Suggested Answers June 2023 Examination (CAP II - Group I)

Paper 3 – Corporate and Other Laws

Attempt all questions.

1. Answer the following questions: (5×5=25)

a) Skyshop Nepal Pvt. Ltd. dismissed its CEO, Sisir Chand, as against the service contract between
them. He filed a case for compensation as against the wrongful dismissal. Shortly thereafter,
Heritage Nepal ceased trading. The company paid of all its creditors and then transferred its
remaining assets to another company Shop Nepal Pvt. Ltd. Sisir Chand obtained a default
judgment against the Skyshop Nepal but by that name it had no assets and stood dissolved.
Therefore, he charged against the transferee company, Shop Nepal. Decide whether Sisir Chand
can recover compensation from the transferee company.
Answer
Facts of the Case
When a company is incorporated, it is treated as a separate legal person from its shareholders. This
veil of corporate personality can be lifted and the natural person behind it can be made liable where
the separate legal existence of company has been used to commit some fraud or misconduct. In
other words, the separate legal existence of a company cannot be used as a means to achieve some
illegal or fraudulent purpose. The courts will refuse to uphold the separate existence of the
company where it is formed to defeat or circumvent law, to defraud creditors or to avoid legal
obligations.
Case Law
In Creasey vs. Breachwood Motors Ltd. 1993 BCLC 480, it has been decided by the Court that if
the takeover of the company's assets had been carried out with an intention to avoid legal duty and
as against the interest of its creditors, the court can disregard the separate entity of the company.

Conclusion
In this case, therefore, the transferee company is liable to pay compensation because the remaining
assets of Skyshop Nepal Pvt.Ltd. has been received by the transferee company. As being created
unjust result to the interest of the plaintiff, Mr. Sisir Chand, the transferee company Shop Nepal
Pvt. Ltd. cannot be treated as a separate legal person than its transferor company Skyshop Nepal
Pvt. Ltd. It means that the two companies are not treated as separate entities but same and single.
So, Mr. Sisir Chand can recover compensation from the transferee company to the extent of
liability as per the agreement of transfer of assets.
(Note: "Heritage Nepal" was written mistakenly in place of Skyshop Nepal Ltd. Students who have
identified the mistake and answered accordingly will be awarded marks.)

b) A deed of mortgage was executed by the secretary and the working director on behalf of a
company, Divya Agro Pvt. Ltd., while securing a loan from a bank. The mortgagee has acted in
good faith and the money borrowed applied for the purpose of the company. When the bank
brought an action against the company being failed to repay the loan it was claimed that the
company should not be held liable as the articles required that all documents should be signed by
the managing director, secretary, and the working director on behalf of the company. Examine the
validity of the transaction and give answer to the following issues with the relevant principle.
i) Is the transaction between the bank and company valid?
ii) Can the bank entitle to recover the loan issued to the company?

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Answer
(i) The principle of constructive notice simply states that those who deal with the company are
deemed to have notice of the contents of the memorandum and articles. Therefore, anyone dealing
with a company was deemed to have knowledge of the contents of its object clause. The result,
therefore, of this rule is that where the businesses being carried on by the company were known to
the third party and, whether he actually knew it or not, were ultra vires, he would be unable to sue
the company.
The principle of constructive notice, hence, compels those dealing with the company to consult for
their own protection the provisions of the memorandum and articles and to deal with the company
only in the manner prescribed. However, the other persons who have dealing with the company
are also affected with notice of what is contained in the articles and memorandum, but are not
bound to make further inquiries and may assume that the internal management of the company has
been regular and is being carried on in accordance with the memorandum and articles.
However, the effect of the constructive notice has been minimized and the company has been made
responsible for the acts of its directors towards the third parties dealing with the company in good
faith. Section 103 of the Companies Act, 2063 states that no transaction done by a company with
another person shall be void or invalid merely on the ground that such transaction is beyond
jurisdiction based on any matter contained in the Memorandum of Association of the company.
Further, Section 104 of the Act has provided that any act done or action taken by or document
signed by at least one director authorized by a company or any person authorized to act for the
company shall be valid and binding for the company.
Therefore, the transaction, the deed of mortgage, is valid since mortgagee has acted in good faith
and the money borrowed was applied for the purpose of the company.

(ii) As per Section 104 (2) of the Companies Act, 2063, where any person does any transaction with a
company in good faith, such transaction shall be binding for the company; and nothing contained
in the memorandum of association, articles of association of the company or in any resolution
adopted by the general meeting or in any agreement concluded between the company and its
shareholders shall be deemed to have made any limitation in or restriction on the authority of the
director or the authorized person to do such transaction.
Provided, however, that if any officer does any act or transaction mentioned earlier in excess of
his/her authority, such officer shall be personally liable for such act or transaction unless such
authority is ratified by the general meeting pursuant to the Act; and the company may also recover
from him/her the loss or damage, if any caused to the company from such act or transaction. In the
instant case, the mortgage deed was executed without authority. However, the money borrowed
was applied for the purpose of the company and there is no evidence that the company has suffered
any loss or damage as a result of the mortgage deed. Hence, the bank is entitled to recover the loan
issued to the company provided that the execution of the deed is ratified by the general meeting.

c) The Annual General Meeting of Allied Engineering Pvt. Ltd. with more than 2/3 majority passed
resolution directing the Board of Directors to carry on the business of manufacturing high voltage
turbines in joint venture with York Electrical Accessories Ltd., Germany. The majority of the
Directors opposed this resolution and they refuse to carry on the business as per the resolution.
Advise the directors whether they can do so.
Answer
A company is an entity distinct alike from its shareholders and its directors. Some of its powers
may, according to its articles, be exercised by directors; certain powers may be reserved for the

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shareholders in general meeting. If powers of management are vested in the directors, they and
they alone can exercise these powers.
However, as per Section 95 (1) of the Companies Act, 2063, subject to the provisions contained in
the Act and the articles of association and the decisions of the general meeting, the directors shall
manage all transaction, exercise of powers and perform duties of the company through the board
of directors collectively.
As per Section 68, every director of company shall be present in the general meeting, either in
person or virtually through the use of technology such as video conferencing or similar technology
if he is unable to be personally present due to any circumstances which are beyond his control.
In this case, the board of directors is bound to implement or follow the resolution as per Section
95 (1) because it has been passed by the general meeting by more than 2/3 majority of the
shareholders in the presence of the BoD members of Allied Engineering Pvt. Ltd. to carry on the
business of manufacturing high voltage turbines in joint venture with York Electrical Accessories
Ltd. if there is any disagreement of the majority of the board members on the above business, they
can make proposal with facts and evidence to amend by calling Special General Meeting.

d) The BOD of Moon Light Limited, a listed company, appointed Mr. Tej, Chartered Accountant as
its first auditor of the Company to hold office from the date of incorporation to conclusion of the
first Annual General Meeting (AGM). At the first AGM, Mr. Tej was re-appointed to hold office
from the conclusion of its first AGM till the conclusion of 4th AGM. In light of the provisions of
the Companies Act 2063, examine the validity of appointment/reappointment in the following
cases:
i. Appointment of Mr. Tej by the Board of Directors.
ii. Re-appointment of Mr. Tej at the first AGM in the above situation.
iii. In case Mr. Raj, Chartered Accountant, was appointed as auditor at the first AGM to hold office
from the conclusion of its first AGM till the conclusion of 3rd AGM. i.e., three years' tenure.

Answer
Under the Companies Act 2063, every company must appoint an auditor and have its accounts
audited.
Section 111 (1) of the Companies Act, the auditor of a company shall be appointed, from amongst
the auditors licensed to carry out audit under the prevailing law, by the general meeting, subject to
Chapter 18, in the case of a public company, and, in accordance with the provision as contained in
the Memorandum of Association, Articles of Association or consensus agreement, any failing such
provision, by the general meeting, in the case of a private company; and his name shall be
forwarded to the Office within fifteen days from the date of such appointment.
Provided, however, that, the board of directors may appoint the auditor prior to the holding of the
first annual general meeting.
As per Section 111(2), the auditor appointed under sub-section (1) shall hold office only until the
next annual general meeting.Hence, no auditor cannot hold office from the conclusion of the first
AGM till the conclusion of 4th AGM.
No auditor or his partner or ex-partner or employee or ex-employee shall be appointed auditor for
more than three consecutive terms to perform the audit of a public company.
However, this restriction shall not apply to any partner who ended partnership or any employee
who left the service of such auditor three years ago.

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As per the given provisions following are the answer.

i. The appointment of Mr. Tej by the Board of Directors is valid as per the provisions of section 111
(1).
The appointment of Mr. Tej at the first Annual General Meeting is invalid because the appointment
of auditor for each fiscal year must be carried out by the separate AGM since auditor will only be
hold office until the next AGM.
ii. As per the provisions of Section 111 (2).
iii. As per the law, the auditor appointed shall hold office from the conclusion of 1st AGM till the
conclusion of the next AGM. Accordingly, here appointment of Mr. Raj, which is for three years,
is not in compliance with the said legal provision, so his appointment is invalid.

e) Himalayan Agricultural Company has published notice of its Annual General Meeting in Dhading,
where its registered office is located. The company published a notice in a national daily newspaper
on December 15, 2022, announcing that the meeting would be conducted on January 10, 2023.
The company issued no other public notice for the AGM. Once, seven per cent of the company's
shareholders attended the meeting in person and voted on the agenda. Because the meeting was
not adjourned, state the conclusions on the following issues regarding the Company Act, 2063 :

a) Who must issue notice to convene AGM?

b) When to issue notice of AGM and matters to be contained thereof?
c) Is it compulsory to issue second notice for the AGM?
d) What is the quorum of the meeting to make it valid?
e) Who must represent in the AGM, and the consequences of not attended as per requirement?

Answer
a) Himalayan Agricultural Ltd. must adhere to the legal requirements for convening its annual
general meeting, under the Companies Act, 2063. The appropriate authority, namely, the Board of
Directors (BoD) or a representative appointed as per Section 95 (3) of the Companies Act, 2063,
must issue the notice by proper procedures.

b) Section 67 (2) of the Companies Act, 2063 stipulates that a public company's annual general
meeting must be called with a minimum of 21 days' notice, including the venue, date, time, and
agenda, as well as a minimum of two notices in a national daily publication.
c) In this instance, only a single notice was issued, i.e., only on 15th December 2022, announcing that
the meeting would be conducted on 10th January 2023. No additional notices were published in
national daily newspapers. Therefore, it is a blunder for this company to refrain from issue another
public notice.
d) Section 73 of the Act states unless the Articles of the company provides for a large number, at
least three shareholders must represent more than fifty percent of total allotted shares by personally
presenting or by proxy in the case of a public company. In the given case, only seven percent of
the shareholders were present at the meeting. Consequently, the meeting was invalid due to a lack
of quorum. Therefore, the passed resolutions were invalid because the meeting violated the law.
First, the Company committed an irregularity by not issuing at least one more notice calling for
the AGM; therefore, the AGM is invalid. In addition, only seven percent of the company's total
shareholders were present at the meeting.

e) Section 73 of the Act stipulates that there must be at least three shareholders representing more
than 25 percent of the company's total share distribution for the second meeting held in the lack of
quorum in the first called meeting. If the quorum is insufficient, the meeting cannot proceed with
any of its business. It becomes a procedural error for AGM.

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2. Answer the following questions: (3×5=15)

a) Mr. Ram Krishna Pathak has been elected as a Director of Gandaki Bank Ltd. He approached you
to suggest him the matters to be disclosed after assuming the office by director as per the Banks
and Financial Institutions Act (BAFIA), 2073.

Answer
According to Section 24 of the BAFIA, 2073 after assuming the office every director shall disclose,
in writing, to the bank or financial institution the following matters:
• Name, surname, address, academic qualification, profession and experience of director.
• If he/she has been a director, office bearer or employee of any other entity, the details of
designation and responsibility thereof.
• Details as to name and address of family members of the Director and related person and financial
interests of himself/herself or his/her family in bank or financial institution or other entity, share
ownership in his/her name and names of the family of said entity.
• Details of shares or debentures subscribed by him/her or by his/her her family members in the
concerned bank or financial institution or its holding or subsidiary company.
• If any member of his or her family is working as an officer of the bank or financial institution,
details thereof.
• If he/she or any of his/her family members has entered into or going to enter into any kind of
contract with the concerned bank or financial institution, details thereof.
• If he/she has any kind of interest with regard to appointment of the chief executive, company
secretary and auditor, details thereof.
• Power of Attorney given to the Rastra Bank to or caused to enquiry regarding the director's
financial and professional background or to or caused to exchange of such notice or information.
• Self-declaration that he/she is qualified to be the director pursuant to the Act.
• Such other details specified by the Rastra Bank from time to time to be furnished to the Rastra
bank and Board of directors.

b) A resolution was presented in the board meeting of XYZ Bank by the company secretary as
directed by the chairperson of the board to make available credit to Promoters, Directors, Chief
Executive or shareholders having subscribed more than one percent of shares. One director raise
question of validity of such resolution by referring Section 50 of the Bank and Financial Institution
Act, 2073. The board, hence, decides unanimously for the legal opinion on the matter and asked
you to give your opinion on the following questions:
i) What are the acts not to be carried out by a bank or financial institution under the Act?
ii) What is the legality of the resolution presented in the board's meeting?
Answer
i)
Under Sub-Section (1) of Section 50 of the Bank and Financial Institution Act, 2073, a bank or
financial institution shall not carry out or cause to be carried out any of the following acts:-
• To purchase and sell goods with an objective of business and to purchase immovable land and to
construct building except those are necessary for its own purposes,
• To disburse credit against security of one’s own shares,
• To provide any type of credit facility to the Directors, person having subscribed one percent or
more than that of the paid up capital, Chief Executive, or a member of family of such persons, or
the firm, company or organization having significant ownership or financial interest in any person,
firm, company or organization having authority to nominate or appoint Director or managing
agent,
• To provide any type of credit or facility exceeding per single obligor limit prescribed by the Rastra
Bank from its capital fund to the single customer, company, companies or partnership firms of the
same group and relevant person,
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 Suggested Answers June 2023 Examination (CAP II - Group I)

• To provide any type of credits to any person, firm, company or institution on the guarantee of
promoters, Directors, or Chief Executive,
• To make investment in the securities of the bank or financial institutions of class “A”, “B” and
“C”, classified by the Rastra Bank,
• To invest the amount more than the limit as prescribed by the Rastra Bank in share capital of other
institution,
• To create any type of monopoly or other type of restrictive practices in banking and financial
transactions in collusion of banks or financial institutions,
• To commit in any act to create an artificial hurdles in competitive environment in financial sectors
with a intention to get undue advantage,
• To carry out any other functions which are prescribed by the Rastra Bank as the functions not be
carried out by a bank or financial institutions.

ii)
As per Section 50 (1) (c), a bank or financial institution cannot provide any type of credits to any
person, firm, company or institution on the guarantee of promoters, Directors, or Chief Executive.
However, according to Sub-Section (2) of Section 50, a bank or financial institution can make
available credit and credit card facilities up to the prescribed limit to Promoters, Directors, Chief
Executive or shareholders having subscribed more than one percent of shares against the collateral
security of their own fixed deposit receipts and the bonds issued by Government of Nepal or the
Rastra Bank to provide housing or other facilities for its own employees according to prevailing
Personnel Byelaws of bank or financial institution and to disburse any credit against the collateral
security of the bond issued by Government of Nepal or Rastra Bank. Hence, the resolution is
invalid.
However, the Bank could have provided credit to the Promoters, Directors, Chief Executive or
shareholders having subscribed more than one percent of shares up to the prescribe limit against
the collateral security of their own fixed deposit receipts and the bonds issued by Government of
Nepal or the Rastra Bank.

c) Nepal Rastra Bank imposed a fine on Small Bank Limited for its inability to maintain the
compulsory deposit as required to be maintained as per the Nepal Rastra Bank Act, 2058. The
CEO of the bank was of the view that the deposit could not be maintained due to crunch in liquid
fund available with the bank and shall be deposited once the fund is available and argued that the
fine had not to be attracted. As a compliance officer of the bank advice the CEO in this regard
mentioning the provisions of the compulsory deposit and consequences for failure to maintain
them as per Nepal Rastra Bank Act, 2058.
Answer
Facts
Small Bank Limited fails to maintain the compulsory deposit as required to be maintained as per
the Nepal Rastra Bank Act, 2058 and fine is imposed by Nepal Rastra Bank. CEO of the bank
questioned on the validity of the fine arguing that they have valid reason for situation of
noncompliance.
Legal Provision
Section 46 of Nepal Rastra Bank Act, 2058 states in regard to the compulsory deposit with Nepal
Rastra Bank.
Section 46 (1) states that the Bank shall issue directives to the commercial banks and financial
institutions to maintain compulsory reserve with the Bank in proportion to the deposits
accumulated with them, borrowed fund or other liability prescribed by the Bank. It shall be the
duty of commercial banks and financial institutions to maintain the compulsory deposit in the Bank
as prescribed by the Bank.
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Section 46 (2) states that while computing the compulsory deposit of commercial banks and
financial institutions, the Bank shall compute on the basis of daily average of deposit by
prescribing the duration.
Section 47 states that in cases where any commercial bank or financial institution fails to maintain
the compulsory deposit prescribed by the Bank, the Bank shall impose a fine on bank or financial
institution for the period of such failure. While imposing the fine, the amount of fine shall not be
more than three times of the maximum of the bank rate prescribed by the Bank.
Conclusion
The compliance officer shall advise the CEO of the Small Bank Limited that Nepal Rastra Bank
has right to impose fine in case of inability of the bank and financial institution to maintain the
compulsory deposit as required to be maintained as per the Nepal Rastra Bank Act, 2058.

3. Answer the following questions: (2×5=10)

a) Nepalese Securities Board in order to regulate and manage the activities of the securities markets
and persons involved in securities business by regulating the issue, purchase, sale and exchange of
securities in order to develop capital market and protect the interests of investors in securities. This
board is headed by a chairperson appointed by Government of Nepal. He/she is an administrative
chief of Board. State the powers, functions, and duties of the chairperson of the Board provided
by the Securities Act, 2063.
Answer
The power, functions and duties of the Chairperson of Securities Board of Nepal as prescribed by
Section 8 of the Securities Act, 2063 are as follows:
• To perform such functions as may be necessary for the protection of the interests of investors in
securities for the development of capital market,
• To regulate and monitor, or cause to be regulated and monitored, stock exchanges and transactions
of securities business persons in order to make transactions insecurities Strengthened, effective
and reliable,
• To act as the chief executive of the Board,
• To submit such long-term and short-term plans and policies as be necessary to be adopted by the
Board for the management of stock exchanges and development of capital market to the Board for
its approval,
• To call or cause to be called the meeting of the Board and preside over the same,
• To implement or cause to be implemented the decisions made by the Board,
• To inspect and supervise day-to-day business of the Board and perform the functions in accordance
with the objectives of the Board,
• To appoint the advisers and employees required for the Board as prescribed,
• To perform or cause to be performed such other functions as may have been trusted to him or her
by the Board,

b) CFO Mr. Ramanuj Das of Nepal Insurance Co. Ltd. want your advice regarding if there is any
restriction to distribute dividend by Insurance Company as per the Insurance Act, 2079. If yes in
what condition that insurance company shall not be allowed to declare dividend. Advise Mr. Das
with reference to Insurance Act, 2079.
Answer
1. As per Section 43 of Insurance Act, 2079 notwithstanding in the prevailing law in the following
conditions, an insurer shall not declare and distribute dividend.
a. Till the provision for all preliminary expenses, all losses incurred up to previous financial year,
risk bearing fund or reserve fund as per the Insurance Act and as determined by the Nepal
Insurance Authority is made.
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b. Till the minimum paid up capital required as per the section 36 of Act is fulfilled.
c. Till the proportion of assets and liabilities as per the section 42 of Act is maintained.
d. Till the Shares set aside for general public are issued and fully paid up,

2. Before declaration of dividend as per the prevailing law, approval of Nepal Insurance Authority
as prescribed needs to be obtained.

4. Answer the following questions: (2×5=10)

a) Mr. Arun has been charged for being absence from entity for more than a consecutive period of 30
days without getting the leave approved. Is it the matter of misconduct? State the grounds for
discharging an employee from work in the light of the Labour Act, 2074.
Answer
The allegation is the matter of misconduct on the part of Arun.
An employee can be discharged in the following conditions as per section 131 (4) of the Labour
Act, 2074 discharged upon misconduct:
a. Causing bodily harm or injury to the Proprietor, Manager or Employee of the entity.
b. Accepting or offering bribes. Stealing property of the entity.
c. Embezzlement of property of the entity.
d. Theft of property of anyone in the place of job.
e. Causing damages knowingly to the property of the entity.
f. Causing damages knowingly to the property of the job provider or his/her protection or in use
thereof.
g. Unapproved absence from entity for more than 30 consecutive days.
h. Causing damage to secrecy relating to special technology of the entity.
i. Doing any activities accompanying with competitive job provider
j. Convicted of a criminal offense involving moral turpitude.
k. Presenting false documents for the appointment.
l. Consuming psychotropic drugs or alcoholic drinks.
m. Having been punished twice for other misconducts within 3 years.
n. Other similar misconducts as prescribed in the Bylaws.
As discussed above, one of the grounds of termination may be unapproved absence from entity for
more than 30 consecutive days. Hence, Arun may be discharged from his work.
Other grounds for discharge:
a. Compulsory retirement: the employment is discharged by compulsory retirement when the
employee reaches the age of 58. (Sec.147)
b. Time bound employee: The employment is discharged upon expiry of the time period prescribed
in the employment agreement. (Sec. 140)
c. Work based employee: The employment discharges upon completion of the work specified in
the employment agreement. (Sec. 140)
d. Due to poor performance: The employment may be discharged if performance of the employee
is found to be unsatisfactory or below standard in 3 consecutive performance appraisals. (Sec. 142)

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e. Due to bad health the employment may be discharged on the recommendation of a medical
practitioner, if the employee is physically or mentally disabled or injured, rendering him/her unable
to work, or requiring him/her a long period of medical treatment, therefore affecting the work of
the entity. (Sec. 143)
f. Due to sexual harassment: (Section 132) As per Sec 132 of the act, the service may be discharged
on the basis of seriousness of offence.

b) State the additional facilities under the Industrial Enterprise Act, 2076 for the women
entrepreneurs.
Answer
Under Section 27 of the Act, the industries registered under the ownership of female
entrepreneurs only are entitled to following additional benefits and concessions apart from
Sections 24, 25 and 26. These benefits are given as under:
Headings Benefits
35% exemption in existing Industry Registration
Industry Registration Fees
Fees
Registration of Industrial property used
20% exemption in existing rate of registration
inside the industries
Female entrepreneur shall be prioritized while
Areas inside Industrial Estate
allocating the areas inside Industrial Estate
Export loan will be provided to the industry
Loan for exporting produced goods depending upon the financial status of the
transaction of the industry.

