Narayani Development Bank Limited

Joint Venture Bank

A joint venture (JV) is a business arrangement in which two or more parties agree to pool
their resources for the purpose of accomplishing a specific task. ... In a joint venture (JV),
each of the participants is responsible for profits, losses, and costs associated with it. In
European terms, the term 'joint venture' is an elusive legal concept, betterdefined under the
rules of company act. ... The shares of interest income to total income are lower in the joint
venture banks. This indicates that the service business is better in those banks. In context
of Nepal, the performance of foreign joint venture banks is better than the
domestic banks reflected in their profitability position. ... Various joint ventureforeign
commercial banks are operating in Nepal after the HMG/N adopted the open, liberal and
market oriented economic policy.

At present there are 7 joint venture banks operating in Nepal which include NepalSBI Bank,
Everest Bank, NABIL Bank, Standard Chartered Bank, Nepal Bangladesh Bank,
Himalayan Bank and NMB Bank.

43
Cooperative Bank
Cooperative banking is retail and commercial banking organized on
a cooperative basis. Cooperative banking institutions take deposits and lend money in
most parts of the world or in a country.
Cooperative banking, includes retail banking carried out by credit unions, mutual
savings banks, building societies and cooperatives, as well as commercial banking
services provided by mutual organizations (such as cooperative federations) to
cooperative businesses.
A cooperative (also known as co-operative, co-op, or coop) is "an autonomous
association of persons united voluntarily to meet their common economic, social, and
cultural needs and aspirations through a jointly-owned and democratically-controlled
enterprise1”. Cooperatives may include:
➢ Non-profit community organizations
➢ Businesses owned and managed by the people who use their services (a
consumer cooperative)
➢ Organizations managed by the people who work there (worker cooperatives)
➢ Organizations managed by the people to whom they provide accommodation
(housing
➢ Cooperatives)
➢ Hybrids such as worker cooperatives that are also consumer cooperatives or
credit unions
➢ Multi-stakeholder cooperatives such as those that bring together civil society
and local actors to deliver community needs
➢ Second and third-tier cooperatives whose members are other cooperatives

New Cooperative Act 2017 – Highlights and Implications for the Cooperative Sector
in Nepal After 26 years, the Cooperative Act of 1991 has been revised and endorsed
on October 18, 2017. During this period, the Nepalese Cooperative sector grew at an
exponential magnitude. In 1990 (when the Act was last revised); there were 830
cooperative societies and 30+ district unions. As on July 2016, there were 33,599
cooperatives followed by numerous different types of district unions and 22 central
unions. Hence, it was obvious that the old act needed to be updated and replaced by a
new robust act that would enable better regulations and delivery of financial services.
The highlights of the new Cooperative Act are:
➢ Comprehensive in nature (20 Chapters, 152 clauses versus 12 chapters and
49 clauses in the previous act)
➢ A separate chapter has been added for Savings and Credit Operations
➢ A separate chapter for Cooperative Banks has been added
➢ Creation of Cooperative Development Fund
➢ Provision made for creating a Loan Collection Jurisdictional Authority
(Nyayadhikaran)

44
vi. Gender friendly (in comparison to the earlier Act)– advocates for women
representation in the Board
vii. Huge penalties built in to ensure safety of members’ savings

viii. Takes new federal structure into accounts

Shree Nabajivan Dhangadi,

1 1993/12/15 538
Co-operative Ltd. Kailali

Sagun Co-operative 118

1994/10/9 Kathamandu
2 Society Ltd.
Nepal Co-operative 423
3 1994/12/30 Kathamandu
Society Ltd.
4

Central Bank
Nepal Rastra Bank, Organization and Main Function
A central bank is an independent national authority that conducts monetary policy,
regulates banks, and provides financial services including economic research. Its goals are to
stabilize the nation's currency.
The Nepal Rastra Bank was established on April 26, 1956 A.D. (Nepali Date: Baisakh 14,
2013 B.S.) under the Nepal Rastra Bank Act 1955 AD to regulate and systematize domestic
financial sector. As the central bank of Nepal, it is the monetary, supervisory
and regulatory body of all the commercial banks. Financial institutions and micro-
finances, The head office is located in Baluwatar, Kathmandu and it has seven district
offices, located at Biratnagar, Janakpur, Birgunj, Pokhara, Siddharthanagar, Nepalgunj,
and Dhangadhi. As the central bank of Nepal, it is the monetary, supervisory and regulatory
body of all the commercial banks, financial institutions and micro-finances.
According to sec. 4 of Nepal Rastra Bank Act, 2058, the objectives of NRB Act, are as
following:
(a) To formulate necessary monetary and foreign exchange policies in order to maintain the
stability of price and balance of payment for sustainable development of economy, and
manage it;
(b) To promote stability and liquidity required in banking and financial sector;
(c) To develop a secure, healthy and efficient system of payment;
(d) To regulate, inspect, supervise and monitor the banking and financial system; and
(e) To promote entire banking and financial system of the Kingdom of Nepal and to enhance
its public credibility.

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According to sec. 5 of Nepal Rastra Bank Act, 2058, The Functions, Duties and Powers of
the Bank are as following: (1) In order to achieve the objectives referred to in section 4,
the functions, duties and powers of the Bank shall be as follows:
(a) To issue bank notes and coins;
(b) To formulate necessary monetary policies in order to maintain price stability and to
implement or cause to implement them;
(c) To formulate foreign exchange policies and to implement or cause to implement them;
(d) To determine the system of foreign exchange rate;
(e) To manage and operate foreign exchange reserve;
(f) To issue license to commercial banks and financial institutions to carry on banking and
financial business and to regulate, inspect, supervise and monitor such transactions;
(g) To act as a banker, advisor and financial agent of Government of Nepal;
(h) To act as the banker of commercial banks and financial institutions and to function as the
lender of the last resort;
(i) To establish and promote the system of payment, clearing and settlement and to regulate
these activities; and

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 (j) To implement or cause to implement any other necessary functions which the Bank has to
carry out in order to achieve the objectives of the Bank under thisAct.

Financial Institution

A financial institution is an intermediary between consumers and the capital or the debt
markets providing banking and investment services. It is responsible for the supply of money
to the market through the transfer of funds from investors to the companies in the form of
loans, deposits, and investments.
According to Sec. 2 (g) of Nepal Rastra Bank Act, 2058, "Financial Institution" means a
financial institution established under the prevailing laws with the objectives of providing
loans for agricultural cooperative, industrial or any other specific economic purpose or of
collecting deposits from the general public and the word also includes an institution
prescribed as financial institution by Government of Nepal by publishing notice in the Nepal
Gazette.

Banking Service provided by Financial Institutions

Situations of Financial Institution in Nepal

After introducing these acts, financial institutions in Nepal have seen a steady growth. As
of today, there are 28 commercial banks in Nepal, 36 development banks, 25 finance
companies and 63 micro-credit development banks, with a total of 5700 branches across the
nation.

Good Governance
Good governance is an indeterminate term used in international development literature to describe
how public institutions conduct public affairs and manage public resources. Governance is "the
process of decision-making and the process by which decisions are implemented". While there is no
single approach to good corporate governance, the Basel Committee's revised principles provide a
framework within which banks and supervisors should operate to achieve robust and transparent risk
management and decision-making and, in doing so, promote public confidence and uphold the safety
and transparent risk management and decision-making and, in doing so, promote public confidence
and uphold the safety and soundness of the banking system.

Capital Adequacy, Monetary policy of Nepal Rastra Bank

According to sec. 39, The Capital of the Bank shall be one billion rupees. The Capital of the
Bank shall be received from Government of Nepal and this Capital shall not be transferred or any
burden of debt be placed upon it. Government of Nepal may alter the capital of the Bank.

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 Government of Nepal shall have consultation with the Bank while altering the capital. Sec. 44
provides that the Monetary Policy ofThe Bank shall have full powers to formulate, implement
and cause to implement monetary policy of the Kingdom of Nepal.
Public Debt, Loan Recovery Procedure
The government of Nepal has specific legal framework for the collection of resources through
the public debt. The interim constitution of Nepal 2072 provides the foundation for mobilizing the
resources through the public debt. There is the provision of consolidated fund in the present
constitution. The preamble of Public Debt Act, 2059, it is expedient to provide for the raising
of public debts by issuing bonds in order to contribute to the proper management of
government finance for the economic development of the country and to encourage
the mobilization of internal saving mobilization by maintaining harmony between the
financial and monetary policies. According to sec. 3 of Public debt Act, 2059 ,The
Government of Nepal may, subject to the prevailing laws, raise public debt by issuing
any one type of or more types of bonds at the same time or at several times in such a
quantity as it may consider necessary for the proper mobilization of government
finance government has the Power to raise public debt by issuing bonds.
According to sec.6 of Nepal Rastra Bank Act, 2058, NRB has the Prior Right of the Bank for
the purpose of recovering any loan, which the Bank has given to any borrower or any other type
of claim of the Bank against any borrower, the Bank shall have prior right of security over cash
deposited in an account in the name of such borrower at the Bank or in any commercial bank or
financial institution or against any other movable and immovable property owned by the
borrower for the purpose of recovering such loan. Sub section (2) , The Bank shall recover its
loan by taking into its custody the cash or movable or immovable property having its prior right
and selling such property as prescribed.

Inspection and Supervision

Many countries implemented the economic liberalization and open market policy after the
1980s. As a result, banks and financial institutions are increased rapidly in most countries
including Nepal.Like supervisory system, the monitoring system can be carried out fewer
than three methods. They are:

1. Off-site monitoring
2. On-site monitoring

On-site supervision and inspection: In this method, Nepal Rastra Bank appoints any official
of the bank for such purpose or designate any other person to carry out such activities by
investing branches and head office of the particular institution. There is a provision that head
offices of the banks needed an inspection from the central bank at least once a year and
branches offices needed inspection once in three years. NRB act 2058 has a provision that
any bank and financial institution has a duty the submit information demanded by the official
and by the central bank. Therefore, NRB has been carrying out inspection and supervision by
preparing a schedule.

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 Off-site supervision and inspection: In this method, Nepal Rastra Bank asked the particular
bank to submit necessary documents, information or any other documentation to the central
bank. Nepal Rastra Bank follows CAMELS rule for the monitoring of the commercial banks
and financial institutions, which includes the easements of the policies, directives, and
regulation of the central bank to find if they are sufficient to meet the national economic
objectives. NRB attempts to prevent the difficulties or problems that may arise in course of
implementation of the monetary policy.

Nepal Rastra Bank has been carrying out the supervision activities provided by the Nepal
Rastra Bank act 2058 in accordance with the international practice of ‘CAMEL’. Where,
C=Capital adequacy
A=Asset quality
M=Management quality
E=Earning and portability
L = Liquidity
Monitoring of the commercial banks and financial institutions includes the assessment of the
policies, directives, and regulation of the central bank to find if they are sufficient to meet the
national economic objective. It is provided in chapter, 9, section 76 to 88 of Nepal Rastra
Bank Act, 2058.

International Monetary Fund

The International Monetary Fund (IMF), also known as the Fund, is an international
organization headquartered in Washington, D.C., consisting of 189 countries working to
foster global monetary cooperation, secure financial stability, facilitate international trade,
promote high employment and sustainable economic growth, and reduce poverty around the
world while periodically depending on World Bank for its resources. Formed in 1944 at
the Bretton Woods Conference primarily by the ideas of Harry Dexter White and John
Maynard Keynes, it came into formal existence in 1945 with 29 member countries and the
goal of reconstructing the international payment system. It now plays a central role in the
management of balance of payments difficulties and international financial crises. Countries
contribute funds to a pool through a quota system from which countries
experiencing payments problems can borrow money. As of 2016, the fund
had SDR477 billion (about $667 billion).
Through the fund and other activities such as the gathering of statistics and analysis,
surveillance of its members' economies, and the demand for particular policies,the IMF
works to improve the economies of its member countries. The organization’s objectives
stated in the Articles of Agreement are: to promote international monetary co-
operation, international trade, high employment, exchange-rate stability, sustainable
economic growth, and making resources available to member countries in financial
difficulty. IMF funds come from two major sources: quotas and loans. Quotas, which are
pooled funds of member nations, generate most IMF funds. The size of a member's quota
depends on its economic and financial importance in the world. Nations with larger economic

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 importance have larger quotas. The quotas are increased periodically as a means of boosting
the IMF's resources.
The current Managing Director (MD) and Chairwoman of the International Monetary Fund is
French lawyer and former politician, Christine Lagarde, who has held the post since 5 July
2011. On Tuesday, July 16, 2019, Christine Lagarde announced her resignation as the MD of
IMF effective from Thursday, September 12, 2019.
Function of IMF
According to the IMF itself, it works to foster global growth and economic stability by
providing policy advice and financing the members by working with developing
nations helps them achieve macroeconomic stability and reduce poverty. The rationale for
this is that private international capital markets function imperfectly and many countries have
limited access to financial markets. Such market imperfections, together with balance-of-
payments financing, provide the justification for official financing, without which many
countries could only correct large external payment imbalances through measures with
adverse economic consequences. The IMF provides alternate sources of financing.
Upon the founding of the IMF, its three primary functions were: to oversee the fixed
exchange rate arrangements between countries, thus helping national governments manage
their exchange rates and allowing these governments to prioritize economic growth, and to
provide short-term capital to aid the balance of payments. This assistance was meant to
prevent the spread of international economic crises. The IMF was also intended to help mend
the pieces of the international economy after the Great Depression and World War II. As
well, to provide capital investments for economic growth and projects such
as infrastructure.24 Executive Directors make up the Executive Board. The Executive
Directors represent all 189 member countries in a geographically based roster.

Part-B, Insurance Law

Meaning and Definition of Insurance
Insurance is a means of protection from financial loss. It is a form of risk management,
primarily used to hedge (a way of protecting oneself against financial loss or other adverse
circumstances) against the risk of a contingent or uncertain loss.
An entity which provides insurance is known as an insurer, insurance company, insurance
carrier or underwriter. A person or entity who buys insurance is known as an insured or as a
policyholder. The insurance transaction involves the insured assuming a guaranteed and
known relatively small loss in the form of payment to the insurer in exchange for the
insurer's promise to compensate the insured in the event of a covered loss. The loss may or
may not be financial, but it must be reducible to financial terms, and usually involves
something in which the insured has an insurable interest established by ownership,
possession, or pre-existing relationship.

