Court Freezes NDB Assets

The Appellate Court, Patan issued an interim order on Sunday stopping any transaction of the assets of Nepal Development Bank (NDB) while ordering it to submit a clarification within seven days why it should not be liquidated.

The single bench of Judge Devendra Gopal Shrestha gave the order in response to the application of Nepal Rastra Bank (NRB) asking that the bank be liquidated. The court has also fixed the hearing for July 15. Ordering the bank to produce itself before the court on July 8, the Appellate Court, as per the Insolvency Act, has prohibited the bank to hand over, sell or put up its property as collateral.

The court didn't issue any order regarding NRB's request that it be allowed to return the money of ordinary depositors. There is about Rs. 190 million worth of deposits belonging to ordinary depositors in the bank. They have been demanding an early return of their money.

It is the first instance in Nepal's history of any financial institution being taken to court for liquidation. NRB said that it was compelled to go to court for liquidation of NDB as it had violated the central bank's repeated directions to improve its financial condition which resulted in losses amounting to more than double its paid-up capital. NDB has incurred losses of Rs. 690 million although its paid-up capital is just Rs. 320 million. Its liability stands at Rs. 1.41 billion, according to NRB.

If the court gives the order for liquidation, the Office of the Company Registrar will appoint a liquidator. As per the Bank and Financial Institution Act, ordinary depositors get the highest priority after the expenses of the liquidator. Institutional depositors at NDB including the Army Welfare Fund and the Employees Provident Fund are most unlikely to get their money back because they are fourth in line after fixed depositors, according to NRB. Their deposits are worth Rs. 180 million and Rs. 331 million respectively in the bank.

Those who invested in rights shares are most likely to get their money back because that money has not been allotted yet, according to NRB. Shareholders had invested Rs. 81 million in rights shares.
Source: Ekantipur.com