5. Answer the following questions: (1×10=10)

a) What are the duties and responsibilities of the member performing accounting profession under the
Nepal Chartered Accountants Act, 1997?
Answer
The duties and responsibilities of the member performing accounting profession under the Nepal
Chartered Accountants Act, 1997 are as follows:
➢ No member shall carry out auditing in collaboration by way of partnership or otherwise with any
person who has not obtained the accountancy practitioner certificate of his/her class.
➢ No member shall make any kind of partnership in the audit fees or remuneration received or earned
by, or sharing in the profits made by, that member with any person other than a person who has
obtained member of the Institute nor shall he or she give commission, brokerage etc. from the
professional fees which he or she has received or earned to any person including a person who has
obtained membership.
➢ No member shall, showing fear, terror, swank or influence, whether directly or indirectly, any
person in order to get the business of accountancy practice.
➢ No member shall supply or disclose any information and explanation which he or she has got in
the course of his or her business to any person other than the person who employs him or her and
the person to whom he or she is compelled by the laws in force to supply or disclose such
information and explanation.
➢ No member having obtained the professional certificate shall certify any financial returns or make
any kind of report without making examination and verification by himself or herself or his or her
partner or employee.
➢ While making any kind of report or certifying any financial returns of an organization in which he
or she or his or her partner has interest, a member having obtained the professional certificate shall
also clearly set down that he or she or his or her partner has such interest.

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➢ A member having obtained the professional certificate shall clearly show any material details
known to him or her in order to actually reflect any financial statements certified by him or her or
shall also clearly mention the false details or explanations, if any, inherent in the financial
statements certified by him or her, to the best of his or her information.
➢ No member having obtained the professional certificate shall base the remuneration to which he
or she is entitled for his or her work on a percentage of profits or on any other uncertain result.
➢ No member shall knowingly or recklessly mention any false matter in any notice, explanation or
statement required to be given to any office or department of Government of Nepal or any
organization.
➢ No member shall carry out auditing of an organization for which he or she has served, prior to the
expiry of at least three years of his or her retirement from the service of that organization.
➢ No member having obtained the professional certificate shall accept his or her appointment as an
auditor of any organization without ascertaining that the procedures required by the laws in force
for appointment as an auditor have been fulfilled.

6. Answer the following questions: (5×4=20)

a) Mr. 'A' gives a cheque to Mr. 'B' with "not negotiable" crossing. Mr. 'C' steals it and gives it to Mr.
'D' for consideration. Mr. 'D' takes the cheque without knowing fact that cheque has been stolen
cheque. Suggest, Mr. 'D' referring Negotiable Instruments Act, 2034.
Answer
Section 2 (d) of Negotiable Instrument Act, 2034 defines 'Negotiation' means the act of transfer of
negotiable instrument to any person so as to constitute that person the holder there of. "Not
negotiable" crossing does not make negotiable instrument not transferable. Any instrument with
"not negotiable" crossing means that it is negotiable until its title is good. Section 89 of Negotiable
Instrument Act 2034 make provision regarding Cheque bearing "not negotiable". A person taking
a cheque crossed generally or specially bearing in either case the words "not negotiable" shall not
have, and shall not be capable of giving a better title to the cheque than that which the person from
whom he took it had.
In general rule, a holder in due course obtains better title than the transferor. However, in case of
negotiable instrument having "Not negotiable" crossing does not obtain better title than the
transferor. Principle of "Nemo dat quod non habit" i.e., "No one can transfer title better than he
himself had" is applicable in case of negotiable instrument having "Not negotiable" crossing.
So, in the given case Mr. 'D' is holder in due course, but as the negotiable instrument is having
"Not negotiable" crossing he cannot get better title than Mr. 'C'. As Mr. 'C' has no title over the
instrument being stolen by him and accordingly Mr. 'D' also does not have title over the instrument.
Person taking the Negotiable Instrument having "Not negotiable" crossing should inquire and
assure the title of the transferor over Negotiable Instrument.

b) Explain the meaning of ‘Quasi-Contracts’. State the circumstances which are identified as quasi
contracts by the Muluki Dewani Samhita, 2074.
Answer
Quasi-Contracts: Even in the absence of a contract, certain social relationships give rise to certain
specific obligations to be performed by certain persons. These are known as “quasi-contracts” as
they create some obligations as in the case of regular contracts. Quasi-contracts are based on the
principles of equity, justice and good conscience. 0.5 mark
The salient features of quasi-contracts are:
(i) such a right is always a right to money and generally, though not always, to a liquidated sum of
money;

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(ii) does not arise from any agreement between the parties concerned but the obligation is imposed by
law and;
(iii) the rights available are not against all the world but against a particular person or persons only, so
in this respect it resembles to a contractual right.
Circumstances Identified as Quasi-Contracts:
1. Claim for necessaries supplied to persons incapable of contracting: Any person supplying
necessaries of life to persons who are incapable of contracting is entitled to claim the price from
the other person’s property. Similarly, where money is paid to such persons for purchase of
necessaries, reimbursement can be claimed.
2. Payment by an interested person: A person who has paid a sum of money which another person is
obliged to pay, is entitled to be reimbursed by that other person provided that the payment has
been made by him to protect his own interest.
3. Obligation of person enjoying benefits of non-gratuitous act: Where a person lawfully does
anything for another person, or delivers anything to him not intending to do so gratuitously and
such other person enjoys the benefit thereof, the latter is bound to pay compensation to the former
in respect of, or to restore, the thing so done or delivered.
4. Responsibility of finder of goods: A person who finds goods belonging to another person and takes
them into his custody is subject to same responsibility as if he were a bailee.
5. Liability for money paid or thing delivered by mistake or by coercion: A person to whom money
has been paid or anything delivered by mistake or under coercion, must repay or return it.
In all the above cases contractual liability arises without any agreement between the parties.

c) Define forced labour and list out works which are not considered as forced labour under the Labour
Act, 2074.
Answer
The "forced labour, means any work or service performed by any worker against his/her will as a
result of a threat of taking any action having financial, physical or mental impact if he/she does
not perform such work. 1 mark
Section 4 of the Act has imposed prohibition on forced labour. Hence, a person shall not directly
or indirectly employ any person in forced labour. However, under Sub-section (2) of Section 4 the
following acts or services carried out by workers shall not constitute forced labour:
▪ Any work or service to be performed as civil obligation when nation requires.
▪ Any work or service required to be performed by any person as a consequence of punishment
given by a decision or an order of a court.
▪ Any work or service required to be performed in the interest of a community as its member.

d) State the position of Sick Industries and benefits availed to them under the Industrial Enterprises
Act, 2076.
Answer
The Industrial Enterprises Act, 2076 has provided the grounds or conditions where an industry can
be declared as sick industry. Declaring an industry as sick industry is not only to identify an
industry as sick industry but the fundamental objective is to provide assistance from the
government to revive of such industry by considering its necessity and its contribution in the past.
Sub-section (1) of Section 39 of the Act has defined the nature of sick industries. It defines that if
any industry is being operated for a consecutive period of five years and in loss its production level
is thirty percent or less than thirty percent of the total production capacity, in the last three years,
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 Suggested Answers June 2023 Examination (CAP II - Group I)

without any default on the part of the management, Government of Nepal may, if it deems
necessary, declare it a sick industry by notification published in the Nepal Gazette. Under Section
40, the sick industry can be classified on the basis of prescribed standard as totally sick industry,
sick and about to be sick for their appropriate arrangement.
Under Section 41 of the Act, no duty, fee and tax of any kind shall be levied on the machinery
imported by any industry necessary for the extension and diversification of such industry.
Similarly, other exemption, concession, facilities or rebate can be provided to such industries for
their revival, reconstruction and management after considering the contribution of such sick
industry before being sick to the foreign currency earnings, employment generation, substitution
of import and promotion of export, the government may make necessary arrangement for the
revival of such sick industry.
e) List out the matters to be stated in the prospectus while registering securities by a body corporate
under the Securities Act, 2063.
Answer
Under Section 32 of the Act, a prospectus must contain the following matters:
▪ Capital and other information of the issuer.
▪ Main functions to be done by the issuer.
▪ Information pertaining to legal action.
▪ Economic condition, general administration, management of the issuer.
▪ Information relating to the expert preparing the prospectus.
▪ The economic statements contained in the prospectus.
▪ Such general matters as required to be set down in the prospectus.
▪ Other matters as may be prescribed.
The prospectus must contained true and exact information of the company in the different matters
to be stated under Section 32 of the Act. Section 33 of the Securities Act, 2063 has created
responsibility of the concerned body corporate and directors signing and experts preparing such a
prospectus.

7. Write Short notes: (2×5=10)

a) Mention the procedure of obtaining license for the labor supplier by a company wishing to supply
labors as per the Labor Act, 2074.
Answer
Section 59 of the Labor Act, 2074 mentions the matters about the procedure of obtaining license
for the labor supplier. They are:
▪ a company that wishes to obtain a license shall make an application in the prescribed format,
accompanied by such fees, details and documents as prescribed, to the Office of the concerned
area. Provided that a company that wishes to supply labors in an area with more than one Office
shall make an application in the prescribed format, accompanied by such fees, details and
documents as prescribed, to the Department in order to obtain the license.
▪ if the content of an application received seems to be reasonable upon its examination, the
Department or Office shall, by taking such a deposit or bank guarantee as prescribed, issue the
license to such an applicant on such conditions and in such a format as prescribed not later than
fifteen days.

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 Suggested Answers June 2023 Examination (CAP II - Group I)

▪ While issuing a license, the work or service and scope of work relating to the supply of labors shall
be mentioned in such a license. Provided that the same company shall not be allowed to supply
labors for more than two works or services.
▪ any organization or person carrying out labor supply related business at the time of commencement
of this Act shall, not later than six months from the date of commencement of this Act, incorporate
a company carrying out the business of supplying labors in accordance with the prevailing
company law and obtain the license.

b) Revolving fund under the Securities Act, 2063.

Answer
Securities Act, 2063 has made special provision regarding revolving fund manage its sources of
income. Under Section 23 of Securities Act, 2063 incorporates the provision regarding revolving
fund which are as follows:
▪ The Board may establish a revolving fund to manage its source of income and such amounts as
specified by the Securities Board shall be credited to that fund each year.
▪ The amounts of the revolving fund may be held in securities issued by the Government of Nepal
or in such a periodic account as may be prescribed by the Board.
▪ Generally, no moneys held in the revolving fund, other than income earned out of the moneys in
that fund, shall be spent.
▪ Provisions relating to the operation of the revolving fund shall be as prescribed.

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 Suggested Answers June 2023 Examination (CAP II - Group I)

Examiner’s Commentary on Students' Performance in June 2023

Examinations
Paper 1 – Advanced Accounting
List of Questions Specific Comments on the Performance of the Students
Question no. 1 Satisfactory performance however some students have no conceptual
clarity.
Question no. 2 a. Calculation of escalation charges of materials and wages separately is
missed by many students.
b. Mistakes in calculation of loss on sale of furniture in most cases.
Question no. 3 a. Very poor performance in cash flow.
b. Most of them have attempted nicely.
Question no. 4 a. Students seem to lack conceptual understanding of Deficiency A/C.
b. Reinsurance commission is part of income but deducted by most of the
students.
Question no. 5 a. Few students attempted the question on NFRS 16.
b. Students were not clear on deducting VAT on calculation of PPE.
c. Govt. grant related provisions were not mentioned by students.
Question no. 6 Students need to enhance theoretical understanding of subject matter.

Paper 2 – Audit and Assurance

List of Questions Specific Comments on the Performance of the Students
Question no. 1 Couldn’t quote the provisions of standards properly. In case of provisions
and contingent liability, students are confused.
Could not explain properly in details to reach the conclusion.
Question no. 2 Overall performance are not satisfactory. Students should quote the
specific provisions of Code of Ethics.
Question no. 3 a. Not dealt in a detailed manner.
b. Satisfactory.
c. Most students get confused with internal control risk.
Question no. 4 Most of the students have attempted and answer the question correctly.
Question no. 5 Most of the students are well aware of this provision and answered well.
Question no. 6 Students have answered the short notes satisfactorily.
Question no. 7 Answer was sketchy. Some points repeated by many students.

Paper 3 – Corporate and Other Laws

List of Questions Specific Comments on the Performance of the Students
Question no. 1 Most of the students are not well prepared on the concept of company
law. Most students are confused.
Question no. 2 Preparation of the students in BAFIA Act and NRB Act is little and in
many cases they can’t understand the question.
Question no. 3 Satisfactory performance.
Question no. 4 Satisfactory performance
Question no. 5 The concept and knowledge was not satisfactory.
Question no. 6 Average Performance.
Question no. 7 Poor performance.

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 Suggested Answers December 2022 Examination (CAP II - Group I)

Paper 3: Corporate and Other Laws

Marks
Attempt all questions.
1. Answer the following questions: (5×5=25)
a) Mr. Madan, a director of Manakamana Limited unable to attend the 7th AGM of
the company and in his place appoints Mr. Lila Raj, proxy to attend the AGM in
the capacity of the director. Is the appointment of proxy valid? Explain with
reference to the Companies Act,2063.
b) Rita Pradhan, a director of Astra Engineering Ltd. was involved in preparing
prospectus and with some reservations she signed on it. The prospectus is approved
and registered to the Office of Company Registrar and accordingly published.
When she knew that the director signing on the prospectus with false contents shall
liable personally for loss caused to the investors, she want to be freed from such
obligation and asked you. Advise her referring the relevant provision of the
Companies Act, 2063.
c) CA Expert Rawal was appointed as auditor of FY 2078-79 of National Ltd. During
the courses of audit the detail of the fixed assets of the Company was not provided
and auditor proceeded for the audit report with disclaimer opinion. Board of
Directors unsatisfied with the decision wants to proceed for the change in auditor
on the ground of disclaimer opinion. Examine the validity proceedings mentioning
the relevant provisions as per the Companies Act, 2063.
d) Board of Director of National Insurance Company is in the opinion to increase their
capital with the medium of Further Public Offering (FPO) in premium price. Advise
the BOD of the insurance company regarding the pre-conditions of and the
procedures for issuing FPO at premium price citing the relevant provision of the
Companies Act, 2063.
e) Namaste telecom company is a leading telecom public company with notable
profits. The majority of shareholders have intended to convert their company into
a private limited company, but they have no idea what the legal requirements are;
therefore, the company wants your advice. Assist them with the conversion of a
public limited company to a private limited company under the Companies Act,
2063.

Answer
1 a) A proxy is an instrument in writing executed by a shareholder authorizing another person
to attend a meeting and to vote on his behalf in his absence. Section 71 of the Companies
Act, 2063 provides every shareholder, who is entitled to attend and vote, a statutory right
to appoint another person as his proxy to attend and vote for him.

But in this case, the issue is related to Mr. Madan's directorship, but not to his shareholder
ship, because he cannot exercise both rights at a time. He is entitled to exercise his authority
of director once he is elected as a director from shareholders for the term. As a director he
can only exercise his legal rights or authority to perform only right valid functions
conferred by the Companies Act, 2063.

Section 68 of the Companies Act, 2063 provides that - Every director of a company shall
be present in the general meeting as far as possible.

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 Suggested Answers December 2022 Examination (CAP II - Group I)

The appointment of proxy as Director is invalid pursuant to section 68 of the Companies

Act, 2063, because this section requires every director of a company shall be present at the
AGM as far as possible.

In the above case, Mr. Madan as a director of Manakamana Limited is unable to attend the
AGM, he cannot appoint his proxy to attend AGM in his behalf in the capacity of Director.

1 b)
As per Section 24(1) of the Companies Act, 2063 it shall be the duty and obligation of the
concerned company to abide by the matters contained in the prospectus published. And the
directors who have signed the prospectus as referred to in Subsection (1) shall be liable for
the matters mentioned in that prospectus.
Similarly, Subsection (3) states that if any published prospectus contains false statements
made maliciously or deliberately and any person sustains any loss or damage by reason of
his/her subscription of securities on the faith of that prospectus, the directors who have
signed that prospectus shall be personally liable to pay compensation for the actual loss or
damage so sustained.
A Director who resigns before the decision made by the company to publish the prospectus
or whom on becoming aware of any false statement in the prospectus, publishes a notice
of that matter to the information of the general public prior to the sale or allotment of
securities or who proves that he/she did not know that the prospectus contained any false
statement shall not be liable to bear such compensation.
Hence, Rita Pradhan by publishing a notice regarding false statement as stated above can
be freed from her obligation.
1 c)

Issue:
Section 119 “Provision relating to removal of appointed auditor” of the Companies Act, 2063
mentions about the removal of appointed auditor. They are:
Section 119(1) states that no auditor appointed pursuant to this Act shall be removed pending the
completion of audit of accounts of any financial year for which he/she was appointed as the auditor.
Section 119(2) states that if any auditor breaches the code of conduct of auditors or does any act
against the interest of the company which has appointed him as the auditor or commits any act
contrary to the prevailing law, such auditor may be removed through the same process whereby
he/she was appointed as auditor, by giving prior information to the Nepal Chartered Accountants
Institute, and with the approval of the regulatory authority, if any authorized by the prevailing law
for the regulation of business of the company concerned, and failing such authority, with the
approval of the Office of Company Registrar.
Section 119(3) states that while removing an auditor with valid reasons, the auditor shall be
provided with a reasonable opportunity to defend him/herself.
Conclusion:

Based on the above legal provisions the Plan of the Board of Directors of the National Ltd. to
remove of auditor appointed for FY 2078-79, CA Expert Rawal on ground of issue of audit
report with disclaimer opinion is not valid as per the provisions of the Provisions of the
Companies Act, 2063.

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 Suggested Answers December 2022 Examination (CAP II - Group I)

1 d)
Section 29 (1) of the Companies Act, 2063 any company fulfilling the following conditions
may, with the prior approval of the Office, issue shares at a premium:
a) The company has been making profits and distributing dividends for three consecutive
years,
b) The company’s net worth exceeds its total liabilities,
c) The company’s general meeting has decided to issue shares at a premium.

Further, as per the sub section (2) of the section 29, where the shares are sold at a premium
pursuant to Sub-section (1), a sum in excess of the face value, out of the proceeds thereof,
shall be deposited in a premium account to be opened to that effect.

Sub section (3) of the section provides that the company may use the moneys in the account
as referred to in Sub-section (2) in the following acts:
a) Paying up un-issued share capital to be issued to the shareholders as fully paid bonus
shares,
b) Providing for the premium payable on redemption of any redeemable preference
shares,
c) Writing off the preliminary expenses made by the company,
d) Bearing or reimbursing the expenses of, or the commission paid or discount allowed
on, any issue of shares of the company.
In making a request for approval of the Office to issue shares at a premium pursuant to
Sub-section (1), the audited financial statements for three years shall be provided to the
Office.

1 e)
Namaste telecom company wants to convert it into a private company, must proceed with
Section 14 of the Companies Act, 2063. As this Section 14 under different clauses has
stated the provisions for the conversion of a public company into a private company. Sub-
section 1 of section 14 of this Act reads thus:

In the following circumstance, a public company shall be converted into a private

company:

• If the number of shareholders of the public company becomes less than seven,
• If the public company fails to maintain its paid-up capital under section 11 or
the paid-up capital as referred to in section 11 is not maintained because of
reduction in capital pursuant to section 57. Provided, however, that this
provision shall not apply to the company as referred to in sub-section (2) of
section 11.

In the event of occurrence of a circumstance as reffered to in sub-section (1) above, the

concerned public company shall make necessary amendments to its memorandum and
articles of association and convert it into a private company within 6 months. After making
the necessary amendments in the memorandum and articles, the company, within 30 days
after the making of such amendment, shall make an application to the office of the
Company Registrar (CRO) with the prescribed fees for being converted into a private
company. The CRO on the receipt of an application shall mention in the company register
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 Suggested Answers December 2022 Examination (CAP II - Group I)

the contents of conversion of such company into a private company and give a company
conversion certificate with 60 days. Prusuant to section 14 (5) of this Act, all the assets and
liabilites of the public company so converted shall devolve on the successor Namaste Pvt.
Ltd. Company.

2. Answer the following questions: (3×5=15)

a) Taranath Rai was appointed as a director of Nepal Rastra Bank for the term of 4
years. An application filed to the ministry of finance to remove the director as he
was expelled from the post of CEO of Dharan Bikas Bank 5 years back in a charge
of over valuation of security that was resulted huge loss to the bank. The ministry
wants your opinion to the following matters:
i) What are the conditions when a director of Nepal Rastra Bank can be removed?

ii) Can he be removed from his post on the above

ground?

b) Mr. Shisir Chand is appointed as the Auditor of Manaslu Bank Ltd, as he has been
appointed as Auditor of the Bank for first time. He asked you what are the matters
that he should include in his Auditor’s Report as per Bank and Financial Institution
Act ,2073.
c) Mr. Dhakal has spent five years working as the CEO of a Nepal Commercial Bank
Ltd. He learned that NRB offers the bank this kind of loan and refinancing. You
are serving as an economic advisor there. Make recommendations about the Nepal
Rastra Bank Act, 2058 of lending and refinancing provisions.

Answer:
2 a) i
Pursuant to Section 22(1) of the Nepal Rastra Bank Act,2058 the Government of Nepal, the Council
of Ministers shall remove the Governor, Deputy Governor and Director on conditions stipulated under
Section 22(5) which provides that the Governor, Deputy Governor and Director shall be removed from
the office on any of the following grounds:-
1. If one is disqualified to become a Director pursuant to section 21.
2. The lack of capability to implement or cause to implement the functions which the Bank has to carry
out in order to achieve the objectives of the Bank under this Act.
3. If one has committed any act causing loss and damage to the banking and financial system of the
country.
4. If one is found to have acted dishonestly or with mala-fide intention in any transaction related to the
business of the Bank.
5. If professional license is revoked or prohibited from carrying out any profession rendering
disqualified to be engaged in any trade or profession on the ground of gross misconduct.
6. If one is absent for more than three consecutive meeting of Board without a genuine reason.

ii.
As the act and punishment before the appointment is not a ground to remove the Governor, Deputy
Governor and Director as per Section 22(5) as mentioned above, the Government of Nepal cannot remove
Taranath from his post.

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 Suggested Answers December 2022 Examination (CAP II - Group I)

2 b)
As per the section 66 (3) of Bank and Financial Institution Act 2073 the auditor shall have
to include the following matters in his/her report clearly:-
(a) Whether or not replies to the queries as per the demand were provided,
(b) Whether or not the balance sheet, off-balance sheet transactions, profit and loss
account, cash flow statement and other financial statements, as well, have been
prepared in such format and in accordance with such procedures as prescribed by
the Rastra Bank, and whether or not they actually matched with the accounts,
records, books and ledgers maintained by the bank and financial institution,
(c) Whether or not the accounts, records, books and ledgers have been maintained
accurately in accordance with prevailing laws,
(d) Whether or not any official of the bank or financial institution has committed any
act contrary to the prevailing laws or committed any irregularity or caused any loss
or damage to the bank or financial institution,
(e) Whether or not credits have been written off as per the Credit Write-off Byelaws or
directives of the Rastra Bank,
(f) Whether or not the transactions of the bank or financial institution have been carried
on in a satisfactory manner as prescribed by the Rastra Bank,
(g) Matters to be informed to the shareholders,
(h) Matters prescribed by the prevailing laws and other matters as prescribed by the
Rastra Bank to be mentioned in audit report by the auditor,
(i) Other suggestions which the auditor deems necessary to be furnished.