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 The insured receives a contract, called the insurance policy, which details the conditions and
circumstances under which the insurer will compensate the insured. The amount of money
charged by the insurer to the Policyholder for the coverage set forth in the insurance policy is
called the premium.
According to Investopedia, Insurance is a contract, represented by a policy, in which an
individual or entity receives financial protection or reimbursement against losses from an
insurance company. The company pools clients' risks to make payments more affordable for
the insured.
According to sec. 2(e) of Insurance Act, 2049, "Insurance Business" means Life Insurance
Business or Non-Life Insurance Business and the word includes the reinsurance.

According to J.H. Magee, “Insurance has been defined as a plan by which large numbers of
people are associated themselves and transfer to shoulders of all, risks to attach individuals.”

According to Edwin W Petterson, “Insurance is a contract by which one party for

compensation called premium assumes particular risk of the other party and promise to pay
to him or his nominee a certain sum of money on a specified contingency.”
In D.S. Hamsell words, insurance is defined as “a social device providing
financial compensation for the effects of misfortune, the payment being made from
the accumulated contributions of all parties participating in the scheme”
In simple terms “Insurance is a co-operative device to spread the loss caused
by a particular risk over a number of persons, who are exposed to it and who agree
to insure themselves against the risk”

Nature of Insurance
The Nature of the purpose of any insurance is to provide economic protection against the
losses that may be incurred due to chance events.

➢ A contract between an ‘insurer’ and the ‘insured’;

➢ The contract is based on the loss due to happening or not happening of a future
incident;
➢ A consideration in the form of payment of an amount by the insured and
➢ The insurer promises to make good the loss in so far money can do it, in case the
loss occurs on the happening of the contingency.
➢ It shares the loss which might fall on an individual or his family on happening of
a given contingency as explained in the policy documents.
➢ Premium payment by the individual or group to the insurer to receive a certain
sum on the given contingency.
➢ Insurer pays a certain sum to the individual or group on happening of a given
contingency.
➢ Payment by the insurer is only made on a contingency which is explained on the
policy documents.

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 ➢ Insurance is not a gambling or charity.

The functions of insurance can be studied into two parts (i) Primary Functions,
and (ii) Secondary Functions.

Primary Functions:
(i) Insurance provides certainty:
Insurance provides certainty of payment at the uncertainty of loss. The uncertainty of loss
can be reduced by better planning and administration. But, the insurance relieves the
person from such difficult task. Moreover, if the subject matters are not adequate, the
self-provision may prove costlier.There are different types of uncertainty in a risk. The
risk will occur or not, when will occur, how much loss will be there? In other words,
there are uncertainty of happening of time and amount of loss. Insurance removes all
these uncertainty and the assured is given certainty of payment of loss. The insurer
charges premium for providing the said certainty.
(ii) Insurance provides protection:
The main function of the insurance is to provide protection against the probable chances of
loss. The time and amount of loss are uncertain and at the happening of risk, the person
will suffer loss in absence of insurance. The insurance guarantees the payment of loss and
thus protects the assured from sufferings. The insurance cannot check the happening of
risk but can provide for losses at the happening of the risk.
(iii) Risk-Sharing:
The risk is uncertain, and therefore, the loss arising from the risk is also uncertain. When risk
takes place, the loss is shared by all the persons who are exposed to the risk. The risk-
sharing in ancient time was done only at time of damage or death; but today, on the basis
of probability of risk, the share is obtained from each and every insured in the shape of
premium without which protection is not guaranteed by the insurer.
Secondary functions:
• Besides the above primary functions, the insurance works for the following functions:

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 (i) Prevention of Loss:
The insurance joins hands with those institutions which are engaged in preventing the losses
of the society because the reduction in loss causes lesser payment to the assured and so
more saving is possible which will assist in reducing the premium. Lesser premium
invites more business and more business cause lesser share to the assured.So again
premium is reduced to, which will stimulate more business and more protection to the
masses. Therefore, theinsurance assist financially to the health organization, fire brigade,
educational institutions and other organizations which are engaged in preventing the
losses of the masses from death or damage.
(ii) It Provides Capital:
The insurance provides capital to the society. The accumulated funds are invested in
productive channel. The dearth of capital of the society is minimized to a greater extent
with the help of investment of insurance. The industry, the business and the individual are
benefited by the investment and loans of the insurers.
(iii) It Improves Efficiency:
The insurance eliminates worries and miseries of losses at death and destruction of property.
The carefree person can devote his body and soul together for better achievement. It
improves not only his efficiency, but the efficiencies of the masses are also advanced.
(iv) It helps Economic Progress:
The insurance by protecting the society from huge losses of damage, destruction and death
provides an initiative to work hard for the betterment of the masses. The next factor of
economic progress, the capital, is also immensely provided by the masses. The property,
the valuable assets, the man, the machine and the society cannot lose much at the policy.

Principles of Insurance
The main objective of every insurance contract is to give financial security and protection to
the insured from any future uncertainties. Insured must never ever try to misuse this safe
financial cover. Seeking profit opportunities by reporting false occurrences violates the terms
and conditions of an insurance contract. This breaks trust, results in breaching of a contract
and invites legal penalties.

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 1. Principle of Uberrimaefidei (Utmost Good Faith)

Principle of Good Faith Uberrimaefidei (a Latin phrase), or in simple english words, the
Principle of Utmost Good Faith, is a very basic and first primary principle of insurance.
According to this principle, the insurance contract must be signed by both parties (i.e insurer and
insured) in an absolute good faith or belief or trust. The person getting insured must willingly
disclose and surrender to the insurer his complete true information regarding the subject matter
of insurance. The insurer's liability gets void (i.e legally revoked or cancelled) if any facts, about
the subject matter of insurance are either omitted, hidden, falsified or presented in a wrong

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manner by the insured. The principle of Uberrimaefidei applies to all types of insurance
contracts.

2. Principle of Insurable Interest

The principle of insurable interest states that the person getting insured must have insurable
interest in the object of insurance. A person has an insurable interest when the physical existence
of the insured object gives him some gain but its non-existence will give him a loss. In simple
words, the insured person must suffer some financial loss by the damage of the insured object.
For example :- The owner of a taxicab has insurable interest in the taxicab because he is getting
income from it. But, if he sells it, he will not have an insurable interest left in that taxicab. From
above example, we can conclude that, ownership plays a very crucial role in evaluating insurable
interest. Every person has an insurable interest in his own life. A merchant has insurable interest
in his business of trading. Similarly, a creditor has insurable interest in his debtor.

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 3. Principle of Indemnity

Indemnity means security, protection and compensation given against damage, loss or injury.
According to the principle of indemnity, an insurance contract is signed only for getting
protection against unpredicted financial losses arising due to future uncertainties. Insurance
contract is not made for making profit else its sole purpose is to give compensation in case of any
damage or loss. In an insurance contract, the amount of compensations paid is in proportion to
the incurred losses. The amount of compensations is limited to the amount assured or the actual
losses, whichever is less. The compensation must not be less or more than the actual damage.
Compensation is not paid if the specified loss does not happen due to a particular reason during a
specific time period. Thus, insurance is only for giving protection against losses and not for
making profit. However, in case of life insurance, the principle of indemnity does not apply
because the value of human life cannot be measured in terms of money.

4. Principle of Contribution

Principle of Contribution is a corollary of the principle of indemnity. It applies to all contracts of

indemnity, if the insured has taken out more than one policy on the same subject matter.
According to this principle, the insured can claim the compensation only to the extent of actual
loss either from all insurers or from any one insurer. If one insurer pays full compensation then
that insurer can claim proportionate claim from the other insurers.
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For example :- Mr. John insures his property worth $ 100,000 with two insurers "AIG Ltd." for $
90,000 and "MetLife Ltd." for $ 60,000. John's actual property destroyed is worth $ 60,000, then
Mr. John can claim the full loss of $ 60,000 either from AIG Ltd. or MetLife Ltd., or he can
claim $ 36,000 from AIG Ltd. and $ 24,000 from Metlife Ltd.
So, if the insured claims full amount of compensation from one insurer then he cannot claim the
same compensation from other insurer and make a profit. Secondly, if one insurance company
pays the full compensation then it can recover the proportionate contribution from the other
insurance company.

5. Principle of Subrogation

Subrogation means substituting one creditor for another.

Principle of Subrogation is an extension and another corollary of the principle of indemnity. It
also applies to all contracts of indemnity.
According to the principle of subrogation, when the insured is compensated for the losses due to
damage to his insured property, then the ownership right of such property shifts to the insurer.
This principle is applicable only when the damaged property has any value after the event
causing the damage. The insurer can benefit out of subrogation rights only to the extent of the
amount he has paid to the insured as compensation.
For example :- Mr. John insures his house for $ 1 million. The house is totally destroyed by the
negligence of his neighbourMr.Tom. The insurance company shall settle the claim of Mr. John
for $ 1 million. At the same time, it can file a law suit against Mr.Tom for $ 1.2 million, the
market value of the house. If insurance company wins the case and collects $ 1.2 million from
Mr. Tom, then the insurance company will retain $ 1 million (which it has already paid to Mr.
John) plus other expenses such as court fees. The balance amount, if any will be given to Mr.
John, the insured.

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 6. Principle of Loss Minimization

According to the Principle of Loss Minimization, insured must always try his level best to
minimize the loss of his insured property, in case of uncertain events like a fire outbreak or blast,
etc. The insured must take all possible measures and necessary steps to control and reduce the
losses in such a scenario. The insured must not neglect and behave irresponsibly during such
events just because the property is insured. Hence it is a responsibility of the insured to protect
his insured property and avoid further losses.
For example :- Assume, Mr. John's house is set on fire due to an electric short-circuit. In this
tragic scenario, Mr. John must try his level best to stop fire by all possible means, like first
calling nearest fire department office, asking neighbours for emergency fire extinguishers, etc.
He must not remain inactive and watch his house burning hoping, "Why should I worry? I've
insured my house."

7. Principle of CausaProxima (Nearest Cause)

Principle of CausaProxima (a Latin phrase), or in simple english words, the Principle of

Proximate (i.e Nearest) Cause, means when a loss is caused by more than one causes, the
proximate or the nearest or the closest cause should be taken into consideration to decide the
liability of the insurer. The principle states that to find out whether the insurer is liable for the
loss or not, the proximate (closest) and not the remote (farest) must be looked into.For example :-

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A cargo ship's base was punctured due to rats and so sea water entered and cargo was damaged.
Here there are two causes for the damage of the cargo ship - (i) The cargo ship getting punctured
beacuse of rats, and (ii) The sea water entering ship through puncture. The risk of sea water is
insured but the first cause is not. The nearest cause of damage is sea water which is insured and
therefore the insurer must pay the compensation. However, in case of life insurance, the principle
of CausaProxima does not apply. Whatever may be the reason of death (whether a natural death
or an unnatural death) the insurer is liable to pay the amount of insurance.

7 Types of Insurance

Life Insurance
Life Insurance is different from other insurance in the sense that, here, the subject
matter of insurance is the life of a human being. Therefore, life insurance is other
than non-life insurance.According to sec 2(f) of Insurance Act, 2049, "Life
Insurance Business" means the business relating to a contract regarding to the life
of any person under which he/she or his/her heir in the event of his/her death, will
be paid a particular amount in case a specified amount is paid in installment on the

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 basis of his/her age."Insured" a person or organization holding a Life Insurance and Non-
Life Insurance Policy.
The insurer will pay the fixed amount of insurance at the time of death or at the
expiry of the certain period.At present, life insurance enjoys maximum scope
because the life is the most important property of an individual.Each and every
person requires the insurance.This insurance provides protection to the family at
the premature death or gives an adequate amount at the old age when earning
capacities are reduced.Under personal insurance, a payment is made at the
accident.The insurance is not only a protection but is a sort of investment because
a certain sum is returnable to the insured at the death or the expiry of a period.
General Insurance
The general insurance includes Property Insurance, Liability Insurance, and Other
Forms of Insurance.Fire and Marine Insurances are strictly called Property
Insurance. Motor, Theft, Fidelity and Machine Insurances include the extent of
liability insurance to a certain extent.The strictest form of liability insurance is
fidelity insurance, whereby the insurer compensates the loss to the insured when
he is under the liability of payment to the third party.
Property Insurance
Under the property insurance property of person/persons are insured against a
certain specified risk. The risk may be fire or marine perils, theft of property or
goods damage to property at the accident.
Marine Insurance
Marine insurance provides protection against loss of marine perils. The marine
perils are a collision with a rock, or ship, attacks by enemies, fire, and captured by
pirates, etc. these perils cause damage, destruction or disappearance o’ the ship and
cargo and non-payment of freight. So, marine insurance insures ship
(Hull), cargo and freight.
Previously only certain nominal risks were insured but now the scope of marine
insurance had been divided into two parts; Ocean Marine Insurance and Inland
Marine Insurance.

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 The former insures only the marine perils while the latter covers inland perils
which may arise with the delivery of cargo (gods) from the go-down of the insured
and may extend up to the receipt of the cargo by the buyer (importer) at his go-
down.
Fire Insurance
Fire Insurance covers the risk of fire. In the absence of fire insurance, the fire
waste will increase not only to the individual but to the society as well.
With the help of fire insurance, the losses arising due to fire are compensated and
the society is not losing much. The individual is preferred from such losses and his
property or business or industry will remain approximately in the same position in
which it was before the loss.
The fire insurance does not protect only losses but it provides certain consequential
losses also war risk, turmoil, riots, etc. can be insured under this insurance, too.
Liability Insurance
The general Insurance also includes liability insurance whereby the insured is
liable to pay the damage of property or to compensate for the loss of persona;
injury or death.This insurance is seen in the form of fidelity insurance, automobile
insurance, and machine insurance, etc.
Social Insurance
The social Insurance is to provide protection to the weaker sections of the society
who are unable to pay the premium for adequate insurance.Pension plans,
disability benefits, unemployment benefits, sickness insurance, and industrial
insurance are the various forms of social insurance.Insurance can be classified into
four categories from the risk point of view.
Personal Insurance
The personal insurance includes insurance of human life which may suffer loss due
to death, accident, and diseaseTherefore, the personal insurance is further sub-
classified into life insurance, personal accident insurance, and health insurance.

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Property Insurance
The property of an individual and of the society is insured against loss of fire and
marine perils, the crop is insured against an unexpected decline in deduction,
unexpected death of the animals engaged in business, break-down of machines and
theft of the property and goods.
Guarantee Insurance
The guarantee insurance covers the loss arising due to dishonesty, disappearance,
and disloyalty of the employees or second party. The party must be a party to the
contract.His failure causes loss to the first party. For example, in export insurance,
the insurer will compensate the loss at the failure of the importers to pay the
amount of debt.
Other Forms of Insurance
Beside the property and liability insurances, there are other insurances which are
included in general insurance.The examples of such insurances are export-credit
insurances, State employees insurance, etc. whereby the insurer guarantees to pay
a certain amount at the certain events.This insurance is extending rapidly these
days.
Miscellaneous Insurance
The property, goods, machine, Furniture, automobiles, valuable articles, etc. can
be insured against the damage or destruction due to accident or disappearance due
to theft.There are different forms of insurances for each type of the said property
whereby not only property insurance exists but liability insurance and personal
injuries are also insurer.

