Objectives of Industrial Enterprises Act, 2076 (any two):

1. To promote industrial development by creating a conducive environment for investment in industries, and to increase national income and employment opportunities through the establishment and expansion of industries.

2. To enhance the competitiveness of national industries in the international market by increasing the production and productivity of goods and services, and to achieve balanced regional development through the proper utilisation of available means, resources, and skills.

Rights and duties of the indemnity holder

A contract of indemnity is one in which one party (the indemnifier) promises to save the other (the indemnity holder or indemnified) from loss caused by the promisor's own conduct or by the conduct of any other person. Under the Contract Act, 2056 (2000), the indemnity holder has the following rights and duties.

Rights of the indemnity holder

1. To recover damages. He may recover all damages he is compelled to pay in any suit relating to the matter covered by the indemnity.
2. To recover costs. He may recover all costs of bringing or defending such a suit, provided he acted as the indemnifier would have ordered, or acted prudently where there was no such order.
3. To recover sums paid under a compromise. He may recover sums paid under a compromise of the suit, if the compromise was not contrary to the indemnifier's orders and was prudent, or was authorised by the indemnifier.
4. To call on the indemnifier for payment once his liability has become absolute, even before he has actually paid, so as to be saved from the loss.
5. To recover other losses arising from the act or event covered by the indemnity, within the terms of the contract.

Duties of the indemnity holder

1. To act within the scope of the contract and in the manner authorised by the indemnifier.
2. To act prudently and in good faith, as a reasonable person would, in defending the suit or in compromising it.
3. Not to act against the indemnifier's orders or instructions.
4. To inform the indemnifier of the claim or proceedings, so that he can defend or settle it.
5. To mitigate the loss and not claim more than the actual loss suffered, avoiding double recovery.

Example: A promises to indemnify B against any loss if B delivers goods to C on A's request. If C sues B and B defends prudently, B may recover the damages and the costs from A.

Conclusion. The law protects the indemnity holder's right to be saved from loss, while requiring that he act prudently and in good faith.

Contract of Indemnity

Definition: A contract of indemnity is a contract by which one party (the indemnifier) promises to save the other party (the indemnity holder) from loss caused to him by the conduct of the promisor himself, or by the conduct of any other person. It is defined under Section 124 of the Contract Act, 2000 (Nepal) (corresponding to Section 124 of the Indian Contract Act, 1872).

Essentials:

1. Lawful consideration and lawful object.
2. Two parties — indemnifier (promisor) and indemnity holder (promisee).
3. A promise to compensate loss.
4. The loss must arise from the conduct of the promisor or of any other person, or from an event.
5. The loss must be contingent — it may or may not happen.

Example: A contracts to indemnify B against the consequences of any proceedings which C may take against B in respect of a certain sum of Rs 20,000. This is a contract of indemnity.

Rights of the Indemnity Holder (Section 125)

When the indemnity holder acts within the scope of his authority, he is entitled to recover from the indemnifier:

1. Damages: All damages which he may be compelled to pay in any suit, proceeding or prosecution in respect of any matter to which the promise to indemnify applies.
2. Costs of suit: All costs which he may be compelled to pay in any such suit, proceeding or prosecution, provided he acted prudently or with the authority of the indemnifier, and did not contravene the latter's orders.
3. Sums paid under compromise: All sums which he may have paid under the terms of any compromise of any such suit, provided the compromise was not opposed to the orders of the indemnifier and was prudent or authorised by him.
4. Right to sue: He can sue the indemnifier for recovery of the above amounts as soon as his liability becomes absolute, even before he has actually paid the loss.

Duties of the Indemnity Holder

1. Act within the scope of authority: He must act within the limits of the authority conferred on him by the indemnifier.
2. Act prudently: He must act as a prudent person would act in his own case, without negligence.
3. Not contravene orders: He must not act against the express directions or orders of the indemnifier.
4. Give notice of proceedings: He must inform the indemnifier about any suit or proceeding brought against him so that the indemnifier may defend it.
5. Duty to mitigate loss: He must take reasonable steps to minimise the loss.
6. Duty to account: He must account for any benefit or amount recovered from third parties, so that the indemnifier is not made to pay more than the actual loss.

Duties of the Indemnifier (for completeness)

1. To pay the loss as soon as the liability of the indemnity holder becomes absolute.
2. To indemnify against all losses, costs and expenses incurred within the scope of authority.
3. To defend the indemnity holder in legal proceedings, if required.

Conclusion: A contract of indemnity is a contingent contract under which the indemnifier undertakes to compensate the indemnity holder for losses. The indemnity holder enjoys well-defined rights under Section 125 but must act prudently, within authority, and in good faith to claim them.

Objectives of the Industrial Enterprises Act, 2076

The Industrial Enterprises Act, 2076 was enacted to replace the earlier industrial law with a modern, investor-friendly framework. Its main objectives are:

1. To promote industrial development by increasing production, productivity and employment.
2. To attract domestic and foreign investment through a simple, transparent and favourable legal environment.
3. To promote export-oriented and import-substituting industries, so as to improve the balance of payments and reduce the trade deficit.
4. To achieve balanced regional development by encouraging industries in backward, remote and rural areas.
5. To develop small, cottage, micro and medium enterprises as the base of broad-based industrialisation.
6. To maintain industrial peace and sound relations between labour and management.
7. To simplify industrial administration through one-window registration, regulation and facilitation.
8. To encourage technology transfer, skill development and entrepreneurship.
9. To protect the environment while promoting industrial growth.
10. To contribute to national economic development, income generation and poverty reduction.

Conclusion: Together, these objectives aim to build a strong industrial base in Nepal, generate employment, reduce dependence on imports and promote balanced and sustainable economic growth.

Substantive law is the body of law that defines rights, duties, obligations and liabilities of persons, and prescribes what acts are prohibited or permitted. It creates and regulates the legal relationship between parties — for example, the Muluki Civil Code, Contract Act and Penal Code. It is distinguished from procedural (adjective) law, which lays down the procedure for enforcing substantive rights in courts.

Offer is a proposal made by one person (the offeror) to another (the offeree) with the intention of creating a legal obligation upon acceptance. It is the first step in the formation of a valid contract and must be communicated to the offeree.

Fraud is an intentional act of deception, misrepresentation, or concealment of a material fact committed by a person to obtain an unfair or illegal gain, or to cause loss to another party. In auditing, fraud means a deliberate mistake or irregularity done knowingly to mislead users of financial statements.

Two rules of performance of contract:

1. Performance must be complete and exact (Section 37): The parties to a contract must either perform, or offer to perform, their respective promises, unless the performance is dispensed with or remitted. Such performance must be done in the manner and at the time and place prescribed, i.e. the promisor must do exactly what he promised — a partial or defective performance is not a valid discharge of the contract.

2. Performance of a promise may be by the promisor himself, his agent, or his legal representative (Section 38): If personal skill or qualification is involved, the promisor must perform it personally; otherwise, performance may be made by his agent or, in case of his death, by his legal representative — unless the contract involves personal skill, in which case the contract lapses with the death of the promisor.

Condition

A condition is a stipulation or requirement inserted in a contract that makes the performance of a contractual obligation dependent upon the happening or non-happening of some uncertain future event. It qualifies the rights and duties of the parties and determines whether the contract becomes enforceable, remains enforceable, or may be discharged.

In simple terms, a condition is an uncertain future event on which a contractual duty is made to depend. For example, "I will buy your house only if the bank approves my loan" — the bank's approval is the condition.

Carriage of goods by land refers to the transportation of goods from one place to another over land routes — by road (trucks, lorries, carts) or by rail — under a contract between the consignor (sender) and the carrier, in return for freight charges. In Nepal's context, it is governed mainly by the Carriage of Goods by Land Act, 2042 (1987), which fixes the rights, duties and liabilities of the carrier for loss, damage or delay of goods carried by land.

Rights of surety:

1. Right of subrogation – On paying the debt, the surety steps into the creditor's shoes and can exercise all the rights the creditor had against the principal debtor.
2. Right of indemnity – The surety can recover from the principal debtor whatever he has rightfully paid under the guarantee.
3. Right of contribution – Where there are several co-sureties, one who pays more than his share can claim contribution from the others.
4. Right to securities – The surety is entitled to the benefit of every security held by the creditor, whether given before or after the contract of guarantee.
5. Right to set-off – The surety can use against the creditor any set-off that the principal debtor could have used.

Features of a company:

1. Incorporated association – A company is formed by registration under the Companies Act; it comes into existence only after incorporation.
2. Separate legal entity – It has a distinct legal personality apart from its members, and can own property, sue and be sued in its own name.
3. Perpetual succession – Members may come and go, but the company continues to exist until it is legally wound up.
4. Limited liability – The liability of members is limited to the face value of shares held (or the amount guaranteed), so personal assets are protected.
5. Transferability of shares – Shares of a public company are freely transferable, subject to the rules of the company.
6. Common seal – It acts as the official signature of the company for executing legal documents.
7. Separation of ownership and management – Shareholders own the company while professional directors and managers run it.
8. Large capital base – Funds can be raised from a large number of people through shares and debentures.

Under the Constitution of Nepal (2072), the regular hierarchy of courts, from highest to lowest, is:

1. Supreme Court (Sarbochcha Adalat): the highest court, at the apex, in Kathmandu.
2. High Courts (Uchcha Adalat): one in each province (seven High Courts).
3. District Courts (Jilla Adalat): one in each district (77 District Courts).
4. Local judicial bodies: the Judicial Committees of the rural municipalities and municipalities, which settle certain local disputes.

Tribunals and quasi-judicial bodies (for example the Revenue Tribunal and the Administrative Court) are separate bodies and are not part of this regular hierarchy.

Consequences for Business in the Absence of Proper Business Laws

Business law provides the legal framework within which business activities are carried out. In the absence of proper business laws in a state, both business organisations and the economy as a whole suffer. The major consequences are discussed below:

1. Lack of Legal Recognition and Protection Without proper business laws, business organisations do not get legal recognition. Sole trading concerns, partnerships, and companies cannot be registered, and therefore they cannot enjoy the rights and privileges of a legal entity. They cannot sue or be sued in their own name, cannot own property in the name of the firm, and cannot claim legal protection for their name, goodwill, or inventions. This makes the very existence of business uncertain and insecure.

2. Insecurity of Investment Investors hesitate to invest their capital where there is no legal protection. In the absence of laws relating to shares, debentures, securities markets, and investor protection, shareholders and creditors remain unprotected. The risk of loss due to fraud, misappropriation, or unfair practices becomes very high. As a result, capital formation is discouraged and business expansion becomes difficult.

3. Unfair Trade Practices and Exploitation In the absence of laws controlling monopolies, restrictive trade practices, adulteration, false weights and measures, and misleading advertisements, consumers are exploited. Big business houses may create monopolies and charge arbitrary prices. Small firms are driven out of the market. Healthy competition is destroyed, and consumers do not get quality goods at fair prices.

4. Uncertainty in Business Transactions Business law lays down rules regarding contracts, sale of goods, negotiable instruments, agency, and insolvency. Without these laws, agreements cannot be enforced, payments cannot be legally recovered, and disputes cannot be settled in an orderly manner. Every transaction becomes uncertain, and businessmen hesitate to enter into long-term contracts. This slows down trade, commerce, and industrial activity.

5. Difficulty in Settlement of Disputes Proper business laws provide for courts, tribunals, and arbitration mechanisms to settle business disputes. In their absence, disputes are settled by force, influence, or personal power. The weak party always suffers. There is no impartial authority to interpret rights and duties, so justice is denied and business confidence is shaken.

6. Problem in Raising Loans and Credit Banks and financial institutions lend money only when there is a legal system for creating and enforcing security, mortgage, pledge, and guarantee. Without laws such as those relating to secured transactions and insolvency, lenders cannot recover their money. Consequently, credit facilities become scarce and costly, and business firms face a shortage of working capital.

7. Lack of Consumer and Labour Protection Laws relating to consumer protection and labour welfare fix the rights and duties of consumers and workers. In their absence, workers may be forced to work long hours at low wages in unsafe conditions, and consumers may be supplied with substandard goods. This leads to industrial disputes, strikes, and social unrest, which directly harm business operations.

8. Hindrance to Foreign Investment and Trade Foreign investors and multinational companies invest only in countries where business laws are clear, stable, and enforceable. Absence of laws on foreign investment, repatriation of profits, and dispute settlement discourages foreign capital and technology. International trade also suffers because importers and exporters cannot rely on legal remedies.

9. Growth of Black Market and Tax Evasion Without proper laws and enforcement machinery, business activities go underground. Black marketing, hoarding, smuggling, and tax evasion flourish. The government loses revenue, honest businessmen are discouraged, and the economy moves towards inflation and instability.

10. Weak Industrial Peace and Economic Development In the absence of proper business laws, there is no protection of intellectual property, no regulation of wages and working conditions, and no orderly framework for industrial relations. Industrial unrest, lockouts, and strikes become common. This retards industrial growth and ultimately slows down the economic development of the country.

Conclusion Thus, in the absence of proper business laws, business organisations lose legal identity, security, and confidence; consumers, workers, and investors are exploited; disputes multiply; and the economy fails to grow in an orderly manner. Proper business laws are therefore essential for the healthy growth of business and the economic prosperity of the state.

In Nepal, contracts are governed by the Contract Act, 2056, now incorporated in the Muluki Civil Code, 2074. The rules below follow the general law of contract.

Who can accept the offer

1. The offeree only. An offer made to a specific person can be accepted only by that person. If Ram offers to sell his land to Shyam, a stranger cannot accept it, and such "acceptance" creates no contract.
2. All joint offerees. If the offer is made to two or more persons jointly, all of them must accept.
3. Anyone fulfilling the conditions, in a general offer. An offer made to the public (for example, a reward of Rs 10,000 for finding a lost child) may be accepted by any person who knows of it and performs the stated conditions.
4. An authorised agent of the offeree, acting for the offeree.

Acceptance must be absolute, unconditional, made in the prescribed or usual manner, and communicated to the offeror within the time allowed.

Revocation

• Revocation of an offer. The offeror may withdraw the offer at any time before acceptance is communicated to him. After acceptance is complete, the offer cannot be revoked. Revocation takes effect only when it reaches the offeree.
• Revocation of acceptance. An acceptance may be withdrawn only if the withdrawal reaches the offeror before or at the same time as the acceptance. Once the acceptance has reached the offeror, the contract is concluded and the acceptance cannot be revoked.