2 c)
NRB is a banker of the bank. It inspects and supervises the mobilization of financial resources
whether it has collected through public or from loan and refinance or its promoters. As this
matter is concerned, NRB may make available loan and refinance to commercial bank and
financial institution under the provision of section 49 of NRB Act. The provision is as follows:

(1) The Bank may, subject to the terms and conditions prescribed by it, make available loan
and refinance to commercial banks and financial institutions for a maximum period of one
year against the security of the following assets:
(a) International negotiable instrument referred to Section 66 (1) (e);
(b) The debt bond issued by Government of Nepal payable within Nepal;
(c) The deposits accumulated in the Bank or the gold and precious metals, which the
Bank may transact under this Act;
(d) The bill of exchange or the promissory notes referred to Section 48 (1);
(e) Other securities as prescribed.
(2) Notwithstanding anything contained in Sub-section (1) of the Bank may provide any type
of credit to a commercial bank and financial institution for a maximum period of one year
in cases where Government of Nepal has, for the sake of public interest and welfare,
deemed it appropriate to provide loan and has requested the Bank therefore and
Government of Nepal has given a guarantee of securities of prevailing market rate for
such loan or in extraordinary circumstances where the Bank has to work as a lender of the
last resort.
(3) Loan, as provided in accordance with the provision of sub section (1) or (2), shall be
renewed for the period of One-year subject to the terms and conditions prescribed by it.

3. Answer the following questions: (2×5=10)

a) No person will operate or cause to operate the insurance business without obtaining
a certificate pursuant to the Insurance Act, 2049. Thus, who is interested to carry
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 Suggested Answers December 2022 Examination (CAP II - Group I)

out insurance business it is mandatory to obtain license from the concerned

authority. State the conditions when the registration of an insurer may be cancelled
as per the Insurance Act, 2049?
b) Now a day’s Security Market is gaining popularity among the people of Nepal. A
group of young graduates are willing to start securities business in Nepal. The group
approaches you to advise them in following matters:
If there is any obligation to obtain license to carry on securities business, if yes
from which entity and what are the matters to be specified while giving application
for license to carry on securities business? Explain with reference to securities Act,
2063.

Answer:
3a)
Section 13 of the Insurance Act, 2049 prescribes the provision regarding the cancellation of
the Registration of an Insurer.
(1) According to it the Board may cancel the registration of an Insurer by providing a written
notice with effect from the date prescribed in the same notice in the following
circumstances:
(a) If the Insurance Business is not started within six months from the date of obtaining the
certificate,
(b) If it is felt that the liability of the Insurer exceeds its assets within Nepal,
(c) If the Insurer could not fulfill the liability pursuant to the decision within three months
from the date of final decision of the court in the case filed under the Insurance Policy
issued within Nepal,
(d) If the head office of the Insurance Business of any foreign Insurer is situated outside
Nepal and in case it is felt that Nepalese Insurer has not obtained equal facilities there
which are enjoyed by the foreign Insurer pursuant to the prevailing law of such country,
(e) If the Insurer does not open its office inside Nepal,
(f) If the Insurer does not perform the functions to be performed or has performed any
functions which is not to be performed pursuant to this Act or the Rules made under
this Act.
(2) Before canceling the registration of an Insurer pursuant to Subsection (1), the Board shall
provide a reasonable time-limit to submit clarification to the concerned Insurer, stating the
reasons for canceling its registration.
(3) If the concerned Insurer does not submit its clarification within the time period mentioned
in Sub-section (2) or in case the clarification submitted by it is found not to be satisfactory,
the Board shall cancel the registration of such Insurer pursuant to Sub-section (1), and shall
publish a notice in two major newspapers to be published Nepal for the information public
in general.
(4) Mere cancellation of the registration of an Insurer pursuant to this Section shall not make
any effect to the rights and liabilities of the concerned Insurer regarding to any action taken
or functions performed before the cancellation.

3b)
According to Section 56 of the Securities Act, 2063 A company or body desirous of
carrying on securities business has to obtain license to carry on securities business from
the Securities Board under the Securities Act, 2063. No one shall carry on securities
business without obtaining license from the Board.
As per Section 57 institution desirous of carrying on dealing in securities has to make an
application with the required documents and fees as prescribed. Matters to be provided at

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 Suggested Answers December 2022 Examination (CAP II - Group I)

the time of making an application to the board for carrying securities dealing business, are
as follows:
i. Type of securities business and services to be provided;
ii. If an agent is to be appointed to carry on securities business and if such business is to
be carried on in collaboration with others, matters pertaining thereto;
iii. In the case of those business persons, as prescribed, who are allowed to carry on
business only upon obtaining a membership of a stock exchange, a recommendation
letter of the concerned stock exchange; and
iv. Grounds proving the ability to carry on the proposed securities business and such other
information as may be specified by the board.
4. Answer the following questions: (2×5=10)
a) Employees of Barahi Motors Ltd. demanded for bonus in advance which was
refused by the manager and asked the board of directors to handle the matter. As
no balance sheet and statement of profit and loss accounts have been prepared, the
board became unable to decide the matter. Give your advice stating the provisions
of the Bonus Act, 2030.
b) What are the deductions allowed from the remuneration to be obtained by the
workers or employees as per the Labour Act, 2074?

Answer:
4a)
Section 11 of the Bonus Act, 2030 prescribes the provisions regarding the distribution of bonus
in Advance. Sub-clause (1) states that if any enterprise fails not submit the balance-sheet and
statement of profit and loss of such enterprise within the time limit as provided in sub-clause
(1) of section 4, or if bonus could not be distributed within the time limit of Section 9 by the
reasons of inquiry or examination conducted by the concerned Labor Office on the balance
sheet and statement of profit and loss submitted pursuant to Sub-section (2) of Section 4, the
management of such enterprise, after making tentative computation, shall have to distribute at
least five percent of the net, income as bonus.

Similarly, Sub-section (2) provides that after preparation of balance sheet and statement of
profit and loss or after final assessment is made in this matter. It the amount of bonus
distributed pursuant to the Sub-section (1) is found less than the amount to be distributed as
bonus, the difference amount shall have to be redistributed to the employees proportionately
having considered previously distributed amount.

Finally, Subsection (3) has provide further that if the amount, distributed as bonus is found
excess to the amount assessed for distribution of bonus under Sub-section (2), the excess
amount, whatever may be, shall be deducted for recovery it, while assessing the net income of
the enterprise in the next fiscal year.

4b)
As per section 38 of Labor Act, 2074, the remuneration of workers or employees shall not
be deducted except under the following circumstances:
(a) Any tax, fees leviable under law,
(b) Any amount of contribution required to be made for provident fund or insurance or
any other social security,
(c) Any amount required to be deducted pursuant to the order or decision by any
judicial or quasi-judicial body or arbitration,
(d) Such amount as prescribed for such service or facility provided by the employer to
the labour as prescribed,
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 Suggested Answers December 2022 Examination (CAP II - Group I)

(e) Amount of remuneration for the period during which the labour remains absent
from the work,
(f) In the event of loss of or damage to cash or in-kind of the employer with ulterior
motive or recklessly, such amount as mentioned in the cash or in-kind book or the
amount equivalent to the production cost in the case of a manufactured good,
(g) Such amount as specified in the collective agreement to be deductible from
remuneration,
(h) Membership fee chargeable by the trade union,
(i) Amount of loan or advance provided or paid to the labour by the employer.

5. Answer the following questions: (2×5=10)

a) State the circumstances where a councilor may cease from his post and how such
vacant post is fulfilled pursuant to the Nepal Chartered Accountants Act, 2053.
b) What do you mean by “Certificate of Practice (COP)? Why it is required? Explain
with reference to the provisions of Nepal Chartered Accountants Act, 2053.
Answer:
5 a)
Pursuant to Section 8 (1) of the Act, a councilor shall cease to hold his/her office in any of the
following circumstances:
(a) If the councilor ceases to be a member of the Institute.
(b) If resignation tendered by the councilor from his/her office is accepted by the Council.
(c) If the councilor absents himself or herself from three consecutive meetings of the Council
without giving a notice with reason to the Council.
(d) If the term of office of the councilor expires.
(e) If it is proved that the councilor has not abided by the conduct referred to in Section 34.
(f) If he dies.
Vacancy and fulfillment: Where the remaining term of office of any councilor elected whose office
has become vacant due to his/her death or resignation or being disqualified to be a member of the
Institute pursuant to the provisions of this Act, is less than One year, the Council shall designate as
the council and where such term is more than One year, the vacancy shall be filled by way of election.
5b)
Section 2(j) of Nepal Chartered Accountants Act, 2053 defines the Certificate of Practice
(COP)
"Certificate of Practice (COP)" means the certificate issued pursuant to section 28, to
render accounting profession.
Section 28 of Nepal Chartered Accountants Act, 2053 states that "Certificate of Practice
(COP)"
(1) Member willing to carry out audit profession shall make an application, in a
prescribed format, for Certificate of Practice, along with the prescribed fees, to the
Institute.
(2) The Council, prescribed that the applying member as per sub-section (1), has
fulfilled all conditions prescribed by the Council, shall provide a Certificate of
Practice, in a prescribed format, to such member.
(3) The Council shall ensure that the members observe or shall cause to observe
conditions prescribed for members holding Certificate of Practice may prescribe
Code of Conduct for such member.
Without getting certificate of practice from the Institute no member of the Institute shall
carry out the accounting profession. Therefore, certificate of practice is required to member
to comply the provisions contained in Nepal Chartered Accountants Act, 2053 to carry out
the accounting profession.
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 Suggested Answers December 2022 Examination (CAP II - Group I)

6. Answer the following questions: (5×4=20)

a) State the legal provisions as to the fund and the account and auditing of the Social
Welfare Council.
b) Mention the provision related to mitigation of adverse effect on environment as per
Industrial Enterprises Act, 2076.
c) Under what circumstances, the registration certificate of insurers cannot be
renewed. Explain in the light of relevant provisions of the Insurance Act, 2049.
d) Highlight the legal provisions relating to the lay off period and remuneration
thereof under the Labour Act, 2074.
e) State some major functions of WTO.

Answer:
6a)
Fund is an essential to achieve the objective of the council. All money of the Council shall be
deposited by opening an account in the name of the Council in Nepal Rastra Bank or any
Commercial Bank. All expenditure of the Council shall be borne from the fund. The operation
of the account of the Council shall be as prescribed and its fundamental objective is to use the
fund in transparent and wise manner. Pursuant to Section 17 of the Act, the Council shall have
own separate fund and the fund shall contain the following money:
▪ Money received from Government of Nepal.
▪ Money received from foreign Governments, international organizations or foreign
organizations, through Government of Nepal.
▪ Money received from the movable or immovable property of the Council.
▪ Money received from any individual, institutions or countries in the form of donation,
assistance, grants and presents.
▪ Money received from any other sources.
According to Section 18 of the Social Welfare Act, 2049,the account of the Council shall be
maintained in accordance with the procedures accepted by Government of Nepal. Pursuant to
Subsection (2), the Audit of the Council shall be carried by the Office of the Auditor General.
As per Subsection (4),the Government of Nepal, if it so wishes, may inspect or cause to inspect
the accounts document along with cash and kind of the council at any time.
Further, Subsection (5) empowers the Council to inspect or cause to inspect the accounts
document along with cash and kind of the social organization and institutions affiliated with
the Council at any time if it so wishes. Account and auditing of the social organizations,
affiliated with the council shall be as prescribed.
6b)
Section 7 “Adverse effects on environment to be mitigated” of the Industrial Enterprises Act,
2076 mentions the provision to mitigate the adverse effect on the environment. They are as
follows :
Section 7(1) states that if an industry registered under Section 5 “Industry registration
certificate to be given” is required to carry out environmental impact assessment or initial
environmental examination under the prevailing law, it shall commence its establishment,
operation, commercial production and transaction only after the approval of a report on such
assessment or examination.
Section 7(2) states that notwithstanding anything contained in subsection (1), environmental
impact assessment or initial environmental examination shall also be carried out if so required
under the prevailing law when an industry needs to increase its capital or capacity, add or
change its objective, change its location or transfer it to another place.

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 Suggested Answers December 2022 Examination (CAP II - Group I)

Section 7(3) states that the concerned industry shall be responsible for mitigating adverse
environmental effects caused or likely to be caused on the environment in the course of its
operation.
Section 7(4) states that the industry registration body may, as required, monitor whether
environmental effects are mitigated under this section and give a direction, take action or
recommend the concerned body for action.
Section 7(5) states that an industry which is not required to carry out environmental impact
assessment or initial environmental examination when making application for its registration,
shall make a self-declaration, accompanied by the reasons and grounds for not requiring to
carry out such assessment or examination, that it will take necessary measures to mitigate
possible adverse effects on the environment from the establishment and operation of the
industry.

6c)
Section 11A of Insurance Act, 2049 mentions few circumstances that can lead to non-
renewal of certificate of registration of an insurer. These circumstances are as follows:
a) In case it doesn't submit the balance sheet according to section 23
b) in case it doesn't submit the statement of income according to section 24
c) In case it doesn't submit auditor's report according to section 25
d) In case it doesn't submit the actuary's report according to section 26
e) In case it doesn't pay the insurance service fee according to section 40
f) In case it has been prohibited from engaging in the insurance business according to
section 12A.
In case the certificate of registration of an insurer cannot be renewed because of any of the
circumstances mentioned in the above, the Board shall notify the insurer accordingly within
15 days from the date of emergence of such circumstances.

6d)
Lay off period: During the operation of an industry, under Section 15 of the Act, the
employer may stop the work and lay off workers in case any special situation occurs
because of shortage of electricity, water, raw material or lack of fund or inability to reach
the workplace or work or operate the workplace because of any situation beyond control.
As per Sub-section (2) of Section 15 the employment relationship between the employer
and workers shall continue during the lay off period. Any employer employing ten or more
than ten workers may lay off workers for a period maximum of fifteen days. In case, there
is a need to lay off the workers for more than fifteen days, the employer shall be required
to consult the authorized trade union or labor Management Committee.

Remuneration for layoff period: The Act has provided the provision for the remuneration
of the workers kept under the layoff period. Under Section 39 of the Labor Act, 2074, the
workers who are laid off pursuant to this Act, shall be paid half of their remuneration which
they are entitled to until the work is resumed by the employer. Provided that such workers
shall not be required to give attendance in the workplace during the layoff period unless
the requirement of attendance is mentioned in the notice issued relating to the layoff.
6e)

Among the various functions of the WTO, basically, it oversees the implementation,
administration and operation of the covered agreements and provides a forum for negotiations
and for settling disputes. Additionally, it is WTO's duty to review and propagate the national
trade policies, and to ensure the coherence and transparency of trade policies through
surveillance in global economic policy-making. Another priority of the WTO is the assistance
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 Suggested Answers December 2022 Examination (CAP II - Group I)

of developing, least-developed and low-income countries in transition to adjust to WTO rules

and disciplines through technical cooperation and training. In general, the functions of WTO
are given as follows :-
▪ The WTO shall facilitate the implementation, administration and operation and further the
objectives of this Agreement and of the Multilateral Trade Agreements, and shall also
provide the framework for the implementation, administration and operation of the
multilateral Trade Agreements.
▪ The WTO shall provide the forum for negotiations among its members concerning their
multilateral trade relations in matters dealt with under the Agreement in the Annexes to
this Agreement.
▪ The WTO shall administer the Understanding on Rules and Procedures Governing the
Settlement of Disputes.
▪ The WTO shall administer Trade Policy Review Mechanism.
▪ With a view to achieving greater coherence in global economic policy making, the WTO
shall cooperate, as appropriate, with the international Monetary Fund (IMF) and with the
International Bank for Reconstruction and Development (IBRD) and its affiliated agencies.

7. write short notes: (2×5=10)

a) Establishment of the Nepal Securities Board.
b) Promissory Note - as per Negotiable Instruments Act, 2034.

Answer:
7a)
1. Nepal Securities Board has been established by under section 3 of the Securities
Act, 2063. It is established in order to regulate and manage the activities of the securities
markets and persons involved in securities business by regulating the issue, purchase sale
and exchange of securities in order to develop capital market and protect the interests of
investors in securities.

2. The Board shall consist the members as follows:

a. A person appointed by the Government of Nepal – Chairperson
b. Joint Secretary, Ministry of Finance – Member
c. Joint Secretary, Ministry of Law, Justice and Parliamentary Affairs –
Member
d. Representative, Nepal Rastra Bank – Member
e. Representative, Institute of Chartered Accountants of Nepal – Member
f. Representative, Federation of Nepalese Chambers of Commerce and
Industries – Member
g. A person nominated by the Government of Nepal from amongst the experts
who have obtained at least master's degree in economics, management,
finance, commerce or law form a recognized university and gained at least
seven years of experience in stock exchange, management, capital market
development, finance and economic sector – Member

3. The concerned organization shall, in nominating its representative pursuant to

Clauses (e) and (f) above, nominate a person who has obtained at least bachelor's
degree and gained at least seven years of experience in accounts, industry,
commerce, finance, banking, economics or law matters.
4. The tenure of office of the member nominated pursuant to clause (g) above shall be
three years.

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 Suggested Answers December 2022 Examination (CAP II - Group I)

5. No act or proceeding of the Board shall be affected merely on the reason of any
vacancy in office of any member.
6. An officer employee designated by the Board shall act as the Secretary of the Board.
7. If the Board thinks it necessary, it may invite any native or foreign expert, adviser
to attend its meeting as an observer.
8. The central office of the Board shall be situated in Kathmandu Valley; and the
Board may, as required, open its branch or contact office within or outside of Nepal.

7b)
Section 2(f) of the Negotiable Instrument Act, 2034 has defined the term as "Promissory
Note" means an instrument in writing except government or Bank note containing an
unconditional undertaking, signed by the maker, to pay a certain sum of money to, or to
the order of, a certain person or to the bearer of the instrument.

Provided that this word shall not include the document prepared pursuant to the chapter 15
of part 4 of National Civil Code 2074.
This instrument should satisfy the elements of writing, express promise, unconditional,
money only, must be authorized with signature by the maker and certainty of the parties
whether certain person or bearer. In this document, parties are certain and should indicate
in the face of the instrument. Generally, two parties i.e. maker the person who makes the
note and is known as the maker, and payee- to whom the promise is made, are involved in
the promissory note.

Therefore, promissory note, is, a written instrument prepared by the maker for the
fulfillment of own promise to pay certain sum of money to the certain person or bearer
without condition.

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 Suggested Answers December 2022 Examination (CAP II - Group I)

Examiner’s Commentary on Students' Performance in December

2022 Examinations
Paper 1: Advanced Accounting
List of Questions Specific Comments on the Performance of the Students
Question no. 1 Overall performance of the student was poor. Students were not able
to obtain Goodwill Valuation, Cash Balance . Majority of the
students answered profit and loss account correctly.
Question no. 2 Most of the students attempted the question of Amalgamation.
The calculation of Purchase consideration was straight forward but
students were providing much more unnecessary information to
calculate purchase consideration.
Question no. 3 Majority of the students were not able to calculate correct gross profit
and Net profit. Part(b) was correctly answered by majority students.
Question no. 4 Majority of the students were unable to calculate share capital,
turnover calculation of current assets.
Question no. 5 Majority of the students were unable to attempt part (a), (b) was
correctly answered. In part (c) few students did not have clarity on
the question hence performance was poor.
Question no. 6 Majority students answered short notes but not able to answer
precisely.

Paper 2: Audit and Assurance

List of Questions Specific Comments on the Performance of the Students
Question no. 1 a. Most of the students did not refer to NSA 570 “Going Concern”
that required auditor to assess event and condition if they cast
significant doubt on Going Concern.
b. It was wrongly linked to event after Balance Sheet date in most of
the cases.
c. Students’ conclusion was wrong in most of the case.
Question no. 2 Satisfactory performance
Question no. 3 a. Students knew the answer, but precise answer was missing in
most of the cases.
b. Types of error was missing in half of the answer sheet.
c. Well performed by students.
Question no. 4 Understanding of Code of Ethics was there but precise answer was
missing.
Question no. 5 a. Students either answered from Auditor General perspective or
from Public Company Perspective. Very few linked
responsibilities of both in case of Company where GON have
substantial investment.
b. Answers were not precise and lack of understanding.
Question no. 6 Satisfactory performance
Question no. 7 Satisfactory performance.

Paper 3: Corporate and Other Laws

List of Questions Specific Comments on the Performance of the Students
Question no. 1 Satisfactory performance
Question no. 2 Answers were not exact and precise. They answered the question
with common understanding.
Question no. 3 They were failed to mention the legal provision in a satisfactory
manner as they have not gone through these laws and confused.

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 Suggested Answers December 2022 Examination (CAP II - Group I)

Question no. 4 Satisfactory performance

Question no. 5 Almost all were failed to explain the COP and it’s need. First part of
5(a) was answered in proper way.
Question no. 6 Satisfactory Performance.
Question no. 7 Only few of them attempted in right way the question 7(a) and
majority of the students failed to answer 7(b).

48
Paper 3: Corporate and Other Laws
Attempt all questions.
1. Answer the following questions: (5×5=25)
a) Mr. Lal, a newly appointed Company Secretary of Buddha Steel Ltd, has heard that
Company should submit Annual Return under Section 78 of Companies Act, 2063, but does not
know when it should be submitted and what matters it should contain. As you are corporate
consultant, he approaches you. Advise Mr. Lal regarding the provisions of submission of
Annual Return under Section 78 of Companies Act, 2063.

b) Shree Bank Ltd has 3020 shareholders of which 10 are female shareholders. Annual General
Meeting of Bank conducted on Chaitra 3, 2078 has elected 6 Directors all male members and
Board of Directors has appointed a male Professional Director. Ms. Sunita Chaudhary a
shareholder of the bank claim that the constitution of Board of directors is not as per the
provision of the Company Act 2063.

c) Pushpa Singh, a Nepali national currently living in Germany wants to establish an agro tech
industry in Nepal and authorizes Alok Rai to register a company under a power of attorney with
the objectives to be included in the memorandum of association. The company is duly
registered and obtained the certificate of incorporation. Pushpa, afterwards, found the objectives
of the company were beyond the power of attorney and not related to agro tech business but real
estate business. He consults to cancel the registration of company. Advise him as to the validity
of registration.

d) Hansraj, a statutory auditor of Spring Water Pvt. Ltd. resigned from the post showing his
personal inability to conduct audit. So, the BOD called EGM and proposed Mr. Kiran Karna as
an auditor but the resolution failed and there is no chance of appointing of another auditor from
the general meeting. Therefore, it was suggested appointing the auditor by the Office of
Company Registrar. Give your opinion-
i. When the office can appoint the auditor of a company? [4]
ii. Can auditor be appointed by the office in the above situation? [1]

e) The Board of Directors of Laligurans Bank passed a resolution to purchase ATM machines
from Asus Tech & Manufacturers Ltd. Accordingly, a deed of contract drafted and duly signed
by the directors on behalf of the bank. Some of the shareholders of the bank questioned the
validity of the contract as three out of five directors were disqualified at the time of agreement.
Give your opinion as to the effect of disqualification to the validity of contract.