Health insurance
Health insurance is a type of insurance coverage that covers the cost of
an insured individual's medical and surgical expenses. ... Depending on the type of
health insurance coverage, either the insured pays costs out of pocket and receives
reimbursement, or the insurer makes payments directly to the provider.

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Types of Insurance Organization in Nepal
• RastriyaBeemaSamsthan. ...
Type: Life and Non Life Insurance
Address: R.B.S. Building, Ramshahpath Kathmandu
Contact: 01-4262520
• National Life Insurance Company Ltd. ...
• Prime Life Insurance Company Ltd. ...
• Nepal Life Insurance Comany Ltd. ...
• Life Insurance Corporation (Nepal) Ltd. ...
• American Life Insurance Company Ltd. ...
• Asian Life Insurance Company Ltd. ...
• Gurans Life Insurance Company Ltd.

Role and Importance of Insurance

1. Security and Safety:

The insurance provides safety and security against the loss on any event. In other
words, security against premature death and old age are provided security by life
insurance. The property of insured is secured against loss on a fire in fire
insurance. Insurance provides security against the loss at damage, destruction or of
property, goods, furniture and machines too.

2. Peace of Mind:

Insurance helps in reducing fear and uncertainty. These risks (Fire, accident,
damage and death etc.) are almost beyond the control human and in occurrence of
any of these events, people can bear loss of peace of mind. By insurance much of
the uncertainty that causes the loss of peace inside an individual is eliminated.

3. Insurance protects Mortgaged Property:

When an insured dies and the insured property is not named to any other nominee
then that property is protected by the insurance company or is given to the closest
member of the family.

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4. Life Insurance encourages saving:

Insurance encourages the habit of saving to an individual because the insured

should compulsorily pay the amount of premium in time as stated in the
agreement. Systematic saving is possible because regular premiums are required to
be compulsorily paid. In insurance the deposited premium cannot be withdrawn;
only the deposited amount along with the interest is paid. The insurance, thus,
provides the wished amount of insurance.

5. Family Needs and old age of Insurance:

Every person is responsible for the welfare of family insurance thus helps to
ensure peace and prosperity to all the family members with protection of life.
When people turn old they cannot earn. They may or may not get pension as per
their nature of contribution in their youth and as per their nation’s concerns. So,
insurance helps them to move their livelihood ahead due to helping them replaying
back their insured amount in time when they need the most Education. There are
certain insurance policies, and annuities which are useful for education of the
children irrespective of the death or survival of the father or guardian.

6. Uncertainty of business losses is reduced:

Industry has a huge number employed people with a slight negligence, the
property may be destroyed. The accident may harm not only to the individual or
property new establishment are possible only with the help of insurance.
An employed people also may not be sure of his life and again, the owner of a
business might be in great loss, by making an annual payment, to secure
immediately, insure policy can be taken.

7. Business-efficiency is increased with insurance:

When the owner of a business is free from of losses, he will certainly devote much
time to the business. The care free owner can work better for the maximization of
the profit. The new as well as old businessmen are guaranteed payment of certain
amount with the insurance policies at the death of the person; at the damage,
destruction or disappearance of the property or goods. The insurance, removing the
uncertainty, stimulates the businessmen to work hard.

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8. Enhancement of Credit:

If the property of the business enterprise is insured then that insurance company on
behalf of the creditors can help to get loan very easily.

10. Welfare of Employees:

Employees are the assets of the organization. Thus, business firm fulfill the
responsibilities by doing insurance for employees. It is the welfare of employees
from which the firm can move to its destination with the help of employees.

11. Wealth of the society is protected:

The loss of a particular wealth can be protected with the insurance. Life insurance
provides loss of human wealthiest, human material can generate less income.
Similarly, the loss of damage of property at fire, accident, etc., can be well settles
by the property insurance; cattle, crop, profit and machines are also protected
against their accidental and economic losses. With the advancement of the society,
the wealth or the property of the society attracts more hazardous and, so new types
of insurance are also invented to protect them against the possible losses. Each and
every member will have financial security against old age, death, damage,
destruction and disappearance of his wealth including the life wealth. Through
prevention of economic losses, instance protects the society against degradation.

12. Economic Growth of the Country:

For the economic growth of the country, insurance provides strong protection
against loss of property and adequate capital to produce more wealth. The
agriculture will experience protection against losses of cattle, machines, tools and
crop. This sort of protection brings more production in agriculture, industry,
factory machines. Insurances provide more confidence to start the industry and
welfare of employees create a better atmosphere to work: Similarly in business,
too, the property and human material are protected against certain losses; capital
and credit are expanded with the help of insurance. Thus, the insurance meets all
the requirements of the economic growth of a country.

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Insurance contract policy
The insurance policy is a contract (generally a standard form contract) between the
insurer and the insured, known as the policyholder, which determines the claims which
the insurer is legally required to pay. In exchange for an initial payment, known as the
premium, the insurer promises to pay for loss caused by perils covered under the policy
language.

Essential Elements of Insurance Contract

The fundamental principle of Insurance is mathematical; its application is financial; and

its interpretation is legal. Insurance may be defined as a contract between two parties
whereby one party called insurer undertakes in exchange for a fixed sum called premium
to pay the other party called insured a fixed amount of money after happening of a certain
event.Some essential elements must be considered in its process of validity.
The insurance contract, like any other contracts must satisfy the usual conditions of a
contract. The essentials of insurance contracts are as follows:

Agreement

Agreement means communication by the parties to one another of their intentions to

create legal relationship. For a valid contract of insurance, there must be an agreement
between the parties, i.e. one making offer or proposal and another accepting the proposal
or signifying his acceptance upon proposal.

Free consent

There must be free consent between the parties to contract. Consent means that parties to
an agreement must agree on a specific thing in the same sense or their understanding
should be the same. Consent must be given by the parties thereto in a contract, freely,
independently, without any fear and favor. The consent is known to be free when it is not
caused by, fraud, misrepresentation, mistakes and other undue influences.

Competent to contract

The parties in an agreement must be legally competent to enter into the contract. It means
both parties in the insurance contract must be age of majority, posses sound mind and not
disqualified by any law of the country. It clears that a person who is minor, lunatics, idiot
and alike cannot enter into a insurance contract. The contract entered into by these will be
declared as void.

Lawful object

In insurance contract, the object of the contract must be lawful as in other types of
contracts. The agreement must not relate to a thing which is contrary to the provision of

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 any law or has expressly been forbidden by any law. It must not be of such nature that if
permitted, it implies injury to the person or property of other or immoral or opposed to
public policy.

Lawful consideration

There must be due and lawful consideration in the insurance contract. The consideration,
for which the contract is entered and created by the parties, must be lawful. To establish
legal relationship, to create obligation between them and to make it enforceable by law
there must be lawful consideration.

Compliance with legal formalities

To make an agreement valid, prescribed legal formalities of writing, registration, etc.

must have been observed. In the contract of insurance, the agreement between parties
must be in written form and dully signed by both parties, properly attested by witness and
registered otherwise; it may not be enforced by the court.

• Utmost Good Faith (Uberrima Fides)

• Insurable Interest
• Indemnity
• Subrogation
• Proximate Cause

Subject matter of insurance

Subject matter of insurance is the life, limbs, property, rights or any potential
legal liability insured under a policy. Subject matter of contract is the
insured's financial interest in the subject matter of insurance.The subject-matter
in life insurance is life. The chances of death would increase along with the
advance in age whatever precautionary measures may be taken for
improvement of health whereas the property in other insurance can be repaired
and replaced and may remain usually in good condition.

For example, In particular, there is a marine adventure where:

➢ Any ship goods or other movables are exposed to maritime perils. Such property
is as ‘insurable property’;
➢ the earning or acquisition of any freight, passage money, commission, profit, or
other pecuniary benefit, or the security for any advances, loan, or disbursements,
is endangered by the exposure of insurable property to maritime perils;
➢ any liability to a third party may be incurred by the owner of, or other person
interested in or responsible for, insurable property, by reason of maritime perils.

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Classification of Insurance contract
Auto Insurance contract
In the case of protecting a vehicle, you can get insurance to safeguard against the
unforeseen. Auto insurance pays for damages arising out of a loss involving your
automobile. If the vehicle is deemed a total loss and an insurance policy is current,
provider will have to pay its value depending upon the specific policy.

Homeowners Insurance
Homeowners insurance pays for losses relating to the home. Homeowner’s
insurance companies agree to pay for damage to the home. Finally, the liability
portion of risk pays for injuries sustained on the property as well as injuries and
damage.

Umbrella Insurance
Umbrella insurance is named as liability insurance policies. It extends the liability
limits that already have by the amount purchased under the umbrella policy. These
policies are typically sold in increments of certain amount.

Re-insurance
Reinsurance, also known as insurance for insurers or stop-loss insurance, is the practice of
insurers transferring portions of risk portfolios to other parties by some form of agreement to
reduce the likelihood of paying a large obligation resulting from an insurance claim. The
party that diversifies its insurance portfolio is known as the ceding party. The party that
accepts a portion of the potential obligation in exchange for a share of the insurance
premium is known as the reinsurer. According to sec.2 (h) of insurance Act, 2049, "Re-
Insurance Business" means re-insuring the portion of the risk which is excess of the risk to be
hold by the Insurer.

By covering the insurer against accumulated individual commitments, reinsurance gives the
insurer more security for its equity and solvency and more stable results when unusual and
major events occur. Insurers may underwrite policies covering a larger quantity or volume of
risks without excessively raising administrative costs to cover their solvency margins. In

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 addition, reinsurance makes substantial liquid assets available for insurers in case of
exceptional losses.

Duty of Disclosure
The word meaning of disclosure is the disclosing of information. Each party to a lawsuit has
the duty to disclose certain information, such as the names and addresses of witnesses, and
copies of any documents that it intends to use as evidence, to the opposing party. The rules
applicable in state courts vary from state to state. In United States patent law, during patent
prosecution, an applicant has a duty to disclose all information material to patentability.
Breach of this duty can lead to a holding of inequitable conduct, in which case the patent is
unenforceable.
In Australia, Duty of disclosure requires all parties to a family law dispute to provide to each other
party all information relevant to an issue in the case. This includes information recorded in a paper
document or stored by some other means such as a computer storage device and also includes
documents that the other parties may not know about. This duty starts with the pre-action procedure
before the case starts and continues until the case is finalized. As a party, you must continue to
provide such information as circumstances change or more documents are created or come into your
possession, power or control.

It requires disclosing all sources of earnings, interest, income, property (vested or contingent
interests) and other financial resources. These apply whether the property, financial resources and
earnings are owned by or come to the party directly, or go to some other person or beneficiary (for
example, the party’s child or de facto partner) or are held in corporations, trusts, company or other
such structures. Also required to be disclosed is information about any property disposal (whether by
sale, transfer, assignment or gift) that was made in the year immediately before the separation of the
parties or since the final separation and that may affect, defeat or deplete a claim.

Disclosure of documents
▪ production of documents
▪ inspection of documents
▪ copying of documents
▪ list of documents
▪ orders for disclosure and
▪ answers to specific questions

Non-Disclosure
Non-Disclosure is a legal contract between at least two parties that outlines confidential
material, knowledge, or information that the parties wish to share with one another for certain
purposes, but wish to restrict access to or by third parties. It is a contract through which the
parties agree not to disclose information covered by the agreement. An NDA (non disclosure

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 agreement) creates a confidential relationship between the parties to protect any type of
confidential and proprietary information or trade secrets. As such, an NDA protects non-
public business information. Like all contracts, they cannot be enforced if the contracted
activities are felonies.
NDAs are commonly signed when two companies, individuals, or other entities (such as
partnerships, societies, etc.) are considering doing business and need to understand the
processes used in each other's business for the purpose of evaluating the potential business
relationship. NDAs can be "mutual", meaning both parties are restricted in their use of the
materials provided, or they can restrict the use of material by a single party.
• It is also possible for an employee to sign an NDA or NDA-like agreement with an
employer. In fact, some employment agreements will include a clause restricting
employees' use and dissemination of company-owned confidential information.
• In legal disputes resolved by settlement, the parties often sign a confidentiality agreement
relating to the terms of the settlement.
A non-disclosure agreement can protect any type of information that is not generally known.
However, nondisclosure agreements may also contain clauses that will protect the person
receiving the information so that if they lawfully obtained the information through other
sources they would not be obligated to keep the information secret. In other words, the
nondisclosure agreement typically only requires the receiving party to maintain information
in confidence when that information has been directly supplied by the disclosing party.
Ironically, however, it is sometimes easier to get a receiving party to sign a simple agreement
that is shorter, less complex and does not contain safety provisions protecting the receiver.

Effects of Non-disclosure
The principle of good faith imposes a duty on both the insured and insurer in a
contract of Insurance. The duty of disclosure does not arise from the contract of
insurance. This duty is neither contractual nor tortious, fiduciary nor statutory in
character, but its basis rests on the jurisdiction, which is originally exercised by the
Courts of Equity to prevent imposition. According to sec. 36 of Insurance Act, 2049
and According to Section 17 of the Indian Contract Act, 1872 provides that mere
silence does not amount to fraud unless there is a duty to speak. So we can say that
the legal duty as provided in the Explanation does not apply to cases where there is a
positive case of active fraudulent misrepresentation.

Material Fact
The word "material" means that the subject matter of the statement [or concealment]
related to a fact or circumstance which would be important to the decision to be made
as distinguished from an insignificant, trivial or unimportant detail. (e.g. re: insurance
fraud)

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 To be material, an assertion [or concealment] must relate to a fact or circumstance
that would affect the liability of an insurer (if made during an investigation of the
loss), or would affect the decision to issue the policy, or the amount of coverage or the
premium (if made in the application for the policy). A material fact is one which
might affect the outcome of the case under governing law. Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248 (1986). To preclude summary judgment, the dispute
about a material fact must also be "genuine."

DEFINITION of 'Burden Of Proof'

A legal standard that requires parties to demonstrate that a claim is valid or invalid based
on facts and evidence. Burden of proof is typically required of one party in a claim, and in
many cases the party that is filing a claim is the party that must demonstrate that the claim is
valid. The burden of proof requirement is designed to ensure that legal decisions are made
based on facts rather than by conjecture. In insurance, it is used in the courts to determine
whether a loss is covered by an insurance policy. Typically, the insured has the burden of
proof to demonstrate that a loss is covered under the policy, while the insurer has the burden
of proof to demonstrate that a loss was excluded under the terms of the policy contract.

