Chapter-3 Provisions Relating to Transactions of Securities

Chapter-3 Provisions Relating to Transactions of Securities

8. Prospectus: (1) A bank or financial institution shall, before public offering of its securities, have to get the prospectus registered at the Rastra Bank after obtaining the necessary approval concerning securities according to the prevailing laws.
(2) Until and unless such prospectus is registered pursuant to Sub-Section (1), the said bank or financial institution or anyone on behalf of the bank or financial institution shall not be allowed to publish the prospectus of such a bank or financial institution.
(3) Notwithstanding anything contained in Sub-Section (1), until and unless the Rastra Bank receives a written notification of the approval from the Securities Board to register the prospectus, the Rastra Bank shall not register such prospectus.
9. Allotment of Shares: (1) The bank or financial institution shall set aside at least thirty percent share of its total issued capital for subscription by the general public.
Explanation: For the purpose of this section, “general public” means a natural person.
(2) The shares allotted to the general public pursuant to Sub-Section (1) shall be sold to the general public within the stipulated time. The shares that could not be sold in such a manner may be sold to any other firm, company or institution.
(3) The bank or financial institution may set aside 0.5% shares, except that of the limit referred to in Sub-Section (1), to its employees.
(4) The bank or financial institution may, if it wishes, convert the shares into ordinary shares having fulfilled the process specified by the Rastra Bank in such manner as not to be the share ownership of the promoter shares group less than 51 percent.
Explanation: For the purpose of this Chapter,-
(a) “Promoter shares group” means the promoter shares group as prescribed by the Rastra Bank.
(b) “Ordinary shares group” means the shares groups other than the promoter shares group.
(5) Notwithstanding anything contained in Sub-Section (1), the ratio of share ownership as set forth in Sub-Section (1) is not necessarily be there in the case of a bank or financial institution and infrastructure development bank to be incorporated under significant ownership of Government of Nepal.
(6) A bank or financial institution to be incorporated in joint venture with a foreign bank or financial institution or other foreign institution or infrastructure development bank shall allot the shares to the general public as specified by the Rastra Bank.
(7) While inviting applications from the general public for subscription of its shares, a bank or financial institution shall demand payment of hundred percent amount of the face value of its shares along with application.
10. Transactions of Securities: (1) A bank or financial institution shall, while issuing its securities for subscription to the general public, carry out the acts of sale, allotment and the act of exchange in accordance with the prevailing laws relating to securities.
(2) A bank or financial institution shall submit a copy of an agreement entered into by it on the transaction of securities through any institution dealing with securities before the Rastra Bank, within seven days from the date of the conclusion of such agreement.
(3) A bank or financial institution shall, while issuing any type of debenture or financial instrument, obtain prior approval of the Rastra Bank.
(4) The Rastra Bank may, while granting approval pursuant to Sub-Section (3), specify the terms and conditions as may be required and it shall be the duty of the bank concerned or financial institution to abide by such terms and conditions.
11. Provisions Relating to the Sale of Shares or Pledging of Securities: (1) A promoter of a bank or financial institution shall not be entitled to sell or pledge any share registered under his/her ownership for at least five years from the date of commencement of financial transactions.
(2) Notwithstanding anything contained in Sub-Section (1), in cases where a special circumstance arises due to emergence of any obstruction or hindrance in the operation of a bank or financial institution or a promoter shareholder is included on the blacklist owing to transactions with another bank or financial institution, shares may be sold or purchased amongst promoters by obtaining approval from the Rastra Bank.
Explanation: For the purpose of this Section, “special circumstance” means a situation where to hold a meeting of the Board of Directors has not been possible due to lack of a quorum for a consecutive period of three times or a situation where no decision been made possible because of disputes amongst its Directors.
(3) If a promoter wishes to sell or pledge the shares held in his/her name after five years from the date of commencement of financial transactions and after shares are issued to the general public by the bank or financial institution, he or she may sell or pledge such shares by obtaining approval from the Rastra Bank on the condition that such shares shall remain in the promoters’ group:
Provided that, approval of the Rastra Bank shall not be required while selling or pledging shares by a promoter having subscribed the shares of less than two percent of the paid up capital.
(4) Notwithstanding anything contained in Sub-Section (1) and Sub-Section (2) of Section 9, after completion of a period of ten years of transactions by a bank or financial institution, the promoter shares may, gradually be converted into ordinary shares with the approval of the Rastra Bank by giving due consideration to the impact it may have on the capital market, banking and the overall financial sector.
(5) In cases where any company or corporate body has subscribed promoter shares, prior approval of the Rastra Bank shall be obtained before alteration of shareholders or sale or transfer the ownership of shares among the shareholders having substantial ownership of such company or corporate body:
Provided that, approval of the Rastra Bank shall not be required while selling or transferring the shares by a company or corporate body having subscribed the shares of less than two percent of the paid up capital of a bank or financial institution.