Answer:
a) According to Section 78 of the Companies Act 2063, every public company shall prepare a
report mentioning the following matters and submit it with the Registrar's of Companies, 21
days ahead of holding an Annual General Meeting (AGM). Such report has to be approved by
the Board of Directors and certified by the auditor of the company.
The following matters shall be include in the report:

 The total number of shares allotted, fully paid and partly paid shares out of the allotted
shares
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  Particulars of director, managing director, auditor chief executive, manager and amount
of remuneration, allowance and facility paid to them.
 Name of corporate or individual who subscribes 5% or more of the paid up capital of the
company, and the details of shares or debentures held in their names
 The total proceeds of the sale of shares, particulats of the new share and debenture
issued and raised by the company in the financial year concerned
 The amount due and payable by the directors or substantial shareholder or his/her close
relative to the company
 The details of payment made or to be made against the sale of shares or for any other
matters
 The amount of loan borrowed from banks & financial institutions and principal and
interest amount due and payable
 The number of expatriate (foreign) employees engaged in the management of the
company and other levels, and remuneration, allowance and facilities paid to them.
 The amount of claimed to be receivable and payable by the company to any other person
or details of lawsuits if any, ongoing in this respect
 Where any agreement has been entered into between the company and any foreign body
or person on investment, management or technical services or other matter for a period
of morethan one year, particulars thereof and the particulars of the dividend,
commission, fees, charge and royalty, as well paid under such agreement in the financial
year concerned.
 A statement of the management expenditures of the company in a financial year.
 The amount of dividend yet to be claimed by the shareholders.
 A declaration that the company has fully observed the Companies Act and the prevailing
law
 Other necessary matters

b) Section 86 of the Companies Act, 2063 had made provision of Board of Directors and
number of directors of a Company.
As per the Section 86 of the Companies Act, 2063,
1) The appointment and number of directors of a private company shall be as provided in its
Articles of Association. However, shall not be more than 11.
2) Every public company shall have a board of directors consisting of a minimum of three and a
maximum of eleven directors. In case of company having female share holder Board of
Directors should have at least one female director.
3) at least one independent director, in case of the number of directors not exceeding seven and
at least two independent directors, in case of the number of directors exceeding seven, shall be
appointed from amongst the persons who have the qualification prescribed in the Articles of
association of the Company and gained knowledge and experience in the subject related with
the business of the concerned company.
4) Any one director selected by the directors from amongst themselves shall be the chairman of
the board of directors.

The company does not have female director as required by Companies Act, 2063, we can
conclude that the company had not complied, the provision of Companies Act, 2063 regarding

Page 36 of 48
appointment of female director as there is female shareholder in the company. Thus the claim
made by Ms. Sunita Chaudhary is valid.

c) Section 5 of the Companies Act, 2063 had made the provision regarding registration and
incorporation of Company.
As per section 5(1) of the Companies Act, 2063 “Where an application is made for the
incorporation of a company pursuant to Section 4, the Office shall, after making necessary
inquiries, register such company within 7 days after the date of making of the application and
grant the company registration certificate to the applicant, in the format as prescribed.”
As per section 5(2) of the Companies Act, 2063, after a company has been registered pursuant
to Sub-section (1), the company shall be deemed incorporated.
As per section 5(4) of the Companies Act, 2063, After the incorporation of a company under
this Section, subject to this Act, the matters contained in the memorandum of association and
the articles of association shall be binding on the company and its shareholders as if these where
the provisions contained in separate agreements between the company and every shareholder
and amongst its shareholders.
On purview of the above-mentioned provision, the certificate is treated as conclusive evidence
of incorporation of a company and cancellation of registration of company shall not be
permitted.
Therefore, Mr. Pushpa cannot make objection and the registration process being valid the
certificate of incorporation cannot be cancelled on the ground that the objectives of the
company were not in accordance with the power of attorney given by him and, therefore, the
provision of the law had not been complied with.

(d) (i) The companies Act, 2063 seeks to ensure that the appointment of an auditor should not
be carried out by the board of the directors. That is why it is vested in the general body of
shareholders.
Section 113 provides that where the annual general meeting of a company fails to appoint an
auditor for any reason or where the annual general meeting itself cannot be held or where the
auditor appointed pursuant to this Act ceases to continue his office for any reason, the Office
may, at the request of the board of directors of the company, appoint another auditor.
Therefore, the casual vacancy of auditor is fulfilled by the Office of the Company Registrar
whether the auditor is vacant by reason of resignation or other causes.
(ii) In the given situation where the company's annual general meeting fails to appoint an
auditor, the office may appoint another auditor under the section 113 of the Companies Act,
2063.

(e) Company being a legal person its business and affairs are carried on by its directors who are
considered as the representatives of the shareholders. Section 89(1) of the Companies Act, 2063
has listed the various circumstances where a person becomes disqualified to be a director. In

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general, the act done by disqualified board of directors cannot get validity and binding to the
company.
Section 106 of the Companies Act, 2063 provided that if it is afterwards discovered that any
provision under this Act has not been complied with in respect of the appointment of any
director, acts already done by such director him /her before the discovery of such fact shall not
be rendered invalid by that fact.
Therefore, the resolution passed by the directors though disqualified and contract with Asus
Tech is also valid and binding.

2. Answer the following questions: (3×5=15)

a) Mr. Chatur Bikram Thapa, a shareholder of the Bisesh Bank Ltd, holding 1 million share of
the bank approach Bisesh Bank Ltd and want to take loan against the security of the share of the
bank held by him. Whether Bisesh Bank Ltd can disburse loan to Mr. Chatur Bikram Thapa.
What are the Acts restricted to carry out by the Bank or Financial Institution as per the Bank
and Financial Institution Act 2073?

b) Sunshine Bank Ltd. had issued share capital of Rs. 12 billion. Board of Directors is in view
that share capital of bank is more than required. BOD is considering buying back its own share.
What are the conditions after fulfilling which a Bank or financial institution may buy back its
share as per the provisions of Bank and financial Institution Act, 2073?

c) Deurali Bikas Bank, a proposed bank filed an application to NRB for the prior approval for
its incorporation. It was found that one of the proposed bank's major investors was convicted for
5 years in jail in a case of murder. The concerned authority of NRB asked for your opinion
whether NRB can refuse to grant the prior approval on the said ground. Referring the relevant
provisions of the BAFIA, 2073, give your advice in the following matters-
i) What are the grounds of refusal to give prior approval for the incorporation of BFIs? [4]
ii) Can NRB refuse to grant the prior approval on the said ground? [1]
Answer:
a) Section 50 of the Bank and Financial Institution Act 2073 make provision regarding acts not
to be carried out by Bank or Financial Institution:

As per the Section 50 of the Bank and Financial Institution Act 2073, A bank or financial
institution shall not have to carry out or cause to be carried out any of the following acts:-

a) To purchase and sell goods for commercial purpose, purchase immovable property and
to construct building except those are necessary for its own use,
b) To disburse credit against security of one‟s own shares,
c) To provide any type of credit facility to the Directors, person having subscribed one
percent or more than that of the paid-up capital, Chief Executive, or a member of family
of such persons, or the firm, company or organization having significant ownership or
financial interest in any person, firm, company, or organization having authority to
nominate or appoint Director or managing agent,

Page 38 of 48
 d) To provide any type of credit or facility exceeding per customer limit prescribed by the
Rastra Bank from its capital fund to the single customer, company, companies or
partnership firms of the same group and relevant person.
e) To provide any type of credits to any person, firm, company, or institution on the
guarantee of promoters, Directors, or Chief Executive,
f) To make investment in the securities of the bank or financial institutions of class “A”,
“B” and “C”, classified by the Rastra Bank,
g) To invest the amount more than the limit as prescribed by the Rastra Bank in share
capital of other institution,
h) To create any type of monopoly or other type of restrictive practices in banking and
financial transactions in collusion of banks or financial institutions,
i) To commit in any act to create an artificial hurdle in competitive environment in
financial sectors with a intention to get undue advantage,
j) To carry out any other functions which are prescribed by the Rastra Bank as the
functions are not carried out by a bank or financial institutions.

On the basis of the above-mentioned provision if total holdings of Mr. Chatur Bikram Thapa i.e
1 million share is 1 percent or more than that of the paid of capital of Bisesh Bank ltd then the
bank should not disburse loan to him.

b) Section 13 (1) of the Banks and Financial Institutions Act, 2073, provides that bank and
financial institution cannot buy back its own share or provide loan against the security of its
own shares.

However, section 13(2) of the Act, provides that in the following circumstances, a bank or
financial institution may, with the approval of the Nepal Rastra Bank, purchase its shares out of
its free reserves available for being distributed as dividends not exceeding the percentage
prescribed by Nepal Rastra Bank.

 If the shares issued by the bank or financial institution are fully paid up,
 If the shares issued by the bank or financial institution have already been listed in the
securities market,
 If the buy-back of own shares is authorized by the Articles of Association of the
concerned bank or financial institution,
 If a special resolution has been adopted at the General Meeting of the concerned bank or
financial institution authorizing the buy-back of own share,
 If the ratio of the debt owed by the bank or financial institution is not more than double of
the capital and general reserve fund after such buy-back of shares,
 If the value of shares to be bought back by a bank or financial institution is not more than
twenty percent of the total paid up capital and general reserve fund of that bank or
financial institution,
 If the buy-back of shares comply with the directives relating to capital fund issued by the
Rastra Bank to the bank or financial institution,

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  If it is not against the directives issued by the Rastra Bank from time to time with regard
to buy back of shares.
The licensed institution shall have to apply to Nepal Rastra Bank for approval of such buyback
with the required details. If Nepal Rastra Bank finds it appropriate, it may give the approval to
buy back the shares.
c) i Section 4 (1) of the BAFIA, 2073 has provided a mandatory provision that a prior approval
from the NRB shall be obtained to incorporate the bank and financial institutions. Subsection
(3) reads that no prior approval shall be granted to incorporate bank and financial institutions by
the firm or company where the following persons or their family members have significant
ownership:
a. Under regulatory action of NRB.
b. Convicted in banking offences.
c. Convicted in fraud, forgery, deceit.
d. Convicted for financial investment in money laundering and terrorist activities.
e. Convicted in corruption related offence.
f. Convicted in the grievous offences like rape, human trafficking, abduction, hostage etc.

ii As the murder shall be categorized in the grievous offences under subsection (3), the NRB
can refuse to grant the prior approval for the incorporation of the proposed bank on the said
ground.

3. Answer the following questions: (2×5=10)

a) The Securities Act of 2063 was enacted to regulate and manage the activities of securities
markets and persons involved in the business of dealing in securities by regulating the issuance,
purchase, sale, and exchange of securities for the purpose of protecting the interests of investors
in securities. Describe the process by which a body corporate can issue securities under this Act.
b) Mr. Samyak had insured his car in Reliable General Insurance Limited. The insured car got
into accident, Mr. Samyak made the claim but the insurance company refused to pay for the loss
even after the surveyor‟s final report. Suggest Mr. Samyak for the action forward to receive
claim from insurance by lodging complain in the Insurance Board according to provisions of
Insurance Act, 2049 with relevant case reference.

Answer:
a) The body corporate will issue its securities under the Securities Act, 2063 as follows:
Section 27 (1) states, a body corporate shall have to register securities to be issued by it with the
Board prior to their issuance. For this a body corporate shall have to make an application in the
prescribed format, accompanied by its Memorandum of Association, Article of Association,
documents related with such securities, and the prescribed fees, to the Securities Board for
registering securities pursuant to Sub-section (1).
Where an application is received the Securities Board shall make necessary inquiry into the
matter and, if it considers appropriate to register such securities, register such securities in the
register as prescribed, indicating the details of such securities and issue the securities
registration certificate in the prescribed format to the concerned body corporate.

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 Under section 28 where a body corporate allots or sells securities after registering such
securities, the body corporate shall have to give a notice along with the details of securities so
allotted or sold to the Securities Board within seven days.
 Upon receipt of a notice as referred as above, where it appears necessary to make the
allotment and sale of such securities fair and informative for the interests of investors and the
body corporate, the Securities Board may give necessary directive to the concerned body
corporate. It shall be the duty of the concerned body corporate to abide by such directive.

 Under section 29 where a body corporate is to sell and distribute securities to more than fifty
persons at a time, it shall make public issue for the sale and distribution of such securities. The
period to be open for making application of the securities to be issued as above shall be as
prescribed. The provisions relating to the value and allotment of securities for which public
issue has to be made shall be as prescribed.

Where securities for which public issue has been made once could not be sold and have to be re-
issued again within one year, the body corporate which so issues the securities may, with the
approval of the Securities Board, issue such securities by mentioning the matters which are
different than the matters set forth in the previously published prospectus and the prospectus
previously published.
b) Issue: Mr. Samyak was denied claim for the insured car which got into accident and was
insured with Reliable General Insurance Limited. Hence, Mr. Samyak wants to lodge complain
with the Insurance Board.

Legal Provision:

Section 17 of the Insurance Act, 2049 mentions the liability of the insurance in case of claim.
According to it, “Insurer shall be Responsible” as follows:

Section 17 (1) states that the Insurer shall pay the compensation in case any actions against the
rights and interests of the Insurance Policy holders cause losses by the Insurer, employees of the
Insurer, Insurance Agents or Surveyors.
Section 17 (2) states that the Insured may submit a complaint to the Insurance Board as
prescribed, if the liability on the compensation for insurance claim is not assessed within the
prescribed period of time or if the liability is assessed to the disadvantage.
Section 17(3) states that the Board shall make necessary investigation into the complaint
submitted pursuant to subsection 2 of this section and shall provide a reasonable opportunity to
the concerned Insurer to submit clarification upon such complaint.
Section 17 (4) states that if the clarification submitted by the Insurer pursuant to subsection 3 of
this section is reasonable, the Board may cancel such complaint by mentioning its ground. If the
clarification is not reasonable, the Board shall make a decision to pay the reasonable
compensation to the complainant.

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Section 17 (5) states that if the Board decides to give compensation to the complainant pursuant
to subsection of this section, the Insurer shall pay such amount for the compensation to the
concerned Insured.
Section 17 (6) states that if an appeal is made against a decision made by the Board to pay
compensation to the complaint pursuant to subsection 4 of this section and the decision of the
Board is upheld, the concerned Insurer shall promptly pay the compensation plus the interest on
the amount of compensation to be set at the rate as prescribed, for the period from the date of
original decision to the date of final settlement of the case.

Case Law:

Minu Pahari v The Oriental Insurance Company Limited

Subject Claim of motor insurance
Date of Decision 2055/02/22
The truck of Minu Pahari got accident. He made the claim of insurance with the company. The
company does not pay the loss even after the surveyor‟s final report. The insured registered the
claim in the board and the board ordered insurer to pay Rs 139,445.76. The grounds of the
decision are as follows:
(a) From the final evaluation of the surveyor, the insurer first of all shall determine his liability
for compensation and pay to the insured.
(b) The insured has made the claim amount of money in the basis of surveyor report for third
party compensation. The insurer has not criticized the compensation according to the surveyor
report. So, the insurer required paying the compensation to the third party & insured.

Conclusion:

Mr. Samyak should submit a complaint to the Board and can receive the reasonable
compensation from the insurance company if Board decides so.

4. Answer the following questions: (2×5=10)

a) What are the functions, duties and power of Industrial and Investment Promotion Board
specified under the Industrial Enterprises Act, 2076?
b) Collective bargaining and workers' voice are key labour rights, as well as potentially strong
enablers of inclusive labour market. As the digital transformation, globalization and
demographic changes, are re-shaping the labour market, collective bargaining is well placed to
design solutions to emerging collective challenges. Outline the legal provision under the Labour
Act, 2074
Answer:

a) Section 21(1) of Industrial Enterprise Act, 2076 has made provision of the Functions, Duties
and Power of the Industrial and Investment Promotion Board. According to it major functions,
duties and power of the Industrial and Investment Promotion Board has been prescribed as
follows:
(a) to make recommendations to the Government of Nepal for the formulation of policies
relating to industrial promotion, protection and promotion of investment and industrialization
and adoption of relevant policy decisions;

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(b) to regularly appraise the policy, institutional, legal, institutional and procedural framework
and modus operandi relating to the overall industrialization of the country and make
recommendations to the Government for necessary reforms;
(c) to make recommendations to the Government of Nepal for the adoption of necessary policy
decisions on foreign investment and technology transfer, subject to the prevailing law;
(d) to make recommendations to the Government of Nepal for the formulation of policies
relating to industrial pollution control and adoption of relevant policy decisions;
(e) to make comprehensive evaluation and appraisal of the situation of industrial development
of the country and make suggestions and recommendations to the Government of Nepal for
taking necessary steps;
(f) to hear grievances of entrepreneurs and resolve, or cause to be resolved, the problems and
make guidance to the concerned bodies in this respect;
(g) to make recommendations to the Government of Nepal if it is required to make an alteration
or change in the level, classification and nature of industries;
(h) to carry out, or cause to be carried out, studies, research woks and surveys as required in the
context of enhancing domestic and foreign investment in the industrial sector;
(i) to do, or cause to be done, necessary work for building a competitive industrial environment,
in effective coordination and harmonious collaboration with the public, private and cooperative
sectors;
(j) to give policy guidelines on matters requiring coordination between the Province and Local
Levels for the development and expansion of industrial enterprises, and make necessary
provision for coordination;
(k) to facilitate the removal of the difficulty or confusion, if any, arising in the implementation
of any law relating to industry;
(l) to coordination or facilitate with respect to the operation of the one stop service centre;
(m) to perform, or cause to be performed, other functions as prescribed.
b) Collective bargaining is the process of negotiating the employment terms between an
employer and a group of workers. Section 116 (1) states any enterprise employing ten or more
than ten labours shall have a collective bargaining committee as follows:
(a) A team of negotiating representatives designated on behalf of the elected authorized trade
union of the enterprise,
(b) In cases where election to the authorised trade union referred to in clause (a) could not be
held or where election has been held but its term has expired, a team of negotiating
representatives nominated through mutual agreement of all the unions in the enterprise,
(c) In cases where there is no authorised trade union referred to in clause (a) or team referred to
in clause (b), a team of representatives supported with the signatures of more than sixty percent
of the labours working in the enterprise.

(2) The collective bargaining committee may submit collective claims or demands in writing to
the employer on issues relating to the interest of the labors.

(3) Notwithstanding anything contained in sub-section (2), no collective claims or demands may
be submitted on the following matters:
(a) A matter which is contrary to the Constitution of Nepal,
(b) A matter which contains an allegation with no evidence or basis and is thus contrary to the
interest of anyone,
(c) A matter which affects the personal conduct of any employer or labour,
(d) A matter which is not related to the enterprise,

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(e) Until the period specified in this Act lapses in cases where the collective agreement has been
made,
(f) A matter relating to the rate of contribution and benefits specified for the social security
scheme.

(4) The collective bargaining committee may consist of a maximum of three to eleven members
as prescribed, on the basis of the number of labours.

(5) The collective bargaining committee formed pursuant to this Section shall have the powers
including that to submit collective claims or demands, enter into agreement, file a case against
any person or defend a case.
.
5. Answer the following questions: (2×5=10)
a) CA. Chanchal, a Chartered Accountant in practice enters into an arrangement with Mr. Dina
Nath, an advocate acting as a tax consultant whereby the two share the fees of professional work
introduced to each other. Explain whether the arrangement is in accordance with the Nepal
Chartered Accounts Act, 2053.
b) State the circumstances when a person cannot hold the membership of ICAN pursuant to the
Nepal Chartered Accountants Act, 2053?

Answer:
a) According to Section 34 (3) of the Nepal Chartered Accountants Act 2053, one shall not
share or distribute as profit the auditing fees or remuneration with any person other than a
member of the institute and shall not pay any commission, brokerage etc., out of the
professional fees earned to any person member.

In the given case, CA. Chanchal, a Chartered Accountant in practice enters into an arrangement
with Mr. Dinanath an advocate acting as a tax consultant and share the fees of professional
services introduced by each other.

Sharing of remunerations with a person other than a member would be in violation of the code
of conduct. Accordingly, CA. Chanchal would be held guilty of professional misconduct since
he agreed to share the fees with an advocate.

b) Pursuant to section 22 (1) of the Nepal chartered Accountants Act 2053, The Council may
issue an order to remove the name of any member from the membership register, in any of the
following circumstances:
(a) If the member is convicted by a court of a criminal offence involving moral turpitude and
punished for such offence.
(b) If the member fails to pay the fees required to be paid to the Institute.
(c) If the member fails to abide by the professional conduct referred to in this Act and the Rules
framed under this Act.
(d) If the member becomes insane; or
(e) If the member dies.

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6. Answer the following questions: (5×4=20)
a) What are the functions, duties and powers of the Social Welfare Council as provided in the
Social Welfare Act, 2049?
b) Under what circumstances the negotiable instrument deemed to be dishonoured and no
presentment is necessary for its payment according to Negotiable Instruments Act 2034?
c) What do you understand by contract made by misrepresentation? State the validity of
contract entered by misrepresentation. Answer it in the light of The National Civil, Code 2074.
d) List out the penalties to be imposed to an industry acting contrary to it's objectives under the
Industrial Enterprises Act, 2076.
e) Highlight the role of WTO in the international business.

Answer:
a) The functions, duties and powers of the Social Welfare Council shall be as follows as
provided in the section 9 of Social Welfare Act, 2049:

1. To run or cause to run the social welfare activities smoothly and effectively, to extend help to
the social organizations and institutions and to develop co-ordinations among them and to
supervise, follow up and carry out evaluations of their activities.
2. To extend or cause to extend help and support to establish social organizations and
institutions, their development, strengthening and extensions.
3. To work or cause to work as co-coordinator between Government of Nepal and social
organizations and institutions.
4. To provide consultancies to Government of Nepal in order to formulate policies and
programmed directly related to social welfare activities and other social services.
5. To establish and conduct or cause to establish and conduct a fund, for the social welfare
activities.
6. To work or cause to work as a center for dissemination of information and documentation to
the affiliated service-oriented organizations and institutions with Council.
7. To conduct or cause to conduct trainings, studies and research programs in the areas with
social welfare.
8. To carry out or cause to carry out the physical supervisions of the properties of those social
institutions and organizations affiliated with the Council.
9. To carry out or cause to carry out the necessary functions to implement the objectives of this
Act.
10. To make or cause to make contract or agreement with the local, foreign or international
organizations and foreign countries.
11. To collect grant from the national and international agency and to manage the received
grant.

b) According to Section 51 of the Act the Negotiable Instrument shall be deemed to be

dishonoured in the following situation and no presentment is necessary for its payment:-

(a) If the maker, acceptor or drawee deliberately prevents the presentment of the Negotiable
Instrument, or
(b) If the instrument being payable at the specified place, neither the payer or his Agent to
pay it attends at such place during the business hours on a business day, or
(c) If the payer closes his/her office during the business hours on a business day, or

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(d) If the Negotiable Instrument not being payable at any specified place, the concerned
party cannot be found for the presentment after due search.

c) A contract means an agreement enforceable by law concluded between two or more parties
for performing or not performing any work, enforceable by law.