In some cases several insurance companies will use the courts to determine which company
is responsible for providing coverage. This situation occurs in circumstances in which the
insured has several different policies covering similar or related risks. The insurers are
required to demonstrate either that the loss was caused by an event that was not covered
under the policy, or that another insurance company is responsible for the coverage. The
courts may decide that a particular policy is responsible for providing coverage, but may also
determine that the different insurers are responsible for a portion of the loss. Providing
information to prove that insurance coverage applies can be complicated. For example, a
homeowner may have his or her home destroyed during a hurricane. The homeowner’s
policy may provide coverage for losses caused by wind, but not by water. The insured must
prove that the destruction was caused by wind, while the insurer will try to prove that the
damage was caused by water. The courts may find that both types of risk caused the damage.

Indisputable policy
Disputable means not established as a fact, and so open to question or debate. Indisputable
established as a fact and no open to question or debate. Indisputable means not
disputable: UNQUESTIONABLE. A life insurance policy is likely to have an
indisputability clause. This clause states that the insurance company will not dispute any
claim after it has been in force for one or two years, except in the case of fraud.

The purpose of this clause is to protect the consumer (i.e. policyholder) from unreasonable
rejection of a death claim due to non-disclosure of material information. After a policy has
been issued for a few years, it will be difficult to establish if the non-disclosure is intended or
an oversight. The indisputability clause states that the insurance company will not dispute the

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 claim on this account. The claim can be disputed if the premium is not paid.
Some claim officers are willing to dispute a claim under the "fraud" clause. They claim that
policyholder is committing fraud by the non-disclosure. This stand is in contraction to the
indisputability clause.

The insurance policy is a contract (generally a standard form contract) between the insurer
and the insured, known as the policyholder, which determines the claims which the insurer
is legally required to pay.

Insurance policy
In insurance, the insurance policy is a contract (generally a standard form contract) between
the insurer and the insured, known as the policyholder, which determines the claims which
the insurer is legally required to pay. In exchange for an initial payment, known as the
premium, the insurer promises to pay for loss caused by perils covered under the policy
language.
Insurance contracts are designed to meet specific needs and thus have many features not
found in many other types of contracts. Since insurance policies are standard forms, they
feature boilerplate language which is similar across a wide variety of different types of
insurance policies.
The insurance policy is generally an integrated contract, meaning that it includes all forms
associated with the agreement between the insured and insurer. In some cases, however,
supplementary writings such as letters sent after the final agreement can make the insurance
policy a non-integrated contract. One insurance textbook states that generally "courts
consider all prior negotiations or agreements ... every contractual term in the policy at the
time of delivery, as well as those written afterward as policy riders and endorsements ... with
both parties' consent, are part of the written policy". The textbook also states that the policy
must refer to all papers which are part of the policy. Oral agreements are subject to the parol
evidence rule, and may not be considered part of the policy if the contract appears to be
whole. Advertising materials and circulars are typically not part of a policy. Oral contracts
pending the issuance of a written policy can occur. Indisputable insurance
policy…………….

Terms and Conditions of policy

Premiums
a) An insurance premium is the amount of money an individual or business pays for an
insurance policy. Insurance premiums are paid for policies that cover healthcare, auto,
home, and life insurance.Premiums for policy must be paid monthly or according
to the consent between the parties.
b) The initial monthly premium payable and the date it is due are shown in the
policy schedule. Subsequent premiums will be due on the premium due date. If

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 a premium is not paid within said days from the premium due date the policy
will be cancelled and all benefits under it will cease.
c) All premiums made in the currency of the United Kingdom, Policy term the
policy term must be for a minimum period of 12 months. The maximum policy
term is 55 years, except where the waiver of premium option has been selected
in which case; the maximum term is 50 years.However the actual maximum
policy term available is restricted to the life insured being 90 years old or less at
the policy end date, or 75 years or less where waiver of premium option has
been selected.
Cancellation
The termination of an insurance policy or bond, before its expiration, by either the insured or the
insurer, Insurance policy cancellation provisions require insurers to notify insured’s in
advance (usually 30 days) of canceling a policy and stipulate the manner in which any
unearned premium will be returned. As respects reinsurance, cancellation is used in the
following contexts: (1) Runoff basis means that the liability of the reinsurer under policies
that became effective under the treaty prior to the cancellation date of such treaty shall
continue until the expiration date of each policy. (2) Cutoff basis means that the liability of
the reinsurer under policies that became effective under the treaty prior to the cancellation
date of such treaty shall cease with respect to losses resulting from accidents taking place on
and after said cancellation date. Usually the reinsurer will return to the company the
unearned premium portfolio, unless the treaty is written on an earned premium basis.
Alterations
A life insurance policy not only secures the financial future of the insured’s family but also helps
vastly in dire situations like debt. An insurance company lays down certain rules and
regulations that policy buyers are expected to follow when purchasing an insurance policy.
However, once the policy has been purchased, one may find certain discrepancies that one
may want to change. These discrepancies are called alterations.Alterations in LIC policy can
be requested by the relevant policyholder after the purchase of the policy. However,
insurance companies typically lay down certain guidelines that one needs to abide by.A
policy might not be deemed suitable to the policyholder for multiple reasons, as a result of
which he/she might want to alter or modify the same. LIC encompasses different types of
policy alterations; however, any modification request made during the first year of the
purchase of the policy will not be accepted.

Types of Alterations in LIC Policy:

Alteration in class
Alteration in term
Lowering the sum assured amount
Alteration of the premium payment mode
Subtracting additional premium
Switching to a with-profit plan from a without-profit plan
Alteration of the policyholder’s name

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 Correction in the holding policies
Option for settlement of sum assured through installments
Accident benefit grant
Premium waiver benefit grant
Currency alteration and place of payment

Definition of 'Proposal Form'

Document completed giving details required by insurers to enable them to decide whether to
accept the risk and on what premium terms and conditions. Once agreed by both parties, it
forms the basis of the insurance contract. Proposal form is the most important and basic
document required for life insurance contract between the insured and insurance company. It
includes the insured's fundamental information like address, age, name, education,
occupation etc. It also includes the person's medical history.A life insurance company offers
a policy on the basis of a proposal form. The form is the most basic requirement for the
functioning of the life insurance contract between you and the life insurance company. It
needs to be completed by the proposer who may seek the assistance of a life insurance
advisor to fill it up.

A proposal form seeks basic information of the proposer and the life assured. This includes
the name, age, address, education and employment details of the proposer. The proposal form
also gathers information on the medical history of the life to be assured. There are questions
pertaining to the health status of family members of the life to be assured. The proposer and
the life to be assured have to mention their incomes in the proposal form to satisfy the insurer
about their ability to pay for the insurance and the need for insurance, respectively. Proposal
form helps the insurance company to calculate all the potential risks in relation to the
insurance policy and hence deciding the premium amount.

Cover Note
A cover note is a temporary document issued by an insurance company that provides proof
of insurance coverage until a final insurance policy can be issued. A cover note is different
from a certificate of insurance or an insurance policy document. A cover note features the
name of the insured, the insurer, the coverage and what is being covered by the insurance.

Insurance companies issue a cover note in order to provide an individual with proof of
insurance before all the insurance paperwork has been processed. During this time, the

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 insurer may continue to evaluate the risks associated with insuring the holder of the cover
note, and the cover note will continue to serve as the insurer’s proof that he or she has
purchased coverage until the insurer issues the policy documents and certificate of insurance.
In general, the cover note provides the same level of coverage as the full insurance policy,
though insurers may place some restrictions while they make any final determinations on the
risks associated with the insurance policy.

Delivery of Insurance policy

In insurance, the insurance policy is a contract (generally a standard form contract) between
the insurer and the insured, known as the policyholder, which determines the claimswhich
the insurer is legally required to pay. In exchange for an initial payment, known as the
premium, the insurer promises to pay for loss caused by perils covered under the policy
language.

Subject to the insurer’s requirements for paying premiums, the insurer shall mail or deliver
every policy to the insured or to the person entitled to the policy within a reasonable period
of time after the insurer issues the policy, unless the insured has not met a condition required
by the insurer.

If the insurer delivers or deposits, or must deliver or deposit, the original policy to or with
any vendor, mortgagee or pledgee of any motor vehicle, and the original policy insures the
vendee’s, mortgagor’s or pledgor’s interest in or with reference to the motor vehicle, the
vendor, mortgagee or pledgee shall deliver a duplicate or memorandum of the policy that sets
forth the name and address of the insurer, the insurance classification of the vehicle, the type
of coverage, the limits of liability, premiums for the respective coverages and the duration of
the policy to each vendee, mortgagor or pledgor that is named in the policy or that is within
the group of persons the policy specifies must be included. If the policy does not cover legal
liability for injury to persons or damage to the property of third parties, the face of the
duplicate policy or memorandum must conspicuously state, in writing, in print or with a
stamp, that the policy does not provide such coverage. This subsection does not apply to
inland marine floater policies.

There are number of steps that an agent must complete during the delivery process,
including:

• Physically delivering the policy

• Collecting the initial premium
• Explaining the policy's provisions, riders as well as the rating
• Verify the medical condition of the insured
• Obtain a signed delivery receipt

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Life insurance policy
Life insurance is defined as "a mutual agreement by which one party agrees to pay a
given sum upon the happening of a particular event contingent upon the duration of
human life, in consideration of the payment of a smaller sum immediately, or in
periodical payments by the other party."
According to Investopedia.com:
Term life insurance, also known as pure life insurance, is a type of life insurance that
guarantees payment of a stated death benefit if the covered person dies during a
specified term. Once the term expires, the policyholder can renew it for another term,
convert the policy to permanent coverage, or allow the policy to terminate.

• Life policies are legal contracts and the terms of the contract describe the limitations of
the insured events. Specific exclusions are often written into the contract to limit the
liability of the insurer; common examples are claims relating to suicide, fraud, war, riot,
and civil commotion. There is no exact policy in Life Insurance Company. It depends on
the policies provided by insurance companies but major principles they adopt.
• Life insurance is a legally binding contract.
• For the contract to be enforceable, the life insurance application must
accurately disclose the insured’s past and current health conditions and
high-risk activities.
• For a life insurance policy to remain in force, the policyholder must pay a
single premium up front or pay regular premiums over time.
• When the insured dies, the policy’s named beneficiaries will receive the
policy’s face value, or death benefit.
• Term life insurance policies expire after a certain number of years.
Permanent life insurance policies remain active until the insured dies,
stops paying premiums, or surrender the policy.
• A life insurance policy is only as good as the financial strength of the
company that issues it. State guaranty funds may pay claims if the issuer
can’t.

Life-based contracts tend to fall into two major categories:

• Protection policies – designed to provide a benefit, typically a lump sum payment, in the
event of a specified occurrence. A common form—more common in years past—of a
protection policy design is term insurance.
• Investment policies – the main objective of these policies is to facilitate the growth of
capital by regular or single premiums. Common forms (in the U.S.) are whole
life, universal life, and variable life policies.

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Types of Life Insurance Policy
Term life insurance policy
Term life insurance or term assurance is life insurance that provides coverage at a fixed rate
of payments for a limited period of time, the relevant term. After that period expires,
coverage at the previous rate of premiums is no longer guaranteed and the client must either
forgo coverage or potentially obtain further coverage with different payments or conditions.
If the life insured dies during the term, the death benefit will be paid to the beneficiary. Term
insurance is typically the least expensive way to purchase a substantial death benefit on a
coverage amount per premium dollar basis over a specific period of time.

Whole life insurance policy

Whole life insurance, or whole of life assurance (in the Commonwealth of Nations),
sometimes called "straight life" or "ordinary life," is a life insurance policy which is
guaranteed to remain in force for the insured's entire lifetime, provided required premiums
are paid, or to the maturity date.[1] As a life insurance policy it represents a contract between
the insured and insurer that as long as the contract terms are met, the insurer will pay the
death benefit of the policy to the policy's beneficiaries when the insured dies. Because whole
life policies are guaranteed to remain in force as long as the required premiums are paid, the
premiums are typically much higher than those of term life insurance where the premium is
fixed only for a limited term. Whole life premiums are fixed, based on the age of issue, and
usually do not increase with age. The insured party normally pays premiums until death,
except for limited pay policies which may be paid up in 10 years, 20 years, or at age 65.
Whole life insurance belongs to the cash value category of life insurance, which also
includes universal life, variable life, and endowment policies.

Universal life insurance policy

Universal life insurance (often shortened to UL) is a type of cash value[. life insurance, sold
primarily in the United States. Under the terms of the policy, the excess of premium
payments above the current cost of insurance is credited to the cash value of the policy,
which is credited each month with interest. The policy is debited each month by a cost of
insurance (COI) charge as well as any other policy charges and fees drawn from the cash
value, even if no premium payment is made that month. Interest credited to the account is
determined by the insurer but has a contractual minimum rate (often 2%). When an earnings
rate is pegged to a financial index such as a stock, bond or other interest rate index, the policy
is an "Indexed universal life" contract. Such policies offer the advantage of guaranteed level
premiums throughout the insured's lifetime at a substantially lower premium cost than an
equivalent whole life policy at first. The cost of insurance always increases, as is found on
the cost index table (usually p. 3 of a contract). That not only allows for easy comparison of
costs between carriers but also works well in irrevocable life insurance trusts (ILITs) since
cash is of no consequence.

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Indexed universal life insurance policy

Universal life (UL) insurance comes in a lot of different flavors, from fixed-rate models
to variable ones, where you select various equity accounts to invest in. Indexed universal life
(IUL) insurance allows the owner to allocate cash value amounts to either a fixed account or
an equity index account. Policies offer a variety of well-known indexes, such as the Nasdaq-
100 or the S&P 500,

IUL insurance policies offer tax-deferred cash accumulation for retirement while maintaining
a death benefit. People who need permanent life insurance protection but wish to take
advantage of possible cash accumulation via an equity index might use IULs as key person
insurance for business owners, premium financing plans, or estate-planning vehicles. IULs
are considered advanced life insurance products in that they can be difficult to adequately
explain and understand.

