Strict directions of the Supreme Court: Relief to the victims by confiscating the assets of the cooperative operators who do not return the savings

Defining the problem prevalent in the cooperative sector as a 'systemic failure', the Supreme Court has issued an important directive order for its solution. The joint bench of Justices Kumar Regmi and Meghraj Pokharel has ordered to establish a 'Cooperative Victims' Relief Fund' by confiscating the assets of the co-operative officers and loan defaulters. The savings of affected members will be returned through this fund. This provision has been made in the full text of the judgment on the writ filed by advocate Ravindra Prasad Sharma and others alleging that various savings and credit cooperatives have engaged in unauthorized banking transactions without taking the permission of Nepal Rastra Bank and risked billions of rupees to the general public.

The Supreme Court ruled that the National Bank's license is not mandatory for member-centric transactions of cooperatives and has rejected the demand for canceling the registration of all cooperatives. Although the court mentioned that the permission of the National Bank is not required as the internal transactions of the cooperative are limited only to the members, it has issued a directive order keeping in mind the public interest. The court reminded that it is the constitutional duty of the state to protect the victim's savings in accordance with Article 44 (Consumer's Rights) and Article 51 (Directive Principle of the State) of the Constitution. The court considered the weaknesses in the Cooperative Act, 2074, such as lack of transparency in audit, indiscipline in loan disbursement and lack of provision for savings insurance.

This judgment has made it clear that cooperatives should not be made into banks but should be brought under the same safe regulation as banks. The court is of the opinion that if the state does not solve the problem through 'victim relief fund' and 'strict legal action', the crisis of the cooperative sector will deepen. Key Points of the 8-Point Directive: 1. National Digital List and asset freeze: A national digital list of distressed cooperatives across the country will be made public. Assets in the name of the suspect operators and their families will be frozen immediately.

2. Establishment of Cooperative Victim Relief Fund: The Government and State Governments will establish a 'Cooperative Victim Relief Fund' as soon as possible. This fund will be operated from the money obtained from the confiscation of the assets of officials and debt defaulters, a certain percentage of the annual turnover of the cooperatives, and the budget allocation of the Government of Nepal. Especially single women, senior citizens, Dalits, tribals and persons with disabilities will be given priority in distribution of relief.

3. Clear Regulation and Financial Transparency: There will be a clear division of responsibility for cooperative regulation between the Union, State and local levels. No co-operative will remain 'unregulated' and a clear regulator will be appointed for each organisation. All co-operative societies have to compulsorily upload their monthly financial statements on the integrated online portal. A system will be developed where members can get their savings and loan details in real time through mobile app or SMS.

4. Governance reform: The president and chief executive officer of cooperatives whose turnover exceeds the specified amount must complete minimum financial literacy training. The rule that more than two members of the same family cannot be in the board of directors will be strictly implemented. A 'cooling off' period of at least 4 years will be implemented for office bearers for a maximum of two terms and re-candidacy. An autonomous structure will be ensured so that the members of the Audit Supervisory Committee are directly elected by the General Assembly and cannot be dismissed by the Board of Directors.

5. Independent Commission of Inquiry and confiscation of assets An independent Cooperative Inquiry Commission will be constituted with experts to investigate the cases of co-operative embezzlement in the last 10 years. Establishment of dedicated benches in District Courts for speedy disposal of cooperative crime cases will be studied. The domestic or foreign assets of the officials and debt defaulters found guilty will be confiscated and used to compensate the victimized members.

6. Ensuring access to justice: * Free legal representation will be provided to the cooperative victim members, especially economically disadvantaged, women and marginalized sections. A one-door system for hearing cooperative complaints will be established in each district. Online complaint registration, SMS updates and toll free helpline will be made operational. Mobile legal aid teams will be mobilized to provide doorstep legal services to victims in remote areas.

7. Law Reform: The Cooperative Act, 2074 will be amended to include provisions for returning investments that are against the interests of members, mandatory provisions for deposit insurance schemes, clear personal liability and disqualification provisions for officials, and tiered provisions for regulation based on business size. Regulations or standards will be created as soon as possible for a clear division of labor in regulation between the union, state and local levels. The National Bank will prepare the necessary standards and procedures for the inspection of cooperative societies dealing in savings and loans of more than 50 million rupees.

8. Awareness and Capacity Building: An annual financial literacy program will be conducted for cooperative members. Members will be developed the ability to read, understand financial reports and question their rights. Cooperation with the Ministry of Education will be done to include cooperative principles and financial literacy in the secondary school curriculum.