A contract caused by misrepresentation means any contract entered by with the

misrepresentation. Misrepresentation means any of the following acts:
(i) Presenting a false description of any matter or fact on without reasonable basis,
(ii) Misleading any party to his or her detriment,
(iii) Causing a mistake as to any matter of the contract,
(iv) Making assurance to have concluded a contract in one subject and but causing to enter
into it in another subject.
As per Section 518 of The National Civil Code, 2074 a contract which is concluded by
misrepresentation shall be deemed to be a voidable contract at the option of the aggrieved party.
The person aggrieved party from the contracts concluded by misrepresentation may get the
contract voided from the court. If not made void becomes valid.
d) Every industry has to act in accordance with its objectives mentioned at the time of
registration. If an industry acts against to its objectives, the Ministry may, under subsection (2)
of Section 43 of the Act, on the recommendation of the industry registration body, impose the
following fine on the industry.
1. Micro-enterprise- Not exceeding two thousand rupees
2. Cottage & small industry- Not exceeding fifty thousand rupees
3. Medium industry- Not exceeding one hundred thousand rupees
4. Large industry- Not exceeding five hundred thousand rupees.

e) Overall, WTO was set up to play a very important role in the world economics though
settling trade related disputes through rules, regulations and consensus-based agreement
mechanisms that would prevent trade related wars between powerful countries. Through
resolving trade related disputed WTO has got the potential to maintain world peace and bilateral
relations between its member countries thorough following negotiations, consultations, and
mediations. The fundamental role of WTO in international business can be listed as under-
 WTO facilitates implementation, administration and smooth operations of trade agreements
between the countries.
 It provides a forum for the trade negotiations between its member countries.
 Settlements of disputes between the member countries through the established rules and
regulations.
 It cooperates with the IMF (International Monitory Fund) and World Bank in terms of
making cohesiveness in making global economic policies.

7. Write short notes: (2×5=10)

a) Distinguish between promissory note and bill of exchange.
b) Distinguish between Share and Debenture of a Company

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 Answer:
a)
Basis of
Promissory Note Bill of Exchange
Difference
1. Number of There are two parties. There are three parties.
parties
2. Maker and payee Maker and payee cannot be the Maker/ drawer and payee can be the
same and single person. same and single person.
3. Promise and There is a promise to pay a sum of There is an order to pay a sum of
order money. money.
4. Acceptance Acceptance is not required as it is Acceptance is necessary by the
signed by the person liable to pay drawee before it can be presented for
on it. payment.
5. Nature of Liability of the maker of a Liability of the maker of a bill is
liability promissory note is primary. secondary.
6. Payable to bearer It cannot be drawn payable to It can be drawn payable to bearer but
bearer. not payable to bearer on demand.
7. Notice of No notice is to be provided to the Notice is dishonor must be given to
dishonor maker. all prior parties.
8. Maker's position Maker is in immediate relation with Drawer is not in immediate relation
the payee. with the payee.

b) The distinguish between share and debenture as follows:

S. No. Distinction A Share A Debenture
1. Meaning The Shares are the owned funds The Debentures are the borrowed
of The Company. funds of the company.
2. What is it? Shares represent the capital of the Debentures represent the debt
Company. of the company.
3. Form of Return Shareholders get the dividend. Debenture holders get the interest
4. Payment of Return Dividend can be paid to Interest can be paid to debenture
Shareholders only out of profits. holders even if there is no profit.
5. Allowable deduction Dividend is an appropriation of Interest is a business expense and So, it
Profit and so it is not allowedis allowed
as as deduction from
deduction. Profit.
6. Security for payment No Yes
7. Voting Rights The holders of shares have voting The holders of debentures do not
Rights. have any voting rights.
8. Secured by charge Share is not secured against any Non-convertible debentures (NCD)
Charge. are forever secured by a charge if
there term is exceeding
7. Convertibility Equity shares cannot be converted. Debentures are convertible.
8. Repayment in the Shares are repaid after the payment Debentures get priority over shares,
Event of winding up of all the liabilities. and so, they are repaid before
Shares.
9. Holder The holder of shares is known as The holder of debentures is known
Shareholder as debenture holder.
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Examiner’s Commentary on Students' Performance in June 2022 Examinations
Subject: Advanced Accounting
Questions Specific Comments on the Performance of the Students
Question no. 1 Need more preparation.
Question no. 2 Satisfactory performance.
Question no. 3 Need more preparation.
Question no. 4 First part is well done but second part is not attempted by many students.
Question no. 5 Lack of conceptual clarity.
Question no. 6 Lack of theoretical knowledge in many students

Subject: Audit and Assurance

Questions Specific Comments on the Performance of the Students
Question no. 1 None of the students could answer 1.a – weak in NAS and NFRS.
Question no. 2 No exact explanation.
Question no. 3 Very theoretical based answer.
Question no. 4 Satisfactory performance.
Question no. 5 Many students do not have knowledge of Audit Act. Only 5.a is answered
correctly.
Question no. 6 Satisfactory performance.
Question no. 7 Only few students could answer difference between audit Report and audit
certificate correctly.

Subject: Corporate and Other Laws

Questions Specific Comments on the Performance of the Students
Question no. 1 a. Satisfactory performance.
b. Satisfactory performance.
c. Most students didn‟t understand the question.
d. Satisfactory performance.
e. Most students didn‟t understand the question.
Question no. 2 a. Satisfactory performance
b. Almost all students did not give case law example.
c. Almost all students wrote general provision specific.
Question no. 3 a. Poor writing.
b. Almost all students did not give case law example.
Question no. 4 a. Satisfactory Answer.
b. Incorrect answer.
Question no. 5 a. Satisfactory performance.
b. Most of students wrote provision of section 8 rather than section
22.
Question no. 6 a. Answers are general and sketchy
b. Students did not answer the question properly.
c. Students did not answer the question properly.
d. Students did not understand question properly.
Question no. 7 Satisfactory Performance of all questions.

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Paper 3: Corporate and Other Laws
1. Answer the following question.

(5×5=25)

a) ABC public Company decided to hold election for constituting a new

Board of Directors of the company. The Articles of Association of the
company is silent about the number of shares required to be held by a
person for his appointment as director of the company. Mr. Aswin
having 90 shares of the company filed his candidacy for the appointment
of director of the company. The election officer refused his application.
State the required numbers of the Directors to constitute Public
Company and how far the decision of the election officer is valid. Write
your answer with reference to the Companies Act, 2063.

b) Indrawati Hydro Company having its registered office in Kathmandu,

calls its Annual General Meeting at Kathmandu. A notice was published
by the company in the national daily newspaper on 15th Oct. 2021,
calling the meeting will held on 8th Nov. 2021. No other public notice
was made by the company for its Annual General Meeting. Due to Covid
new variant, seven percent of the shareholders of the company attended
the meeting in person and decided on the agenda. Considering that the
meeting was not an adjourned meeting, state your findings on the
following issues referring to the provisions of the Companies Act, 2063.
i) Irregularities committed by the company on entire proceedings of
the meeting as mentioned above.
ii) Validity of the resolutions passed by the meeting.
c) Mr. A is appointed as an auditor of Prime Development Bank Ltd. in
this Fiscal Year 2077/2078. He is willing to be continued in this
company for Fiscal Year 2078/2079. Mr. B, who had been a partner of
A before 3 years, is also willing to be an auditor in this company. In
spite of this, company is planning to substitute another auditor. In this
circumstance, if the willingness of A and B is justified? If the company
has planned to remove Mr. A then how it can be removed? Justify your
answer with reference to the Companies Act, 2063.
d) Heritage Nepal Pvt. Ltd. dismissed its CEO, Pradip, as against the
service contract between them. He filed a case for compensation as
against the wrongful dismissal. Shortly thereafter, Heritage Nepal
ceased trading. The company paid of all its creditors and then
transferred its remaining assets to another company National Builders
Ltd. Pradip Sharma obtained a default judgment against the company,
Heritage Nepal, but by that name it had no assets and stood dissolved.
Therefore, he charged against the transferee company, National
Builders. Decide whether the transferee company is liable to pay
compensation to Pradip.
e) Mr. Y was convicted of property embezzlement while he was managing
director of Fresh and Refreshing Ltd. and sentenced four years ago. Mr.
Y has recently purchased shares of Old and Gold Ltd. and wants to be
Page 32 of 45
 appointed as director of the company. State the circumstances in which
one is disqualified to be appointed as a director under Companies Act,
2063 and also state if Mr. Y is eligible for appointment in the given
issue.

Answer:
a) Section 86 (2) the Companies Act, 2063 provides for the constitution of a board of directors in a
public Company. Accordingly, every public company shall have a board of directors consisting
of minimum three to maximum of eleven directors.
Section 88 of the Companies Act, 2063 contains provision regarding share qualification of
directors. According to which if the Articles of Association of a company specify any number of
shares required to be held by a person for his appointment as director of the company, the person
who becomes director shall hold such number of shares. If such number of shares to be held by
any person is not specified, one hundred shares should be held by the person willing to become
a director.

On the basis of above provision, the refusal of election officer is valid, as Mr. Aswin doesn't hold
one hundred shares.

b)
i) Indrawati Hydro Company must follow the legal procedures for convening its AGM
pursuant to the Companies Act, 2063. The notice must be provided by the proper
authority which would normally be the Board of Directors following proper procedures.

Section 67 (2) of the Companies Act, 2063 a general meeting of a public company may
be called by providing not less than 21 days prior notice in writing with mentioning the
Venue, Date, Time and Agenda, at least two times general notice in the National daily
newspaper which is mandatory.

In this case, only one time notice was published, i.e. only on 15th Oct. 2021 calling the
meeting will be held on 8th Nov. 2021. At least another notice was not published in any
national daily newspaper. So, there is a mistake on the part of this company not to
publish another public notice.
So, there is an irregularity committed by the Company for not issuing at least another
notice calling for AGM, so it is an invalid AGM.

ii) Further, only seven percent out of total of the shareholders of the company attended in
the meeting. As per the legal provision under Section 73 of the Act, there must be at
least three shareholders of the total shareholders representing more than 50 percent out
of total distribution of the shares of the company. If the quorum is not fulfilled, then the
entire proceedings of the company cannot go ahead by the meeting. It becomes a
mistake of procedure for AGM.

In given case, only seven percent were present in the meeting, whereas, as legal
provision under Section 73 of the Act provides for a large number at least three

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 members or shareholders must represent more than fifty percent of total allotted shares
in person or by proxy in the case of public company. Therefore, the meeting was invalid
for the want of required quorum. Hence, the meeting was against the legal provision,
the resolutions so passed were invalid for that reason.

c) Under Section 110 of the Companies Act, 2063, every company must appoint an auditor to
audit its accounts.
Section 111 states different rules as to appointment of auditor. An auditor, from the amongst
the auditors registered or licensed under the existing law, can be appointed, in case of a
public company, by the General Meeting and in the case of a private company as provided
in its MOA, AOA and consensus agreement or by the General Meeting in the absence of
such arrangements.
The prime authority to appoint an auditor is general meeting. The company registrar office
also performs an appointing authority on the request of Board of Director when there is a
failure to appoint an auditor by AGM or AGM could not be held or an auditor appointed as
per the Act ceases to hold the office for any reason.
The auditor appointed as such remains in the office until next AGM is held. No auditor or
his /her partner or ex-partner or employee or ex-employee shall be appointed as auditor for
more than three consecutive terms to perform the audit of a public company.
Solution:
Both candidates are eligible as per law. With regard to the willingness of Mr. A, he can be
continued up to three consecutive terms. However, the issue is subject to the approval and
consent of the shareholders' general meeting. Further, Mr. B is also eligible to be appointed
as an auditor of the said company. He has fulfilled requirement like Mr. A.
Regarding the removal process of an auditor, u/s 119 of the Companies Act, 2063 has
mentioned, that, an auditor should be removed after completion of the audit of accounts of
such F/Y. Auditor can be removed after fulfilling following conditions.
• When the auditor breaches the code of conduct of auditors or does any act against the
interest of the company which has appointed him as the auditor or commits any act
contrary to the prevailing law.
• Auditor may be removed through the same process whereby he/she was appointed as
auditor.
• Prior information should be provided to the Institute of Chartered Accountants of
Nepal.
• Approval should be taken form regulatory authority as provided by the prevailing law.
Approval from the office in the time while failing such authority.
• The auditor should be provided with a reasonable opportunity to defend his/herself.
d) When a company is incorporated, it is treated as a separate legal person than of its
shareholders. This corporate personality can be lifted and the natural person behind it can
be made liable where the separate legal existence of company has been used to commit some
fraud or misconduct. In other words, the separate legal existence of a company cannot be
used as a means to achieve some illegal or fraudulent purposes. The courts will refuse to

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 uphold the separate existence of the company where it is formed to defeat or circumvent
law, to defraud creditors or to avoid legal obligations.
In Creasey vs. Breachwood Motors Ltd. 1993 BCLC 480, it has been decided by court that if the
takeover of the company's assets had been carried out with an intention to avoid legal duty and as
against the interest of its creditors, the court can disregard the separate entity of the company.
In this case, therefore, the transferee company is liable to pay compensation. As being
created unjust result to the interest of the plaintiff, Mr. Pradip, the transferee company
National Builders Ltd. cannot be treated as a separate legal person than its transferor
company Heritage Nepal Pvt. Ltd. It means that the two companies not treated as separate
entities but same and single.

2. Answer the following questions:

a) CA. Jagadishwor Uthak was appointed as statutory auditor for Synergy
Bank Ltd. with paid up capital of NRs 10 billion for FY 2077/78. Mr.
Uthak holds share of Synergy Bank Ltd. of total amount of NRs. 80
million. After his appointment, a complaint was filed challenging his
appointment stating that he should not have been eligible for
appointment. Referring to provisions in regard to eligibility of
appointment of auditor under Banks and Financial Institution Act, 2073
give your opinion, if Mr. Uthak can be appointed as Statutory Auditor
of the Bank. 5
b) A new bank with name Fund Finance Limited applied with the Nepal
Rastra Bank for the license. However, Nepal Rastra Bank denied issue
of license specifying that Fund Finance Limited has no adequate
infrastructure to conduct banking or financial transactions. Critically
examine the reason of Nepal Rastra Bank for denial of license
mentioning the grounds under which Nepal Rastra Bank has power to
refuse to issue license under provisions of the BAFIA, 2073. 5

c) Bright Bank Ltd. established in 20XX November and commenced

financial transactions from 20XX December and need to be formed
BoDs. Explain, How the Board of Director of a Banks and Financial
Institutions be formed? Explain, the circumstances for ineligibility to
remain in the office of Director as per the Banks and Financial
Institution Act, 2073. 5

Answer:
a) Issue:
CA. Jagadishwor Uthak is appointed as a statutory auditor of Synergy Bank Ltd. He holds
share of total amount of NRs. 80 million out of paid up capital of NRs 10 billion for FY
2077/78. Assessment of the validity of the appointment of CA. Jagadishwor Uthak as a
statutory auditor of Synergy Bank Ltd. can be discussed as follows:
Legal Provision:
Section 64 – “Ineligibility for Appointment as Auditor” of Bank and Financial Institution
Act, 2073 has mentioned criteria regarding ineligibility of appointment as auditor as
follows:

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 Section 64 subsection (1) states that any of the following persons or any firm, company or
institution in which such person is a promoter or partner shall not be eligible to be appointed
as an auditor of a bank or financial institution:
(a) A promoter, Director, Chief Executive of a bank or financial institution or his\her
family member,
(b) An official, employee or internal auditor of the bank or financial institution,
(c) A person working as a partner of any promoter, Director or employee of the bank or
financial institution,
(d) A borrower of the bank or financial institution, a person with significant ownership or
relevant person or person having financial interests,
(e) A person who has been declared bankrupt in Nepal or abroad,
(f) A person, firm, company or institution having subscribed one percent or more shares
of the bank or financial institution,
(g) A person, who has been punished in any criminal offense by the court and a period of
five years has not been lapsed after he\she has served the punishment,
(h) A person, who is disqualified to become an auditor according to prevailing laws.
Conclusion:
Mr Pathak owns NRs. 80 million of shares out of total NRs. 10 billion shares of Synergy
Bank Ltd. which is 0.8% of total share. His holding of shares is within the threshold of 1%.
Hence, CA Jagadishwor Uathak is eligible for appointment as auditor of Synergy Bank Ltd.
if he is not disqualified under other points mentioned.
b) Issue:
Nepal Rastra Bank (NRB) denied license to proposed bank Fund Finance Limited on the
ground of having no adequate infrastructure to conduct banking or financial transactions.
Review on the validity of decision of NRB as per BAFIA, 2073 can be summarize as
follows:
Legal Provision:
Section 35 – “Issuance of License may be denied” subsection (1) of BAFIA, 2073 states
that notwithstanding anything contained in Section 34 – “License may be granted for
carrying out Banking and Financial Transactions”, the Rastra Bank may deny to issue
license to operate banking and financial transactions to a bank or financial institution in
any of the following circumstances:
(a) If it causes adverse effects on the stability, fair competition and credibility of the
financial system of Nepal,
(b) If it is not reasonable and appropriate to issue license for operation of financial
transaction for protection of interests of depositors,
(c) If the infrastructure to operate banking and financial transactions are not completed,
(d) If other particulars or conditions pursuant to this Act are not found to be completed.
Section 35 subsection (2) states that the Rastra Bank shall, in case there is a situation that
the license to operate banking and financial transactions could not be issued according to

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 this Section, inform to the concerned bank or financial institution stating the reasons thereof
within ninety days of the date of filing of the application.
Conclusion:
The decision of the NRB to deny issue of license to proposed Fund Finance Limited on
ground of inadequate infrastructure to operate banking and financial transactions is valid
under BAFIA, 2073.

c) Section 14 of BAFIA Act, 2073 provides, any bank or financial institution shall have a
Board of Directors comprising of at least five Directors and not exceeding seven Directors.
Subject to this Act, and the Articles of Association, the General Meeting of the Bank or
Financial institution shall appoint Directors.

Provided that, until the first Annual General Meeting of the bank or financial institution is
held, promoters shall appoint the directors. In case of the position of any Directors falls
vacant before the holding the Annual General Meeting, the Board of Directors may appoint
the director for time being.

A Director chosen by the Directors from among themselves by majority decision shall be
the Chairperson of the BoDs and any company, corporate body, foreign bank or financial
institution which has subscribed shares of the bank or financial institution may, while
appointing a director proportionate to the shares as it has subscribed, appoint an Alternate
Director to work in absence of the Director.

Section 19 of the BAFIA Act 2073 defines; no person shall be remained in the office of
Director of the bank or financial institution in any of the following circumstances:
1. No qualifications meet section 16 or 17 or ineligible under section 18 of the act,
2. The motion to remove from the office of a director is passed by majority of the general
meeting
3. Resignation given by a director from him/her position is approved,
4. In case of commission of any act that is not supposed to be committed under this act
or directives of Rastra Bank
In case the Rastra Bank directs to remove from the office due to he/she has committed acts
against rights and interests of the bank or financial institution or the depositors and since he/she
is not competent to carry out works as in the of a director of the bank or financial institution.

3. Answer the following questions: (2×5=10)

a) Mr. MN, Chairperson of the Securities Board of Nepal was observed to
be involved in the activities in contrary to interest of investors in the
securities. Government of Nepal wants to remove him from the office.
Suggest the government officials elaborating the circumstances of
removal of Chairperson of Securities Board of Nepal pursuant to the
Securities Act, 2063.
b) Mr. Radha Krishna Sah was appointed as the Chairperson of the
Insurance Board. He as the newly appointed Chairperson asked you to

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 submit a note on the procedures how the meeting of the Insurance Board
is held as per Insurance Act, 2049. Suggest Radha Krishna in this
respect.
Answer:
a) Issue:
Mr MN, Chairperson of the Securities Board of Nepal was observed to be involved in the
activities in contrary to interest of investors in the securities. Circumstances of removal of
Chairperson of Securities Board of Nepal in pursuant to Securities Act, 2063 can be
discussed as follows:
Legal Provision:
Section 12 of the Securities Act, 2063 mentions the provision in regard to the circumstances
of the removal of chairman or member of the Securities Board of Nepal.
Section 12 subsection (1) states that where there arises a situation for removal of the
Chairperson or the member referred to in subsection (2) of this Section, the Government of
Nepal shall remove the Chairperson and member, as the case may be.
Provided that prior to making such a removal, the Government of Nepal shall not deprive
the concerned person of a reasonable opportunity to defend himself/herself.
Section 12 subsection (2) states that the Chairperson, as the case may be, shall be removed
from his or her office in any of the following circumstances:
(a) If he or she is disqualified to be a chairperson and a member, as the case may be,
pursuant to Section 11 – “Disqualification of Chairperson and member”;
(b) If he/she commits any act contrary to the interest of investors in securities or any act
that may cause loss or damage to the development of capital market;
(c) If he or she suffers from lack of competence to implement, or cause to be implemented,
such functions required to be performed by the Board to attain the objectives of the
Board pursuant to this Actor the rules framed under this Act;
(d) If he or she has been held disqualified to carry on any occupation or business by the
reason of misconduct and his or her certificate has been revoked or he or she has thus
been restricted to carry on a business;
(e) If he or she remains absent from three consecutive meetings of the Board without giving
a notice.

Conclusion:
As, Mr. MN Chairperson of the Securities Board of Nepal was observed to be involved in
the activities in contrary to interest of investors in the securities, Government of Nepal shall
remove the Chairperson as per Securities Act, 2063. However, Mr. MN shall be provided
reasonable opportunity to defend himself before removal.
b) Section 5 of the Insurance Act 2049 has prescribed procedures for holding meeting and
reaching to decision of the Insurance Board. Such procedures of the meeting are as follows:
1. The meeting of the Insurance Board shall be held on the date, time and venue as prescribed
by the Chairperson.
2. The meeting of the Insurance Board shall be held at least eight times per year and not less
than twice within three months.

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 3. The meeting of the Insurance Board shall be presided by the Chairperson. In the case of
his/her absence, the meeting shall be presided by the person selected from among the
Members themselves.
4. The quorum for the meeting of the Insurance Board shall be fulfilled in the presence of fifty
percent of the total Members of the Insurance Board.
5. The opinion of majority shall prevail in the meeting of the Insurance Board and in case of tie,
the chair person may cast decisive vote.
6. The decision of the Insurance Board shall be certified by the Secretary.
7. Other procedures relating to the meeting of the Insurance Board shall be as determined by
the Insurance Board itself.

4. Answer the following questions: (2×5=10)

a) State and elaborate the types of employment as per the legal provisions
prescribed by the Labour Act, 2074.
b) Industrial Enterprises Act, 2076 has been enacted for the protection and
promotion of industrial establishments and also for the promotion of
investment with a view to speed up of the industrialization by making the
simple policy in Nepal. State the legal provisions regarding the
registration and regulation of an industry under the Industrial Enterprises
Act, 2076.
Answer:
a) Section 10 of the Labour Act 2074 prescribes– “Classification of Employment”. It has
categorized employment into 5 various types. They are as follows:
(1) Regular employment: Employment of any type whatever other than that is work-based,
time-based and casual employment.
(2) Work-based employment: Employment that the employer provides or has provided
specifying any particular work or service for performance.
(3) Time-based employment: Employment that the employer provides or has provided to
the labour specifying a certain period on the condition that the labour has to provide any
service or perform any work within that period.
(4) Casual employment: Employment that the employer provides or has provided to the
labour on the condition that the labour has to provide any service or perform any work,
for seven days or less within a period of one month.
(5) Part-time employment: Employment that the employer provides or has provided to the
labour on the condition that the labour has to perform a work in thirty-five hours or less
than thirty-five hours in a week.
If there arises a question as to whether any employment is regular or not, it shall be
determined as prescribed on the basis of the nature of the work, notwithstanding anything
contained in the employment contract.
b) According to Section 3 of the Act, no one can establish or cause to establish industry or operate
it without its registration.
For registration of industry, it has to fulfill all the requirements as similar to the registration of
a company, by making an application either manually or online service with required
documents and fees. The new enactment permits to make an application by online.