Formation of Life Insurance Contract

Life insurance is a contract between an insurer and a policyholder in which the insurer
guarantees payment of a death benefit to named beneficiaries when the insured dies. The
insurance company promises a death benefit in exchange for premiums paid by the
policyholder. There are different life insurance policies in difference insurance companies
(Nepal Life insurance, life insurance corporation Nepal, National life insurance Company,
prime life insurance, Union life insurance, citizen life insurance… etc.)
Contract terms
Special exclusions may apply, such as suicide clauses, whereby the policy becomes null and
void if the insured commits suicide within a specified time (usually two years after the
purchase date; some states provide a statutory one-year suicide clause). Any
misrepresentations by the insured on the application may also be grounds for nullification.
Most US states specify a maximum contestability period, often no more than two years. Only
if the insured dies within this period will the insurer have a legal right to contest the claim on
the basis of misrepresentation and request additional information before deciding whether to
pay or deny the claim.
Costs, insurability, and underwriting
The insurance company calculates the policy prices (premiums) at a level sufficient to fund
claims, cover administrative costs, and provide a profit. The cost of insurance is determined
using mortality tables calculated by actuaries. Mortality tables are statistically based tables
showing expected annual mortality rates of people at different ages. Put simply, people are
more likely to die as they get older and the mortality tables enable the insurance companies
to calculate the risk and increase premiums with age accordingly. Such estimates can be
important in taxation regulation.
The mortality tables provide a baseline for the cost of insurance, but the health and family
history of the individual applicant is also taken into account (except in the case of Group
policies). This investigation and resulting evaluation is termed underwriting. Health and

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 lifestyle questions are asked, with certain responses possibly meriting further investigation.
Specific factors that may be considered by underwriters include:

• Personal medical history

• Family medical history[
• Driving record
• Height and weight matrix, otherwise known as BMI (Body Mass
Index)

Death proceeds
Upon the insured's death, the insurer requires acceptable proof of death before it pays the
claim. The normal minimum proof required is a death certificate, and the insurer's claim form
completed, signed, and typically notarized. If the insured's death is suspicious and the policy
amount is large, the insurer may investigate the circumstances surrounding the death before
deciding whether it has an obligation to pay the claim. Payment from the policy may be as a
lump sum or as an annuity, which is paid in regular installments for either a specified period
or for the beneficiary's lifetime.
Term insurance

Term assurance provides life insurance coverage for a specified term. The policy does not
accumulate cash value. Term insurance is significantly less expensive than an equivalent
permanent policy but will become higher with age. Policy holders can save to provide for
increased term premiums or decrease insurance needs (by paying off debts or saving to
provide for survivor needs).
Group life insurance
Group life insurance (also known as wholesale life insurance or institutional life insurance)
is term insurance covering a group of people, usually employees of a company, members of a
union or association, or members of a pension or superannuation fund. Individual proof of
insurability is not normally a consideration in its underwriting. Rather, the underwriter
considers the size, turnover, and financial strength of the group. Contract provisions will
attempt to exclude the possibility of adverse selection. Group life insurance often allows
members exiting the group to maintain their coverage by buying individual coverage. The
underwriting is carried out for the whole group instead of individuals.

Permanent life insurance

Permanent life insurance is life insurance that covers the remaining lifetime of the insured. A
permanent insurance policy accumulates a cash value up to its date of maturation. The owner
can access the money in the cash value by withdrawing money, borrowing the cash value, or
surrendering the policy and receiving the surrender value.
The three basic types of permanent insurance are whole life, universal life, and endowment.
Whole life

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 Whole life insurance provides lifetime coverage for a set premium amount. Whole life
insurance, or whole of life assurance (in the Commonwealth of Nations), sometimes called
"straight life" or "ordinary life," is a life insurance policy which is guaranteed to remain in
force for the insured's entire lifetime, provided required premiums are paid, or to the maturity
date.[1] As a life insurance policy it represents a contract between the insured and insurer that
as long as the contract terms are met, the insurer will pay the death benefit of the policy to
the policy's beneficiaries when the insured dies. Because whole life policies are guaranteed to
remain in force as long as the required premiums are paid, the premiums are typically much
higher than those of term life insurance where the premium is fixed only for a limited term.
Whole life premiums are fixed, based on the age of issue, and usually do not increase with
age. The insured party normally pays premiums until death, except for limited pay policies
which may be paid up in 10 years, 20 years, or at age 65. Whole life insurance belongs to
the cash value category of life insurance, which also includes universal life, variable life,
and endowment policies.

Universal life coverage

Universal life insurance (ULl) is a relatively new insurance product, intended to combine
permanent insurance coverage with greater flexibility in premium payments, along with the
potential for greater growth of cash values. There are several types of universal life insurance
policies, including interest-sensitive (also known as "traditional fixed universal life
insurance"), variable universal life (VUL), guaranteed death benefit, and has equity-indexed
universal life insurance.
Endowments
The endowment policy is a life insurance contract designed to pay a lump sum after a
specific term (on its 'maturity') or on death. Typical maturities are ten, fifteen or twenty years
up to a certain age limit. Some policies also pay out in the case of critical illness. Policies are
typically traditional with-profits or unit-linked (including those with unitized with-profits
funds).
Accidental death
Accidental death insurance is a type of limited life insurance that is designed to cover the
insured should they die as the result of an accident. "Accidents" run the gamut from
abrasions to catastrophes but normally do not include deaths resulting from non-accident-
related health problems or suicide. Because they only cover accidents, these policies are
much less expensive than other life insurance policies.

Willful Misconduct

Willful Misconduct means any intentional wrongful act or intentional wrongful failure to act
(whether sole, joint or concurrent) with actual knowledge that such act (or failure to act) is
wrongful and with the intention to cause injury to a person, physical loss of or damage to

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 property, breach of a contract or quasi -contract or breach of any Government Requirement. As
one would expect, damage or loss caused by wilful misconduct is excluded fromcoverage.
This includes both intentional wrongdoing and conduct exhibiting reckless indifference to the
outcome of one's actions.
1. Wilful misconduct on the part of master or crew;
2. Loss caused by delay, including delay caused by an insured peril;
3. Ordinary wear and tear;
4. Inherent vice; and
5. Lack of due diligence of assured or managers.

Misconduct means unacceptable or bad behaviour by someone or authority or

responsibility. Wilful misconduct means knowingly doing bad behaviour by some one. One
of the best known exclusions of cover of a liability-insurance is damage resulting from
willful misconduct. It is no surprise that damages made on purpose by the insured are not
covered. Not only because this would conflict with the values of society but it also would
intervene with what insurance stands for: cover for uncertain damages on uncertain times.
Every insurer uses its own description but in general one could say that every liability
insurance does exclude cover for damages which the insured intended, or damages which
would certainly occur from certain actions.
Companies or business owners can buy insurance policies to protect them from the
negligent acts of their own employees, but the issue of willful misconduct is much less clear.
While an insurance company may be able to deny a claim based on willful misconduct, it can
sometimes be forced to pay a claim in cases of gross negligence.
An insurance policy may specifically state that acts of negligence are covered but acts of
gross negligence are not, or it may state that acts of negligence are covered but acts of willful
misconduct are not. For example, if a pizza delivery driver commits a hit and run accident,
the insurance company could argue that his criminal actions were a case of willful
misconduct rather than negligence. If the court agreed, the pizzeria could be forced to pay
any damages despite being covered for gross negligence.

Suicide
Suicide is the act of intentionally causing one's own death. Mental disorders—
including depression, bipolar disorder, autism, schizophrenia, personality disorders, anxiety
disorders, physical disorders such as chronic fatigue syndrome, and substance abuse—
including alcoholism and the use of and withdrawal from benzodiazepines—are risk
factors. Some suicides are impulsive acts due to stress (such as from financial or academic
difficulties), relationship problems (such as breakups or deaths of close ones), or
harassment/bullying. Those who have previously attempted suicide are at a higher risk for
future attempts. Effective suicide prevention efforts include limiting access to methods of
suicide—such as firearms, drugs, and poisons; treating mental disorders and substance
misuse; careful media reporting about suicide; and improving economic conditions. Even
though crisis hotlines are common, they have not been well studied.

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 In the aftermath of a suicide comes sadness, pain, confusion and even anger. For family
members, though, there may eventually be financial matters to deal with as well. For
family members in general, two policy clauses can come into play when someone they
love dies by his or her own hand. If either clause is invoked by the insurance company,
the insured person’s family would receive no death benefit, though they would get back
the premiums paid for the policy.

The key rules

* The “suicide clause.” Usually, this clause states that no death benefit will be
paid if the insured commits suicide within said years of taking out a policy.
Families may have to fight
There are plenty of examples where family members had to go to court to collect
insurance benefits. Heath Ledger, who played the Joker in the movie The Dark
Knight, died in early 2008, just seven months after he took out a $10 million life
insurance policy. The New York Medical Examiner’s office ruled that the death
was an “accident, resulting from the abuse of prescribed medications.” This raised
two questions. Was the death a suicide? And did Ledger have a drug habit that
wasn’t disclosed on his policy application?
It doesn’t matter how old you are, what your financial situation is, or the status
of your health. Suicide and its contributing factors can affect anyone, and for
those left behind, it’s something that can never be fully understood.
Unfortunately, it is a reality for some. Suicide is the cause of death for nearly
30K people each year in the U.S., and many of them have life insurance
policies. The number one question regarding suicide and life insurance is if
policy beneficiaries would receive any benefits if the policyholder takes their
own life. After suffering the loss of a loved one, times can seem even tougher if
a life insurance claim is denied. However, take heart if you’ve found yourself in
this situation, because there’s a big misconception about suicide and life
insurance.

Recoverable amount

Recoverable amount is the greater of an asset's fair value less costs to sell, or its value in
use. Value in use refers to the present value of future cash flows expected to be derived
from an asset. Thus, the concept essentially focuses on the greatest value that can be
obtained from an asset, either by selling or using it. The recoverable amount concept is
used in the international financial reporting standards framework.The recoverable amount

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 of an asset refers to the present value of the expected cash flows that are to arise from the
sale or use of the asset and is calculated as greater of the two amounts, namely, the fair value
of the asset as reduced by the related selling costs, and value in the use of such assets.

The accounting standards require the companies to report the instances in the financial
statements where the carrying amount of an asset is greater than its recoverable amount.
Further, it is present in International Accounting Standard (“IAS 36”). It provides for
provision for an impairment loss in case the carrying value of an asset is more than its
recoverable amount. The carrying value of an asset means its book value. On the other hand,
the recoverable amount of an asset refers to the maximum amount of cash flows that are
expected to be obtained from the asset. The cash flows can either arise by selling the asset or
by using it.

Legal provision of ‘Life Insurance Claim’

According to sec. 38 of Insurance Act, 2049, Payment to be made to Designee : If

any Life Insurance Policy Holder dies before the expiry of the term of his/her
policy, the amount mentioned in such Insurance Policy shall be paid to the person
designated by him/her therein. If he/she has not designated any person or if the
designee has already died, payment shall be made to any of his/her surviving
related dependents as follows in the following order and if there are more than
one surviving related persons in same order with amount shall be distributed or
equal share:

• (a) Husband or wife of the joint family.

• (b) Son, sister and widow daughter-in-law of the joint family.
• (c) Father, mother (in case of the married woman father-in-law,mother-in-law).
• (d) Grandfather, grandmother who have to be taken care of by
• Him/herself and grand son, grand daughter in the line of the son.
• (e) Husband, wife who is living separate.

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• (f) Unmarried daughter, son, widow daughter-in-law who is living separate .
• (g) Father, mother who is living separate.
• (h) Step son, step daughter of the joint family.
• (i) Brother, sister of the joint family.
• (j) Father-in-law, mother-in-law living separate in the case of married woman
• (k) Grand son, unmarried grand daughter who living separate.
• (l) Step mother who is living separate.
• (m) Step son, unmarried step daughter who is living separate.
• (n) Husband's elder brother, elder brother's wife, younger brother of the
husband, wife of the husband's younger brother in case of married woman.
• (o) Nephew, neice of joint family.
• (p) Uncle, widow aunty, elder brother's wife, and daughter-in-law of the joint
family.
• (q) Brother and sister who is living separate,
• (r) Grandfather, grandmother, grand daughter-in-law, nephew, neice living
separately.
• (s) Person living together with in insured person upto the last stage.

Rule 31 of insurance rule, 2049, provides the Process of Payment Against Life
Insurance Claim: The Insurer shall issue a discharge voucher in the name of the
Insured who has already paid the last installment of the Life Insurance Premium
requesting him to come to collect payment against the claim along with the Insurance
Policy and other documents required for making payment against such Life Insurance
claim within fifteen days from the date of payment of such installment.
• In case an Insured submits the Insurance Policy and other documents including
the discharge voucher to the Insurer for the payment of claim against the Life
Insurance claim of the Insurer shall conduct an inquiry as required and make a
payment against the Life Insurance claim within seven days from the date of
expiry of the period of the Life Insurance Policy.
• In case any person who has taken up an Insurance Policy dies before the expiry of
the period of the Insurance Policy, the person designated by him, if any, and in
case no person has been designated, the nearest heir from among the persons under
Section 38 of the Act shall submit an application for the payment against the claim

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 to the Insurer to receive the amount of the Life Insurance stating the details as
follows:-

• (a) The details relating to the claim,

• (b) A Certificate of death of the insured,
• (c) In case the insured has died in an accident and if such risk is covered by the
Life Insurance, the postmortem report of the government physician relating to the
cause of death, and if there is no such report, a report of the police,
• (d) A certificate of relationship with the insured,
• (e) The documents regarding the certification of the age in case the age has not
been certified,
• (f) Other details specified by the Board.
• After the receipt of the application, the Insurer shall make an inquiry into the
details including the documents submitted regarding to the claim of Life
Insurance, and shall examine other matters also if necessary, and shall determine
the liability within fifteen days from the date of receipt of such documents by it
and shall issue the discharge voucher in the name of the applicant requesting him
to come to collect the payment against the claim. The Insurer shall make the
payment against the Insurance claim within fifteen days from the date of receipt of
the discharge voucher from the applicant.
• If it is found, while making an inquiry into the details that the Insurance claim
need not to be paid by determining the liability, the Insurer shall provide a written
information to the applicant clearly stating the reasons thereof.
General insurance(Non-Life Insurance)
Non- life insurance is taken as a means of providing financial protection for building,
machinery, equipment, furniture, and vehicle and merchandise items against the risk of fire,
earthquake, accident and theft. Non-life or general insurance includes fire insurance,
marine insurance, and miscellaneous insurance. According to rule5 of insurance rule, 2049,
Non-Life Insurance means The Insurer may operate the following
Insurance Business under the Non-Life Insurance Business:
(a) Fire Insurance,
(b) Motor Insurance,
(c) Marine Insurance,
(d) Engineering and Contractor's Risk Insurance,
(e) Aviation Insurance,
(f) Miscellaneous Insurance.