Lapse

An offer (and so the chance to accept it) lapses when:

1. the time fixed in the offer expires, or a reasonable time passes if none is fixed;
2. the offeree rejects it, or makes a counter-offer (which is treated as rejection);
3. the offeree fails to fulfil a condition precedent to acceptance;
4. the offeror or the offeree dies or becomes of unsound mind before acceptance (when the other party knows of it); or
5. the offeror revokes it before acceptance.

Example. On 1 Magh, Hari offers to sell a motorcycle to Sita for Rs 2,50,000, open until 10 Magh. If Sita does not reply by 10 Magh, the offer lapses. If Hari writes on 5 Magh withdrawing it and the letter reaches Sita before she accepts, the offer is revoked.

Unpaid seller

Under the Sale of Goods Act, 2063, a seller is an unpaid seller when:

1. the whole of the price has not been paid or tendered, or
2. a bill of exchange or other negotiable instrument was received as conditional payment and the condition has failed, for example because the instrument was dishonoured.

Rights of an unpaid seller

A. Rights against the goods

1. Right of lien. The seller may retain possession of the goods until payment, where the goods were sold without a credit term, the credit term has expired, or the buyer has become insolvent. The right ends when the seller delivers the goods to a carrier for the buyer without reserving the right of disposal, when the buyer lawfully obtains possession, or when the seller waives it.
2. Right of stoppage in transit. If the buyer becomes insolvent while the goods are in transit, the seller may stop them and resume possession until the price is paid.
3. Right of resale. The seller may resell the goods if they are perishable, or if after notice to the buyer of the intention to resell, the buyer does not pay within a reasonable time. If the resale brings a loss, the seller may claim it from the buyer. Any surplus belongs to the buyer.

B. Rights against the buyer personally

4. Suit for the price, where the property in the goods has passed to the buyer and he wrongfully refuses to pay.
5. Suit for damages for non-acceptance, where the buyer wrongfully refuses to accept and pay for the goods.
6. Right to rescind the contract in the case of the buyer's serious breach, subject to the Act.

Duties of an unpaid seller

1. To deliver the goods once the buyer pays or is ready to pay.
2. To take reasonable care of the goods while holding them under lien, and to recover from the buyer the expenses of doing so.
3. To give notice to the buyer before resale.
4. To return any surplus received on resale to the buyer.
5. To give the buyer good title to the goods and act in good faith.

Example. Ramesh sells 100 sacks of rice to Mohan for Rs 3,00,000 and Mohan fails to pay. Ramesh may hold the rice (lien). If Mohan is declared insolvent while the rice is on a truck, Ramesh may stop it. If Mohan still does not pay after notice, Ramesh may resell the rice and claim any loss from Mohan.

Meaning of Dissolution of a Company

Dissolution of a company means the legal termination of the existence of a company as a corporate body. It is the process by which the legal entity of the company comes to an end — the company ceases to exist as a separate legal person distinct from its members. After dissolution, the company can no longer sue or be sued in its own name, cannot hold property, and cannot carry on business. Dissolution is the final stage that follows the winding up (liquidation) of the company's affairs. It should be noted that dissolution is different from winding up: winding up is the process of collecting assets, paying liabilities and distributing the surplus, whereas dissolution is the point at which the company's legal existence is extinguished.

Procedures Relating to the Liquidation (Winding Up) of a Company

Liquidation, or winding up, is the process of realising the assets of the company, paying off its debts and distributing the surplus, if any, among the members, and finally bringing the existence of the company to an end. The main procedures are as follows:

1. Modes of winding up A company may be wound up:

• Compulsory winding up — by an order of the court (Tribunal), generally on the petition of the company, creditors, contributories or the registrar on grounds such as inability to pay debts, reduction of members below the statutory minimum, or default in filing returns.
• Voluntary winding up — by the members themselves when the company is solvent (Members' Voluntary Winding Up) or when creditors are involved (Creditors' Voluntary Winding Up).
• Winding up under supervision of the court — voluntary winding up continued under the supervision of the court.

2. Commencement of winding up

• In compulsory winding up, it commences from the date of presentation of the petition (or the date of the court order as prescribed).
• In voluntary winding up, it commences from the date of the resolution passed by the members.

3. Appointment of liquidator

• In compulsory winding up, the court appoints an official liquidator.
• In voluntary winding up, the members (and creditors, in creditors' voluntary winding up) appoint one or more liquidators.
• The liquidator is vested with the powers to take control of the company's assets and carry on the winding up.

4. Statement of affairs The liquidator calls upon the directors and officers to submit a statement of affairs showing the assets, liabilities, debts and property of the company as on the date of commencement of winding up.

5. Realisation of assets The liquidator collects and sells the assets of the company (movable and immovable), calls in unpaid amounts on shares, and converts the assets into cash.

6. Payment of liabilities The liquidator settles the claims of creditors in the order of priority prescribed by law:

• First, secured creditors and the costs of winding up;
• Then preferential creditors (wages, taxes, etc.);
• Then unsecured creditors;
• Finally, the claims of members (return of capital and surplus).

7. Distribution of surplus If any surplus remains after paying all liabilities and the costs of winding up, it is distributed among the members in proportion to their shareholdings.

8. Final meeting and accounts The liquidator prepares the final accounts and calls the final general meeting of the members (and creditors, where applicable) to present the accounts of the winding up.

9. Dissolution order / registration

• In compulsory winding up, the court passes an order of dissolution.
• In voluntary winding up, the registrar registers the final accounts and the company is deemed dissolved.
• The name of the company is struck off the register of companies.

10. Disposal of books and records The books of account and other records of the company are disposed of as directed by the court or the members, generally kept for the prescribed period.

Conclusion Thus, dissolution is the final extinction of the company's legal personality, and it is brought about only after the completion of the winding up procedure — realisation of assets, payment of liabilities and distribution of surplus — in the manner prescribed by the Companies Act.

Civil Procedures in Nepal

Introduction. Civil procedure is the body of law and rules by which civil courts in Nepal conduct proceedings — from the filing of a case to its final execution. It deals with disputes between private parties (individuals or organisations) over rights such as property, contracts, money claims, family matters and torts. In Nepal, civil procedure is mainly governed by the the Muluki Civil Procedure Code, 2074 B.S. (Muluki Dewani Karyabidhi Samhita), together with the Administration of Justice Act, 2073 B.S. The substantive civil law is contained separately in the Muluki Civil Code, 2074 B.S. (Muluki Dewani Samhita).

1. Meaning and Nature

Civil procedure is "adjective law" — it does not create rights but provides the machinery to enforce rights already created by substantive law. Its main objectives are:

• To provide a fair, speedy and inexpensive remedy to the aggrieved party.
• To give both parties an equal opportunity to present their case (natural justice).
• To ensure certainty and uniformity in the administration of civil justice.

2. Main Stages of Civil Procedure in Nepal

(a) Institution of the suit (Darta). The plaintiff files a plaint (Pratibedan) before the competent court — generally the court of the defendant's domicile or the court where the property in dispute is situated. The plaint must state the facts, the cause of action, the relief claimed and the valuation of the suit. Court fees are paid according to the court fee law in force

(b) Registration and issue of notice (Aadesh). If the plaint is in order, the court registers the case and issues a notice (Aadesh) to the defendant, requiring a written reply (Pratibedan) within a fixed period (usually 15–30 days).

(c) Written statement (Pratibedan) and rejoinder. The defendant files a written reply admitting or denying the claims and may also file a counter-claim (Pratipaksh Pratibedan). The plaintiff may file a rejoinder.

(d) Framing of issues (Bibadanka). The court examines the pleadings and frames the points of dispute on which evidence is required. This narrows the scope of the trial.

(e) Evidence (Praman). Both parties produce documentary and oral evidence. The party bearing the burden of proof must prove its case. The court may summon witnesses, order expert opinions, or conduct local inspection (Sthaniya Nireekshan).

(f) Hearing and argument (Bahas). After evidence is complete, both parties present oral and written arguments. The court may attempt reconciliation (Milan) at any stage, as Nepali law encourages settlement.

(g) Judgment (Faisala). The court delivers judgment with reasons, either granting or refusing the relief. The judgment must be in writing and pronounced in open court.

(h) Appeal and review. An aggrieved party may appeal to the higher court — District Court → High Court → Supreme Court — within the limitation period. Review (Punarbichar) and revision (Sadhak) are also available in specified circumstances.

(i) Execution (Karyanwayan). If the judgment-debtor does not comply voluntarily, the decree-holder applies for execution. The court may attach and sell property, garnish salary, or order imprisonment in extreme cases.

3. Key Principles Followed

• Natural justice: Nemo judex in causa sua (no one should be judge in his own cause) and Audi alteram partem (hear the other side).
• Res judicata: A matter already decided cannot be re-litigated.
• Burden of proof: The person who asserts must prove.
• Right to legal representation: Parties may engage advocates.
• Limitation: Cases must be filed within the time prescribed by the Limitation Act, 2058 B.S.

4. Special Features in the Nepali Context

• Reconciliation (Milan): The court encourages settlement before trial; if settled, the case ends without a full hearing.
• Court fees and costs: The losing party generally bears the cost.
• Interim orders (Antarim Aadesh): Courts may grant interim relief to preserve the subject matter during litigation.
• Mediation: The Mediation Act, 2068 B.S. provides for court-referred mediation, reducing the burden on courts.

Conclusion

Civil procedure in Nepal is a structured, code-based system designed to resolve private disputes fairly and efficiently. It moves through well-defined stages — filing, notice, reply, issues, evidence, hearing, judgment, appeal and execution — while upholding the principles of natural justice, equality of arms and speedy justice. Recent reforms such as mediation and case management have further strengthened the system, though challenges of delay and backlog remain.

Trademark registration in Nepal is governed by the Patent, Design and Trademark Act, 2022 B.S. (1965) and its Rules.

Legal provisions on registration

1. Application. Any person who owns or intends to use a trademark for goods or services may apply to the Department of Industry in the prescribed form, with the specimen of the mark, the list of goods or services, and the prescribed fee.
2. Examination. The Department examines the application to see whether the mark is registrable and not similar to any mark already registered or applied for.
3. Publication. If the mark appears registrable, it is published in the Industrial Property Bulletin (or a national newspaper) so that any person may file an objection within the time fixed (35 days).
4. Decision on objections. The Department hears the objector and the applicant and decides.
5. Registration and certificate. If there is no objection, or objections are rejected, the mark is registered and a certificate is issued. The date of application is treated as the date of registration.
6. Duration and renewal. Registration is valid for 7 years from the date of application and may be renewed for further periods of 7 years on payment of the renewal fee, within the time allowed (with a late fee after expiry).
7. Effect. The owner gets the exclusive right to use the mark for the registered goods or services and may sue for infringement or passing off.

Conditions in which registration may be refused

Registration is refused where the mark:

1. lacks distinctive character, or consists only of words that describe the kind, quality, quantity, purpose, value or origin of the goods;
2. is identical or deceptively similar to a trademark already registered or applied for by another person for the same or similar goods or services;
3. is likely to deceive or confuse the public, or is false or misleading about the origin or quality of the goods;
4. is contrary to morality, public order, or the national interest, or its use is prohibited by law;
5. copies the name, flag, emblem, or seal of Nepal, a foreign country, or an international organisation, or of a famous person, without permission;
6. is a well-known mark of another person (including a foreign owner) and registration would harm that owner;
7. has an incomplete application (wrong form, missing particulars, or unpaid fee), or the applicant fails to follow the Department's directions in time; or
8. is successfully opposed by an objector during the objection period.

An applicant who is dissatisfied with the Department's decision may appeal to the court (Appellate Court) within the time prescribed.

TU BBS Third Year — Business Law (15 marks)

Comment on the Statement: "Business law is that part of law which regulates transactions of all business community."

1. Introduction

Business law, also called commercial law or mercantile law, is that branch of law which governs the rights, duties and obligations of persons engaged in trade, commerce and industry. The given statement defines business law by its scope (transactions) and its subjects (the whole business community). It is largely correct, but it needs elaboration, qualification and some refinement, because business law today covers much more than "transactions" alone.

2. Meaning of the Statement

The statement contains three key elements:

• "That part of law" — business law is not a separate legal system; it is a part of the general law of the land, drawn mainly from contract, agency, partnership, company, sale of goods, negotiable instruments, insurance and insolvency law.
• "Regulates transactions" — it governs dealings such as buying and selling, borrowing and lending, hiring, carriage, insurance, banking and payment.
• "Of all business community" — it applies uniformly to every person engaged in business: sole traders, partnerships, companies, banks, insurers, carriers, agents, brokers and consumers dealing with them.

3. Why the Statement is Correct

(a) It regulates business transactions. Every business activity ultimately takes the form of a transaction — an exchange of goods, services, money or credit. Business law supplies the rules for the formation, performance, breach and enforcement of such transactions. The Contract Act, 2000 (BS 2056) governs the validity of agreements; the Sale of Goods Act governs transfer of ownership, conditions and warranties; the Negotiable Instruments Act governs cheques, bills and promissory notes.

(b) It covers the entire business community. Business law is not confined to big companies. It applies equally to:

• sole proprietorships and partnerships (Partnership Act, 2020 BS);
• joint stock companies (Companies Act, 2063 BS);
• banks and financial institutions (BAFIA, 2073 BS; Nepal Rastra Bank Act, 2058 BS);
• insurers (Insurance Act, 2049 BS);
• carriers and warehouses (Carriage of Goods Act, 2049 BS);
• consumers dealing with traders (Consumer Protection Act, 2075 BS).

(c) It creates a uniform and predictable environment. Because the same rules apply to all traders, business law reduces uncertainty, fixes rights and liabilities, and enables strangers to deal with one another confidently. This is the essence of the statement's reference to "all business community."

(d) It is backed by the state. Business law is enforceable through courts, tribunals and quasi-judicial bodies. It is not mere commercial custom; it carries the sanction of the state.

4. Scope of Business Law — Beyond "Transactions"

The word "transactions" in the statement should be read widely. Business law regulates:

1. Formation and registration of business organisations — company incorporation, firm registration, licensing.
2. Contractual relations — offer, acceptance, consideration, capacity, free consent, legality, discharge and remedies.
3. Sale and transfer of property — ownership, risk, delivery, unpaid seller's rights.
4. Credit and payment systems — negotiable instruments, banking, secured transactions.
5. Agency and representation — principal–agent, broker, factor, del credere agent.
6. Insurance and risk distribution — marine, fire, life, motor insurance.
7. Carriage of goods and passengers — rights and liabilities of common carriers.
8. Labour and employment relations — Labour Act, 2074 BS; contribution-based social security.
9. Competition and market conduct — Competition Promotion and Market Protection Act, 2063 BS.
10. Consumer protection — quality, price, weights and measures, redressal.
11. Intellectual property — patents, trademarks, copyrights, designs.
12. Insolvency and winding up — rehabilitation and liquidation.
13. Dispute resolution — courts, arbitration (Arbitration Act, 2055 BS), mediation.