12. Prohibition on Transaction of Securities: (1) The Director, Chief Executive, Auditor, Company Secretary of a bank or financial institution or a person directly involved in the management and account of a bank or financial institution shall not buy or sell, mortgage or cause to be mortgaged, cause to be bought or sold, accept or give in the form of a gift, transfer or transact the securities of the concerned bank or financial institution or of its subsidiary company in his/her name or in name of any member of his/her family or a firm, company or institution under the control of such person or to any other person until he/she holds such a position or until one year from the date of retirement from such position:
Provided that nothing in this Sub-Section shall prevent from buying and selling securities among Directors to Directors or Directors to Promoters with the approval of the Rastra Bank while issuing bonus shares, rights shares or the shares allotted for employees or issuing new shares, or while implementing a directive of the Rastra Bank or while selling the entire share having in any bank or financial institution under own ownership by any Director or any corporate body having power to appoint Director or while merging or amalgamating banks or financial institutions in each other according to the provisions made in Chapter-10 or while acquiring all assets or liabilities of one bank or financial institution by another bank or financial institution or while carrying out purchase or sale of securities among promoter directors or directors to directors with the
approval of the Rastra Bank in cases of emergence of any hurdle in the operation of the bank or financial institution or while carrying out purchase or sale or transfer of shares during the process of reformative or settlement process of a problematic bank.
(2) In cases where anyone commits any act in contravention of Sub-Section (1), the bank or financial institution concerned shall forfeit such securities and sell them according to the process as prescribed by the Rastra Bank.
13. Prohibition on buy back by Bank or Financial Institution of its’ Own Shares: (1) No bank or financial institution shall buy back its own shares or lend loans against security of its own shares.
(2) Notwithstanding anything contained in Sub-Section (1), a bank or financial institution may, with the approval of the Rastra Bank, buy back its shares out of its free reserves available for being distributed as dividends not exceeding the percentage prescribed by the Rastra Bank, under the following circumstances:
(a) If the shares issued by the bank or financial institution have alredy been fully paid up,
(b) If the shares issued by the bank or financial institution have already been listed in the securities market,
(c) If the buy-back of its own shares is authorized by the Articles of Association of the concerned bank or financial institution,
(d) If a special resolution has been passed at the General Meeting of the concerned bank or financial institution authorizing the buy-back of its own share,
(e) If the ratio of the debt owed by the bank or financial institution is not more than double of the capital and general reserve fund after such buy-back of shares,
Explanation: For the purposes of this Sub-Section, “debt” means all amounts of secured or unsecured debts borrowed by a bank or financial institution.
(f) If the value of the shares to be bought back by a bank or financial institution is not more than twenty percent of the total paid up
capital and general reserve fund of that bank or financial institution,
(g) If the buy-back of the shares comply with the directives relating to the capital fund issued by the Rastra Bank to that bank or financial institution,
(h) If it is not against the directives issued by the Rastra Bank from time to time with regard to buy back of shares.
(3) A bank or financial institution shall make an application to the Rastra Bank for the approval to buy-back its own share pursuant to Sub-Section (2) with the following details:-
(a) The reason, necessity, duration and modus-operandi for the buy-back of the shares,
(b) A statement of the evaluation of the potential impacts on the financial situation of the bank or financial institution as a result of the buy-back of the shares,
(c) The type of the share, par value of the share and number of the shares purposed to buy-back,
(d) The maximum or minimum amount required to buy-back the shares as referred to in Part (c), and the source of such amount,
(e) Such other matters as specified by the Rastra Bank with regard to the buy-back of its own shares,
(f) Other necessary matters to be mentioned as per the prevailing laws.
(4) The Rastra Bank may, in cases where, upon inquiry into the application received as per Sub-Section (3) and the details enclosed therewith, it deems appropriate to grant approval to such a bank or financial institution to buy back its own shares, grant such approval.
(5) Upon receipt of the approval pursuant to Sub-Section (4), the concerned bank or financial institution may buy back its shares in any of the following manners, within six months from the date of receipt of such approval or within twelve months of the adoption of a special resolution at the General Meeting, whichever is the later: –
(a) By purchasing through the securities market,
(b) By purchasing from the existing shareholders on a proportional basis.
(6) If a bank or financial institution buys back its own shares pursuant to Sub-Section (5), it shall file with the Rastra Bank a return containing the number of shares bought back, amount paid for the same and the other necessary details within thirty days of the date of such a buy-back.
(7) There shall be established a separate capital redemption reserve fund, to which a sum equal to the face value of the shares bought back pursuant to Sub-Section (5) shall be transferred; and the amount of such fund shall be maintained as if it is the paid-up capital.
(8) If a bank or financial institution buys back its own shares pursuant to Sub-Section (5), it shall cancel the shares so bought back within one hundred twenty days of the date of such a buy-back.
(9) Other provisions regarding buy-back of its own shares by a bank or financial institution shall be as prescribed by the Rastra Bank.