General insurance or non-life insurance policies, including automobile and homeowners

policies, provide payments depending on the loss from a particular financial event. General
insurance is typically defined as any insurance that is not determined to be life insurance. It is
called property and casualty insurance in the United States and Canada and non-life
insurance in Continental Europe.

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 In the United Kingdom, insurance is broadly divided into three areas: personal lines,
commercial lines and London market.The London market also participates in personal lines
and commercial lines, domestic and foreign, through reinsurance. Sec. 2(g) of Insurance Act,
2049 and sec. 2(5) of Insurance Rules, 2049.

Types of general insurance

General insurance can be categorized in to following:

• Motor Insurance: Motor Insurance can be divided into two groups, two
and four wheeled vehicle insurance.
• Health Insurance: Common types of health insurance includes:
individual health insurance, family floater health insurance,
comprehensive health insurance and critical illness insurance.
• Travel Insurance: Travel insurance can be broadly grouped into:
individual travel policy, family travel policy, student travel insurance, and
senior citizen health insurance.
• Home Insurance: Home insurance protects a house and its contents.
• Marine Insurance: Marine cargo insurance covers goods, freight, cargo,
and other interests against loss or damage during transit by rail, road, sea
and/or air.
• Commercial Insurance: Commercial insurance encompasses solutions
for all sectors of the industry arising out of business operations.
• Fire insurance is property insurance covering damage and losses caused
by fire. The purchase of fire insurance in addition to homeowner's or
property insurance helps to cover the cost of replacement, repair, or
reconstruction of property, above the limit set by the
property insurance policy.
Fire Insurance
Fire insurance is a property coverage that pays for damages to property and
other losses you may suffer from a fire. It can pay for the cost of repairing or
replacing damaged property in your home. Fire coverage is included in most
home owners insurance policies. However, there are certain exclusions to
coverage. Fire insurance is a property coverage that pays for damages to
property and other losses may suffer from a fire. It can pay for the cost of
repairing or replacing damaged property in home. Fire coverage is included in
most home owners insurance policies. However, there are certain exclusions to
coverage. There are set limits to the amount of fire damage that will be covered
in a home owners insurance policy.

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1. Comprehensive policy:

Fire insurance is called a comprehensive policy when it covers all other kinds of
risks like riots, arson, loot, civil commotion, wars, strikes, accidents and others in
single insurance.

2. Blanket policy:

A blanket policy is that fire insurance policy in which a single policy is used to
insure properties at one or different locations against the risk of fire. Sometimes an
organization or a person can have properties at various locations and this type of
insurance is useful fore covering the risk generated by fire for these all properties.

3. Consequential loss policy:

A consequential loss policy is meant for compensating the loss not directly b fire
but incidental to the fire event. Loss of fire is also covered but addition to that
other kinds of losses due to expenses on salary, interest, inflation or hiring of
temporary premises are also covered.

4. Valued policy:

A fire insurance policy the value of property is fixed at the time of inspection is
called valued policy. So in case of loss of property by fire, the insurance company
pays the full of policy amount at the time of taking policy whether the property is
fully damaged or not.

5. Valuable fire insurance policy:

Under this policy, the value of claim is determined at the actual market price of the
damaged property only after the destruction of the policy. The value is not fixed
earlier as in valued policy.

6. Specific fire insurance policy:

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 Under this policy, if the damage is less than the insured amount, insurance
company compensates up to the mount damaged. If the damage is more than the
insured mount insurance company compensates only equal to insured amount or
identify loss to the extent of specific amount.

7. Floating fire insurance policy:

if a single fire insurance policy is conducted for different property located at

different place, then that type of policy is called floating fire insurance policy. For
the convenience of client this policy is undertaken. An entrepreneur may have
some of his goods and other at other storable places. Insuring them under separate
policy can be very chaotic. That’s why floating fie insurance policy is done to
offer financial security that can occur at different places through single policy.

Marine Insurance
Marine insurance covers the loss or damage of ships, cargo, terminals, and any transport by
which the property is transferred, acquired, or held between the points of origin and the final
destination. Marine insurance was the earliest well-developed kind of insurance, with origins
in the Greek and Roman marine loan. it was the oldest risk hedging instruments our ancestors
used to mitigate risk in medieval times were sea/marine (Mutuum) loans, commenda
contract, and bill of exchanges. Separate marine insurance contracts were developed
in Genoa and other Italian cities in the fourteenth century and spread to northern Europe.
Premiums varied with intuitive estimates of the variable risk from seasons and
pirates. Modern marine insurance law originated in the Lexmercatoria (law merchant). In
1601, a specialized chamber of assurance separate from the other Courts was established
in England. By the end of the seventeenth century, London's growing importance as a centre
for trade was increasing demand for marine insurance. In the late 1680s, Edward Lloyd
opened a coffee house on Tower Street in London. It soon became a popular haunt for ship
owners, merchants, and ships' captains, and thereby a reliable source of the latest shipping
news.

Marine insurance is always written on an occurrence basis, covering claims that arise out of
damage or injury that took place during the policy period, regardless when claims are made.
Policy features often include extensions of coverage for items typical to a marine business
such as liability for container damage and removal of debris.
A deductible is the first amount of a claim that the policy holders bears themselves. There
can occasionally be a zero deductible but in most cases a deductible applies to claims made
under a policy of marine insurance.

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Motor Insurance
Vehicle insurance (also known as car insurance, motor insurance, or auto insurance)
is insurance for cars, trucks, motorcycles, and other road vehicles. Its primary use is to
provide financial protection against physical damage or bodily injury resulting from traffic
collisions and against liability that could also arise from incidents in a vehicle. Vehicle
insurance may additionally offer financial protection against theft of the vehicle, and against
damage to the vehicle sustained from events other than traffic collisions, such as keying,
weather or natural disasters, and damage sustained by colliding with stationary objects. The
specific terms of vehicle insurance vary with legal regulations in each region.
In Vehicle insurance, the insurance policy is a contract (generally a standard form contract) between
the insurer and the insured, known as the policyholder, which determines the claims which the insurer is legally
required to pay. In exchange for an initial payment, known as the premium, the insurerpromises to pay for loss
caused by perils covered under the policy language

Aviation insurance
Aviation insurance is insurance coverage geared specifically to the operation of aircraft and
the risks involved in aviation. Aviation insurance policies are distinctly different from those
for other areas of transportation and tend to incorporate aviation terminology, as well as
terminology, limits and clauses specific to aviation insurance.
Aviation, or air transport, refers to the activities surrounding mechanical flight and
the aircraft industry. Aircraft includes fixed-wing and rotary-wing types, morphable wings,
wing-less lifting bodies, as well as lighter-than-air craft such as balloons and airships.
Aviation began in the 18th century with the development of the hot air balloon, an apparatus
capable of atmospheric displacement through buoyancy. Some of the most significant
advancements in aviation technology came with the controlled gliding flying of Otto
Lilienthal in 1896; then a large step in significance came with the construction of the first
powered airplane by the Wright brothers in the early 1900s. Since that time, aviation has
been technologically revolutionized by the introduction of the jet which permitted a major
form of transport throughout the world.
General aviation includes all non-scheduled civil flying, both private and commercial.
General aviation may include business flights, air charter, private aviation, flight
training, ballooning, parachuting, gliding, hang gliding, aerial photography, foot-launched
powered hang gliders, air ambulance, crop dusting, charter flights, traffic reporting, police air
patrols and forest fire fighting.

Miscellaneous Insurance
Miscellaneous Insurance refers to contracts of insurance other than those of Life, Fire and
Marine insurance. It covers a variety of risks, the chief of which are:- Personal
Accident insurance. Personal Accident insurance is insurance for individuals or groups of
persons against any personal accident or illness.
(i) loss or damage to the motor vehicle and its accessories on account of accident or theft; (ii)
death of or injury to the owner or passenger of the vehicle due to accident; (iii) damages

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 payable to third parties by the owner of the vehicle for accident. A comprehensive insurance
policy may be taken to cover all these risks. Insurance against the first two types of risks is
optional. But every owner of motor vehicle is required to take out an insurance policy to
cover the third party risks under the Motor Vehicles Act, 1956. Such a policy is known as
'third party insurance or liability insurance.

Personal Accident Insurance

This Policy covers financial loss that may arise as a result of accident caused by external
violent and visible means causing death or disablement by bodily injury.

Cash in Transit Insurance

This Policy cover provides an indemnity in respect of loss of money carried by authorized
messengers whilst in transit from one to another, specified in the Policy due to robbery, loss
caused by the accident of vehicle and airplane.

Burglary & House - Breaking Insurance

This insurance is intended to cover contents of premises against loss or damage by burglary
and/ or house- breaking.

Banker's Indemnity Insurance

This insurance provides an indemnity to the Bank in respect of the following risks:
a. Loss of money or securities by fire, riot and strike, burglary house breaking theft, robbery
or hold-up;

International Travelers Medi-claim Insurance

In view of the increasing need of medical insurance for Nepalese going abroad, The Policy
could also be procured by the students going abroad for further education.

Group cum Family Hospitalization Insurance

This insurance is intended to provide benefit by way of reimbursement of expenses incurred

by the insured towards hospitalization including accommodation and nursing attendance, fees
for surgeons and other special service.

What is covered under Engineering All Risk

Insurance?
Engineering all risk insurance covers a wide range of risks to which a project is exposed to,
starting right from ordering of material at site till successful testing and completion of the
project. This plan is very useful for owners, contractors, architects, consulting engineers and

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 investors because it leads to the reduction of overall construction and erection expenses. This
policy offers protection against unexpected accidents leading to financial losses.

Depending on the type of cover bought the policy may include many of the following:

• Erection Coverage
• Fire, lightning, explosion, aircraft damage
• Riot, strike, malicious acts
• Flood, inundation, storm, cyclone, and allied perils
• Landslide, subsidence, and rockslide
• Burglary and theft
• Faults in erections
• Human errors, negligence
• Short circuiting, arcing, excess voltage
• Electrical and mechanical breakdown
• Collapse, damage due to foreign objects, impact damages
• Any other sudden, unforeseen, accidental damages not explicitly excluded
Click here to know what is not covered under engineering all risk insurance?

This policy provides cover against legal liability that can arise to a 3 party for bodily injury
rd

or property damage due to an accident at the work site.

Also, elective add-ons can be opted like storage risk at fabricators sites, clearance and
removal of debris, air cargo, cross liability, third-party liability etc.

Case Study
Japan Infrastructures Pvt. Ltd. (India) is a subsidiary company of Japan Heavy Works Ltd.
Japan, and is responsible for many major civil engineering projects in India. Many of these
projects require huge machines and working under water.

The company takes its responsibilities very seriously and as summed up by one of the project
managers here in India, “the company takes it very seriously if anything in the locality is
damaged and takes extra care that it either does not happen or is repaired to its previous
condition as far as possible, and that is why we usually have engineering all risk insurance
policies for our construction projects.”

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Aviation Insurance
It is the insurance against claims and losses arising from the ownership, maintenance, or use
of aircraft, hangars, or airports including damage to aircraft, personal injury, and property
damage. It provides hull liability and property coverage for aircraft. This policy protects the
owners and/or operators of an airplane from damage in the event of a crash. It also pays for
medical bills and potential lawsuit damages from injured or killed passengers and other
persons. Aviation insurance is divided into several types of insurance coverage available:

Public liability insurance

Passenger liability insurance
Combined Single Limit (CSL)
Ground risk hull insurance not in motion.
Ground risk hull insurance in motion (taxiing)
In-flight insurance

Hull insurance means insurance protecting the owners against loss caused by damage
or destruction of waterborne craft or aircraft.Miscellaneous Insurance refers to contracts
of insurance other than those of Life, Fire and Marine insurance. It covers a variety of risks,
the chief of which are:- Personal Accident insurance. Personal
Accident insurance is insurance for individuals or groups of persons against any personal
accident or illness.

Contents of Policies
A policy is a deliberate system of principles to guide decisions and achieve rational
outcomes. A policy is a statement of intent, and is implemented as a procedure or protocol.
Policies are generally adopted by a governance body within an organization. Policies can
assist in both subjective and objective decision making. Policies to assist in subjective
decision making usually assist senior management with decisions that must be based on the
relative merits of a number of factors, and as a result are often hard to test objectively,
e.g. work-life balance policy. In contrast policies to assist in objective decision making are
usually operational in nature and can be objectively tested, e.g. password policy.

The content of the policies within the Policy Library must include:

Title

• Use unique and descriptive words.

• Avoid vague titles.

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• Make the title brief, yet descriptive, for search purposes. Ideally, keep titles less than 64
characters in length.
• Avoid including the phrases "Iowa State University", "Iowa State", "ISU", or "policy".

Effective Date
The date the policy was officially put into practice. May be different than date the policy was
adopted.
Contact
The unit or position to be consulted regarding policy questions (Example: Director of
Business Services, Vice President for Student Affairs, Provost.) The "contact" will be linked
to a relevant website indicating how the contact may be reached.
Introduction
The introduction should include the policy's purpose (e.g., to promote, assure, protect,
comply with, etc.) and any other information needed to contextualize and introduce the
policy. If applicable, include the authoritative basis for the policy (e.g., legislation, state law,
Regent's policy).
Policy Statement
The policy statement is the policy itself, and may be divided into subsections or include a
glossary. Policy includes statements of rules or standards. Policies do not change frequently.
Policies may not include procedures or supplemental information. Supplemental information
should be included in the Resources section, below.

Underwriting
Underwrite means to write under or at the foot of, especially under other written matter.
Underwriting services are provided by some large specialist financial institutions, such as
banks, insurance or investment houses, whereby they guarantee payment in case of damage
or financial loss and accept the financial risk for liability arising from such guarantee. An
underwriting arrangement may be created in a number of situations including insurance,
issue of securities in primary markets, and in bank lending, among others.