Thus business law is wider than "transactions"; it also regulates status, organisation and conduct of business persons.

5. Characteristics of Business Law

1. Part of general law — not a separate system.
2. Regulates commercial relations — between traders, and between traders and consumers.
3. Applies to all business community — no distinction of size or form.
4. State-sanctioned and enforceable.
5. Dynamic and evolving — changes with trade, technology and global practice.
6. Based on customs and usages — later codified into statutes.
7. Territorial in application — with growing extraterritorial reach through trade treaties.
8. Aims at certainty, equity and growth.

6. Objectives of Business Law

1. To define and protect the rights of business persons and consumers.
2. To prevent exploitation and unfair trade practices.
3. To provide a framework for orderly conduct of business.
4. To settle disputes speedily and fairly.
5. To promote investment, credit and enterprise.
6. To harmonise domestic law with international commercial practice.

7. Sources of Business Law in Nepal

1. Constitution of Nepal — fundamental framework and directive principles.
2. Statutes — Companies Act 2063, Contract Act 2056, Partnership Act 2020 BS, Sale of Goods Act 2056, Negotiable Instruments Act 2034, BAFIA 2073, Insurance Act 2049, Labour Act 2074, etc.
3. Precedent (judicial decisions) — Supreme Court judgments binding on lower courts.
4. Customs and usages — recognised where not inconsistent with law.
5. Agreements and treaties — WTO, BIMSTEC, SAFTA, bilateral investment treaties.
6. Legal writings and opinions — persuasive authority.

8. Importance of Business Law

1. To business persons — certainty of rights, remedies for breach, protection of property and credit.
2. To consumers — quality assurance, fair price, redressal of grievances.
3. To the state — revenue, regulation, orderly growth, prevention of fraud and monopoly.
4. To society — employment, fair competition, social justice.
5. To international trade — recognition of foreign contracts, arbitration awards and instruments.

9. Limitations / Qualifications of the Statement

1. "Transactions" is too narrow — business law also governs status (incorporation, licensing), conduct (competition, consumer protection) and insolvency.
2. "All business community" needs qualification — some laws apply only to specified classes (banks, insurers, listed companies); small informal traders may fall outside formal regulation.
3. Business law is not wholly separate — it overlaps with constitutional, criminal, tax and labour law.
4. Enforcement gaps — in developing economies like Nepal, weak enforcement and delay in justice reduce practical effectiveness.
5. Rapid change — e-commerce, digital payments and fintech outpace existing statutes.

10. Conclusion

The statement is substantially correct but incomplete. Business law is indeed that part of law which regulates the transactions of the business community, and it applies to all persons engaged in business. However, its scope is broader than "transactions": it also regulates the formation, status, conduct and winding up of business organisations, protects consumers and competitors, and provides mechanisms for dispute resolution. In Nepal, it is drawn from the Constitution, statutes such as the Contract Act 2056, Companies Act 2063 and BAFIA 2073, judicial precedent and commercial custom. Therefore, the statement should be accepted with the qualification that business law is the whole body of law governing business relations, organisation and conduct, and not merely transactions — a dynamic framework essential for certainty, equity and economic growth.

Concept of quasi-contract

A quasi-contract (also called a contract implied in law, or "obligation without a contract") is not a real contract. There is no offer, acceptance or agreement between the parties. The law nevertheless imposes an obligation on one person to pay or return something to another, to prevent unjust enrichment: nobody should keep a benefit at another's expense without legal ground. The duty arises from the law, not from consent.

Features

1. There is no agreement between the parties.
2. The obligation is imposed by law on grounds of justice, equity and good conscience.
3. It is usually an obligation to pay money or restore a benefit to the person who lost it.
4. It is enforced by a civil suit, like a contractual claim.

Common cases, with examples

1. Payment by mistake. Hari mistakenly pays Rs 50,000 twice to Sita's account for the same bill. Sita must return the extra Rs 50,000.
2. Benefit received without legal ground. A bank credits Rs 1,00,000 to Ram's account by error. Ram must return it. He cannot treat it as a gift.
3. Payment of another's debt by one with an interest to protect. Mohan, a tenant, pays the landlord's overdue land revenue to prevent the property from being auctioned. The landlord must reimburse Mohan.
4. Non-gratuitous act. A shopkeeper delivers goods to Gita's house by mistake, and Gita uses them. She must pay for them or return them.
5. Finder of lost goods. A person who finds goods and takes them into custody must take reasonable care, try to find the owner, and return them to the owner. He may recover reasonable expenses.
6. Necessary expenses for another's property or person. A neighbour feeds and treats the cattle of an absent owner in an emergency, and may recover the reasonable cost from the owner.

Under the Muluki Civil Code (Muluki Dewani Sanhita), 2074

The Civil Code treats these cases as obligations arising without a contract, separately from obligations arising from contracts. In outline:

1. A person who has received money or property by mistake, or without any legal ground, must return it, with the benefit derived from it, to the person entitled to it.
2. A person who has paid or spent on behalf of another because of necessity or to protect that other's lawful interest may recover the amount from that other person.
3. A person who finds lost property must hold it with reasonable care, notify the owner or the authority, and return it to the owner, and may claim the necessary costs.
4. The person liable is bound to restore the benefit only to the extent of the actual loss or benefit involved, and the claim must be made within the limitation period.

Conclusion. Quasi-contract protects people who have given or lost something without a contract. The Civil Code imposes the duty to restore the benefit by law, so that no one is unjustly enriched.

Kinds of Company Meetings and the Procedure to Call a Special General Meeting

1. Meaning of a Company Meeting

A company is an artificial person. It can act only through its members and directors, who express their will in meetings. A company meeting is therefore a gathering of the members or directors of a company, held at a fixed time and place, to discuss and decide upon the affairs of the company. The Companies Act, 2063 (2006) of Nepal and the memorandum and articles of association of a company govern the holding of such meetings.

2. Kinds of Company Meetings

Company meetings may be broadly classified into three groups:

A. Meetings of the Members (Shareholders)

(i) Statutory Meeting This is the first meeting of the shareholders of a public company, held after its incorporation. Under the Companies Act, 2063, a public company must hold a statutory meeting within six months of obtaining the certificate of commencement of business. Its purpose is to inform the shareholders about the progress made in the formation of the company and to place before them the statutory report. A private company need not hold such a meeting.

(ii) Annual General Meeting (AGM) This is the ordinary meeting of the shareholders held once every year. It must be held within six months of the expiry of the financial year, and not later than fifteen months from the date of the previous AGM. The first AGM must be held within one year of the incorporation of the company. In the AGM the shareholders:

• adopt the audited financial statements (balance sheet and profit and loss account),
• appoint auditors and fix their remuneration,
• declare dividend,
• elect or re-elect directors,
• appoint members of the board committees, and
• transact any other business permitted by the articles.

(iii) Extraordinary General Meeting / Special General Meeting This is any general meeting of the shareholders other than the statutory or annual general meeting. It is called to deal with urgent and special matters that cannot be postponed until the AGM, such as alteration of the memorandum or articles, increase or reduction of share capital, removal of a director or auditor, change in the registered office, or approval of a merger or acquisition. Such a meeting may be called by the board of directors, by the auditors, or by the shareholders themselves as provided by law.

B. Meetings of the Directors

(i) Board Meeting A meeting of the board of directors held to take decisions on the general management and policy matters of the company. The board must meet at least once every three months. Notice of the meeting, the agenda and the place must be given to all directors in advance. Decisions are taken by majority vote, and the minutes are recorded in the minute book.

(ii) Committee Meeting The board may delegate certain specific functions to committees such as the audit committee, remuneration committee or management committee. Meetings of such committees are called committee meetings. They study the assigned matters in detail and submit recommendations to the board.

C. Other Meetings

(i) Class Meeting A meeting of the holders of a particular class of shares, for example equity shareholders or preference shareholders, held when the rights attached to that class are to be varied. Such variation requires the consent of the holders of at least three-fourths of the shares of that class.

(ii) Creditors' Meeting A meeting of the creditors of a company, held when the company is being wound up or when a scheme of arrangement or reconstruction is proposed. It is called to ascertain the wishes of the creditors.

(iii) Debenture Holders' Meeting A meeting of the debenture holders, usually called by the trustees of the debentures, to consider matters affecting their security or interest.

3. Process and Procedure to Call the Special General Meeting of a Public Limited Company

The following steps are followed to call a special general meeting (extraordinary general meeting) of a public limited company:

Step 1: Decision to Call the Meeting

The board of directors passes a resolution in a board meeting to call the special general meeting. The resolution fixes the date, time, place and the agenda (business to be transacted) of the meeting. A special general meeting may also be requisitioned by the shareholders holding at least ten percent of the paid-up capital, or by the auditors in the circumstances specified by law.

Step 2: Preparation of the Notice

A notice of the meeting must be prepared in writing. The notice must state:

• the name of the company,
• the date, time and place of the meeting,
• the agenda or the business to be transacted, and
• the nature of the business, whether ordinary or special.

Step 3: Period of Notice

At least twenty-one clear days' notice must be given to every member, director and the auditor of the company. A shorter notice may be given with the consent of the members holding at least ninety-five percent of the paid-up capital carrying voting rights. The day of posting and the day of the meeting are excluded while counting the notice period.

Step 4: Mode of Service of Notice

The notice may be served:

• personally to the member,
• by post to the registered address of the member,
• by electronic means such as e-mail or fax, or
• by publication in a newspaper as prescribed.

Step 5: Notice to Statutory Authorities

Where required, a copy of the notice must also be sent to the Office of the Company Registrar and other concerned authorities within the prescribed time.

Step 6: Preparation of the Agenda and Explanatory Statement

An explanatory statement of the special business to be transacted must be attached with the notice so that the members can understand the nature and effect of the proposed business and take an informed decision.

Step 7: Fixing the Quorum

The quorum for the special general meeting must be as specified in the articles of association. In the absence of such provision, the quorum shall be members holding at least five percent of the total paid-up capital of the company. If the quorum is not present within half an hour of the appointed time, the meeting shall be adjourned to the same day in the next week at the same time and place.

Step 8: Conduct of the Meeting

The meeting is presided over by the chairman of the board. In his absence, the directors present elect a chairman. The chairman places the agenda before the members, who discuss each item and take decisions by majority vote. In case of a tie, the chairman may exercise a casting vote.

Step 9: Passing of Resolutions

Resolutions may be passed as ordinary resolutions (by simple majority) or as special resolutions (by at least two-thirds majority of the members present and voting), depending on the nature of the business. Where the law or the articles so require, a special resolution must be passed.

Step 10: Recording of Minutes

The proceedings of the meeting must be recorded in the minute book. The minutes must be signed by the chairman and kept at the registered office of the company. They are the legal evidence of the decisions taken.

Step 11: Filing with the Office of the Company Registrar

Where a special resolution is passed, a copy of the resolution must be filed with the Office of the Company Registrar within thirty days of its passing.

4. Conclusion

Company meetings are the means through which the members and directors of a company exercise their rights and discharge their duties. The special general meeting is a very important device for taking urgent decisions on special matters. Therefore, the legal provisions relating to notice, quorum, resolution and minutes must be strictly followed while calling such a meeting; otherwise the decisions taken may be invalid.

Concept of law

Law is the body of rules, recognised and enforced by the state, that regulates human conduct in society. It prescribes what people must do, what they must not do, and what they are entitled to, and it attaches consequences (punishment or remedy) for violation.

In the legal sense, law has four essential features: it is a set of rules of conduct, it is made or recognised by the sovereign authority of the state, it is backed by sanction, and it applies uniformly to all persons within the territory of the state. Thus law is a means of maintaining order, justice and peaceful coexistence in society.

Precedent means a previously decided case (judicial decision) that serves as an authority or guide for deciding similar or identical cases in the future. It is a source of law based on the principle of stare decisis, under which lower courts are bound to follow the legal principles laid down by higher courts in earlier decisions.

According to the Contract Act, 2000 (Nepal), the following persons are disqualified (incompetent) to make a contract:

1. Minor — a person below 18 years of age.
2. Unsound mind — a person of unsound mind (idiot, lunatic, or drunkard) who is incapable of understanding the terms and consequences of the contract.
3. Person prohibited by law — a person who is disqualified by any law from entering into a contract (e.g., a person declared insolvent, or a convict deprived of contractual capacity).

A contract made by such a disqualified person is void (not enforceable by law).

Quantum Meruit (Latin: "as much as he has earned" / "as much as is deserved") is a legal doctrine in the law of quasi-contracts. It means that when a person has rendered services or supplied goods to another without a valid or enforceable contract, he is entitled to recover the reasonable value of the work done or goods supplied — not the contract price, but what his labour or material is actually worth.

Key points:

• It applies where there is no contract, or the existing contract has become void, discharged or unenforceable.
• It prevents unjust enrichment of one party at the expense of another.
• The claimant recovers reasonable compensation based on the quantity and quality of work done, not the agreed rate.
• Example: If A begins work under a contract that later becomes void, A can still claim payment on quantum meruit for the work already performed.

Termination of contract means the ending or discharge of a contract, i.e. the point at which the contractual obligations of the parties come to an end and they are no longer bound to perform it. A contract may be terminated by performance, mutual agreement, impossibility of performance, breach of contract, or operation of law.

Contract of indemnity means a contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself or by the conduct of any other person. The person who gives the indemnity is called the indemnifier, and the person protected is the indemnity-holder.

Under Section 124 of the Contract Act, 2000 (Nepal), it is a contract of compensation or reimbursement — the indemnifier undertakes to compensate the loss suffered by the indemnity-holder. It is a contingent contract, since the liability of the indemnifier arises only on the happening of a specified event or loss.

Unjust enrichment is a principle of equity and quasi-contract under which a person who has been enriched at the expense of another without any lawful justification is bound to restore that benefit to the person who suffered the loss. In other words, no one should be allowed to profit unfairly from another's loss. The law implies an obligation (a quasi-contract) to return such benefit, even though there was no actual contract between the parties.

