NIMB-Smart Telecom Case Raises Questions Over Police and NRB’s Banking Jurisdiction

The arrest of Nepal Investment Mega Bank (NIMB) Chief Executive Officer Jyoti Prakash Pandey in connection with the Smart Telecom asset auction has intensified debate over the respective roles of Nepal Rastra Bank (NRB) and Nepal Police in Nepal’s banking sector.

At the heart of the dispute is whether a banking transaction involving loan recovery and collateral should primarily be assessed by the country’s banking regulator or investigated by a law-enforcement agency.

Under Nepal’s legal framework, Nepal Rastra Bank is the statutory regulator and supervisor of banks and financial institutions, while the police are responsible for investigating suspected criminal offences. The distinction has become particularly important in the NIMB case because the transaction involved the recovery of a defaulted loan through pledged assets.

The Nepal Rastra Bank Act, 2058 gives the central bank broad authority over banks and financial institutions. Section 79 of the Act states that NRB has full powers to regulate the functions and activities of commercial banks and financial institutions.

The provision also authorizes NRB to issue rules, directives, orders and circulars to licensed institutions. NRB has powers to inspect and supervise banks, examine their books, records and transactions, and take regulatory action when institutions fail to comply with banking laws or central-bank directives.

This means that matters such as compliance with lending standards, loan classification, provisioning, risk management and other banking requirements fall primarily within NRB’s regulatory and supervisory jurisdiction.

For instance, if a bank is found to have violated an NRB directive while issuing or recovering a loan, the central bank can examine the transaction and take regulatory measures under the prevailing legal framework.

NRB’s regulatory authority, however, does not place banks outside the reach of criminal law. Police agencies, including the Central Investigation Bureau (CIB), can investigate allegations of fraud, forgery, criminal breach of trust, collusion or other offences where there is a reasonable basis to suspect criminal conduct.

The distinction is therefore between regulatory non-compliance and criminal wrongdoing. A violation of banking procedure does not automatically establish a criminal offence, while evidence of deliberate fraud or collusion can take a matter beyond ordinary banking regulation. The NIMB case has brought this distinction into sharp focus.

Smart Telecom had defaulted on loans obtained against its telecom towers and equipment. NIMB subsequently proceeded with the auction of the pledged assets, which were sold to the telecommunication giant Ncell for approximately Rs. 4.60 Arba. NIMB has maintained that the transaction was carried out as part of its lawful loan-recovery process under the Bank and Financial Institutions Act (BAFIA) and the Secured Transactions Act.

According to the bank, around Rs. 4.22 Arba from the sale proceeds was used to repay consortium loans, while the remaining amount was retained to settle other liabilities of Smart Telecom. The CIB, however, has questioned the transaction, including the legal status of Smart Telecom’s assets following cancellation of its telecommunications licence and the circumstances surrounding the auction.

The investigation led to the arrest of NIMB CEO Jyoti Prakash Pandey. The Supreme Court subsequently ordered his release after finding insufficient grounds to keep him in custody at that stage, although the underlying investigation could continue. The legality of collateral recovery is also central to the dispute.

Section 57 of BAFIA provides banks and financial institutions with the authority to recover outstanding principal, interest and other applicable amounts by selling pledged collateral when a borrower fails to repay a loan according to the agreed terms. Consequently, the mere fact that NIMB sold Smart Telecom’s pledged assets does not, by itself, establish a criminal offence.

The relevant issue is whether the assets were legally pledged, whether the security interest was properly established, whether the borrower had defaulted, whether the bank followed the required recovery and auction procedures, and whether any fraud or collusion occurred.

The Secured Transactions Act, 2063 also establishes rights for secured creditors over pledged movable assets and provides mechanisms for enforcing those rights when borrowers fail to meet their obligations.

The NIMB case demonstrates why banking regulation and criminal investigation need to remain institutionally distinct. If the issue is whether NIMB complied with NRB’s lending, risk-management or loan-recovery requirements, the matter falls within the central bank’s specialized regulatory framework. If evidence shows that bank officials manipulated the auction, falsified documents, colluded with a buyer or obtained personal benefits from the transaction, the matter can legitimately become a criminal investigation.

For example, a bank’s decision to auction collateral after a borrower defaults is a recognized banking activity. But secretly fixing the auction price with a buyer for personal gain would be a separate criminal matter. The same transaction can therefore have both regulatory and criminal dimensions, but the institutions involved have different responsibilities.

The debate is significant because banks operate primarily with public deposits and are expected to recover loans when borrowers default. Bankers and financial-sector observers have expressed concern that treating legitimate loan-recovery decisions as criminal conduct could discourage bank officials from taking necessary steps to recover bad loans.

At the same time, banks cannot be shielded from criminal investigation where credible evidence of wrongdoing exists. The appropriate approach is therefore not to prevent police investigations but to ensure that criminal investigations do not substitute for the statutory regulatory role of NRB.

The Supreme Court’s decision to release Pandey has further complicated the case. The order does not determine the final legality of the Smart Telecom asset auction, but it establishes that continued detention required sufficient legal grounds. The case has subsequently drawn wider attention to the treatment of bank executives and directors in criminal investigations involving ordinary banking transactions.

Following Pandey’s release, the CIB also moved against NIMB Chairman Prithvi Bahadur Pandey and other members of the bank’s board in connection with the same Smart Telecom asset-auction case. Arrest warrants were reportedly issued against the chairman and board members, but the Supreme Court intervened and barred their immediate arrest through an interim order.

The court’s intervention came after challenges to the arrest warrants, keeping the bank’s leadership out of custody while the underlying investigation continues. The development has further intensified debate over whether decisions taken collectively by a bank’s board in the course of loan recovery should be treated as criminal conduct without first establishing a violation of banking laws or evidence of a specific offence.

For the banking sector, the concern is that uncertainty over the legal consequences of loan recovery could affect decision-making, particularly in cases involving large defaulted loans and complex collateral. The NIMB-Smart Telecom case has therefore evolved beyond a dispute over the sale of assets worth Rs. 4.60 Arba. It has become a test of the institutional boundaries between banking regulation and criminal law enforcement.

Nepal’s legal framework gives Nepal Rastra Bank the primary responsibility for regulating and supervising banks and financial institutions, while the police have the authority to investigate credible allegations of criminal conduct. Section 79 of the Nepal Rastra Bank Act establishes NRB’s regulatory powers, while Section 57 of BAFIA provides banks with a legal mechanism to recover defaulted loans through collateral.

The distinction is important: a bank’s lawful exercise of its loan-recovery rights should not automatically be treated as a criminal offence, but genuine evidence of fraud, collusion or other criminal conduct must be investigated. The NIMB case now presents an important test for Nepal’s financial system.

Clear coordination between NRB, law-enforcement agencies and the courts is necessary to ensure that banks remain accountable while also allowing them to perform legitimate loan-recovery functions. Maintaining that balance will be crucial for protecting depositors, strengthening financial-sector confidence and ensuring that Nepal’s banking system operates within a predictable rule of law.