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 Section 4 of the Act prescribes the process of registration of industry. According to it, an
application is to be made for registration of Industry. Under Section 4(1) any person desirous
of establishing any industry under the Act, an application is required to be made to the
concerned registering office for its registration setting out the nature, documents, and
particulars in a prescribed manner. Documents to be attached can be submitted with digital
attestation through electronic means.
Section 5 prescribes the provision relating to grant of certificate of registration. According to
it, on receipt of the application pursuant to Section 4 for the registration of industry the
concerned registering office will, after making necessary examination regarding the
compliance of required documents as per Act and regulation thereof, issue certificate of
registration as prescribed.
While issuing the certificate of registration in addition to others the registering office is
required to mention the following matters:
1. Date of issue of the certificate
2. Date by when the production or the transaction shall be had to be commence
3. The terms and condition to be complied with by the industry
4. Other terms and conditions as prescribed by the registering office as per the nature of the
industry

Notwithstanding anything mentioned in sub-section (1) in case of micro enterprise the

application for their registration can be made within one year from the date of its operation as
per Section 5(3) of Act.

Section 6 prescribes the provision regarding the appeal against the refusal of the registration of
industry. According to it, dissatisfied party, pursuant to section 4(7) of the refusal of the
registration of the industry by the DOI, may make an appeal with the Ministry of Industry
(MOI) within thirty days from the receipt of issue of notice of refusal, and in case refusal by
the provincial authority the appeal is to be made with MOI of the concerned province.
Where appeal has been made, the concern appellant authority has to decide the matter after
necessary examination against the appeal, within thirty days of the receipt of it. Other process
of appeal will be as prescribed.

5. Answer the following questions: (2×5=10)

a) State the various categories of memberships that the Council of
Institute of Chartered Accountants of Nepal offers. Mention a person's
credentials to hold such membership under the Nepal Chartered
Accountants Act, 2053.
b) State the legal provisions regarding punishment as prescribed by the
Nepal Chartered Accountants Act, 2053?
Answer:
a) Pursuant to section 16 (1) of the Nepal Chartered Accountants Act 2053, there
are two types of membership which are issued by the Council of Institute of
Chartered Accountants of Nepal, firstly, chartered accountants and secondly,
registered auditor.
The following persons are disqualified to be a member of the ICAN
1. Persons not possessing qualification under sub section 2 & 3 of the section 16 of the
Nepal chartered Accountants Act, 2053

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 2. Persons not attaining the age of 21 years of old
3. Insolvent person
4. Person punished by a competent court on the charge of committing crime of moral
turpitude.
5. Person of unsound mind

b) Provisions regarding punishment as provided in the Section 41 of ICAN Act, are as follows:
(1) A person, who carries out audit without obtaining a Certificate of Practice, pursuant to
this Act, shall be liable of punishment with a penalty of maximum two thousand rupees
or with an imprisonment for a maximum period of three months or with both.
(2) A person, who in contravention of Section 6 uses the name or the seal of the Institute or
exercises any type of authority bestowed to the Institute, shall be punished with a penalty
of one thousand rupees maximum on first conviction, and on any subsequent conviction
thereafter, a maximum penalty of five thousand rupees or imprisonment for a maximum
period of six months or both.
Provided that this sub-section shall not apply to the organizations or university established
under their own legislation or the units within the Institute.
(3) A person, who has not obtained a Certificate of Practice and is proved to have signed any
document in capacity of the member holding Certificate of Practice, shall be liable to
punishment with a penalty up to two thousand rupees or imprisonment for a period of up
to three months or both.
(4) A member, who commits any act contrary to the provisions of this Act or Regulations
framed under this Act other than the provisions of this section, shall be suspended for a
maximum period of five years and shall be liable of punishment with a maximum penalty
of two thousand rupees or imprisonment for a maximum period of three months or both.
(5) A complainant who lodges a complaint, without any reasonable cause to make complaint
and it is proved that the complaint was made with an intention to harass a member, shall
be liable to punishment with fine up to one thousand rupees.
(6) The complaint cases, except those to be heard under Section 14, lodged in the Council
against any member, pursuant to Section 35, shall be instituted in the concerned Appellate
Court.

6. Answer the following questions: (5×4=20)

a) State the legal provisions regarding the settlement of dispute between
the employees and management in respect of bonus payment as per the
Bonus Act, 2030.
b) State the conditions where the Social Welfare Council can suspend or
dissolve the executive committee of the social organization.
c) Mr. 'G' delivered a shopkeeper to repair a watch on the payment of Rs.
100. Subsequently the shopkeeper refused to repair it for the Rs. 100
and also claimed to retain the watch until he is paid for the work done.
Decide the right of 'G' by examining the provision of the Nepal Civil
Code, 2074.
d) Mr. 'A' gives a cheque to Mr. 'B' with "not negotiable" crossing. Mr. 'C'
steals Mr. B's cheque and gives it to Mr. 'D' for consideration. Mr. 'D'
takes the cheque without knowing fact that cheque has been stolen
cheque. Suggest Mr. 'D' referring Negotiable Instruments Act, 2034.

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 e) Point out the duties of employees regarding the occupational health and
safety under the Labour Act, 2074.
Answer:
a) Section 16 of the Bonus Act 2030 contain the following provisions regarding the settlement
of dispute between employee and management regarding bonus payment.

In case any dispute arises between the employee and the management on the issue of bonus
to be paid under this Act, the labor office shall resolve such by negotiation having invited
both the parties.

In case the dispute fails to be resolved through the negotiation, the labor office may direct
the concerned establishment and the employees to submit necessary documents and
statement of accounts, the office shall give decision on the basis of such documents and
statement of accounts.

Any side which is dissatisfied with the decision taken by the Labor office may appeal to
the Labor court within 35 days from the date of receipt of a notice thereof. The decision
taken by the Labor court shall be final.

b) Section 20 of the Social Welfare Council Act, 2049 has authorized the Government of Nepal
on the recommendations of the Social Welfare Council to suspend or dissolve the executive
committee of those social organizations or institutions affiliated with the council or,
receiving economic assistance from the Council, if they do their business against, prevailing
laws or their own constitutions. While doing so, a reasonable opportunity, to give their
clarification shall be given to the executive committees before their suspension or
dissolution.
Similarly, under Sub-section (2) of Section 20 of the Act, the Government of Nepal may
constitute an Ad hoc committee from the general members of that organization and
institution to carry out the business of that organization and institution until the suspension
of that organization and institution lifted, when suspended and until the constitution of new
executive committee, when dissolved.
Further, Sub-section (3) provides that the Ad hoc committee formed pursuant to Sub-section
(2) in the condition of dissolution of any social organization and institution, shall constitute
new executive committee within the period of three months of its formation, in accordance
with the constitution of those organization and institution.
c)
1. This given problem is related to the Bailment given in the Nepal Civil Code, 2074
2. The provision lays down that where the bailee has rendered any service involving the
exercise of labour /skill in respect of the goods bailed, there he has a right to retain such
goods in his possession until he receives due remuneration for the services, he has
rendered in respect of them.
3. This right of bailee is termed as particular lien. This right can be exercised when the
services have been performed entirely and the remuneration has become due.
4. Bailee’s particular lien in contracts of service may be lost if he does not complete the
work within the agreed time or reasonable time.
5. Accordingly in the given case, it is clearly expressed by the shopkeeper to repair the
watch on the payment of Rs. 100. However, later his refusal to repair the watch, does

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 not complete the work for which he has promised and therefore, he loses his right to
exercise particular lien and nothing could be claimed under it.
6. Thus, the shopkeeper was not entitled to retain the watch.

d) Section 2 (d) of Negotiable Instrument Act, 2034 defines 'Negotiation' as the act of transfer
of negotiable instrument to any person so as to constitute that person the holder there of.
"Not negotiable" crossing does not make negotiable instrument not transferable. Any
instrument with "not negotiable" crossing means that it is negotiable until its title is good.
Section 89 of Negotiable Instrument Act 2034 make provision regarding Cheque bearing
"not negotiable". A person taking a cheque crossed generally or specially bearing in either
case the words "not negotiable" shall not have, and shall not be capable of giving a better
title to the cheque than that which the person from whom he took it had.
In general rule, a holder in due course obtains better title than the transferor. However, in
case of negotiable instrument having "Not negotiable" crossing does not obtain better title
than the transferor.
Principle of "Nemo dat quod non habit" i.e., "No one can transfer title better than he himself
had" is applicable in case of negotiable instrument having "Not negotiable" crossing.
So, in the given case Mr. 'D' is holder in due course, but as the negotiable instrument is
having "Not negotiable" crossing he cannot get better title than Mr. 'C'. As Mr. 'C' has no
title over the instrument being stolen by him and accordingly Mr. 'D' also does not have
title over the instrument.
Person taking the Negotiable Instrument having "Not negotiable" crossing should inquire
and assure the title of the transferor over Negotiable Instrument.

e) Section 73 of the Labour Act, 2074 has imposed the various duties to be followed by the
employees to the matter of occupational health and safety. The duties are as under:
1. Not to do such act at the workplace knowingly or recklessly causing adverse effect to
safety and health of oneself or others.
2. To provide necessary help to the employer or concerned person to fulfill the duties
stated under this legal provision.
3. To get directives, advice and other information for the purpose of using or operating
safely and cautiously the materials, goods and equipment to be used and operated at the
work place.
4. To operate and use those workplace, materials, goods and equipment safely and
carefully as per the directives, advice and other information made for the safety use and
handling of the workplace, materials, goods and equipment.
5. To use the personal safety equipment provided by the employer.

7. Write short notes: (2×5=10)

a) Establishment of World Trade Organization (WTO) and its objectives.
b) State the functions, duties and powers of the Accounting Standard Board
pursuant to the Nepal Chartered Accountants Act, 2053.

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Answer:
a) World Trade Organization (WTO) is an international organization established to supervise
and liberalize world trade. The WTO is the successor to the General Agreement on Tariffs
and Trade (GATT), which was created in 1947. GATT proved remarkably successful in
liberalizing world trade. By the late 1980s there were calls for a stronger multilateral
organization to monitor trade and resolve trade disputes. Following the completion of the
Uruguay Round (1986–94) of multilateral trade negotiations, the World Trade
Organization (WTO) began operations on January 1, 1995.

The WTO has six key objectives:

(1) to set and enforce rules for international trade,
(2) to provide a forum for negotiating and monitoring further trade liberalization,
(3) to resolve trade disputes,
(4) to increase the transparency of decision-making processes,
(5) co-operate with other major international economic institutions involved in global
economic management, and
(6) to help developing countries benefit fully from the global trading system.

b) The fundamental function, rights and duties of the Accounting Standards Board is to
develop accounting standards in order to govern and regulate the financial reporting and
accounting profession. Section 15B of the Nepal Chartered Accountants Act, 2053 has
prescribed the rights and duties of Accounting Standards Board shall be as follows:
▪ To develop accounting standards, on the basis of relevant International Accounting
Standards, in order to govern and regulate financial reporting and accounting
profession.
▪ To evolve appropriate process of development of accounting standards and publish
material related to accounting standards.
▪ To redraft, improvise and revise standards.
▪ To interpret the standards.
▪ To undertake other related tasks related to accounting standards.

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Examiner’s Commentary on Students' Performance in December
2021 Examinations

Subject: Advanced Accounting

List of Questions Specific Comments on the Performance of the Students

Question no. 1 Overall Satisfactory performance.
Question no. 2 Satisfactory performance.
Question no. 3 Lack of Conceptual clarity.
Question no. 4 Satisfactory performance.
Question no. 5 Lack of concept of NFRS provision for answering questions.
Question no. 6 Many students do not know about spread sheet.

Subject: Audit and Assurance

List of Questions Specific Comments on the Performance of the Students

Question no. 1 Satisfactory performance
Question no. 2 Satisfactory performance
Question no. 3 Other Matter paragraph is not properly understood by the students.
Question no. 4 Poor Performance; weak preparation
Question no. 5 Most of the students were not known about proprietary audit.
Question no. 6 Satisfactory performance
Question no. 7 Students are confused on 7(a) question

Subject: Corporate and Other Laws

List of Questions Specific Comments on the Performance of the Students

Question no. 1 Satisfactory performance
Question no. 2 Most of the students were confused in calculating % of share and
disqualification of directors.
Question no. 3 Satisfactory Performance
Question no. 4 Students failed to answer the registration process for an enterprise
as per Indurstrial Enterprises Act
Question no. 5 Most mistakes were on credentials
Question no. 6 Bailment was not mentioned by most of the students.
Question no. 7 Satisfactory Performance.

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Paper 3: Corporate and Other Laws
Attempt all questions.
1. Answer the following questions: (5×5=25 marks)
a) The board of directors of Nepal Cement Private Ltd., wants to know whether their company could
be converted itself into a public limited company. Advise Nepal Cement Private Ltd. how a private
company could be converted into public company as per the Companies Act, 2063.
b) PQ Ltd. want to issue share and inquire you whether a company can issue shares at premium as
per the provisions of the Companies Act, 2063? Mention the conditions on which a company may
issue shares at premium and utilization of premium amount. Answer referring the provisions of the
Companies Act, 2063.
c) The board of directors of Investment Bank passed a resolution to purchase ATM machines from
Asus Tech. Accordingly, a deed of contract drafted and duly signed with advance money. Some of
the shareholders of the bank questioned the validity of the contract as four out of seven directors
found disqualified. Give your opinion as to the validity of the contract.
d) ABC Limited changed its objective clause in Memorandum of Association. Mr. Prakash, a
substantial shareholder, is not satisfied with the change being made. He wants to make amendment
to declare null and void. How court entertains his decent ideas? Suggest the process as provided
in the Companies Act, 2063.
e) The object clause of Memorandum of Association of ABC Pvt. Ltd. authorized the company to carry
on the business of trading in fruits and vegetables. The directors of the company in recently
concluded board meeting decided to carry fish trading and accordingly, the company ordered fish
for the purpose of trading. FSH Limited supplied fish to ABC Pvt. Ltd. worth Rs. 30 Lakhs. The
members of the company convened an extraordinary general meeting and negated the proposal of
the board of directors on the ground of ultra vires acts. FSH Limited being aggrieved of the said
decision of ABC Pvt. Ltd. seeks your advice. Advise them.
Answer:
a) Section 13 of the Companies Act, 2063 contains the following provisions for conversion of a
private company into a public company.
A private company may decide to convert the company into a public company by adopting a special
resolution in the general meeting. However, no private company shall be capable of being
converted into a public company unless and until it fulfills the requirements to be fulfilled pursuant
Companies Act for being a public company.
Then the concerned private company shall, for being converted into a public company, make as
application as prescribed, accompanied by a copy of the resolution and by the fees as prescribed,
to the Company Registrar’s Office within thirty days after the date of such resolution.
On receipt of an application the Office shall, if the concerned private company has fulfilled the
necessary requirements for carrying on transactions as a public company, will mention in the
Register of Company as conversion of such company into a public company and give a company
conversion certificate as prescribed within 60 days.
b) Section 29 of the Companies Act, 2063 has specified the conditions for issuing shares at premium.
As per the said section, any company fulfilling the following conditions may, with the prior
approval of the office of the company registrar, issue shares at premium:
 A public company desiring to issue securities to the public shall fulfil the terms and conditions
as prescribed by the prevailing law on securities. However, for private companies and other
public companies with no provision to issue securities to the public as per the prevailing law
on securities, total assets should exceed its total liabilities,

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  The Company's general meeting has decided to issue shares at a premium.
The premium thus collected shall be deposited in a premium account to be opened to that effect.
The money deposited in premium account can be utilized for following purpose:
 Paying up unissued share capital to be issued to the shareholders as fully paid bonus shares,
 Providing for the premium payable on the redemption of any redeemable preference shares,
 Writing off the preliminary expenses made by the company.
 Bearing or reimbursing the expenses of or the commission paid or discount allowed on, any
issue of shares of the company.
c) Company being a legal person its business and affairs are carried on by its directors who are
considered as the representatives of the shareholders. Section 89(1) of the Companies Act, 2063
has listed the various circumstances where a person becomes disqualified to be a director. In
general, the act done by disqualified board of directors cannot get validity and binding to the
company.
Section 106 of the Companies Act, 2063 provided that if it is afterwards discovered that any
provision under this Act has not been complied with in respect of the appointment of any director,
acts already done by such director him /her before the discovery of such fact shall not be rendered
invalid by that fact. Therefore, the resolution passed by the directors though disqualified and
contract with Asus Tech is also valid and binding
d) Any Company has its objectives mentioned in the Memorandum of Association. It is reasonable to
make amendment in the objective clause for its new regime and speed. However, any person being
a shareholder, may take own decent opinion and proceed for null and void the amendments. The
companies Act, 2063 has made such provision to apply the amendment provision. Section 21 has
provided the amendment provision for the sake of test of sustainability of the amendments in the
object clause. Sub section 4 of section 21 has provided requires the following terms and condition
to be fulfilled:
If a shareholder of a public company who is not satisfied with an amendment made to the objectives
of the company may, on fulfilling the following requirements, file a petition, setting out the reasons
therefore, in the court to have that amendment declared null and void:
(a) A shareholder or shareholders holding at least five percent shares of the paid-up capital of the
company, except the shareholders who consent to or vote for the amendment or alteration, has
to make a petition,
(b) A petition has to be filed within twenty one days after the adoption of the resolution to amend
the objectives of the company,
(c) Where any one is to file a petition on behalf of one or more than one shareholder entitled to
make petition, the petition has to be filed by a person who is authorized in writing for that
purpose.
Court may entertain his decent opinion from the application submitted pursuant to sub section
4 of section 21. On a petition as submitted above, the court may issue an appropriate order,
specifying the following terms and conditions:
(a) Declaring the amendment made to the objectives of the company to be fully or partly valid or
void,
(b) Requiring the company to subscribe for a reasonable value, the shares and other rights held
by the shareholders making a petition under Subsection (4), upon being disagreed with the
making as alteration in the main objectives of the company,
(c) The shares have to be subscribed under Clause (b) from the moneys as referred to in Sub-
section(2) of Section 61; and in the case of a company which has no such moneys, issuing an

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 order to decrease the capital of the company as if the share capital were decreased to the extent
of such subscription by adopting a special resolution by the company; and where such order
is issued, the company shall amend its memorandum of association and articles of association,
subject to the provisions of this Act.
e) The question is related to the doctrine of ultra vires. The meaning of the term ultra vires is simply,
beyond (their) powers. The legal phrase “ultra vires” is applicable only to acts done in excess of
the legal powers of the doers. This presupposes that the powers in their nature are limited. It is a
fundamental rule of Company Law that the objects of a company as stated in its memorandum can
be departed from only to the extent permitted by the Act, thus far and no further.
In consequence, any act done or a contract made by the company which travels beyond the powers
not only of the directors but also of the company is wholly void and inoperative in law and is
therefore not binding on the company.
On this account, a company can be restrained from employing its fund for purposes other than those
sanctioned by the memorandum. Likewise, it can be restrained from carrying on a trade different
from the one it is authorized to carry on.
The impact of the doctrine of ultra vires is that a company can neither be sued on an ultra vires
transaction, nor can it sue on it.
Since the memorandum is a “public document”, it is open to public inspection. Therefore, when
one deals with a company one is deemed to know about the powers of the company. If in spite of
this you enter into a transaction which is ultra vires the company, you cannot enforce it against the
company.
Therefore, the resolution passed by the Board of Director ABC Pvt. Limited for an ultra vires
transaction is invalid. As a result of this, the transaction entered into the supply of fish with FSH
Limited is not legal and is void.
2. Answer the following questions: (3 × 5=15 marks)
a) Ram Janaki Bank Ltd. had earned the profit in FY 2076/77 and board of directors want to
recommend dividend in coming AGM. As this is the first time to recommend dividend they want to
know if there is any restriction to distribute dividend by bank as per the Bank and Financial
Institution Act, 2073.
b) Tilak Das was appointed as a director of Nepal Rastra Bank for the term of 4 years. An application
filed to the Ministry of Finance to remove the director as he was expelled from the post of CEO of
Janak Bikas Bank 5 years back in a charge of over valuation of security that resulted huge loss to
the bank. The ministry wants your opinion to the following matters:
i) The conditions when the director can be removed.
ii) Can he be removed on the above ground?
c) Pukar Singh has been elected in the general meeting as a board of director of Kamana Bank Ltd.
You, as an employee of the bank, have to prepare a document including the matters to be submitted
by a board of director after his appointment. List out the matters that you have to collect from him
for the disclosure to be made by the director as per the Bank and Financial Institution Act, 2073.
Answer
a) As per Section 47 of the Bank and Financial Institutions Act, 2073 before declaration of dividend
by bank and financial institutions following conditions need to be fulfilled:
1. A bank or financial institution shall obtain approval of Nepal Rastra Bank, before declaring
and distributing dividends.
2. No bank or financial institution shall be allowed to declare or distribute or distribute dividends
until it
i) Recovered all of its preliminary expenses;

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 ii) Recovered all of its losses sustained by it until the previous year;
iii) Capital fund is maintained;
iv) Amount shall have to set aside provision for possible loan loss;
v) Amount shall have to set aside for general reserve fund;
vi) Shares set aside for public issue are issued and fully paid up,
b)
i) Pursuant to Section 22(1) of the Nepal Rastra Bank Act, 2058 the Government of Nepal, the
Council of Ministers shall remove the Governor, Deputy Governor and Director on conditions
stipulated under Section 22(5) which provides that the Governor, Deputy Governor and
Director shall be removed from the office on any of the following grounds:-
1. If one is disqualified to become a Director pursuant to section 21.
2. The lack of capability to implement or cause to implement the functions which the Bank
has to carry out in order to achieve the objectives of the Bank under this Act.
3. If one has committed any act causing loss and damage to the banking and financial system
of the country.
4. If one is found to have acted dishonestly or with mala-fide intention in any transaction
related to the business of the Bank.
5. If professional license is revoked or prohibited from carrying out any profession rendering
disqualified to be engaged in any trade or profession on the ground of gross misconduct.
6. If one is absent for more than three consecutive meeting of Board without a genuine
reason.
ii) As the act of over valuation of security and punishment thereof is not a ground to remove the
Governor, Deputy Governor and Director as per Section 22(5) as mentioned above, the
Government of Nepal cannot remove Mr. Tilak Das from his post. The removal shall be treated
as unlawful.
c) It is mandatory under Sub-section (1) of Section 25 of the Bank and Financial Institution Act, 2073
that every director shall have to submit the details referred to in Sub-Section (1) of Section 24 to
the bank or financial institution within seven days of his/her appointment. When the details have
to be provided by the directors, the bank or financial institution shall have to separately maintain
records of such details. Under Section 24 of the Bank and Financial Institution Act, 2073, a bank
or financial institution shall collect the following details of a director: -
 Full Name, address, academic qualifications, profession and experience of the director,
 Details as to designation and responsibility if he/she has worked earlier as Director, official or
employee of any other agency,
 Details as to name and address of family of the Director and relevant person's details and
financial interests of himself/herself or his/her family in bank or financial institution or other
agencies, share ownership in his/her name and names of the family of said institution,
 Details of the shares and debentures subscribed by the Director or his/her family members in
the bank or financial institution or its holding or subsidiary company,
 Details of the family members is working as official or employee in the concerned bank or
financial institution, if any,
 Details as to whether the concerned bank or financial institution has, or is going to have, any
type of agreement with himself/herself or his/her family member,
 Details as to whether any type of interests or concerns with regard to appointment of Chief
Executive, Company Secretary and Auditor,