In the principal–agent relationship, agents are classified as follows:

1. General agent — appointed to perform all acts connected with a particular business or trade of the principal (e.g., a manager of a firm).
2. Special agent — appointed to do a specific act or transaction only (e.g., an agent engaged to sell one house).
3. Universal agent — appointed to do all acts that the principal can lawfully delegate (e.g., an agent holding a general power of attorney).
4. Mercantile agent — an agent dealing in goods on behalf of the principal; includes factors, brokers, commission agents, del credere agents and auctioneers.
5. Non-mercantile agent — an agent not dealing in goods, such as an advocate, banker or insurance agent.

Minutes are the official written record of the proceedings of a company's meeting — the date, time, place, members present, agenda, decisions taken and resolutions passed — kept as legal evidence of what was discussed and decided. They are prepared by the secretary, approved and signed by the chairman, and later confirmed at the next meeting.

Intellectual property law is the branch of law that protects the creations of the human mind — such as inventions, literary and artistic works, designs, symbols, and names — by granting the creator exclusive rights over their use and reproduction.

It mainly covers copyright (literary, artistic and musical works), patents (inventions), trademarks (brand names and logos), and trade secrets. Its purpose is to encourage creativity and innovation by giving creators legal ownership and economic benefit over their work.

कानूनको वर्गीकरण र राष्ट्रिय कानुन तथा अन्तर्राष्ट्रिय कानुन बीचको भिन्नता

कानूनको वर्गीकरण (Classification of Law)

कानूनलाई विभिन्न आधारमा वर्गीकरण गर्न सकिन्छ। प्रमुख वर्गीकरणहरू निम्नअनुसार छन्:

१. स्रोतको आधारमा वर्गीकरण:

• संवैधानिक कानुन (Constitutional Law): यो देशको सर्वोच्च कानुन हो जसले राज्यको संरचना, सरकारको अंगहरूको अधिकार र नागरिकका मौलिक हकहरू निर्धारण गर्दछ।
• साधारण कानुन (Ordinary Law): यो संविधान बाहेक अन्य कानुनहरू हुन्, जस्तै: फौजदारी कानुन, दिवानी कानुन, श्रम कानुन आदि।
• प्रचलित कानुन (Customary Law): यो समाजमा लामो समयदेखि पालना हुँदै आएको रीतिरिवाज र परम्परामा आधारित कानुन हो, जसलाई राज्यले मान्यता दिएको हुन्छ।

२. विषयवस्तुको आधारमा वर्गीकरण:

• सार्वजनिक कानुन (Public Law): यसले राज्य र नागरिकबीचको सम्बन्धलाई नियमन गर्दछ। उदाहरण: संवैधानिक कानुन, प्रशासनिक कानुन, फौजदारी कानुन।
• निजी कानुन (Private Law): यसले व्यक्तिहरूबीचको सम्बन्धलाई नियमन गर्दछ। उदाहरण: दिवानी कानुन (Contract Law, Property Law)।

३. कार्यान्वयनको आधारमा वर्गीकरण:

• अनिवार्य कानुन (Mandatory Law): यो कानुन सबैका लागि अनिवार्य हुन्छ र यसको पालना नगरेमा दण्ड सजाय हुन्छ।
• वैकल्पिक कानुन (Optional Law): यो कानुन पालना गर्न बाध्यकारी नभए पनि सामाजिक मान्यता वा नैतिक आधारमा पालना गरिन्छ।

राष्ट्रिय कानुन (National Law) र अन्तर्राष्ट्रिय कानुन (International Law) बीचको भिन्नता

निष्कर्ष: राष्ट्रिय कानुनले एक राज्यको आन्तरिक व्यवस्थापनलाई नियन्त्रण गर्दछ भने अन्तर्राष्ट्रिय कानुनले विभिन्न स्वतन्त्र राज्यहरूबीचको शान्ति, व्यापार, मानव अधिकार जस्ता विषयमा समन्वय र नियमन गर्दछ। राष्ट्रिय कानुन अन्तर्राष्ट्रिय कानुनको अधीनमा रहन सक्छ, विशेष गरी जब राष्ट्रले अन्तर्राष्ट्रिय सन्धिहरूलाई आफ्नो कानुनमा समावेश गर्दछ।

Definition. A contingent contract is a contract to do or not to do something if some event, collateral to such contract, does or does not happen (Section 31 of the Indian Contract Act, 1872, whose principles are followed in Nepali commercial law teaching). Example: A contracts to pay B Rs 50,000 if B's house is destroyed by fire. The contract depends on an event that is uncertain and not part of the promise itself, such as fire.

Rules regarding contingent contracts

1. Enforcement on happening of an uncertain future event (Sec. 32). A contract contingent on an event happening cannot be enforced until that event happens. If the event becomes impossible, the contract becomes void. Example: A agrees to pay B Rs 50,000 if B's ship returns. If the ship sinks, the contract is void.

2. Enforcement on non-happening of an event (Sec. 33). A contract to be performed if an event does not happen can be enforced only when the happening of that event becomes impossible. Example: A agrees to pay B Rs 50,000 if a certain ship does not return. The ship sinks, so the contract becomes enforceable.

3. Event to happen within a fixed time (Sec. 34). If the event does not happen within the fixed time, or becomes impossible before then, the contract becomes void. Example: A agrees to pay B if B's ship returns within one year. If it does not return within the year, the contract is void.

4. Event not to happen within a fixed time (Sec. 35). A contract to be performed if an event does not happen within a fixed time becomes enforceable when the time expires without the event, or when the event becomes certain not to happen. Example: A agrees to pay B if the ship does not return within one year. It does not return, so A must pay.

5. Contingent on an impossible event (Sec. 36). A contingent contract to do or not to do anything if an impossible event happens is void, whether or not the parties knew of the impossibility. Example: A agrees to pay B Rs 50,000 if B marries C, who is already dead. The contract is void.

Distinction from wagering agreements. In a contingent contract the event is collateral and the parties have a genuine interest in it, as in insurance. In a wager the only interest is the money won or lost on the uncertain event, and wagers are void.

Distinction between Public Carrier and Private Carrier

A public carrier (also called a common carrier) is a business that offers its transport services to the general public for hire, while a private carrier carries goods only for itself or for a limited, selected group of customers. The main points of difference are given below:

Conclusion: In short, a public carrier works for the public as a regular business and is regulated by law, whereas a private carrier works mainly for its owner's own purposes and is free from such public obligations.

Appointment of an Auditor

Under the Companies Act, 2063, the auditor of a company may be appointed as follows:

1. First Auditor by the Board of Directors: The first auditor of a company is appointed by the Board of Directors within one month from the date of registration of the company. Such auditor holds office until the first Annual General Meeting (AGM) is held.

2. Subsequent Auditor by the AGM: After the first AGM, the auditor is appointed by the shareholders in the AGM by a majority vote. The auditor so appointed holds office until the conclusion of the next AGM.

3. Casual Vacancy by the Board of Directors: If the office of the auditor falls vacant before the expiry of the term (due to death, resignation, disqualification, etc.), the Board of Directors may appoint an auditor to fill the casual vacancy, and such auditor holds office until the next AGM.

4. Government-Owned Companies: In the case of government-owned companies, the auditor is appointed by the Office of the Auditor General of Nepal as per the provisions of the law.

5. Failure to Appoint in AGM: If a company fails to appoint an auditor in the AGM, the Office of the Company Registrar may appoint an auditor on the application of any shareholder or creditor.

Disqualification of an Auditor

A person shall be disqualified from being appointed or continuing as an auditor of a company if he/she:

1. Is a shareholder or member of the company (or its holding/subsidiary company).
2. Is a director, employee, or officer of the company.
3. Is a partner or employee of a director or an employee of the company.
4. Is indebted to the company, or has given a guarantee or security in respect of any debt of the company.
5. Has directly or indirectly any financial interest in the company, its holding or subsidiary company.
6. Is a relative of any director or officer of the company.
7. Has been convicted of an offence involving fraud, misappropriation, or breach of trust.
8. Is a body corporate or a firm in which a disqualified person is a partner.
9. Has been removed from the office of auditor by the AGM or by the competent authority on the ground of misconduct.
10. Is mentally unsound or has been declared insolvent.

Note: A person who is disqualified under any of the above grounds cannot be appointed as an auditor, and if appointed, the appointment is void and the person is liable to punishment as per the Act.

Essential Elements of a Valid Award

An award is the final decision of an arbitrator or arbitral tribunal that settles the dispute referred to arbitration. Under the Arbitration Act, 2055 (1999) of Nepal (and general principles of arbitration), an award must satisfy the following essential elements to be valid and enforceable:

1. In Writing

The award must be made in writing. An oral award is not valid. Section 29 of the Arbitration Act requires the arbitrator to give the award in writing.

2. Signature of the Arbitrator(s)

The award must be signed by the arbitrator or all the arbitrators constituting the tribunal. In case of a panel of three arbitrators, if one arbitrator refuses or is unable to sign, the award may still be valid if the reason is recorded and it is signed by the majority.

3. Date and Place of Award

The award must clearly mention the date on which it is made and the place of arbitration. This is important for determining the time limit for enforcement, appeal, and jurisdiction.

4. Reasoned Decision

The award should contain the reasons (grounds) on which the decision is based, unless the parties have agreed otherwise. A reasoned award ensures fairness, transparency, and enables review by the court.

5. Decision on All Matters Referred

The award must decide all the disputes/matters referred to arbitration. It should not go beyond the scope of the reference (ultra vires). If it decides matters not referred, that portion may be set aside.

6. Certain and Final Determination

The award must be certain, definite, and final in nature. It should clearly state what each party must do (e.g., payment of money, performance of obligation) so that it can be enforced. It must not be vague or conditional.

7. Within the Time Limit

The award must be made within the time prescribed by the arbitration agreement or by the Act. Under Section 28 of the Arbitration Act, 2055, the arbitrator must make the award within six months from the date of his/her appointment, unless the parties agree otherwise or the court extends the period.

8. Compliance with the Arbitration Agreement

The award must be made in accordance with the terms of the arbitration agreement and the procedure agreed upon by the parties. It must not violate the agreed procedure or the law.

9. Communication to the Parties

The arbitrator must communicate (give notice of) the award to both parties. The award becomes effective and enforceable only after it is communicated to the parties.

10. Registration (where required)

If the award relates to a matter requiring registration (e.g., transfer of immovable property), it must be registered as per the law to be enforceable.

11. Legal and Enforceable

The award must not be against public policy, illegal, or obtained by fraud or misconduct. It must be capable of being enforced as a decree of the court.

Conclusion: An award is valid only when it is in writing, signed, reasoned, certain, within time, and made in accordance with the arbitration agreement and the law. If any essential element is missing, the award may be set aside by the court on the application of the aggrieved party.

Major Provisions of the Patent, Design and Trademark Act, 2022

The Patent, Design and Trademark Act, 2022 (1965) is the principal law of Nepal governing the protection of industrial property. It provides for the registration and protection of patents, designs and trademarks in Nepal. Its major provisions are as follows:

1. Preliminary and Administrative Provisions

• The Act extends to the whole of Nepal.
• It defines key terms such as patent, design, trademark, inventor, proprietor, licensee and registered user.
• The Department of Industry under the Ministry of Industry, Commerce and Supplies acts as the registering authority, headed by the Registrar.

2. Provisions Relating to Patents

• Patentable invention: Any new and useful invention, process, method or product may be patented.
• Application: An inventor or his/her legal successor may apply to the Department of Industry in the prescribed form with the necessary documents and fee.
• Examination and registration: The Department examines the application for novelty and utility. If satisfied, it registers the patent and issues a patent certificate.
• Term of patent: A patent is granted for 7 years from the date of registration, which may be renewed for another 7 years.
• Rights of patentee: The patentee has the exclusive right to use, sell, license or transfer the patent, and can take legal action against infringement.
• Grounds for cancellation: A patent may be cancelled if it is against public morality, national interest or is not a new invention.

3. Provisions Relating to Design

• Registrable design: New and original designs relating to the shape, configuration, pattern or ornamentation of an article may be registered.
• Application and registration: The proprietor applies to the Department of Industry; after examination, the design is registered and a certificate is issued.
• Term of design: A design is protected for 5 years from the date of registration, which may be renewed for two further terms of 5 years each (maximum 15 years).
• Rights: The registered proprietor has the exclusive right to use the design and can prevent others from using it without consent.

4. Provisions Relating to Trademark

• Registrable trademark: Any word, symbol, picture, mark or combination used to distinguish goods or services of one person from those of others may be registered.
• Application and registration: The applicant files an application with the Department of Industry; after examination and publication, the trademark is registered and a certificate issued.
• Term of trademark: A trademark is registered for 7 years from the date of registration and may be renewed indefinitely for further periods of 7 years.
• Rights of proprietor: The registered proprietor has the exclusive right to use the trademark and can take action against infringement or passing off.
• Assignment and licensing: A trademark may be assigned or licensed to others with the Registrar's approval.

5. Infringement and Penalties

• Use of a registered patent, design or trademark without authorization is an offence.
• The Act provides for fines and imprisonment for infringement, and empowers the courts to order compensation to the injured party.

6. Miscellaneous Provisions

• Provision for appeal against the decision of the Registrar to the concerned authority/court.
• Provision for renewal, assignment, licensing and registered user of industrial property.
• The Act empowers the Government of Nepal to frame rules for its effective implementation.

Conclusion

The Patent, Design and Trademark Act, 2022 provides legal protection to inventors, designers and traders by granting exclusive rights over their creations. It encourages innovation, protects consumers from deceptive goods and promotes fair competition in the market.

Agreements Opposed to Public Policy

Introduction. Section 10 of the Contract Act, 2000 (2056 B.S.) provides that all agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not expressly declared to be void. Section 13 further provides that an agreement is void if its object or consideration is opposed to public policy. The phrase "public policy" means the general good of the community — those principles and standards of conduct which the law regards as essential to the welfare, safety and moral tone of society. Since public policy is not exhaustively defined, the courts decide case by case whether an agreement offends it. The underlying maxim is ex turpi causa non oritur actio — no action arises from a base cause. Hence a contract opposed to public policy cannot be enforced by any court of law.

Agreements opposed to public policy. The following categories of agreements are treated as opposed to public policy and therefore void:

1. Agreements to commit a crime or a tort. An agreement whose object is the commission of an offence or a civil wrong is void. For example, an agreement to smuggle goods or to defame a person cannot be enforced.