The name derives from the Lloyd's of Londoninsurance market. Financial bankers, who
would accept some of the risk on a given venture (historically a sea voyage with associated
risks of shipwreck) in exchange for a premium, would literally write their names under the
risk information that was written on a Lloyd's slip created for this purpose

Underwriting Procedure

❖ To be considered for their full benefit entitlement under the Plan, all eligible employees (members) must
complete a Personal History Questionnaire (PHQ). This is essentially stage one of the underwriting process. To
avoid any delay in this process all the fields of the PHQ must be completed in full. Should the form be

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 incomplete, Generali Worldwide will contact the member directly, at the contact address indicated on the PHQ
(usually by e-mail), to obtain further details. Please note an unsigned PHQ would be considered invalid.
❖ Upon receipt of the PHQ, our underwriters will assess the information provided and, if necessary, request a
Personal Medical Attendants Report (PMAR) and/or a Medical Examiners Report (MER).If the underwriters
are satisfied with the information contained in the PHQ and do not require any further medical evidence, a
decision regarding the acceptance of the member under the policy will be made and this will be sent to the
employer who will then advise the employee accordingly.
❖ It should be noted that the PHQ is valid for 90 days from the date that it is signed by the member. Should
Generali Worldwide fail to receive all necessary additional medical information within that period, the member
will have to complete a new PHQ. If the member’s health condition is unchanged, they may alternatively sign a
declaration of continued good health.
❖ If necessary, the PMAR is requested, through Generali Worldwide or our medical agents, from the doctor
whose details the member has provided on their PHQ. In the event that the member has indicated that they do
not have a regular doctor, we may request, through our medical agents, that the member attends a medical
examination.
❖ The MER is an independent medical examination, which, if required, is co-ordinated by our medical agents
directly with the member. Our medical agents arrange for the member to undertake an examination, which
might include laboratory tests, with a Generali Worldwide approved doctor. The member will be advised of the
name of the doctor and details of the surgery in order for them to make an appointment. For the member’s
convenience our medical agents may ask the member to provide the name of a clinic or hospital closer to their
work where the examination and/or laboratory tests can be completed. Once the member has attended the MER,
Generali Worldwide should receive the results between 4 and 6 weeks, although the exact period depends on the
location and availability of facilities.
❖ Where a member has attended the requested medical examination and the information is not received, we will,
through our medical agents, regularly contact the doctor’s surgery for a period of 3 months, after which time the
said results will no longer be valid. In this case, the member may be requested to attend repeat tests in order to
obtain the missing information.
❖ Where all of the requested data is received, the underwriters will reach a decision, which is conveyed in writing,
to the employer. Please note that we do not advise the member of this decision directly and the only direct
contact with the member is while the medical tests are being co-ordinated.
❖ Generali Worldwide will endeavor to obtain all of the data required for underwriting within a period of 120
days from receipt of the original PHQ. After this period, should we not have received this information, we will
suspend the underwriting process for this member. The employer will be advised in writing with a
recommendation that they inform the member that they are not covered under the policy. The employee may re-
engage the underwriting process by completing a new PHQ.

Definition of 'Premium Paying Term'

Premium is an amount paid periodically to the insurer by the insured for covering his/her
risk.Premium paying term is the total number of years for the policy holder to pay the
premium.

Policy term is normally equal to the premium paying term. However, some insurance policies
give the insured the autonomy to choose a premium paying term lower than the policy term.
For instance, insurers allow the insured to get the insurance benefits even if they stop the
premium payments after a stipulated period of time by converting the normal insurance
policy into a paid up policy. Here the sum assured will be calculated by using the formula.

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 (Total number of premiums paid/Total number of premiums payable) X Sum Assured +
vested bonus (if any)

Also See: Life Assured, Non-Standard Life, Premium, Adverse Selection, Subrogation, Paid-
Up Policy, Mitigation

Mode of Payment
The frequency of payment the policyholder has chosen, for example, annually, monthly, or
quarterly.

Definition - What does Days of Grace mean?

Days of grace, in the context of insurance, refer to the set period after the due date of a
premium payment during which a policyholder can pay without facing a lapse in coverage.
During this time, the policy remains in force, but the policyholder may still faces a penalty
charge for making a late payment.

Days of grace, in the context of insurance, refer to the set period after the due date of a
premium payment during which a policyholder can pay without facing a lapse in coverage.
During this time, the policy remains in force, but the policyholder may still faces a penalty
charge for making a late payment.

Refund of Premium
The insured took out a life policy but failed to disclose certain material information. The
insurer cancelled the contract and invoked a clause providing that the insured forfeited all
premiums if the contract is cancelled on the grounds of non-disclosure. The insured paid
R4950 towards premiums. the insurer where a contract is cancelled on the grounds of
misrepresentation, each party must restore what he or she has received under the contract
because the cancellation has retro-active effect. This implies that an insurer cancelling a
policy must in principle restore the premiums received by it. However, the misled insurer
may recover compensation for any loss it has suffered as a result of the misrepresentation
provided the misrepresentation was either fraudulent or negligent.
In the present case there was a clause in the contract that the premiums would be forfeited in
the event of cancellation. This type of provision is frequently found in policies of all kinds
and seriously affects the rights of insured especially where premiums have been paid for a
considerable number of years in terms of a contract of life insurance. We regard and treat
forfeiture clauses of this nature as penal clauses. In terms of the Penalties Act 15 of 1962 a

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 penalty is enforceable but it may be revised if the amount of the penalty is out of proportion
to the prejudice suffered. In accordance with the Act the term prejudice bears a wide
meaning.

Reinsurance
Reinsurance is insurance that is purchased by an insurance company. In the classic case,
reinsurance allows insurance companies to remain solvent after major claims events, such as
major disasters like hurricanes and wildfires. In addition to its basic role in risk management,
reinsurance is sometimes used for tax mitigation and other reasons. The company that
purchases the reinsurance policy is called a "ceding company" or "cedent" or "cedant" under
most arrangements. The company issuing the reinsurance policy is referred simply as the
"reinsurer".
A company that purchases reinsurance pays a premium to the reinsurance company, who in
exchange would pay a share of the claims incurred by the purchasing company. The reinsurer
may be either a specialist reinsurance company, which only undertakes reinsurance business,
or another insurance company. Insurance companies that sell reinsurance refer to the
business as 'assumed reinsurance'.

Types of Reinsurance
Reinsurance is basically a form of coverage intended for insurance providers. Generally
speaking, this type of policy reduces the losses sustained by insurance companies by
allowing them to recover all, or part, of the amounts they pay to claimants. Reinsurers
help insurance providers avoid financial ruin in case a huge number of policyholders turn
out to make their claims during catastrophic events. Below are some of the major types of
reinsurance policies.

1. Facultative Coverage

Facultative reinsurance is coverage purchased by a primary insurer to cover a

single risk or a block of risks held in the primary insurer's book of business. This
type of policy protects an insurance provider only for an individual, or a specified risk, or
contract. If there are several risks or contracts that needed to be reinsured, each one must
be negotiated separately. The reinsurer has all the right to accept or deny a facultative
reinsurance proposal.

2. Reinsurance Treaty

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Treaty reinsurance represents a contract between the ceding insurance company
and the reinsurer who agrees to accept the risks of a predetermined class of
policies over a period of time. When insurance companies underwrite a new
policy, they agree to take on additional risk in exchange for a premium.

Unlike a facultative policy, a treaty type of coverage is in effect for a specified period of
time, rather than on a per risk, or contract basis. For the duration of the contract, the
reinsurer agrees to cover all or a portion of the risks that may be incurred by the
insurance company being covered.

3. Proportional Reinsurance

Under this type of coverage, the reinsurer will receive a prorated share of the premiums
of all the policies sold by the insurance company being covered. Consequently, when
claims are made, the reinsurer will also bear a portion of the losses. The proportion of the
premiums and losses that will be shared by the reinsurer will be based on an agreed
percentage. In a proportional coverage, the reinsurance company will also reimburse the
insurance company for all processing, business acquisition and writing costs. Also known
as ceding commission, such costs may be paid to the insurance company upfront.

4. Non-proportional Reinsurance

In a non-proportional type of coverage, the reinsurer will only get involved if the
insurance company’s losses exceed a specified amount, which is referred to as priority or
retention limit. Hence, the reinsurer does not have a proportional share in the premiums
and losses of the insurance provider. The priority or retention limit may be based on a
single type of risk or an entire business category.

5. Excess-of-Loss Reinsurance

This is actually a form of non-proportional coverage. The reinsurer will only cover the
losses that exceed the insurance company’s retained limit. However, what makes this
type of contract unique is that it is typically applied to catastrophic events. It can cover
the insurance company either on a per occurrence basis or for all the cumulative losses
within a specified period.

6. Risk-Attaching Reinsurance

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 Under this type of contract, all policy claims that are established during the effective
period of the reinsurance coverage will be covered, regardless of whether the losses
occurred outside the coverage period. Conversely, no coverage will be given on claims
that originate outside the coverage period, even if the losses occurred while the
reinsurance contract is in effect.

7. Loss-occurring Coverage

This is a type of treaty coverage where the insurance company can claim all losses that
occur during the reinsurance contract period. The important factor to consider is when the
losses have occurred and not when the claims have been made.

Claim Procedure for Reinsurance

When a loss occurs of a certain magnitude, the reinsurance contract may permit
theinsurance company to make a special request to the reinsurer for immediate payment of
the claim, called a cash call, to reimburse the insurance company for its payment to
its insured.

The following steps are involved in general for lodging and settlement of claims :-
➢ Note the number of the other vehicle involved in the accident, if any.
➢ Give written information (intimation) to insurance company or fill our online claim
intimation form from our website.
➢ Inform nearest police station immediately.
➢ The Policy issuing office may appoint Surveyor/ Loss Assessor for further process.
➢ Policy issuing office or Surveyor will provide you with the details of the documents
required for claim processing.
➢ Submit all the documents to the Policy issuing office either directly or by an authorized
Agent or by Surveyor along with documents required /asked for.
➢ Surveyor will submit the report along with his remarks after completing the survey.
➢ Based on the surveyor report; policy issuing office will validate all the documents. And
prepare the Note.
➢ After approving the note; policy issuing office will discharge a voucher mentioning the
approved amount to the insured.
➢ After receiving the signed discharge voucher from insured, policy issuing office will
settled the claim by issuing cheque as per the amount mention in Discharge Voucher.

California Mudslide Insurance Claims Top $421M

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 LOS ANGELES, California, April 2 -- The California Department of Insurance issued the following
news release: Insurance Commissioner Dave Jones today announced that insurers have received over
2,000 insurance claims totaling more than $421 million in losses from the deadly Montecito mudslide
that roared through the community carrying tons of mud and debris destroying or damaging more
than 400 homes and businesses, and tragically killing 21 people.

"Over $421 million in insured losses represents more than property lost--behind these numbers are the
tragic deaths of 21 people and thousands of residents traumatized by unfathomable loss," said
Insurance Commissioner Dave Jones. "Recovering and rebuilding lives, homes and neighborhoods
will take time--and it will be difficult. We will continue to do all we can at the Department of
Insurance to help residents navigate the claims process and recover."

Nepal quake: Insurance companies all set to disburse claims

Only five per cent of people in a population of about 28 million in Nepal have life insurance.
Nepal: ‘Since earthquake, 15% spike in human trafficking’

With the powerful quake wreaking havoc in Nepal, killing thousands and causing damage to the
properties running into crores, insurances firms are gearing up to disburse claims to the affected
people, including with the help of India’s state-run General Insurance Company.
The insurance companies are in the process of assessing the total disbursal of the claim amount as not
many people have approached them yet, but they expect the figure will run into several crores.
Although the death toll is high, the situation for the companies won’t be alarming. Only five per cent
of people in a population of about 28 million in Nepal have life insurance. The official death toll now
stands more than 7,000, but the insurance companies are expecting it to be over 10,000. “We are
prepared to disburse the claims. On an average, over 100 people insured, only 2.5 have died every
year. We have earned a lot of profit over the past. And even if it turns out to be a loss making
exercise, we are ready to incurthe loss,” said Ashwini Kumar Thakur, CEO of the
RashtriyaBimaSanstha, a government undertaking formed in 1962.
The company has around 40 per cent market share in the life insurance sector in Nepal. “Our scheme
does cover damage to the structures in an event of an earthquake. Although the disaster is large, we
are prepared for such exigencies. We have got the insurance reinsured by the General Insurance
Company (of India),” said Ramesh Raj Bhattarai, CEO of the RashtriyaBeema Company Ltd, another
government undertaking which deals in non-life insurance like property, health and motor. In case of
health insurance, the company only insures up to Rs 4 lakh, so the disbursal amount won’t be much,
he said.
The companies have relaxed norms owing to the natural disaster, after the orders from the Nepal

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 Insurance Regulatory Authority so that the claim amount can be disbursed at the earliest. “In case of
life insurance, we have waived off the autopsy report and many such documents required for passing
a claim. Also, if the person who is insured and his nominee has also died, then we will take help of
the district administration and identify the next kin so that the claim money could be handed over,”
said Thakur.

Payment of Reinsurance premium

The amount of premium allocated to the portion of the policy period that has elapsed at any
given point in time. Reinsurance premiums are usually paid at the inception of the underlying
policy to which they apply. Reinsurers recognize the premium as being earned as time
elapses during the underlying policy period.

A ceding (giving up power) company transfers some of its risk to a reinsurer and in exchange
for taking on the risk, the reinsurer receives premium payments from the ceding company.
When the premiums are paid to a reinsurer, the ceding company reflects the premium as
a reinsurance expense.An amount paid to a reinsurer by the ceding insurer, in exchange for
the reinsurance provided.

Insurance intermediaries
Insurance intermediaries are brokers or agents who represent consumers
in insurance transactions. They are contracted with multiple insurance companies so
they can focus on matching their client's needs with the most
suitable insurance products. In other words Insurance intermediaries facilitate the
placement and purchase of insurance, and provide services to insurance companies
and consumers that complement the insurance placement process. Traditionally,
insurance intermediaries have been categorized as either insurance agents
or insurance brokers.
The importance of insurance in modern economies is unquestioned and has been
recognized for centuries. Insurance intermediaries facilitate the placement and
purchase of insurance, and provide services to insurance companies and consumers
that complement the insurance placement process.
According to Chapter –5 of Insurance Act, 2049, Provisions Relating to Insurance
Agent, Surveyor and Broker
Agent means a person who acts on behalf of another person or group. According to sec. 30 of
Insurance act, 2049, Registration of the Insurance Agents : (1) Any person desirous

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 to work as an Insurance Agent, possessing a qualification as prescribed shall submit
an application to the Board along with the recommendation of the concerned Insurer.
(2) After receiving an application pursuant to Sub-section (1), the Board shall make
necessary inquiry upon the application, and if he is qualified to get the license, the
Board shall provide a license of an *Insurance Agent to the applicant in the form as
prescribed by receiving the fees as prescribed. If there is any reason for not providing
the license, the Board shall provide its information to the concerned applicant.

A surveyor is essentially a professional link between the insured and the insurer. An
individual or a corporate entity willing to be a surveyor and loss assessor has to
undergo an application process, as decided by the Insurance Regulatory and
Development Authority.Sec. 2(m) "Surveyor" means a person who has obtained a license
pursuant to *Section 30A, to make a financial valuation of the destroyed property and the
word includes an adjuster and a person who makes a valuation of losses. According to
sec. 30A of Insurance Act, 2049, . Registration of the Surveyor :(1) Any person
desirous to work as a Surveyor possessing a qualification as prescribed may submit an
application to the Board. (2) After receiving an application pursuant to Sub-section
(1), the
Board shall make necessary inquiry upon the application, it he is qualified to get the
license; the Board shall provide a license of a Surveyor to the applicant in the form as
prescribed by receiving the fees as prescribed. If there is any reason for not providing
the license, the Board shall provide its information to the concerned applicant.