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  Written authority given to the Rastra Bank to allow it to conduct an inquiry or to cause to be
conducted the inquiry as to the financial and professional background of the Director,
 Self-declaration that he/she is qualified to be the Director pursuant to this Act,
 Any other details as specified by Rastra Bank from time to time to be furnished before the
Rastra Bank and the Board of Directors.
3. Answer the following questions: (2 × 5=10 marks)
a) Mr. YU, owner of an estate with grasslands, sold the grass to RANA Buffalo Park Pvt. Ltd. He has
also paid share in the company. He further has got insurance of grass in his own name not the
company. One week later, the grass is destroyed by the fire. Mr. YU filed a petition to recover of
loss occurred from fire. However, insurance company refused to provide loss to him. Identify and
describe the reason for refusing of insurance company to provide loss of grass. Describe the
principle of insurable interest with referring a relevant case.
b) Securities Act, 2063 has made legal provision for power to refuse to issue a license to carry on
securities business. State, the legal grounds of refusal to issue license.
Answer:
a) Insurable interest exists when an insured person derives a financial or other kind of benefit from
the continuous existence, without impairment or damage, of the insured object (or in the case of a
person, their continued survival). A person has an insurable interest in something when loss of or
damage to that thing would cause the person to suffer a financial or other kind of loss.
Typically, insurable interest is established by ownership, possession, or direct relationship. For
example, people have insurable interests in their own homes and vehicles, but not in their neighbors'
homes and vehicles, and certainly not those of strangers.
The "factual expectancy test" and "legal interest test" are the two major concepts of insurable
interest.
A company may have an insurable interest in a President/CEO or other employee with special
knowledge and skills. A creditor has an insurable interest in the life of a debtor, up to the amount
of the loan. A person who is financially dependent on a second person has an insurable interest in
the life of that second person.
In Macaura v Northern Assurance Co Ltd case, insurance claim had refused to Mr. Macaura,
the policy holder and seller of timber, as to the same fact of above case. In this case, insured object
is timber that had already sold to other company. Insurer had refused to give insurance amount
being Mr. Macaura has not insurable interest over the timber. In this case, it is concluded that the
appellant had no insurable interest in the timber described. It was not his. It belonged to the Irish
Canadian Sawmills Ltd, of Skibbereen, co Cork. He had no lien or security over it and, though it
lay on his land by his permission, he had no responsibility to its owner for its safety, nor was it
there under any contract that enabled him to hold it for his debt. He stood in no "legal or equitable
relation to" the timber at all. He had no "concern in" the subject insured. His relation was to the
company, not to its goods, and after the fire he was directly prejudiced by the paucity of the
company's assets, not by the fire.
In above case, Mr. YU has same status as explained in the Macaura case. Due to the lack of
insurable interest, he has no right to claim over the insurer on claimant of insurance amount.
b) Section 60 of the Securities Act, 2063 states, Power to refuse to issue a license to carry on securities
business. However, the Board may refuse to issue a license to carry on securities business to any
company or body on the following circumstances:
i) if it is proven that such company or body has been insolvent due to its inability to repay
creditors,

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 ii) if the application for such a license is not accompanied by the documents and details required
to be accompanied under this Act or the Rules framed under this Act, or any other matter as
the Board may specify,
iii) if, upon considering the matters set forth in subsection (2) of Section 58, it is not appropriate
to issue a license to carry on securities business.
4. Answer the following questions: (2 × 5 = 10 marks)
a) Simara Steel Ltd. is going to distribute bonus of FY 2076/77. In this year some of the employees
were involved in riots and in disciplinary acts. Company is in dilemma and confusion how bonus
is to be distributed to such employees? Suggest in following query in accordance with the Bonus
Act, 2030.
i) What are the eligibility criteria for distributing bonus?
ii) Is there any restriction to have or to distribute bonus?
b) State the provisions of establishment and function, duties and powers of the One Stop Service
Centre under the Industrial Enterprises Act, 2076.
Answer:
a) Bonus Act, 2030, section 6, has mentioned the eligibility criteria of bonus as follows:
(1) An employee who has worked for the half period to be worked in a fiscal year, shall be entitled
to obtain bonus under to this Act.
Provided that, no employee shall be entitled to obtain Bonus who has worked casually or in a
shift basis.
(2) For the purpose of 1 above, the following periods shall also be computed as a period where an
employee has worked.
(i) A period kept on reserve
(ii) A period under which an employee is on any leave with salary.
(iii) A period of disablement caused by accident arising in course of business of the
enterprise.
There are restriction provisions to have or to distribute bonus in the Bonus Act, 2030. Section 8 has
prescribed the restriction provision that an employee shall not be entitled to obtain bonus under this
Act, if he/she is punished or dismissed from service for committing any act as follows:
(i) Theft of the property of the enterprise or any damage to such property.
(ii) Illegal strike or abetment to other for such strike,
(iii) Riots or breaching of discipline.
Above condition shall not be deemed to be prejudiced to obtain in the case of the bonus for a period
before committing such a punishable act.
b) The Industrial Enterprises Act, 2076 has prescribed the provision regarding the establishment of
One Stop service Centre to provide smooth services related to the establishment of industrial firms
and operation through one door system. The Centre is established for the purpose of providing the
incentives, exemptions, facilities or concessions easily to those industries or investors entitled
under this Act and other prevailing laws and performing the functions to be discharged by various
bodies of the Government of Nepal through one place in a timely manner and delivering industry
administration related services from the permission to establish, registration, expansion and
liquidation of industries. Different services as to registration, environment compliance, foreign
currency exchange, visa matters, infrastructure, land administration customs and revenue and
administration and law are provided through the same Centre at the same place.

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 The Government of Nepal may establish and run One Stop Service Centre by publishing a notice
in the Nepal Gazette. While publishing the notice, apart from other matters, it shall provide the
place of Centre, service provided by it, its units and service operation committee.
Function, duties and powers of one stop service Centre
One stop service center shall be established to provide smooth services to investors as well as make
available the incentives and concessions to be enjoyed by any industry from a single place. Pursuant
to Sub-section (1) of Section 36 of the Act, the one stop service committee shall exercise the
following function, duties and powers:-
 To implement or cause to implement the decision to provide exemptions, concessions and
facilities available to the industries as per this Act.
 To perform acts delegated by the Board under its function, duties and powers.
 To decide and implement for the timely arrangement of infrastructure service, like, electricity,
water supply, communication equipment, land and road to the industries.
 To do other works as prescribed.
5. Answer the following questions: (2 × 5=10 marks)
a) A complaint for breach of code of conduct of The Institute of Chartered Accountants of Nepal has
been lodged against Mr. XY Sharma who is Council Member as well as member of Disciplinary
Committee of the Institute. How will the investigation and if applicable, punishment be given to
Mr. XY Sharma as per the provisions of the Nepal Chartered Accountants Act, 2053?
b) State the function, duties and powers of the Accounting Standard Board under the Nepal Chartered
Accountants Act, 2053.
Answer:
a) Sub-section (2) of Section 14 of the Nepal Chartered Accountants Act, 1997 prescribes for the
procedure of investigation for any complain against Chairman or any member of the Disciplinary
Committee for their actions contrary to the Act or the Regulations, Bye-laws or code of conduct
framed under the Act. The provisions of this sub-section clearly spells out that such Chairman or
member shall not be allowed to attend the meeting that hears the complaint against them.
Similarly, sub-section (6), provides that any Council member against whom the Disciplinary
Committee, after investigating upon the complaint of his action contrary to the Act or Regulations,
Bye-laws or code of conduct framed under the Act, has decided to recommend the Council to take
necessary action, shall not be allowed to attend and to vote at the Council meeting where the
Council is hearing at such recommendation.
In the given case where complain is lodged against Mr. XY Sharma who is the member of both
Disciplinary Committee and the Council. In this case, according to the above provisions of the Act,
he shall not be allowed to take part in the hearing and investigation process in the Disciplinary
Committee, also he shall not be allowed to be present in the meeting of the Council when it hears
the recommendation of the Disciplinary Committee.
b) The fundamental function, rights and duties of the board is to develop accounting standards in order
to govern and regulate the financial reporting and accounting profession. Section 15B of the Nepal
Chartered Accountants Act, 2053 has provided the rights and duties of Accounting Standards Board
be as follows:
 To develop accounting standards, on the basis of relevant International Accounting Standards,
in order to govern and regulate financial reporting and accounting profession.
 To evolve appropriate process of development of accounting standards and publish material
related to accounting standards.
 To redraft, improvise and revise standards.

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  To interpret the standards.
 To undertake other related tasks related to accounting standards.
6. Answer the following questions: (5 × 4 = 20 marks)
a) Under what circumstances the negotiable instrument deemed to be dishonored and no presentment
is necessary for its payment as per the Negotiable Instruments Act, 2034?
b) What includes by the employment period under the Labour Act, 2074?
c) 'K' entered into a contract with 'P' for the purchase of 1000 bags of rice at the rate of Rs. 1,000 per
bag. 'P' has not supplied the goods within the due date and due to this 'K' suffered a loss of Rs.
100,000 as he has to purchase these bags at the rate of Rs. 1,100 per bag from the market to deliver
the same to its customers. Decide how much compensation can be claimed by 'K' from 'P'.
d) Explain "Sick Industry" under the Industrial Enterprises Act, 2073.
e) What special programs may be operated by the Government of Nepal relating to the social welfare
as per The Social Welfare Act, 2049?
Answer:
a) Situation in the Negotiable Instruments shall be deemed to be dishonored and no presentment is
necessary for its payment:-
(a) If the maker, acceptor or drawee deliberately prevents the presentment of the Negotiable
Instrument, or
(b) If the instrument being payable at the specified place, neither the payer or his Agent to pay it
attends at such place during the business hours on a business day, or
(c) If the payer closes his/her office during the business hours on a business day, or
(d) If the Negotiable Instrument not being payable at any specified place, the concerned party
cannot be found for the presentment after due search.
b) Section 2 (o) of the Labour Act, 2074 has defined the term employment period which means the
period of employment with the employer. It also includes the following period:
 The period remained in reserve.
 The period stayed with remuneration leave.
 The period of maternity or maternity care leave.
 The period stayed in sick leave because of accident during the course of employment
c) The given problem is related to compensation for loss or damage caused by breach of contract
covered under section 537 of the National Civil Code, 2074.
According to the provision, when a contract has been broken, the party who suffers by such breach
is entitled to receive, from the party who has broken the contract, compensation for any loss or
damage caused to him thereby, which naturally arose in the usual course of things from such breach,
or which the parties knew, when they made the contract, to be likely to result from the breach of it.
In estimating the loss or damage arising from a breach of contract, the means which existed of
remedying the inconvenience caused by the non-performance of the contract must be taken into
account.
Given facts state that 'K' entered into contract with 'P' for purchase of 1000 bags of rice at the rate
of Rs. 1,000 per bag. 'P' breaks his promise as to supply of goods within the due date. This act of P
resulted loss to 'K' of Rs. 1,00,000 as he has to purchase these bags of Rs. 1,100 per bag from
market to deliver it further to its customers.
Accordingly, as per the provision in the given situation, 'K' is entitled to receive from 'P' by way of
compensation, the sum, by which the contract price falls short of the price (i.e., 100 per bag) from

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 the market price on the day of default. The number of damages will be Rs. 1,00,000 (i.e., 1000 of
rice bags x 100).
d) Section 37 of the Industrial Enterprises Act 2073, prescribes the provision about the Sick Industry.
If any industry is being operated at least five years and in loss for a consecutive period of last 3
years due to operate in thirty percent or below of the total production capacity due to condition out
of control and not being due to negligence or weakness of management, following the procedure
mentioned under prescribed guidelines, Government of Nepal may identify as sick industry.
On the basis of contribution made by the industry before being sick industry on generation of
employment, import substitution or earn foreign exchange by export promotion and can be re-
operated if provided fixed concession, facility or rebate, Nepal Government may take necessary
action to restructure, reformation and management of such industry.
e) Pursuant to Section 3 of the Social Welfare Act 2049, the Government of Nepal, by means of
different activities relating to the social welfare work, to support the overall development of the
country may operate the social welfare Program through the concerned Ministry and Social
organizations and institutions.
Similarly, as per Section 4, the Government of Nepal may operate special Programs, relating to the
social welfare activity and social service, in the following matters:
a) To serve interest and render welfare to the children, old age, helpless or disabled people.
b) To foster participation in development and to promote and protect the welfare, rights and
interest of the women.
c) To rehabilitate and help to lead a life of dignity to the victims of social mischief's and also to
juvenile delinquency, drug addicts and similar people involved in other kind of addictions.
d) To help to lead a life with dignity to the jobless, poor and illiterate people.
e) To manage religious places and the activities of the trust Guthi institutions.
f) To take effective management and actions for the welfare of the backward communities and
classes.
7. Write short notes: (2 × 5 = 10 marks)
a) Disqualifications of insurance agents, surveyor and brokers.
b) Various leave and holidays facilities prescribed by the Labour Act, 2074.
Answer:
a) As per the Section 32 of the Insurance Act, 2049 no person shall become an Insurance Agents,
Surveyor or Broker in following conditions:
i) If he/she has not attained age of sixteen years,
ii) If he/she is of unsound mind,
iii) If he/she is an insolvent,
iv) If he/she has been convicted and sentenced to punishment by a court in an offence involving
any type of theft, fraud, misappropriation or embezzlement of property entrusted to him, or
v) If he/she has done anything in the course of work regarding to the insurance business causing
loss or damage to the Insurer or insurance policy holder.
b) Labour Act, 2074 under sections 40 to 48 has provided the leave and holidays facilities as follows.
 Weekly holiday- 1 day every week
 Public Holiday- 13 days including May Day and additional 1 day to female employees
including International Women's Day.

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 Home Leave- 1 day for every 20 worked days.
 Sick Leave- up to 12 days fully paid annually.
 Mourning Leave- 13 days in case of death of persons.
 Leave in lieu- For the laborers put in work on public holiday or weekly off will be provided
accordingly.
 Maternity Leave- 98 days. Fully paid up to 60 days either before or after the delivery.
 Paternity Leave- 15 days. Fully paid.

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Examiner’s Commentary on Students' Performance in June 2021
Examinations
This commentary has been written to accompany the published questions and answers and is written
based on the observations of evaluators. The aim is to provide constructive guidance for future
candidates, giving insight into what the evaluating team is looking for, and flagging difficulties
encountered by candidates who attempted these questions.
Subject: Advanced Accounting
Question No. 1
Overall Satisfactory
Question No. 2
Concept and preparation lacking in calculation of profit during year
Question No. 3
Average performance; most of the students have not answered 3(b) correctly.
Question No. 4
Generally good
Question No. 5
Satisfactory: provision of concerned Standard is not mentioned by many students
Question No. 6
Satisfactory performance
Subject: Audit and Assurance
Question No. 1
Average performance; most of the students referred NAS-10 instead of NAS 8.
Question No. 2
Average Performance; most of the students did not mention exact punishment in answer.
Question No. 3
Average performance; most of the students were not conceptually clear on control environment.
Question No. 4
Poor Performance; misconception about CAs that they are only auditors.
Question No. 5
Most of the students have not answered well about audit strategy.
Question No. 6
Satisfactory performance
Question No. 7
Average performance; repetitive points

Subject: Corporate & Other Laws

Question No. 1

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Satisfactory performance
Question No. 2
Average performance. Students need to be more focused on Bonus Act and BAFIA Provision.
Question No. 3
Satisfactory Performance
Question No. 4
Satisfactory Performance
Question No. 5
Satisfactory Performance
Question No. 6
Average performance; 6(a) is not answered well.
Question No. 7
Satisfactory Performance