2. Agreements injurious to the safety or interest of the State. Any agreement tending to weaken the security, sovereignty or integrity of the State, or to interfere with the administration of justice, is opposed to public policy. Thus, agreements to sell public offices, to procure a title or honour for reward, or to influence judicial or official proceedings by improper means are void. Similarly, agreements to wage war against a friendly State or to assist an enemy are unenforceable.

3. Agreements interfering with the course of justice. Agreements to stifle prosecution, to suppress evidence, to procure the conviction of an innocent person, or to use improper influence over a court or tribunal are void. An agreement not to prosecute an offender in consideration of money is a classic example. However, a genuine compromise of a disputed claim, or a reference to arbitration, is valid because it does not obstruct justice but settles it lawfully.

4. Agreements in restraint of marriage. An agreement restraining a person from marrying at all, or from marrying a particular person, is opposed to public policy. But a partial restraint, such as an agreement by a guardian to marry a minor ward within a particular community or before a certain age, may be valid if it is reasonable and for the ward's benefit.

5. Agreements in restraint of parental rights and duties. A father cannot by agreement give up the custody, care and control of his minor child, nor can he bind himself not to exercise his parental rights, because such an agreement defeats the child's welfare and the natural duty of a parent. Such agreements are void.

6. Agreements in restraint of trade. An agreement restraining a person from carrying on a lawful profession, trade or business is void under Section 14 of the Contract Act. This protects the freedom of trade guaranteed by Article 17 of the Constitution of Nepal. However, an exception is recognised in the sale of goodwill of a business, where the seller may agree not to carry on a similar business within reasonable local limits, so long as the restraint is reasonable and necessary to protect the buyer's interest.

7. Agreements in restraint of personal liberty. An agreement that unduly restricts a person's personal freedom, or that amounts to virtual slavery or servitude, is opposed to public policy. For instance, an agreement to serve an employer for life, or to surrender all freedom of action, is void.

8. Agreements to defraud creditors or revenue authorities. An agreement made with the intention of defeating the rights of creditors, or of evading taxes and duties payable to the government, is opposed to public policy. Thus, a secret agreement to transfer property to defeat a creditor's claim is void.

9. Agreements creating monopolies or tending to create monopoly. Agreements that create a monopoly in trade or that restrain competition to the prejudice of the public are opposed to public policy. However, reasonable combinations for the protection of trade interests may be valid.

10. Agreements to do immoral acts. Agreements whose object is immoral, such as an agreement for future illicit cohabitation or for the price of prostitution, are void. But an agreement to pay past consideration for immoral acts may, in certain circumstances, be enforceable as it is not opposed to public policy.

11. Agreements tending to injure public service. Agreements to procure public appointments or promotions by payment or improper influence are void. Similarly, agreements by public servants to accept bribes or to misuse their official position are opposed to public policy.

12. Agreements restraining the exercise of legal rights. An agreement that prevents a party from enforcing his legal rights, or that fetters the liberty of a person to apply to a court of law, is void. For example, an agreement not to sue for the recovery of a debt, or not to appeal against a decree, is opposed to public policy.

13. Agreements in restraint of marriage of minors. An agreement to marry a minor, or to give a minor in marriage for consideration, is void as it is opposed to public policy and also to the law relating to child marriage.

14. Agreements to pay money for procuring a seat in a medical or engineering college. Such agreements are opposed to public policy because they defeat the merit-based admission system and encourage corruption in educational institutions.

15. Agreements to influence elections. An agreement to influence voters by bribery or by improper means, or to procure votes for reward, is opposed to public policy as it undermines the democratic process.

Effect of such agreements. An agreement opposed to public policy is void ab initio (void from the very beginning). It is not enforceable by any court of law. The parties cannot recover money or property transferred under such an agreement if they are equally guilty (in pari delicto potior est conditio defendentis). However, if one party is less guilty than the other, the court may allow recovery. The collateral transactions connected with such an illegal agreement are also void.

Conclusion. Public policy is a dynamic concept that changes with the changing needs and standards of society. What was opposed to public policy yesterday may not be so today, and vice versa. The courts have, therefore, to interpret public policy in the light of the prevailing social, economic and moral conditions of the country. The Contract Act, 2000 (2056 B.S.) has expressly declared certain agreements void, while others are left to the wisdom of the courts. In all cases, an agreement opposed to public policy cannot be enforced by the court, as it would be against the general good of the community. Thus, the statement "a contract shall not be enforced by the court if it is against public policy" is fully correct and is firmly established in Nepali contract law.

Transfer of ownership by a non-owner

General rule. Nemo dat quod non habet: no one can give what he does not have. A seller who is not the owner (and has no authority from the owner) cannot pass a better title than he himself has, so the true owner can ordinarily recover the goods even from an innocent buyer.

Exceptions. In the interest of trade, the law protects a buyer in the following cases, where a non-owner can pass a valid title.

1. Sale by an agent or mercantile agent. An agent who sells within the authority given by the owner binds the owner. Even a mercantile agent who, with the owner's consent, is in possession of the goods or documents of title and sells them in the ordinary course of business passes a good title, if the buyer acts in good faith and without notice of any lack of authority.

2. Estoppel (ownership by conduct). If the owner, by words or conduct, leads the buyer to believe that the seller is the owner or has authority to sell, the owner is estopped from denying the seller's authority, and the buyer gets a good title.

3. Sale by a joint owner. If one of several co-owners is in sole possession of the goods with the consent of the others, a sale by him to a buyer acting in good faith and without notice passes a good title.

4. Sale by a person in possession under a voidable contract. If a person obtains goods under a contract voidable for fraud, coercion, undue influence or misrepresentation and sells them before the contract is rescinded, a buyer who acts in good faith and without notice gets a good title. If the original owner has already avoided the contract, the buyer gets no title.

5. Sale by a seller who remains in possession. After selling, a seller who keeps the goods or documents of title with the buyer's consent and sells or pledges them again to a second buyer, who acts in good faith and without notice of the first sale, passes a good title to that second buyer. The first buyer's remedy is against the seller.

6. Sale by a buyer who has obtained possession. A buyer who, with the seller's consent, has obtained possession of goods or documents of title and resells them to a bona fide buyer without notice of the unpaid seller's rights passes a good title.

7. Sale under a legal power. Sale by a pledgee after default and due notice, by an unpaid seller exercising the right of resale, or by a court, tax or enforcement authority in execution of a decree, gives the buyer a good title even though the seller is not the owner.

8. Sale by a finder of lost goods. A finder may sell the goods if the owner cannot be found after reasonable effort, if the goods are perishable, or if the lawful charges of finding exceed two-thirds of their value.

Common conditions. The buyer must act in good faith, must have no notice of the defect in the seller's title, and the owner must have voluntarily entrusted the goods or created the appearance of authority.

Conclusion. Ownership normally cannot be passed by a non-owner. Exceptions exist to protect honest buyers and to keep commerce secure, balancing the interest of the true owner against that of the innocent purchaser.

Major Provisions of the Copyright Act, 2059 (2002)

The Copyright Act, 2059 was enacted to protect the rights of authors, composers, artists and other creators over their original works. Its major provisions are as follows:

1. Definitions (Section 2)

The Act defines key terms such as "work", "author", "copyright", "producer", "performer", "broadcasting", "reproduction" and "adaptation" to give clear legal meaning to the subject matter of protection.

2. Works Eligible for Copyright Protection (Section 3)

Copyright protection is available to original works in the following categories:

• Literary works — books, articles, poems, computer programs, etc.
• Artistic works — paintings, sculptures, drawings, architecture, photographs.
• Musical works and sound recordings.
• Cinematographic works — films, documentaries, videos.
• Performances of artists (singers, dancers, actors).
• Broadcasting — radio and television programmes.

Protection applies to works of Nepali citizens, works first published in Nepal, and foreign works protected under international conventions to which Nepal is a party.

3. Acquisition and Term of Copyright (Sections 4–6)

• Copyright arises automatically on creation of the work; no registration is compulsory.
• Economic rights last for the lifetime of the author plus 50 years after death.
• For sound recordings, cinematographic works and broadcasts, the term is 50 years from the date of production or broadcast.
• For performances, the term is 50 years from the date of performance.
• The Act provides for registration of copyright with the prescribed authority (the Copyright Registrar), which serves as prima facie evidence of ownership.

4. Rights of the Copyright Owner (Sections 7–9)

The owner enjoys both economic rights and moral rights (explained in detail below).

5. Free Uses / Fair Dealing (Section 10)

Certain uses do not amount to infringement, such as:

• Reproduction for personal, non-commercial use.
• Use for teaching, research, criticism, review or news reporting, with proper acknowledgement of the source.
• Reproduction by libraries, archives and public institutions for non-profit purposes.
• Use in judicial proceedings and by government bodies in the public interest.

6. Infringement of Copyright (Sections 11–12)

Any act done without the authorisation of the copyright owner — such as reproduction, distribution, public performance, adaptation or translation — constitutes infringement. Importing, selling or possessing infringing copies is also an offence.

7. Remedies and Penalties (Sections 13–16)

• Civil remedies — injunction, compensation for actual loss, account of profits, and delivery of infringing copies.
• Criminal penalties — imprisonment of up to 6 months, or a fine of Rs 10,000 to Rs 100,000, or both, depending on the nature of the offence; repeated offences attract heavier punishment.
• The court may order seizure and destruction of infringing copies and the tools used to produce them.

8. Administrative Machinery (Sections 17–20)

The Act provides for a Copyright Registrar, a Copyright Advisory Committee, and a Copyright Protection Society to register works, advise the Government, and collectively manage the rights of owners.

9. Other Provisions

• Protection of performers' rights and broadcasting rights.
• Power of the Government to make rules and to apply the Act to foreign works through reciprocity.
• Provisions relating to transfer, licence and assignment of copyright.

Rights of the Copyright Owner

The Act grants the copyright owner two broad sets of rights:

A. Economic Rights (Section 7)

These allow the owner to obtain financial benefit from the work:

1. Right of reproduction — to make copies of the work in any form.
2. Right of distribution — to sell, rent, lease or otherwise distribute copies to the public.
3. Right of public performance — to perform the work publicly, e.g. staging a play or singing a song.
4. Right of broadcasting — to communicate the work to the public by radio, television or other means.
5. Right of adaptation and translation — to adapt, modify, translate or rearrange the work.
6. Right of communication to the public — to make the work available through any medium.
7. Right to authorise others — to grant licences or assign rights in return for royalty.

B. Moral Rights (Section 8)

These are personal rights that remain with the author even after the economic rights are transferred:

1. Right of paternity — the right to have the author's name acknowledged on the work.
2. Right of integrity — the right to object to any distortion, mutilation or modification of the work that harms the author's honour or reputation.
3. Right to claim authorship — the right to be identified as the creator of the work.

C. Other Related Rights

• Right to register the work and obtain a certificate of ownership.
• Right to sue for infringement and claim civil and criminal remedies.
• Right to receive royalty for commercial use of the work.
• Performers' rights — to control the recording and broadcasting of their live performances.

Conclusion: The Copyright Act, 2059 provides comprehensive protection to creators by granting them exclusive economic rights for a defined period and perpetual moral rights, while also allowing reasonable public access through fair-use provisions. It balances the interests of authors with the wider social interest in the spread of knowledge and culture.

National law is the body of legal rules that is made and enforced within a single sovereign state, applying to the people and institutions within that country's territory. It is created by the state's own law-making authority (such as the legislature, and in Nepal, also by the constitution) and is enforced by that state's courts and government. It is distinguished from international law, which governs relations between states.

Contract is an agreement between two or more parties that is enforceable by law. According to the Indian Contract Act, 1872, "A contract is an agreement enforceable by law."

In other words, a contract = Agreement + Enforceability by law. Every contract is an agreement, but every agreement is not a contract — only those agreements that satisfy the essential elements of a valid contract (offer, acceptance, lawful consideration, capacity of parties, free consent, lawful object and certainty) become contracts.

Contractual capacity is the legal competence or ability of a person to enter into a valid contract. Under Section 11 of the Contract Act, 2000 (Nepal), a person is competent to contract if he/she:

• has attained the age of majority (18 years),
• is of sound mind, and
• is not disqualified by law from contracting.

A contract made by a person lacking contractual capacity (a minor, a person of unsound mind, or one disqualified by law) is void.

A contingent contract is a contract to do or not to do something, if some event, collateral to such contract, does or does not happen. Its performance depends upon the happening or non-happening of a future uncertain event, which is neither in the control of the parties nor a part of the contract itself.

Example: A agrees to pay B Rs 1,00,000 if B's house is destroyed by fire. This is a contingent contract, as its performance depends on the uncertain event of fire.

Breach of contract is the failure or refusal of a party to a contract to perform any or all of the obligations imposed on it by the contract, without any lawful excuse. It may occur by non-performance, defective performance, or by making performance impossible, and it gives the aggrieved party the right to legal remedies such as damages, rescission or specific performance.

Bailor is the person who delivers or hands over his goods to another person (the bailee) for a specific purpose, such as safe custody, repair, or carriage, under a contract of bailment. He is the owner of the goods and has the right to demand their return once the purpose is fulfilled.

Contract of agency is a contract in which one person (the agent) agrees to act on behalf of another person (the principal) in dealing with third parties, and the principal agrees to be bound by the agent's acts.

Section 182 of the Contract Act, 2056 defines it as the relationship where one person is employed to do any act for another or to represent another in dealings with third persons — the person so employed is the agent, and the person for whom such act is done is the principal.

Warranty is a written or expressed guarantee given by the manufacturer or seller of goods, under which the seller undertakes to repair, replace, or compensate the buyer for any defect in the goods sold, within a specified period of time. It is a provision created to cover the probable liability arising from defects in goods sold during the warranty period.

An arbitrator is a neutral third person appointed by the disputing parties to hear both sides of a dispute and give a binding decision (award) to settle it. The parties agree in advance to accept the arbitrator's decision, which can be enforced through the court.

Contract of guarantee is a contract in which one person (the surety) promises to perform the obligation, or discharge the liability, of another person (the principal debtor) in case that person fails to do so, at the request of the principal debtor. The person to whom the guarantee is given is called the creditor.

Section 126 of the Contract Act defines it as "a contract to perform the promise, or discharge the liability, of a third person in case of his default."

Offer

Meaning (3 marks). An offer (proposal) is the expression by one person (the offeror) of willingness to do or abstain from doing something, with a view to obtaining the assent of another person (the offeree). When the offeree accepts it, the offer becomes a promise, and with consideration and the other essentials it becomes a contract. Example: a shopkeeper in Kathmandu says, "I will sell you this mobile phone for Rs 20,000."