A broker is a person or firm who arranges transactions between a buyer and a seller
for a commission when the deal is executed. A broker who also acts as a seller or as a
buyer becomes a principal party to the deal. An insurance broker sells, solicits, or
negotiates insurance for compensation. Sec. 2(m1) "Broker" means a person who has
obtained license pursuant to Section 30B, to work as an intermediary between an Insurer
and Insurer relating to the Insurance Business.According to sec. 30B of Insurance Act,
2049, Registration of the Broker :Any person desirous to work as a Broker possessing
a qualification as prescribed shall have to submit an application to the Board.
After receiving an application, the Board shall make necessary inquiry upon the
application; if he is qualified to get the license the Board shall provide a license of a
Broker to the applicant in the form as prescribed by receiving the fees as prescribed. If
there is any reason for not providing the license, the Board shall provide its
information to the concerned applicant.
Discharge voucher
A discharge voucher represents culmination of insurance claim, which is evidence of payment.
Wherever there are no disputes by the insured/s or claimant/s to the amount offered by the insurer
towards settlement of a claim, the present system of obtaining the discharge voucher may be
continued, IRDAI said. A successful insurance claim culminates in giving of discharge
voucher to the insurer by the insured unless it was obtained through fraud or undue influence

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 held the National Consumer Disputes Redressal Commission (NCDRC) in Deepak
Electronics & Gift Corner Raipur vs The New India Assurance Co. Ltd.
The identification no. should be the number of identification proof, which will be provided at
the time of collection of cheque. i.e Passport No./Election ID No/PAN card no/Driving
Licence No. This Discharge Voucher and, wherever necessary, the direction shall be signed
by.

Salvage
Salvage means rescue (a wrecked or disabled ship or its cargo) from loss at sea. It means
to save goods from damage or destruction, especially from a ship that has sunk or been
damaged or a building that has been damaged by fire or a flood: gold coins salvaged from a
shipwreck.
“a service which confers a benefit by saving or helping to save a recognized subject of
salvage when in danger from which it cannot be extricated unaided, if and in so far as the
rendering of such a service is voluntary in the sense of being attributable neither to a
preexisting obligation nor solely for the interests of the salvor.” Thus, salvage occurs when a
person, in the absence of a contractual or legal obligation, volunteers to exert efforts to
preserve or save a vessel or its contents from peril. Once the property has been successfully
salved, the salvor is entitled to recover salvage remuneration not surpassing the value of the
property so salved. This value is determined at the time and place the salvage service is
concluded. But in the absence of success, the salvor is entitled to nothing. This is the famous
principle of “No cure – no pay” which first appeared in Lloyd’s Form of Salvage Agreement
in the nineteenth century. The salvor’s right is enshrined in a maritime lien on the property to
be salved, and this creates a trident of rights for the salvor: the lien may be enforced in
persona against the vessel owner, in rem against the vessel, and in rem against a “sister ship.”
The law of salvage has its roots entrenched in antiquity, branching out from the principles
derived from civil law, such as the Consolato del Mare, which Abbot in his Law of Merchant
Shipping termed the earliest European maritime code.

Dispute of Insurance
A disagreement or argument between the parties is called dispute.

debate, discussion, discourse, disputation, argument, controversy, contention, disagreement,

altercation, fallingout, quarrelling, variance, dissension, conflict, friction, strife, discord, anta
gonis;

Settling liability claims can be one of the most challenging areas of insurance law. The insurer
and insured may disagree as to whether to settle, or how much to pay to settle. Multiple
claimant/multiple insured claims, mixed claims, excess demands, demands for punitive damages,
and claims where the insured has an affirmative claim for relief may further complicate the
analysis and negotiations. Seeking a settlement contribution from the insured presents thorny

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 issues, including whether that contribution can convert an excess demand into a demand within
limits—which, in turn, impacts the standard for evaluating the insurer’s response.
Policyholders and third-party claimants are aware of these issues, and may look at settlement
demands as an opportunity to try to subject insurers to liability for excess verdicts. Thus, the
stakes for improperly declining a settlement demand can be quite high. Sections II, III and IV of
this article discuss these issues under general liability policies. Section V addresses the
significantly different issues presented under professional liability policies, which often allow the
insured to refuse to consent to settlement. The article also suggests practical tips for both insurers
and policyholders.

Typically, issues arise when a complaint against a policyholder includes covered and no
covered charges. Poor or infrequent communication between a policyholder and
its insurer can lead to an insufficient understanding of the policyholder's risk profile
and/or insurance portfolio. Attorney Gladish deals with disputes between insurers and
insureds on a regular basis. Insurance companies seem to have taken a much more aggressive
approach with their insured’s as it relates to claims and making payments to their insured’s.
In the State of Indiana, the insurance company has a duty of good faith and fair dealings that
it owes to its insured’s. Erie, Ins. Comp. v. Hickman, 622 N.E.2d 515 (Ind.1993). In the Erie
case, the Indiana Supreme Court noted that an insurance company was to refrain from
making an unfounded refusal to pay policy proceeds; caused an unfounded delay in making
payments; deceiving the insured; and/or exercising any unfair advantage to pressure an
insured into a settlement claim. The Indiana Supreme Court went on to state that this was not
an exclusive list but simply an example of conduct an insurance company is to refrain from
in dealing with its insured’s.

Mandate and powers of Attorney

A Mandate (called a Power of Attorney in other states) is a document that allows you to
appoint a person or organization to manage the affairs if he/she becomes unable to do so.
However, all Mandates are not created equal.
A power of attorney may be general or may apply to a specific transaction (e.g. sale of a car).
A power of attorney applies only to property, whereas a ...Power of attorney is a legal
document that allows an individual (known as the “Principal”) to select someone else (the
“Agent” or “Attorney-in-Fact”) to handle their business affairs, medical responsibilities, or
any decision that requires someone else to takeover an activity based on the Principal's best
interest and intentions.
A power of attorney (POA) is a legal document giving one person (the agent or attorney-in-
fact) the power to act for another person (the principal). The agent can have broad legal
authority or limited authority to make legal decisions about the principal's property, finances
or medical care. The power of attorney is frequently used in the event of a principal's illness
or disability, or when the principal can't be present to sign necessary legal documents for

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 financial transactions. A power of attorney can end for a number of reasons, such as when the
principal dies, the principal revokes it, a court invalidates it, the principal divorces their
spouse, who happens to be the agent, or the agent can no longer carry out the outlined
responsibilities.

Authorization by power of attorney

In certain cases, it may be necessary to authorize another person to manage the insurance and
claims matters on his/her behalf. Depending on the situation, it can authorize a person of
his/her choice to manage the insurance matters with one of the following powers of attorney.

•Power of attorney for the management of insurance and claims matters

•Power of attorney for the management of insurance and claims matters for a death
estate

•Representation based on continuing power of attorney

Legal guardian and representation based on continuing power of attorney In the event that
capacity is reduced by a difficult illness, accident or old age to the point that it is unable to
personally manage the affairs, it may require a legal guardian or representative with a
continuing power of attorney. A legal guardian is appointed by a local register office or a
court of law. The legal guardian may be a private individual, such as a close relative or other
next of kin, or a public legal guardian.

Secrecy
There is no any provision regarding the secrecy relating to insurance in Nepalese law.
Professional secrecy is based on the same principle as medical secrecy, where the patient
discloses confidential information to his/her confidant in complete trust. Similarly, customers
have to reveal confidential financial information to their confident, be it their banker or
insurer. Professional secrecy was therefore developed for banks and insurance companies to
guarantee confidentiality and gain customers’ trust in their key insurance partner.

Secrecy is also essential because of the intrinsic features of insurance contracts, especially
when drawing up the beneficiary clause of which the beneficiaries may or may not be aware.
On the other hand, due to the sector’s digitalization, it proved necessary to adjust secrecy in
order to address new customer needs, for which One Life already provides solutions

An insurance institution is, notwithstanding secrecy regulations and other limitations to

obtaining information, entitled to receive information that is necessary for the adjustment of
compensation claims. The Act on the Openness of Government Activities applies to the use
of this information.

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 The confidentiality obligation comprises all secrets of the company. Secrets of the company
are facts known only to a strictly limited circle of persons (and thus not obvious). It must be
essential that these facts are to be kept secret according to the explicit or assumed needs of
the company and that there is a justified (economical) interest of the company in the
maintenance of confidentiality.8 Facts to be kept secret are, for example, production projects,
manufacturing procedures, inventions, designs, calculations, sales planning, financial
planning, customer lists, etc.
It shall not communicate any such matter to any person other than the person to whom such
matter relates; and shall not suffer or permit any person to have access to any records in his
possession, custody or control or in the possession, custody or control of any other person so
appointed or employed.

Appropriation of payment and set off

".Payment" denotes the specific performance of an obligation to give a sum of money to
another. He to whom the money is owing is called creditor; he from whom it is due, debtor;
and the sum itself, debt. The word debt is also used to denote sometimes the debtor's
obligation, and sometimes the correlative right of the creditor. According to the above
definition, payment presupposes not only a sum of money due, but a sum of money which is
either ascertained in amount, or at least capable of being ascertained by
a mere arithmetical process. It is obvious that an obligation to pay an unascertained sum'
cannot be specifically performed at all; until the amount of the money owing be definitely
fixed, an obligation to pay cannot be determined by performance,2 although it may.
In law, a set-off is an equitable defense to the whole or to a portion of a plaintiff's claim.
A set-off is the right of a debtor to balance mutual debts with a creditor. In bookkeeping
terms, set-offs are also known as reconciliations. To determine a set-off, simply subtract the
smaller debt from the larger. Appropriation of payment means the application of a payment
to the discharge of a particular debt. Thus, if a creditor has two distinct debts due to him from
his debtor, and the latter makes a general payment on account, without specifying at the time
to which debt he intends the payment to apply,

Concept of Ombudsman
An official appointed to investigate individuals' complaints against a company or
organization, especially a public authority.
An ombudsman or public advocate is an official who is charged with representing the
interests of the public by investigating and addressing complaints of maladministration or a
violation of rights. The ombudsman is usually appointed by the government or by parliament,
but with a significant degree of independence. In some countries an inspector general, citizen
advocate or other official may have duties similar to those of a national ombudsman, and
may also be appointed by a legislature. Below the national level an ombudsman may be
appointed by a state, local or municipal government. Unofficial ombudsmen may be
appointed by, or even work for, a corporation such as a utility supplier, newspaper, NGO, or
professional regulatory body.

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 The typical duties of an ombudsman are to investigate complaints and attempt to resolve
them, usually through recommendations (binding or not) or mediation. Ombudsmen
sometimes also aim to identify systematic issues leading to poor service or breaches of
people's rights. At the national level, most ombudsmen have a wide mandate to deal with the
entire public sector, and sometimes also elements of the private sector (for example,
contracted service providers). In some cases, there is a more restricted mandate, for example
with particular sectors of society. More recent developments have included the creation of
specialized Children's Ombudsman and Commissioner Agencies.
In some jurisdictions an ombudsman charged with handling concerns about national
government is more formally referred to as the "Parliamentary Commissioner" (e.g. the
United Kingdom Parliamentary Commissioner for Administration, and the Western
Australian state Ombudsman). In many countries where the ombudsman's responsibility
includes protecting human rights, the ombudsman is recognized as the national human rights
institution. The post of ombudsman had by the end of the 20th century been instituted by
most governments and by some intergovernmental organizations such as the European
Union.

Renewal of Insurance Companies

Sec.11provides of Renewal of Registration of the Insurer : (1) The Insurer shall have to
submit an application to the office of the Board in the prescribed form along with the
prescribed fees up to the last day of Chaitra of each year for the renewal of the certificate
of registration.
(2) Upon the receipt of the application pursuant to Sub-section (1), the Board shall have
to renew the *certificate of registration. * (3) In case any Insurer submits an application to
the Board within thirty days from the date of expiry of the time-limit pursuant to Sub-
section (1), mentioning the reason for its failure to submit an application for the renewal
of the certificate of registration within the aforesaid time-limit, the Board may, if it
considers the reasons to be appropriate, renew the certificate of registration of such
Insurer.

Insurance Supervisory Authority

Insurance Supervision authority ensures a permanent supervision of all the undertakings of
the insurance sector by controlling the respect of the current laws and regulations.
The Institute for the Supervision of Insurance is the insurance supervisory authority, an
independent authority responsible for supervising and regulating all insurance business
in Italy.
Beema Samiti (Insurance Board) is an autonomous body, established to develop systemize,
regularize and regulate the insurance business of Nepal under Insurance Act, 1992. In other
words, Beema Samiti is the official government organization of Nepal to manage,
regulate, develop and control of insurance business in Nepal. Insurance board of Nepal is
called Beema Samiti, Nepal. Insurance Board is the independent institution established
by the government of Nepal under the insurance act 2049. It has been established to
manage, regulate, develop and control of insurance business in Nepal. The board has the

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 following organizational structure. The Insurance Board of Nepal is constituted under the
Insurance Act, 1992, article 3. The form of the Insurance Board of Nepal is as under.

1. A person nominated or designated by Nepal Government – Chairman

2. Representative from Ministry of Law, Justice and Parliamentary Affairs : Member
3. Representative from Ministry of Finance : Member
4. A person nominated by Nepal Government from among the person having the special
knowledge in the Insurance Business : Member
5. A person nominated by Nepal Government from among the insured : Member

In order to systematize, regularize, develop and regulate the insurance business in Nepal,
the following functions, duties and powers are conferred on BeemaSamiti:
➢ To Provide suggestions to Nepal Govt. to formulate necessary policy for
systematizing, regularizing, developing and regulating the insurance business,
➢ Set out guidelines for insurers to invest their fund and prescribe the priority sectors
for such investment,
➢ Register and renew the Insurer, Insurance Agent, Surveyor or Broker and to cancel
or cause to cancel such registration,
➢ Arbitrate in the disputes, which arises between the insurer and insured,
➢ Make decision on the complaints filed by the insurer regarding to the settlement of
liability of the insurance,
➢ Issue necessary directives to the insurer from time to time regarding insurance
business,
➢ Formulate necessary basis for the protection of interest of the insured, and
➢ Do or caused to do other necessary functions regarding insurance business.

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