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Paper 3: Corporate and Other Laws
Attempt all questions.
1. Answer the following questions: (5×5=25 marks)
a) ABC Private Limited Company is a private company having five members only. All the
members of the company were going by car to pokhara in relation to some business. An
accident took place and all of them were killed in the accident. In such situation whether
existence of the company has also come to the end? Write your answer with reasons as
per the Companies Act, 2063.
b) Mr. Rajeev Sharma, newly appointed company secretary of MN Ltd wants to know the
subject matter for which special resolution is required in general meeting. Mention the
subject matters for which special resolution should be presented in the general meeting
of a company for decision.
c) Suravi, a director of River Palace Ltd. was involved in preparing prospectus and with her
some objections she signed on it. The prospectus is approved and registered to the Office
of Company Registrar and accordingly published. When she knew that the director
signing on the prospectus with false contents shall be liable personally for loss caused to
the investors, therefore, asked you whether she can be freed from such obligation. Advise
her.
d) Mr. A and his friends are directors of the Techno Trade Pvt. Ltd. They arranged a
meeting of the Board of the Directors(BoD). You are invited in this meeting as corporate
specialist. They asked about the powers and duties of BoD as provided in the Companies
Act. Explain the powers and duties of a BoD in accordance with the Companies Act,
2063.
e) Mr. Deo had signed in an agreement with Mr. Park to purchase 5 acres of land for the
purpose of the Deo soap Industries Pvt. Ltd. before its incorporation. The company
obtained a certificate of incorporation but collapsed before the money was paid for the
purchase of the land. Examine the status of the contract in such situation, whether it is
binding to the company or Mr. Deo individually liable. Write your answer with reference
to the provision of the pre-incorporation contract as provided in the Companies Act,
2063 and relevant case law.
Answer
a) As per Section 7 of the Companies Act, 2063 company incorporated shall be an
autonomous and body corporate with perpetual succession.
Company's life does not depend upon the death, insolvency or retirement of any or all
shareholders or directors. Provision for transferability or transmission of the share helps
to preserve the perpetual existence of a company. Law creates company and law alone
can dissolve it. Shareholders may come and go but the company can go on forever. Death
of all the shareholders of the company does not affect the continuity of the company.
In such case, ABC Private Limited does not cease to exist. By way of transmission of
shares, shares are transmitted to their legal representatives. The company ceases to exist
only on the winding up of the company. Therefore, even with the death of all
shareholders, ABC Private Limited does not cease to exist.
b) In a general meeting of the Company, it is required to submit matters to be decided as
resolution which may be either ordinary or special resolution. However Section 83 of the
Companies Act, 2063 prescribes the subject matter which requires to be presented as
special resolutions in the general meeting of a company for decision.
 Subject matter which requires to be presented as special resolutions in the general
meeting of a company for decision are:
a. Increasing the authorized capital of the company,
b. Decreasing or altering share capital of the company,
c. Altering the name or main objectives of the company,
d. Amalgamating one company into another company,
e. Issuing bonus shares,
f. Buying back of own shares by the company,
g. Selling shares at a discount ,
h. Converting a private company into a public company or public company into private
company.
i. Such other matter in respect of which the company is required by Companies Act or
the articles of association to adopt a special resolution.
c) As per Section 24 (1) of the Companies Act, 2063 it shall be the duty and obligation of
the concerned company to abide by the matters contained in the prospectus published.
And the directors who have signed the prospectus as referred to in Subsection (1) shall be
liable for the matters mentioned in that prospectus.
Similarly, Subsection (3) states that if any published prospectus contains false statements
made maliciously or deliberately and any person sustains any loss or damage by reason of
his/her subscription of securities on the faith of that prospectus, the directors who have
signed that prospectus shall be personally liable to pay compensation for the actual loss
or damage so sustained.
A promoter who resigns before the decision made by the company to publish the
prospectus or whom on becoming aware of any false statement in the prospectus,
publishes a notice of that matter to the information of the general public prior to the sale
or allotment of securities or who proves that he/she did not know that the prospectus
contained any false statement shall not be liable to bear such compensation. Hence,
Suravi by publishing a notice as stated above can be freed from her obligation. However
she has to prove that she had no knowledge of the prospectus containing false statement.
d) A company is an artificial legal person having no physical existence and intelligence.
Because of this, a company in itself is inactive and constant. So, a body of persons is
necessary to handle the business affairs to make proper management and to instruct and
control the parties of the concerned company. A supreme executive authority in the
control of a company and its affairs resides in persons are known as Board of directors.
Section 95 has explained the powers and duties of board of directors as follows:
(1) Subject to the provisions contained in this Act and the articles of association and the
decisions of the general meeting, the directors shall manage all transactions, exercise
of powers and perform duties of the company through the board of directors
collectively.
(2) Except in accordance with a decision of the general meeting no director of a public
company shall do anything yielding personal benefit to him/her through the company.
Provided, however, that a private company may make a reasonable provision on the
 benefit which the director may derive thought the company, as mentioned in the
memorandum of association and articles of association or consensus agreement.
(3) Except as otherwise provided in this Act, the memorandum of association and articles
of association or the consensus agreement in the case of a private company, the board
of directors may appoint any director from amongst themselves or any employee of
the company as its representative and so delegate to him/her any or all of its powers,
inter alia, to do any act or thing, make correspondences or sign bills of exchange or
cheques etc. On behalf of the company that such powers are to be exercised
individually or jointly. In so delegating the powers, at least one director and their
company secretary, if any, shall certify such delegation, pursuant to a decision of the
board of directors.
(4) A company may recover damages from a person acting in the capacity of director or
representative of the company for any loss or damage caused to the company from
any act or action done by such person beyond his jurisdiction.
(5) If any person enters into any transaction with the director or with a representative as
referred to in Sub-section (3) despite the knowledge or having reason to believe that
such director or representative is dealing with any transaction for his/her personal
interest or for causing loss or damage to the company, such person shall not be
entitled to make any claim against the company in respect of such transaction.
(6) Notwithstanding anything contained in Sub-section (3), the board of directors shall
not delegate the following powers conferred to the company and shall exercise such
powers only by means of resolutions passed at meetings of the board of directors :
(a) The power to make calls on shareholders in respect of amount unpaid on their
shares;
(b) The power to issue debentures;
(c) The power to borrow loans or amounts except through debentures;
(d) The power to invest the funds of the company;
(e) The power to make loans.
(7) The provision of Clause(e) of Sub-section(6) shall not apply to loans to be let and
deposits to be received in the ordinary course of business by the companies carrying
on banking and financial transactions.
(8) If the board of directors considers necessary to form a subcommittee for the discharge
of any specific business, it may form one or more than one sub-committee as required
and get such business discharged.
e) A contract made before the company's incorporation cannot bind the company. It takes
effect as a personal contract with the persons who purport to contract on the company's
behalf and they are liable to pay damages for failure to perform the promises made in the
company's name, even though the contract expressly provides that only the company's
paid-up capital shall be answerable for performance. Preliminary contracts are contracts
purported to be made on behalf of a company before its incorporation. A contract by a
promoter purporting to act on behalf of a company prior to its incorporation never binds
the company because at the time the contract was concluded the company was not in
existence. Therefore, it has no legal existence. As explained in the Northumberland
Avenue Hotel Co (1886) even if the parties act on the contract it will not bind the
company. Further, it is strictly explained in the Kelner v. Baxter (1866) that even after,
 incorporation such a purported contract cannot be ratified by the company. It is
concluded that the person purporting to act as agents on behalf of the company would be
personally liable. In Howard v. Patent Ivory Co. (1888), it is explained that a company
cannot ratify a pre-incorporation contract, but it is open to it to enter into a new contract
after its incorporation to give effect to a contract made before its formation.
Pre-incorporation contract has been accepted as non-binding instruments. Section 17 of
the Companies Act, 2063 has provided for the pre-incorporation contracts as follows:
(1) A contract made prior to the incorporation of a company shall be a proposed contract
only, and such contract shall not be binding on the company.
(2) If, prior to the incorporation of a company, any person carries on any transaction or
borrows money on behalf of the company, such person shall be personally liable for
any contract related with the transaction so carried on, subject to Sub-section (3).
(3) If, within the time mentioned in any transactions or within the reasonable time after
the incorporation of a company, the company, through its act, action or conduct,
accepts any act, action or conduct, accepts any act, action to borrowing done or made
prior to the date of authorization to commence its transactions or endorses such act or
action, that transaction shall be binding on the company and the other contracting
party; and the person carrying out such act to action shall be released from the
personal liability to be borne pursuant to Subsection (2).
(4) Notwithstanding anything contained elsewhere in this Section, the consensus
agreement of a private company shall govern any contracts made prior to the
incorporation of such company.
This is clear that the company hasn't endorsed the contract before its collapse. So, the
contract is the legal instrument governing to the parties themselves only. Due to the non-
endorsement of the contract, it operated and binding to the parties. Therefore the contract
is not binding to the company, but is binding to the parties and should be the liability by
oneself.
2. Answer the following questions: (3 × 5=15 marks)
a) Mr. Satish Shrestha is a promoter of Bright Bank Limited established in 2073 Baisakh
and commenced financial transactions from 2073 Ashadh. Mr. Satish Shrestha wants to
sell out the shares undertaken by him. Advice Satish for sell of shares based on Banks
and Financial Institutions Act, 2073.
b) Board of Directors of Agricultural Development Bank decided to appoint Sunil Man
Shakya, a Chartered Accountant with master degree in rural development who was a
deputy director and officer level post of the bank for 7 years as a Chief Executive. After
his appointment, an action was filed challenging his appointment being not qualified for
the post. Write your answer by referring the relevant legal provisions of the Banks and
Financial Institutions Act, 2073 whether or not he is qualified for the post.
c) Enumerate the power of the Nepal Rastra Bank for the management of Foreign Exchange
as per the Nepal Rastra Bank Act, 2058.
Answer
a) Section 11 of Bank and Financial Institutions Act, 2073 states that the promoter of a bank
or financial institution shall not be entitled to sell or pledge any share registered in his or
her name for at least five years from the date of commencement of financial transactions.
Provided that if there arises a special circumstance due to the emergence of any
obstruction or hindrance in the operation of a bank or financial institution or a promoter
 shareholder is included on the blacklist owing to transaction with another bank or
financial institution shares may be sold or purchased amongst promoter by obtaining
approval from Nepal Rastra Bank.
If the promoter of a bank or financial institution wishes to sell or pledge the shares held
in his or her name after five years from the date of commencement of financial
transactions and after issue of public share by the bank or financial institution, he or she
may sell or pledge such shares, with the permission of Nepal Rastra Bank. However,
promoter holding shares less than 2% of paid up share capital need not obtain permission
of Nepal Rastra Bank to sell or pledge promoter shares.
As Bank has commenced financial transactions from 2073 Aasadh only 5 years is not
completed. Consequently, Mr. Satish Shrestha cannot sell or pledge his promoter shares.
b) Business and day-to-day administration and management of bank or financial institution
is under control of the chief executive officer. The Act has intended to appoint chief
executive as a leader of management. Sub-section (1) of Section 29 of the Act has
provided that the board of directors shall, subject to this Act, Memorandum and Articles
of Association, appoint one Chief Executive for management of the bank or financial
institution.
Sub-section (5) of Section 29 has laid down the qualifications of Chief Executive as
under-
 Person having attained Master’s degree in management, banking, finance, monetary,
economics, commerce, bookkeeping, statistics, account, mathematics, business
administration or law.
 Person having work experience of at least ten years as an officer level or above in
banking or finance sector, government agency, corporate body, university or an
international institution or organization to carry on similar works after having attained
chartered accountancy or bachelor’s degree in management, banking, finance,
monetary, economics, commerce, bookkeeping, statistics, account, mathematics,
business administration or law, provided that in case of the Chief Executive of a Class
"D" financial institution, one shall have to possess the academic qualifications and
work experience as specified by the Rastra Bank.
 Person having completed the criteria as prescribed by the Rastra Bank with regard to
appointment of the Chief Executive.
 Person who is not been disqualified pursuant to Sub-Section (1) of Section 18 except
(i) and (n).
Under Sub-section (6), the Rastra Bank may issue order to the concerned bank or
financial institution to remove such Chief Executive and to appoint another person being
qualified to get appoint in the post of Chief Executive in case the Chief Executive
appointed pursuant to Sub-Section (1) has not been found qualified according to this Act.
c) As per Section 63 of the Nepal Rastra Bank Act, 2058; the Bank shall manage the foreign
exchange. The Bank shall have the following powers for such management: -
(a) To issue license under this Act or any other prevailing laws to the persons willing to
deal in foreign exchange transaction;
(b) To frame Rules and Bye-laws and to issue necessary order, directives or circulars in
order to regulate dealings in the foreign exchange transaction by the foreign exchange
dealer;
 (c) To inspect, supervise and monitor the foreign exchange dealer;
(d) To set the bases, limitations and terms and conditions for the transaction of the
foreign exchange dealer; and
(e) To prescribe the system of determining the foreign exchange rates of the Nepalese
currency.
3. Answer the following questions: (2×5=10 marks)
a) State the grounds under which the Insurance Board may cancel the registration of an
insurance company (insurer) under the Insurance Act, 2049.
b) State the provision of Revolving Fund as per Securities Act, 2063.
Answer
a) Section 13 of the Insurance Act, 2049 provides the grounds for the cancellation of
registration of insurer by the Insurance Board.
As per Section 13 of Insurance Act, the Insurance Board may cancel the registration of an
insurer by providing a written notice with effect from the date prescribed in the same
notice in the following circumstances:
a) If the insurance business is not started within six months from the date of obtaining
the certificate.
b) If it is felt that the liability of the insurer exceeds its assets within Nepal.
c) If the insurer could not fulfill the liability pursuant to the decision within three
months from the date of final decision of the court in the case filed under the
insurance policy issued within Nepal.
d) If the head office of the insurance business of any foreign insurer is situated outside
Nepal and in case it felt that Nepalese insurer has not obtained equal facilities there
which are enjoyed by the foreign insurer pursuant to the prevailing law of such
company.
e) If the insurer does not open its office inside Nepal.
f) If the insurer does not perform the functions to be performed or has performed any
functions which is not to be performed pursuant to this Act or the rule made under
this Act.
Before cancelling the registration of an insurer pursuant to sub-section (1) above, the
Insurance Board shall provide a reasonable time-limit to submit clarification to the
concerned insurer, stating the reason for cancelling its registration.
If the concerned insurer does not submit its clarification within the time period mentioned
in sub-section (2) above or clarification submitted by it is found not to be satisfactory, the
Insurance Board shall cancel the registration of such insurer pursuant to sub-section (1)
above, and shall publish a notice in two major newspapers published in Nepal for the
public information in general.
b) As per section 23 of the Securities Act, 2063 regarding Revolving Fund:
(1) The Securities Board may establish a revolving fund to manage its source of income
and such amounts as specified by the Board shall be credited to that fund each year.
(2) The amounts of the revolving fund may be held in securities issued by the Government
of Nepal or in such a fixed deposit account as may be prescribed by the Board.
 (3) Generally, no moneys held in the revolving fund, other than income earned out of the
moneys in that fund, shall be spent.
(4) Provisions relating to the operation of the revolving fund shall be as prescribed.
4. Answer the following questions: (2×5=10 marks)
a) Mr. X has been engaged supplying labour in India that is noticed from Maiti Nepal
Sunauli Unit after Mr. Y's rescue. Mr. X has disclosed in his statement that he has no
license and work permit to supply of labour. During the investigation it is also revealed
that he has actively engaged in the bonded labour also. In this act and omission as well
as non-compliance of the Labour law what is the consequences of the non-compliance
that is attracted the jurisdiction of the Labour Depatrment and Labour court? Write your
answer referring the relevant provision of the Labour Act, 2074.
b) Industrial Enterprises Act, 2076 has prescribed various facilities, concessions and
exemption to the industries. State the custom duty exemption provisions under the
Industrial Enterprises Act, 2076.
Answer
a) Labour Act, 2074 has provided the labour affairs management. While engaging in the
supply of laour without its legal compliance and engaging in bonded labour, it is
prohibited as a labour offence. In the circumstances of the above, jurisdiction of the
Labour Department and Labour Court has been attracted and Mr. X can be punished
under the Labour Act, 2074 as Follows:
Sanction by Labour Department: Section 163
Non-Compliance Consequence of Non-compliance
1. Supplying labour without license 1. Fine up to Rs. 2,00,000 and necessary
and engaging labour in work order.
from such supplier
2. Engaging a foreign national in 2. Fine up to Rs. 2,00,000 depending upon
work without work permit. the number of workers, and on repetition
even after being punished shall be fined
with the additional fine of Rs. 5,000 per
month and per head.
3. Discriminating among the 3. Fine up to Rs. 1,00,000 and the order to
workers. maintain the equality may be given.
4. Engaging a worker without 4. Fine up to Rs. 5,00,000 at a rate of Rs.
appointment letter or 10,000 per worker, the order to conclude
employment agreement. an employment agreement and provide
an appointment letter shall also be given.
Sanction by Labour Court: Section 164
Non-Compliance Consequence of Non-compliance
1. For engaging a bonded labour in 1. Imprisonment up to 2 years or fine up to
Nepal and outside thereof. Rs. 5,00,000 or both. The Labour Court
can order the entity to provide such
bonded labour with remuneration,
allowance and other facilities, as well as
indemnity to the bonded labour with an
amount double such remuneration,
allowance and other facilities. The Court
can order to provide the travel expenses
that is incurred in the travel.
 2. If the entity does not make the 2. Imprisonment up to 2 years, except
health and safety arrangements otherwise provided. Such person
knowingly and recklessly as a suffering the injury should be
result the worker dies or suffers compensated reasonably.
physical or mental injury.

b) The provisions relating to the customs duty exemptions applied to the different industries
have been provided under Section 23 of the Act. These exemptions can be listed as
shown under-
Industry Benefits

The Government of Nepal may

refund the amount of Duty
Industries not having bonded Drawback in export of goods after
warehouse or passbook facility determining the aggregate of costs
incurred in import (Samadar) as
prescribed in Nepal Gazette.

Raw materials or auxiliary raw

materials as well as packaging
materials that are not produced in
Nepal can be imported by furnishing
the required guarantees under
prescribed conditions and
procedures.
Industries not having Bonded
However, in case of packaging
Warehouse approval exporting
materials not produced in Nepal, a
goods through existing banking
recommendation is required from
channel or Letter of Credit or
IRD to enjoy stated benefit.
selling such goods in domestic
The Custom Duty levied in the
market in convertible currency
import of such raw materials,
auxiliary raw materials and
packaging materials required for
production shall be one level below
the existing Custom Duty rate in
import of finished goods using such
materials.

Custom Duty is levied at the

minimum rate for the import of
machinery and scientific devices
Laboratories for Quality that are being imported to ensure
Assurance quality as well as such machinery
and equipment imported by
industries for research and
development.

Custom duty is levied at the

All Industries
minimum rate on import of
 machinery, transformers, generators
having a capacity of 10 Kilowatt and
other industrial devices imported by
an industry for commercial purpose.

5. Answer the following questions: (2×5=10 marks)

a) Mr. 'X' and 'Y', were elected from amongst the Chartered Accountant and the Registered
Auditors as a council member for three years respectively. Among them Mr. 'X' died due
to Novel Corona (Covid-19) after his two and one month service as a member. Mr.' Y'
resigned from the member after his one and half years service as a member due to his
non-possession of qualifications required to be a Council Member. Suggest the Institute
of Chartered Accountants of Nepal (ICAN) that how the vacancy of membership
including those is fulfilled? What is the validity of the acts and actions of the Council that
Mr.'Y' has been involved'? Write your answer in accordance with the relevant provision
of the Nepal Chartered Accountants Act, 2053.
b) A Council may be constituted to take up necessary actions required to attain objectives of
the Institute and to manage and supervise all activities of the Institute. State the
constitution of the Council and Circumstances the seat to remain vacant of the member of
the Council as prescribed by the Nepal Chartered Accountants Act, 2053.
Answer
a) Pursuant to Section 9 of the Nepal Chartered Accountants Act 2053, any post of the
Council member is deemed to be vacant due to:
 death, or
 resignation, or
 disqualification to continue as a member of the Institute.
Provision of the fulfillment of the remaining terms:
As per Section 9:
1. The Council shall, if any seat of any Council member elected pursuant to clause (a) or
(b) of sub-section (3) of Section 7 turns vacant due to death or resignation or
disqualification to continue as a member of the Institute pursuant to the other
provisions of this Act, designate any member as Council member for the remaining
term of office, provided the remaining period of such vacated office is of less than a
year; and if such term is of more than a year, the vacancy shall be filled through
election.
2. A seat, falling vacant owing to death or resignation of any Council member,
nominated pursuant to clause (c) of sub-section (3) of Section 7, shall be fulfilled, for
the remaining term of office, as per the procedure set forth in the same section.
Fulfillment of the vacancy of remaining post: Section 9
As mentioned above a membership is vacant due to the death of Mr. 'X'. The Council
may fulfill the vacant post fulfilling the legal requirements as provided in the Section 9 of
the Act. Less than one year is remained in case of Mr. 'X'. If any post of the membership
is vacant less than a year then the Council may designate any Chartered Accountant
member of the Council.
 For fulfillment of the member that is vacant due to the resignation of the Mr. 'Y', Council
may determine the remaining terms of the member so fulfilled. Referring to the case of
the question, more than a year has been remained in the tenure of the member. Therefore,
the Council may elect a member amongst the registered auditors for the remaining tenure
pursuant to the section 9.
Validity of the actions: Section 12
Section 12 has expressly provided that any action undertaken according to decision of the
Council, where any seat of any Council member has remained vacant or a person, without
possessing qualifications required to be a Council member, has been elected or
nominated as the Council member, shall not be invalid merely on the ground thereof.
As having the reference of the provision that the action taken by the Council, in presence
of the member Mr. 'Y' though his qualification is questioned, is valid.
b) The Constitution of the Council has been prescribed in Section 7 of the Nepal Chartered
Accountants Act 2053 as follows:
(1) A Council, to take up necessary actions required to attain objectives of the Institute in
a well-planned manner and to manage and supervise all activities of the Institute,
shall be constituted.
(2) The Council shall, except as otherwise provided elsewhere in this Act, exercise all
authority and discharge all duties conferred on and assigned to the Institute subject to
the Act and Regulations and Bye-laws framed under this Act.
(3) The Council shall consist of the following Council members:-
(a) Ten persons elected by and amongst Chartered Accountant members -Member
(b) Four persons elected by and amongst Registered Auditors -Member
(c) Three persons nominated by the Government of Nepal, upon the recommendation
of the Auditor General, from amongst the persons well experienced in the field of
accounting profession. -Member
(4) The Council members shall elect a President and a Vice-President from the Fellow
Chartered Accountants (F.C.A.) Council members referred to in clause (a) of sub-
section (3).
(5) The term of office of the President and the Vice-President shall be of one year and
upon expiry of the term of office, they shall be eligible to be elected for one more
term.
(6) The term of office of the Council members shall be of three years and upon expiry of
the term of office, they shall be eligible to be re-elected or re-nominated.
(7) The procedures relating to the election of Council members shall be as prescribed.
(8) The functions, duties and authorities of the President and the Vice-President shall be
as prescribed.
Circumstances Wherein the Council Member's Seat to Remain Vacant: Section 8
(1) The seat of a Council member shall be deemed to remain vacant, if:
(a) He ceases to be a member of the Institute, provided that this provision shall not be
applicable to the nominated Council member.
(b) The Council accepts his resignation,
 (c) He, without giving a notice with reason, absconds himself from three consecutive
meetings of the Council,
(d) His term of office expires,
(e) His non-compliance with the code of conduct referred to in Section 34 is proved,
(f) He dies.
(2) Pursuant to clause (b) of sub-section (1), the President shall tender resignation to the
Vice-President and other Council members to the President.
6. Answer the following questions: (5 × 4=20 marks)
a) State any four differences between promissory note and bill of exchange.
b) State the legal character of the Social Welfare Council under the Social Welfare Act,
2049.
c) Mr. Noon has been working in the Seti Fiber Pvt. Ltd. The company has set out him in
reserve for seven months. In this reserve period, he was involved in the riots, and
company declared him breaching the discipline. Discuss about the eligibility for bonus,
its restriction grounds and his eligibility for bonus.
d) Mention the provision related to transfer of ownership of goods as specified in the
National Civil Code, 2074.
e) State the nature of the Cottage Industries with respect to Industrial Enterprises Act,
2076.
Answer
a)
Basis of Difference Promissory Note Bill of Exchange
1. Number of parties There are two parties. There are three parties.
2. Maker and payee Maker and payee cannot be the Maker/ drawer and payee
same and single person. can be the same and
single person.
3. Promise and order There is a promise to pay a There is an order to pay a
sum of money. sum of money.
4. Acceptance Acceptance is not required as it Acceptance is necessary
is signed by the person liable by the drawee before it
to pay on it. can be presented for
payment.
5. Nature of liability Liability of the maker of a Liability of the maker of a
promissory note is primary. bill is secondary.

b) The Act under Section 5 has provided the provision for the establishment of Social
Welfare to make effective co-ordination, co-operation, mobilization and promotion of the
social organizations and institutions, in order to run social activities in more organized
way. Section 6 of the Act has listed the legal character of the council as under-
 The Council shall be an autonomous corporate body having perpetual succession.
 The Council shall have a separate seal of its own to carry out its all activities.
 The Council may have power to acquire, enjoy, sell or otherwise dispose of movable
and immovable property, as a person.
 The Council may sue on its behalf or be sued against it as a person.
  The Council shall have a separate flag of its own.
c) Eligibility for Bonus:
As per Section 6 of Bonus Act, 2030:
(1) An employee who has worked for the half period to be worked in a fiscal year, shall
be entitled to obtain bonus under this Act.
Provided that, no employee shall be entitled to obtain bonus who has worked casually
or in a shift basis.
(2) For the purpose of Sub-section (1), the following periods shall also be computed as a
period where an employee has worked.
(a) A period kept on reserve under any contract or under the Labour Act.
(b) A period under which an employee is on any leave with salary.
(c) A period of disablement caused by accident arising in course of business of the
enterprise.
Restriction to Obtain Bonus:
Section 8 of the Bonus Act provides that an employee shall not be entitled to obtain
bonus under this Act, if he/she is punished or dismissed from service for committing any
act as follows:
Provided that, this Section shall not be deemed to be prejudiced to obtain in the case of
the bonus for a period before committing such a punishable act.
(a) Theft of the property of the enterprise or any damage to such property.
(b) Illegal strike or abetment to other for such strike,
(c) Riots or breaching of discipline.
In accordance with the above provision of the Bonus Act, 2030, Mr. Noon has been kept
in reserve for seven month and he has engaged in riots and declared breaching the
discipline. Therefore, he has not eligible for bonus.
d) The transfer of ownership of goods has been mentioned in Section 554 of National Civil
Code, 2074.
As per Section 554 of the National Civil Code, 2074,
(1) If contract made for sale of any certain or specified goods, transfer of such goods will
be done as mentioned in the contract, if not mentioned in the contract, such goods
will be transferred as per the conditions of contract, code of conduct of the parties and
as per intension expressed by the parties from the related circumstances.
(2) Apart from somethings else has provided in the contract, if contract has done for any
specified goods which can be transferred instantly then after such contract or after the
payment for such goods, it is supposed to have an intention of the parties for transfer.
(3) If any contract has been done for any specified goods that can be handed over
immediately, then it is not supposed to be transferred unless an information has been
provided to the seller at an appropriate time bound regarding measurement, weight,
inspection or any other activities performed by the buyer.
(4) Unless something else specified in the contract, the place where goods sold or sales
take place is considered to be a place for transfer of the goods.
 (5) Unless somethings else specified in the contract, it is assumed that right or ownership
of the buyer on the goods is established once the goods has been transferred to the
buyer.
e) As per section 17(1) (kha) of the Industrial Enterprises Act, 2076; those industries
fulfilling the following conditions are taken as Cottage Industries:
1. Industries based upon traditional skill and technology,
2. Industries utilizing specific skill or local raw materials and resources, and labor
intensive and related with local technology, arts and culture,
3. Industries utilizing engine, equipment or machine having capacity of electrical power
consumption up to 10 Kilowatt.
4. Industries mentioned in Annexure – 2 of the Act.
7. Answer the following questions: (2×5=10 marks)
a) State briefly the functions of World Trade Organization (WTO).
b) State the objectives of Nepal Rastra Bank.
Answer
a) The function of WTO can be listed as follows:
1) Administering WTO agreements:
The WTO agreements cover goods, services and intellectual property. They include
individual countries' commitments to lower customs tariffs and other trade barriers
and to open and keep open services markets. It has different mechanism like General
Council which works on behalf of ministerial conference. It meets to Dispute
Settlement Body and Trade Policy Review Body to oversee procedures for settling
disputes members and to analyze members' trade policies. There are Goods Council,
Services Council and TRIPS Council with various committees to works on related
sectors. The ministerial conference can take decisions on all matters under any of the
multilateral trade agreements.
2) Forum for trade negotiation:
It provides forum for trade negotiation. For this purpose, its different mechanism
activate to work for their responsible sectors. Issues on trade related aspects could be
submitted through committees and councils for negotiations. It has priority to settle
dispute not to judgement.
3) Handling trade disputes:
It has dispute settlement mechanism like Dispute Settlement panels and Dispute
Settlement Body (General Council in another guise). It is under the General Council
and finally ministerial conference. The Dispute Settlement Body has the sole
authority to establish “panels” of experts to consider the case, and to accept or reject
the panels’ findings or the results of an appeal. It monitors the implementation of the
rulings and recommendations, and has the power to authorize retaliation when a
country does not comply with a ruling.
4) Monitoring national trade policies:
It monitors national trade policies through General Council Meetings as Trade Policy
Review Body. Finally, the general council submits the report before conference.
5) Technical assistance and training for developing countries:
 It provides technical assistance and training as it thinks fit. It has technical assistance
missions that work in this field.
6) Cooperation with other international organizations:
It cooperates with and assists to IMF and IBRD for establishing coherence in
universal economic policy determination. The WTO maintains extensive institutional
relations with many of its sister organizations, participates as observer in their work
and has established several partnerships to help improve the trading opportunities and
capacities of developing and least-developed countries. Examples of such
partnerships are the Enhanced Integrated Framework (EIF), the Standards and Trade
Development Facility (STDF) and the Aid for Trade Initiative. WTO cooperation
with other international organizations continues to evolve and is more than ever a
function of the need for increased global coordination and better governance.
b) Objectives of Nepal Rastra Bank
Section 4 of Nepal Rastra Bank Act, 2058 has prescribed the objectives of the Nepal
Rastra bank as follows:
(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 Nepal and to enhance its public
credibility.
The Bank shall, without any prejudice to the objectives referred to above, extend
cooperation in the implementation of the economic policies of Government of Nepal.