Rules of a valid offer (7 marks)

1. Intention to create legal relations. The offer must be made seriously to create a legal obligation. Social invitations, jokes or statements made in anger are not offers.
2. Clear, definite and certain terms. Vague terms such as "I will sell some goods at a fair price" cannot be accepted into a contract.
3. Communicated to the offeree. An offer takes effect only when it reaches the offeree's knowledge. Acting in ignorance of it is not acceptance.
4. Made with a view to obtaining assent. A statement made merely to give information, without seeking the other party's assent, is not an offer.
5. Must not impose a duty to refuse. The offeror cannot say that silence will be taken as acceptance.
6. Terms of the offer must be lawful. An offer to do an act forbidden by law or against public policy cannot lead to a valid contract.
7. Distinct from an invitation to treat. Price lists, catalogues, goods displayed with price tags, and advertisements inviting tenders are only invitations to make offers; the customer makes the offer.
8. May be express or implied. It can be made by words (spoken or written) or by conduct, such as a bus stopping at a stand.
9. May be specific or general. A specific offer can be accepted only by the person to whom it is made; a general offer to the public (e.g. a reward notice) can be accepted by anyone who performs the stated condition.
10. Must remain open. An offer lapses on expiry of the stated time, on revocation before acceptance, on rejection or counter-offer, or on the death or insanity of the offeror, so it must be accepted while it is still in force.
11. Conditions may be attached. The offeror may prescribe the mode, time and conditions of acceptance, and these must be reasonably brought to the offeree's notice.

Conclusion. A valid offer is a serious, definite, lawful proposal communicated to the offeree to obtain assent. Consideration and capacity belong to the later stage of forming the contract, not to the offer itself.

Contract of Sale of Goods

Meaning: A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property (ownership) in goods to the buyer for a price. It is governed in Nepal by the Contract Act, 2000 (2056 B.S.) and in the general law of sale by the Sale of Goods Act. The price may be fixed by the contract, left to be fixed in an agreed manner, or determined by the course of dealing between the parties. A contract of sale may be absolute (a sale) or conditional (an agreement to sell).

Essential elements:

1. Two parties — a seller and a buyer, competent to contract.
2. Goods — movable property other than actionable claims and money.
3. Transfer of property — ownership passes, or is agreed to pass, from seller to buyer.
4. Price — a money consideration; if goods are exchanged for goods it is barter, not sale.
5. Consent — free consent of both parties, and lawful object and consideration.

Differences between Sale and Agreement to Sell

Conclusion: The basic test is the passing of property. If property passes at once, it is a sale; if it is to pass at a future time or subject to a condition, it is an agreement to sell. An agreement to sell becomes a sale when the condition is fulfilled or the appointed time arrives.

Differences between Sub-agent and Substituted Agent

Under the Contract of Agency (Chapter on Agency, Contract Act 2056), when an agent delegates his work to another person, that other person may be either a sub-agent or a substituted agent. The two are distinct in origin, authority, liability and legal consequences. The main differences are given below:

Conclusion

In short, a sub-agent is the agent's own helper, appointed without the principal's consent, and the original agent stays fully responsible for him. A substituted agent, on the other hand, is appointed with the principal's authority, steps into the agent's shoes, and becomes directly answerable to the principal. The key test is whether the principal's consent was obtained at the time of appointment.

Contract of Affreightment

A contract of affreightment is an agreement between a shipowner (or carrier) and a shipper (or charterer) under which the shipowner undertakes to carry goods by sea, or to provide a ship or part of a ship for that purpose, in return for payment of freight. It is the broad legal relationship that governs the carriage of goods by sea. It may take the form of a bill of lading (where the shipowner carries goods as a common carrier for many shippers) or a charter party (where the whole ship or part of it is hired out to a particular charterer). Thus, the contract of affreightment is the genus, and the bill of lading and the charter party are its two main species.

Charter Party

A charter party is a written contract between the shipowner and the charterer by which the shipowner lets out the whole or part of a ship, or agrees to carry goods in the ship, in exchange for freight. The word "charter party" comes from the Latin carta partita, meaning a divided document — originally the contract was written in duplicate on one sheet and then cut into two, each party keeping one half. It is the document that records the terms on which the ship is placed at the disposal of the charterer.

Kinds of Charter Party

1. Voyage Charter Party. The ship is hired for a particular voyage or a series of voyages. The shipowner retains control and management of the ship and crew, and earns freight based on the quantity of cargo carried or a lump sum. The charterer is concerned mainly with the voyage, loading and unloading, and laytime/demurrage.

2. Time Charter Party. The ship is hired for a fixed period of time (e.g., six months or a year). The shipowner still manages and navigates the ship, but the charterer directs the commercial employment — where the ship shall go and what cargo it shall carry. Hire is paid per day or per ton per month.

3. Bareboat (Demise) Charter Party. The ship itself is leased to the charterer, who takes full possession, control and management, including appointment of master and crew. The shipowner merely receives hire and has little control. The charterer bears operating costs and is responsible for navigation.

4. Bareboat Charter with Hire Purchase. A form of demise charter in which the hire payments ultimately transfer ownership of the ship to the charterer at the end of the period.

Essential Contents of a Charter Party

• Names of the shipowner and the charterer.
• Name, nationality, tonnage and description of the ship.
• The voyage or the period of hire, as the case may be.
• The cargo to be carried and the loading/unloading ports.
• Rate of freight or hire and the manner and time of payment.
• Laytime allowed, and demurrage and despatch money.
• Duties of the master, crew and the charterer.
• Exceptions and liberties clauses (e.g., perils of the sea, strikes, war).
• Arbitration clause and law governing the contract.
• Signature of both parties.

Significance

The charter party fixes the rights and liabilities of the parties, determines who bears the risk and cost of navigation and cargo handling, and provides the basis for settling disputes relating to freight, demurrage, deviation and delivery. It is thus the central instrument of sea carriage, and its terms are construed strictly according to the intention of the parties.

Insolvency Act, 2063 — Main Features

Introduction. The Insolvency Act, 2063 (2006) is a comprehensive law enacted to replace the old and inadequate provisions on insolvency of companies and firms. It provides a single legal framework for dealing with insolvent debtors either by reorganization (revival) or by liquidation (winding up), while protecting the interests of creditors and giving honest debtors a chance to start afresh. Its main features are as follows:

1. Comprehensive and overriding law. The Act is a self-contained code covering petition, reorganization, liquidation, distribution of assets, offences and appeals. Section 3 gives it overriding effect — in case of inconsistency with any other prevailing law on insolvency, this Act prevails.

2. Wide applicability. It applies to companies registered under the Companies Act and firms registered under the Partnership Act. Proceedings are conducted before the court prescribed by the Government of Nepal (the adjudicating authority).

3. Clear test of insolvency. A debtor is treated as insolvent if it (a) is unable to pay its debts as they fall due (cash-flow test), or (b) has liabilities exceeding its assets (balance-sheet test). Failure to pay a debt within the prescribed period after a written demand also raises a presumption of insolvency.

4. Two-track proceedings. The Act provides two remedies — reorganization for viable debtors and liquidation for non-viable ones. Reorganization is preferred, reflecting a "rescue" approach.

5. Initiation by creditor or debtor. Insolvency proceedings may be initiated by a petition filed by one or more creditors or by the debtor itself, subject to the conditions and time limits laid down in the Act.

6. Insolvency Board. The Act establishes the Insolvency Board as a regulatory body to license insolvency practitioners, prescribe their qualifications and conduct, maintain records, and advise the Government on insolvency matters.

7. Licensed insolvency practitioners. Only persons holding a licence from the Board (such as qualified chartered accountants, advocates and other prescribed professionals) may act as liquidator or reorganization manager. Their duties, powers, remuneration, removal and code of conduct are prescribed.

8. Participation of creditors. Creditors are classified as secured, preferential and unsecured. Creditors' meetings and a creditors' committee are provided for, so that creditors participate in decisions on reorganization and distribution.

9. Moratorium and protection of assets. Once a petition is admitted, legal actions, execution proceedings and transfers of assets are stayed (moratorium), and an interim practitioner may be appointed to safeguard the debtor's property.

10. Reorganization plan. The debtor must submit a reorganization plan within the prescribed period. It must be approved by the creditors' meeting (majority in number and two-thirds in value) and confirmed by the court, after which it binds all creditors, including those who dissented. If the plan fails, the case moves to liquidation.

11. Liquidation and priority of distribution. The liquidator takes over and realizes the assets and distributes the proceeds in order of priority — secured creditors from their security, then preferential creditors (unpaid wages of workers, government dues/taxes), then unsecured creditors, and any surplus to the shareholders/debtor. On completion, the debtor is dissolved and discharged from remaining debts, except in cases of fraud.

12. Avoidance of fraudulent and preferential transactions. Transfers at undervalue, preferences given to related parties and fraudulent dispositions made within the look-back period before insolvency can be set aside and the assets recovered for the benefit of creditors.

13. Offences and penalties. Fraudulent disposal or concealment of property, false claims, and obstruction of the liquidator are punishable with fine and imprisonment; defaulting directors may also be disqualified.

14. Time-bound procedure and appeal. Strict time limits are fixed for each stage to ensure speedy settlement, and an aggrieved party may appeal to the appellate court within the prescribed period.

Conclusion. The Insolvency Act, 2063 is thus a modern, balanced and creditor-friendly yet debtor-rehabilitating law. It ensures orderly, fair and time-bound settlement of insolvency, promotes the rescue of viable businesses and provides for the orderly exit of non-viable ones.

Meaning, Characteristics and Sources of Nepalese Business Law

1. Meaning of Business Law (5 marks)

Business law, also called commercial law or mercantile law, refers to the body of legal rules and principles that governs business activities, commercial transactions and the relations between business persons, and between business persons and the state. It does not exist as a single code in Nepal; it is a composite of many statutes, rules and judicial decisions that regulate trade, industry, finance, contracts, companies, banking, insurance, taxation and labour.

In the Nepalese context, business law means those legal provisions which regulate the establishment, operation and winding up of business enterprises, the making and enforcement of commercial contracts, the conduct of trade and commerce, and the settlement of business disputes. Its main purpose is to create an orderly, predictable and fair environment in which business can be carried on with certainty, protecting the interests of investors, consumers, creditors, workers and the general public. Thus, Nepalese business law is a branch of the country's municipal law that governs the commercial life of the nation.

2. Characteristics of Nepalese Business Law (part of 10 marks)

The main characteristics of Nepalese business law are as follows:

1. Composite and scattered in nature. There is no single comprehensive business code in Nepal. Business law is found in a large number of separate Acts such as the Contract Act, 2000; the Companies Act, 2063; the Partnership Act, 2020; the Banks and Financial Institutions Act, 2073; the Insurance Act, 2049; the Foreign Exchange Regulation Act, 2019; the Labour Act, 2074; the Income Tax Act, 2058; the Value Added Tax Act, 2052; the Arbitration Act, 2055; and the Insolvency Act, 2063. Each Act deals with a particular area of business.

2. Dynamic and evolving. Business law changes with changes in the economy, technology and social conditions. For example, laws on electronic transactions, securities, microfinance, cooperatives and competition have been introduced or amended in recent decades to meet new business realities. Old laws are repealed or amended as new needs arise.

3. Territorial in application. Nepalese business law applies within the territory of Nepal. It governs business transactions taking place in Nepal and is enforced by Nepalese courts and quasi-judicial bodies. Foreign law applies only where Nepalese law itself refers to it or where the parties validly choose a foreign law and forum.

4. Protective and regulatory in purpose. It protects the weaker parties — consumers, depositors, workers, minority shareholders — and regulates business conduct through licensing, registration, disclosure, inspection and penalties. It also protects the public interest by controlling monopolies, unfair trade practices and money laundering.

5. Based on the principles of equity, good faith and public policy. Concepts such as good faith, fairness, reasonableness and public policy run through Nepalese commercial statutes. Agreements opposed to public policy are void under the Contract Act, 2000.

6. Mix of civil and penal liability. Breach of a business obligation may give rise to civil liability (damages, specific performance, compensation) and, in serious cases, to criminal liability (fine, imprisonment) under the same or another Act. For instance, breach of contract is a civil wrong, while fraud, forgery or tax evasion is punishable criminally.

7. Recognises freedom of contract with limitations. Parties are generally free to determine the terms of their contract, but this freedom is limited by law, public policy, morality and the rights of consumers and workers. Standard-form contracts are increasingly controlled by statute.

8. Provides for dispute settlement mechanisms. Nepalese business law provides for settlement of disputes through negotiation, mediation, arbitration (Arbitration Act, 2055) and adjudication by courts and tribunals such as the Debt Recovery Tribunal, the Revenue Tribunal and the Company Registrar's Office.

9. Influenced by foreign and international law. Nepalese business law has been influenced by English common law, Indian commercial law and international conventions and model laws (for example, in arbitration, intellectual property and banking). This makes it comparatively modern and internationally compatible.

10. Uniformity within the country. Although made by different legislatures and authorities, business law is applied uniformly throughout Nepal by a hierarchical court system headed by the Supreme Court, which gives certainty and consistency to commercial transactions.

3. Sources of Nepalese Business Law (part of 10 marks)

The sources of Nepalese business law may be classified into primary and secondary sources.

A. Primary Sources

1. Constitution. The Constitution of Nepal is the fundamental law and the supreme source of all laws. It guarantees fundamental rights relating to property, profession, occupation and trade, and it prescribes the procedure for making laws. Any business law inconsistent with the Constitution is void to the extent of inconsistency. Article 115 of the Constitution lists the matters on which the federal Parliament may legislate, including commerce, banking, insurance, companies and intellectual property.

2. Legislation (Statutes). Acts enacted by the federal Parliament, and to some extent by Provincial Assemblies, are the most important source of business law. Examples: the Contract Act, 2000; the Companies Act, 2063; the Partnership Act, 2020; the Banks and Financial Institutions Act, 2073; the Nepal Rastra Bank Act, 2058; the Insurance Act, 2049; the Labour Act, 2074; the Income Tax Act, 2058; the Value Added Tax Act, 2052; the Foreign Exchange Regulation Act, 2019; the Arbitration Act, 2055; the Insolvency Act, 2063; the Competition Promotion and Market Protection Act, 2063; the Consumer Protection Act, 2075; and the Electronic Transactions Act, 2064.

3. Subordinate (Delegated) Legislation. Rules, regulations, by-laws, orders and directives framed by the executive under the authority of an Act are also sources of business law. Examples: Company Rules, 2064; Income Tax Rules, 2059; Nepal Rastra Bank Directives; and circulars of the Office of the Company Registrar. These fill in the details of the parent Act and are enforceable as law.

4. Judicial Precedents (Case Law). Decisions of the Supreme Court, and of the higher courts where they are not overruled, are binding precedents. The Supreme Court's interpretations of commercial statutes, its writ jurisdiction and its judgments on company, contract and banking matters form an important source of business law. The doctrine of stare decisis gives these decisions binding force.

5. Treaties, Conventions and International Agreements. International instruments to which Nepal is a party, such as the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention), WTO agreements (TRIPS, GATS), and bilateral investment and double-taxation treaties, become part of Nepalese law once ratified and domesticated. They influence and supplement domestic business legislation.

B. Secondary Sources

6. Customs and Usages. Long-established trade customs and usages, such as those of merchants, bankers and brokers, are recognised by courts as a source of business law provided they are reasonable, certain, consistent with law and not opposed to public policy. For example, the custom of the Hundi and of local business communities has influenced commercial practice.

7. Legal Writings and Opinions of Jurists. Textbooks, commentaries, treatises and the opinions of learned jurists are persuasive sources. They are not binding, but courts refer to them for interpretation and to fill gaps in the law.

8. Principles of Equity, Justice and Good Conscience. Where no statute or precedent covers a matter, courts may apply the principles of equity and good conscience. This is a subsidiary source that helps in deciding novel commercial disputes.

9. Foreign and Comparative Law. English common law, Indian company and contract law, and the commercial laws of other countries have historically influenced Nepalese business law, especially in the absence of local legislation on a point.

Conclusion

Nepalese business law is thus a composite, dynamic and territorial body of rules drawn mainly from the Constitution, statutes, delegated legislation, judicial precedents and international treaties, and supplemented by customs, juristic writings and equity. Its purpose is to regulate commercial activity in Nepal fairly and efficiently, and its sources together give it certainty, flexibility and practical relevance.

Contract of Pledge

Definition: A contract of pledge (also called pawn or bandhak) is a contract whereby one person delivers to another the possession of movable property as security for the payment of a debt or the performance of a promise, with an implied understanding that the property shall be returned on repayment of the debt or performance of the promise.

Section 172 of the Indian Contract Act, 1872 (applicable in Nepal in substance) defines pledge as:

"The bailment of goods as security for payment of a debt or performance of a promise is called pledge. The bailor is in this case called the pawnor. The bailee is called the pawnee."

Essential elements of a pledge:

1. Delivery of possession — There must be delivery of possession of goods, actual or constructive, to the pawnee.
2. Movable property — Only movable goods can be pledged; immovable property cannot.
3. Security for debt or promise — The goods must be delivered as security for payment of a debt or performance of a promise.
4. Purpose of return — The goods are to be returned when the debt is repaid or the promise is performed.
5. Valid contract — All essentials of a valid contract (offer, acceptance, consideration, capacity, free consent, lawful object) must be present.

Rights of the pawnee: Right of retainer, right to extraordinary expenses, right to sell on default after reasonable notice, and right against the true owner in certain cases.

Rights of the pawnor: Right to redeem, right to receive the surplus sale proceeds, and right to sue for damages if the pawnee sells without notice.

Differences between Bailment and Pledge

Conclusion: Every pledge is a bailment, but every bailment is not a pledge. Pledge is a special type of bailment where the delivery of goods is made as security for a debt or promise.

Arbitration Act, 2055 (1999): critical analysis

Introduction. The Arbitration Act, 2055 replaced the Arbitration Act, 2038 and was enacted to provide quick, inexpensive, party-controlled settlement of commercial disputes. It is broadly modelled on the UNCITRAL Model Law on International Commercial Arbitration (1985) and covers both domestic and international commercial arbitration. Nepal also acceded to the New York Convention (1958) on enforcement of foreign awards.

Major provisions and critical appraisal

1. Arbitration agreement. Disputes arising from a contract or commercial relationship may be referred to arbitration by a written agreement, either as a clause in the contract or as a separate submission. Critique: party autonomy is respected, but disputes of public nature, criminal matters and those which the law bars from arbitration cannot be referred.

2. Number and appointment of arbitrators. Parties may fix the number (normally an odd number) and the method of appointment. If they fail, or one party refuses to appoint, the court appoints on application. Critique: the court's default power prevents deadlock, but dependence on courts can cause delay.

3. Qualifications, challenge and impartiality. An arbitrator must be independent and impartial and may be challenged on justifiable doubts. Critique: adequate safeguards exist, but there is no developed institutional mechanism to decide challenges.

4. Jurisdiction and interim measures. The tribunal may rule on its own jurisdiction. Interim protective orders are available, but the Act relies largely on the court for enforcement. Critique: a tribunal's powers of interim relief are weaker than under the Model Law.

5. Conduct of proceedings. Parties are treated equally and may agree on procedure, place and language; otherwise the tribunal decides. Evidence, witnesses and hearings follow the agreed or tribunal-prescribed procedure. Critique: flexible and informal, but without time limits in practice proceedings often drag on.

6. Award. The award must be in writing, signed, reasoned (unless the parties agree otherwise) and delivered to the parties. Settlement during proceedings can be recorded as a consent award. Critique: clear form requirements aid enforceability.

7. Setting aside and finality. An award is generally final, but a party may apply to the appellate court within the prescribed period (35 days in the Act) on limited grounds such as invalid agreement, incapacity, lack of proper notice, excess of jurisdiction or conflict with public policy. Critique: narrow grounds reduce court interference, though "public policy" is vague.

8. Enforcement. A domestic award is enforced as if it were a court decree. Foreign awards are enforceable subject to the conditions of the Act and applicable conventions. Critique: encouraging for investors, but enforcement through courts is often slow.

9. International commercial arbitration. The parties may choose the law applicable to the substance of the dispute; failing that, the tribunal applies the law determined by the conflict-of-laws rules it considers applicable. Critique: consistent with international practice and attractive to foreign investors.

Strengths: party autonomy, speed and flexibility, confidentiality, finality, and alignment with international norms.

Weaknesses: heavy reliance on courts, absence of strong institutional arbitration, no time limit for awards, limited tribunal power for interim relief, shortage of trained arbitrators, and slow enforcement.

Conclusion. The Act gives Nepal a sound, modern framework for resolving commercial disputes outside the courts. Its effectiveness depends on amending gaps (interim relief, time limits), building institutional arbitration and training arbitrators and judges.

Legislation is the body of laws enacted by a competent legislative authority (such as Parliament) through a prescribed legal procedure. In Nepal, it refers to laws made by the Federal Parliament and Provincial Assemblies, as well as subordinate legislation (rules, regulations, by-laws) framed by the executive under authority delegated by the legislature.

A void contract is an agreement that has no legal enforceability from the very beginning — it is treated as if it never existed in the eyes of the law. Neither party can sue the other to enforce it. For example, an agreement with a minor or an agreement for an illegal act is void ab initio.

In the law of contract, a mistake is a wrong belief, held by one or both parties, about a matter of fact or law relating to the agreement at the time it is made. It may be unilateral (only one party is mistaken) or mutual/common (both are mistaken). Generally a mistake by both parties about a fact essential to the agreement makes the agreement void, while a mistake by only one party does not by itself affect its validity.

Any two features of breach of contract:

1. Failure to perform obligation — One party fails or refuses to perform its contractual duty as agreed, without lawful excuse.
2. Gives right to remedy — The aggrieved party gets the legal right to claim remedies such as damages, specific performance, or rescission of the contract.

Injunction is an equitable remedy in the form of a court order that either restrains a party from doing a certain act (prohibitory injunction) or compels a party to do a certain act (mandatory injunction). It is granted to prevent irreparable harm where monetary compensation is not an adequate remedy.

Contract of bailment is a contract in which one person (the bailor) delivers goods to another person (the bailee) for some purpose, upon the condition that the goods shall be returned or otherwise disposed of according to the directions of the bailor when the purpose is accomplished.

Example: Giving a watch to a watchmaker for repair — the watchmaker must return it after repair.

(b) Two characters of a common carrier:

1. Carries goods for all persons without discrimination — A common carrier is bound to carry the goods of any person who offers them, provided the goods are of the type it normally carries and the proper charges are paid. It cannot refuse service arbitrarily.

2. Liable as an insurer of the goods — A common carrier is liable for the loss, damage or destruction of the goods entrusted to it even without proof of negligence, subject only to certain statutory exceptions (such as act of God, inherent defect in the goods, or act of the enemy).

Winding-up (also called liquidation) is the process by which a company ceases to exist as a legal entity. Its assets are sold off, liabilities are paid, and any surplus is distributed among the shareholders, after which the company is dissolved and its name is struck off the register.

Award is a formal decision made by an arbitrator or a tribunal that settles a dispute between the parties and is binding on them. In the context of industrial disputes in Nepal, it refers to the final determination of the issues referred to arbitration, which the employer and employees are legally obliged to accept and implement.

The two duties of an unpaid seller are:

1. Duty to deliver the goods — When the buyer applies for delivery and tenders the price, the unpaid seller must deliver the goods to the buyer, even though he has a lien over them.
2. Duty to give notice of resale — If the unpaid seller resells the goods (where the right of resale exists), he must give proper notice of the resale to the original buyer so that the buyer may pay the price and claim the goods.

Minor and the Validity of Agreements with a Minor

Who is a Minor?

A minor is a person who has not attained the age of majority. Under the Nepal Contract Act, 2000 (2056 B.S.), the age of majority is 18 years. Any person below 18 years of age is a minor. Under the Muluki Civil Code, 2017 (2074 B.S.), the age of majority is also 18 years.

A minor lacks the legal capacity to enter into a contract because the law presumes that he/she does not have the maturity and understanding to judge what is in his/her best interest. Therefore, a minor is legally incompetent to contract.

Validity of Agreement with a Minor

An agreement with a minor is void ab initio (void from the very beginning). The following points describe its validity:

1. Void from the beginning (Void ab initio) Since a minor is not competent to contract, an agreement made with a minor is void from the start. It has no legal effect and cannot be enforced by either party. This principle was established in the landmark Privy Council decision Mohori Bibee v. Dharmodas Ghose (1903), an appeal from India.

2. No ratification on attaining majority Even after the minor attains the age of majority, he cannot ratify (approve) the agreement made during minority. Since the agreement was void from the beginning, there is nothing to ratify. A fresh contract must be made after attaining majority, with fresh consideration.

3. No restitution or refund generally required If a minor has received any benefit under a void agreement, he is generally not bound to return it, because there was no valid contract. However, if the minor is still in possession of the property or goods, the court may order their return on equitable grounds. But once the property is sold or converted, the minor cannot be asked to repay.

4. Minor as a beneficiary A minor can be a beneficiary (promisee) in a contract. If a contract is made for the benefit of a minor, it is valid and enforceable by the minor. For example, if a minor is gifted property or receives a scholarship, the agreement is valid. The minor can enforce such a contract but cannot be held liable under it.

5. Minor as an agent A minor cannot be personally liable on a contract, but he can act as an agent of another person. The principal will be liable for the acts of the minor agent. The minor himself incurs no personal liability.

6. Minor as a partner A minor cannot be a partner in a firm, but with the consent of all partners, he may be admitted to the benefits of partnership. He cannot be personally liable for the debts of the firm, but his share in the partnership property and profits is liable.

7. Minor as a shareholder A minor can become a shareholder of a company, but the shares must be fully paid. If the company is wound up, the minor's liability is limited to the unpaid amount on shares (if any).

8. Necessaries supplied to a minor If necessaries (food, clothing, shelter, education, medical care) are supplied to a minor, the supplier cannot enforce the contract against the minor personally. However, the supplier can recover the cost from the minor's property (estate), not from the minor personally. This is based on the principle of quasi-contract (Section 68 of the Indian Contract Act, similar provision in Nepali law).

9. Minor's agreement cannot be specifically enforced Since the agreement is void, the court will not order specific performance of an agreement made with a minor.

Conclusion

In conclusion, a minor is a person below 18 years of age who is legally incompetent to contract. Any agreement with a minor is void ab initio and cannot be enforced. However, a minor can be a beneficiary and can enforce contracts made for his benefit. The law protects minors from being exploited due to their lack of maturity and understanding.

Appointment and Removal of an Auditor

Under the Companies Act, 2063, every company must have an auditor to examine its accounts and report to the shareholders. The auditor must be qualified under the law (a registered auditor).

Appointment of an Auditor

1. First auditor

• Appointed by the Board of Directors after the registration of the company.
• Holds office until the conclusion of the first Annual General Meeting (AGM).

2. Auditor appointed at the AGM

• Appointed by the shareholders at each AGM.
• Holds office from the conclusion of that AGM until the conclusion of the next AGM.
• The remuneration is fixed by the general meeting, or by the board if so authorised.

3. Casual vacancy

• Filled by the Board of Directors, and approved by the shareholders at the next AGM.

4. Appointing someone other than the retiring auditor

• Requires a resolution of the general meeting, with advance notice to the shareholders and to the retiring auditor.

5. Government companies

• Where the government holds more than 50% of the shares, the auditor is appointed in consultation with the Office of the Auditor General.

6. Banks and financial institutions

• The appointment needs the prior approval of Nepal Rastra Bank.

Removal of an Auditor

1. Removal before the term ends

• Only by the shareholders in a general meeting.
• The auditor must be given a reasonable opportunity to present a written explanation and to be heard.

2. Removal in government companies

• The Office of the Auditor General may have the auditor replaced for failure of duty or breach of professional ethics.

3. Removal in banks and financial institutions

• Nepal Rastra Bank may direct the removal of an auditor for negligence, incompetence or misconduct.

4. Disqualification

• An auditor ceases to be eligible if he or she becomes a director, employee or partner of the company, holds shares above the permitted limit, becomes insolvent or of unsound mind, or is convicted of fraud or professional misconduct.

5. Resignation

• An auditor may resign by written notice to the company.

Conclusion

The rules on appointment and removal protect the independence of the auditor. The shareholders hold the main authority, while the Auditor General and Nepal Rastra Bank supervise government companies and banks respectively.

Who is an Arbitrator? Functions of an Arbitrator

Who is an Arbitrator?

An arbitrator is a neutral third party (a private person) appointed by the disputing parties, or by an institution or court, to hear and settle a dispute outside the ordinary courts. The arbitrator acts as a judge of the parties' own choosing — the parties agree in advance to accept the arbitrator's decision as final and binding. In Nepal, arbitration is governed mainly by the Arbitration Act, 2055 (1999) and the UNCITRAL Model Law framework, and the arbitrator's authority flows from the arbitration agreement between the parties.

An arbitrator may be:

• Sole arbitrator — one person decides the dispute.
• Panel/Tribunal of arbitrators — three or more arbitrators, usually one appointed by each party and the presiding arbitrator appointed by agreement or by the appointing authority.

Functions of an Arbitrator

1. Accepting or declining the appointment The arbitrator first examines whether he/she is qualified, impartial and independent, and whether any conflict of interest exists. If not suitable, the appointment must be declined; if accepted, the arbitrator must act fairly and without bias.

2. Conducting the arbitration proceedings The arbitrator fixes the date, time and place of hearings, issues notices to the parties, and conducts the proceedings in the manner agreed by the parties (or, in the absence of agreement, in a manner the arbitrator considers appropriate). The arbitrator must give equal opportunity to both parties to present their case.

3. Hearing the parties and examining evidence The arbitrator hears the statements, arguments and counter-arguments of both parties, examines documents, witnesses, expert opinions and other evidence, and may inspect the disputed property or subject matter if necessary.

4. Encouraging settlement Before or during the proceedings, the arbitrator may encourage the parties to reach an amicable settlement. If the parties settle, the arbitrator may record the settlement and close the case.

5. Deciding the dispute (making the award) This is the core function. The arbitrator applies the law chosen by the parties (or the law of Nepal, if not chosen) and the terms of the contract, and passes a written, reasoned decision called the arbitral award. The award must be made within the time limit fixed by the agreement or, if not fixed, within six months from the date of the arbitrator's appointment (extendable by agreement or by the court).

6. Making interim orders The arbitrator may pass interim orders, such as restraining a party from transferring disputed property, appointing a receiver, or preserving evidence, to protect the subject matter of the dispute until the final award.

7. Correcting and interpreting the award Within 30 days of receiving the award, a party may request the arbitrator to correct clerical, typographical or computational errors, or to interpret a specific part of the award. The arbitrator must dispose of such a request within 15 days.

8. Maintaining confidentiality and neutrality The arbitrator must keep the proceedings and the award confidential, must not act as an agent or advocate of either party, and must disclose any circumstances that may raise doubts about impartiality.

9. Keeping records and communicating the award The arbitrator must maintain proper records of the proceedings and deliver a signed copy of the award to each party, along with the reasons and the date of the award.

10. Cooperating with the court Where a party challenges the award or applies for its enforcement, the arbitrator must cooperate with the court by producing records and clarifying matters relating to the arbitration.

Conclusion

An arbitrator is thus a private judge whose main function is to settle disputes speedily, cheaply and confidentially outside the regular court system. The arbitrator's role combines judicial, administrative and conciliatory functions — conducting the proceedings fairly, hearing both parties, and giving a final binding award that the parties must accept.

Major Provisions of the Foreign Investment and Technology Transfer Act (FITTA), 2075

FITTA, 2075 governs foreign investment and the transfer of technology in Nepal. It aims to create a stable, transparent and attractive environment for foreign investors. Its major provisions are:

1. Definitions and scope: It defines foreign investor and foreign investment (equity, reinvestment of profit, loans and technology transfer) and covers both direct and portfolio investment.
2. Forms of investment: Foreign investors may invest through a new company (wholly foreign-owned or a joint venture), by buying shares of an existing company, or through branch or liaison offices as permitted.
3. Minimum investment: A minimum foreign investment applies to each project (Rs 50 million under the Act), with 100% foreign ownership allowed in permitted sectors.
4. Approval and registration: Most sectors follow an automatic route (registration with the Department of Industry or the relevant body). Large projects are handled by the Investment Board Nepal (IBN), and the financial sector is regulated by Nepal Rastra Bank.
5. Negative list: Some sectors are closed to foreign investment, such as cottage and small industries, personal services, arms, explosives, radioactive materials and certain trading activities.
6. Repatriation: Foreign investors may take out, in convertible currency and after paying tax, their profits, dividends, sale proceeds of shares, principal and interest on foreign loans, royalties and technical fees, and compensation received.
7. Protection of investment: The investment is not nationalised, and if acquired in the public interest, fair compensation must be given. Foreign investors receive equal treatment with domestic investors.
8. Technology transfer: Technology transfer agreements must be approved or registered with the Department of Industry, and cover royalties, technical fees and training of local manpower.
9. Visa and residence facilities: Investors and their families may receive residential visas, and work visas are available for foreign personnel.
10. Dispute settlement: Disputes are settled by negotiation and mediation first, then arbitration under Nepali law or the terms of the agreement.
11. One-stop facilitation: Services are provided through the Department of Industry and Investment Board Nepal to ease approval and operation.
12. Penalties and miscellaneous: Provisions on records, share transfers, penalties for false information, and powers to make rules.

Conclusion: FITTA, 2075 liberalises foreign investment by allowing 100% ownership, easing approval and guaranteeing repatriation and protection, so as to bring capital, technology and skills into Nepal.

Legality of Object and Consideration

1. Concept

For a contract to be valid, not only must there be free consent and competent parties, but the object (purpose) and the consideration (price/benefit exchanged) must also be lawful. Section 13 of the Contract Act, 2000 (Nepal) provides that an agreement is void if its object or consideration is unlawful. The same principle appears in the Indian Contract Act, 1872 (Section 23) and in English common law, where it is expressed as ex turpi causa non oritur actio — "no action arises from a base cause."

In simple terms, the law will not enforce a bargain whose purpose or price is illegal, immoral, or opposed to public policy. Courts refuse to help a party who seeks to benefit from wrongdoing. This is the meaning of legality of object and consideration.

2. When Object or Consideration Becomes Unlawful

An object or consideration is treated as unlawful in the following cases:

1. Forbidden by law — e.g., an agreement to sell smuggled goods or to commit a crime.
2. Defeat of any law — an agreement that would defeat the provisions of any law, e.g., an agreement to pay a bribe to a public officer to avoid tax.
3. Fraudulent purpose — an agreement to defraud creditors or the government.
4. Injury to person or property — an agreement to injure someone's body or property.
5. Immoral purpose — e.g., an agreement for future illicit cohabitation.
6. Opposed to public policy — agreements in restraint of marriage, trade, or legal proceedings; agreements to stifle prosecution; trading with an enemy; trafficking in public offices; and agreements creating monopolies.
7. Uncertain or impossible acts — where the object cannot be performed or is too vague to enforce.

3. Importance

The doctrine of legality of object and consideration is important for the following reasons:

1. Protects the legal system — It prevents courts from being used as instruments to enforce illegal bargains. The law cannot be seen to encourage crime or fraud.
2. Safeguards public interest — By voiding agreements opposed to public policy, it protects society's moral, economic, and political interests.
3. Preserves the sanctity of contracts — Only agreements with lawful objects are enforceable; this keeps the institution of contract trustworthy and credible.
4. Prevents exploitation — It stops stronger parties from using contracts to exploit weaker parties through illegal or immoral terms.
5. Maintains law and order — If illegal agreements were enforceable, criminals could use contracts to legalise their gains, undermining the state's authority.
6. Ensures fair trade — By striking down agreements in restraint of trade or creating monopolies, it promotes healthy competition and consumer welfare.
7. Determines validity — It gives a clear test of enforceability: an agreement with an unlawful object or consideration is void ab initio (void from the beginning), and money paid under it cannot generally be recovered.

4. Conclusion

Legality of object and consideration is a fundamental requirement of a valid contract. It acts as a safeguard that keeps contracts within the bounds of law, morality, and public policy. Without this requirement, the legal system would be forced to enforce agreements that harm society. Hence, the doctrine is essential for the healthy functioning of the law of contract.

Registration of Agency in Nepal: Procedure and Effect of Non-registration

Introduction

An agency arises when a person (the agent) is authorised to act for another (the principal) in dealing with third parties. Under the Contract Act, 2056, an agency can be created by a simple agreement, express or implied. However, the business of acting as an agent (a sales agent, distributor, commission agent, insurance agent, customs or travel agent) is regulated by other laws that require registration and licensing. The procedure is therefore spread across several authorities.

Procedure of Registration

1. Registering the agent as a business

• An individual agent registers a firm under the Private Firm Registration Act, 2014 at the Office of the Company Registrar or the local office concerned. A company-type agent registers under the Companies Act, 2063.
• An application is submitted with the name, address, objectives, capital and citizenship papers, and a registration certificate is issued.

2. Tax registration

• The agent obtains a PAN from the Inland Revenue Department, and registers for VAT if turnover exceeds the threshold.

3. Local government registration

• The agent registers the business or obtains a business licence from the municipality or rural municipality.

4. Sector-specific licence

• Some agencies need a special licence: insurance agents from the Nepal Insurance Authority, customs agents from the Department of Customs, travel and trekking agents from the Department of Tourism, and so on.

5. Agreement with the principal

• The agency agreement stating the territory, commission, duration and duties is written and signed. Where the principal is a foreign firm, the agreement must also comply with the foreign investment, foreign exchange and industrial laws.

Effect of Non-registration

• Illegal operation: The agent carries on business without legal recognition and may be fined or ordered to close.
• Unenforceable claims: An unregistered or unlicensed agent may find it hard to enforce claims for commission in court or before the authority.
• Tax consequences: Without PAN or VAT registration, the agent cannot issue valid invoices or claim input credits, and faces penalties and additional tax.
• Loss of business opportunities: Banks, government offices and principals deal only with registered agents, so credit, tenders and contracts are not available.
• Third-party risk: Customers and principals have weaker legal protection in dealing with an unregistered agent.
• Validity of the contract: The agency contract itself may remain valid between the parties, but the agent cannot rely on it where a licence is a legal requirement.

Critical Evaluation

• Strengths: Registration brings agents into the formal and tax system, protects principals and consumers, and gives agents legal standing and credit access.
• Weaknesses: The procedure involves many offices (company registrar, tax office, local government and sector regulator), causing duplication, delay and cost. Small agents often stay informal because of this.
• Weak enforcement: Many informal agencies operate without penalty, which puts registered agents at a disadvantage.
• Gaps in law: There is no single, comprehensive commercial agency law, so rights on commission, termination and compensation depend mainly on the general Contract Act.
• Improvements: Online registration (single window), a unified commercial agency law and stronger enforcement would make the system more effective.

Conclusion

Registration of an agency in Nepal is a combination of firm, tax, local and sectoral formalities. It is necessary for legal recognition and protection, and non-registration has serious legal, tax and commercial consequences, but the system needs simplification and a clearer single law to work well.

Introduction

Business law is the body of rules (statutes, regulations, court precedents and customs) that governs the formation, operation, financing, regulation and closure of business in a country. In Nepal it has not stayed fixed. It has moved from custom-based and state-controlled rules to a market-oriented, rights-based and increasingly federal and digital framework. Its dimensions have changed with the political system, the economic policy and the global environment.

Evolution of Nepalese business law

Changing dimensions

1. Constitutional dimension. The Constitution of Nepal 2015 guarantees the right to property (Article 25), the right to employment (Article 33), the right to labour (Article 34), the right to a clean environment (Article 30) and the right of consumers. Article 50 and Article 51 set economic policy around a mixed economy of public, private and cooperative sectors. Business law is now tested against fundamental rights.

2. Corporate and securities law. The Companies Act 2063 replaced the old law with provision for private, public and single-person companies, shareholder protection and corporate governance. It is supported by the Securities Act 2063, the Insolvency Act 2063 (rescue and liquidation of failing firms) and the Nepal Stock Exchange and SEBON rules.

3. Contract and commercial law. The Contract Act 2056 BS replaced the contract chapters of the Muluki Ain and gave a modern, consolidated contract law. It works with the Sale of Goods Act, the Agency Act, the Partnership Act and the Negotiable Instruments Act.

4. Banking and financial law. The Nepal Rastra Bank Act 2058, the Banks and Financial Institutions Act 2073 (BAFIA), the Insurance Act 2079, the Microfinance Act and the Payment and Settlement Act 2075 reflect a larger, more regulated and more digital financial sector.

5. Foreign investment and industrial law. The Foreign Investment and Technology Transfer Act 2075, the Industrial Enterprises Act 2076 and the Special Economic Zone Act 2073 opened the economy to foreign capital, allowed profit repatriation and created investment-promotion institutions.

6. Intellectual property. The Patent, Design and Trademark Act 2022 BS, the Copyright Act 2059 and the Plant Variety Protection Act reflect Nepal's WTO obligations (Nepal joined the WTO in April 2004), including the TRIPS agreement.

7. Labour, consumer and competition law. The Labour Act 2074, the Social Security Act 2074, the Consumer Protection Act 2075 and the Competition Promotion and Market Protection Act 2063 shifted attention from the owner to workers, consumers and fair markets.

8. Environmental and social responsibility. The Environment Protection Act 2076 requires environmental impact assessment and brings in the polluter-pays principle.

9. Federal dimension. Under the Constitution, schedules 5 to 9 divide powers among federal, provincial and local governments. The Local Government Operation Act 2074 gives local levels power over business registration, local taxes and market regulation. Businesses now face three levels of rules.

10. Digital dimension. The Electronic Transactions Act 2063, the Payment and Settlement Act and the Individual Privacy Act 2075 deal with e-commerce, digital signatures, mobile wallets and data protection.

Critical examination

Positive aspects

• Modern statutes have replaced out-of-date law and made the legal basis clearer.
• Liberalisation, investor protection and single-window facilities have encouraged investment.
• Rights of consumers, workers and the environment are better protected.
• Alignment with WTO, South Asian and other international commitments.

Weaknesses

• Many acts overlap and conflict, for example between federal, provincial and local rules, and licensing remains slow.
• Frequent amendments and ordinances create uncertainty for businesses.
• Weak enforcement, delay in commercial courts and corruption reduce the value of good law.
• Several laws (e-commerce, data protection, start-ups, consumer redress) lag behind technology.
• Federal laws needed to implement the Constitution have been slow to arrive.
• Small and informal businesses find compliance costly.

Conclusion

Nepalese business law has changed from customary and state-controlled rules to a liberal, rights-based, federal and technology-aware framework. The direction is right, but the benefit depends on harmonising overlapping laws, quick enforcement, an efficient commercial judiciary and regular updating for digital business. A stable and predictable legal environment is the main requirement for Nepal's business growth.