The decision of the Supreme Court that the founding shareholder cannot become a director from a common group

Kathmandu, 08 June. The Supreme Court has established an important legal precedent by stating that the representation between founders and ordinary shareholders should be clearly distinguished in banks and financial institutions. The court ruled that the founding shareholders cannot nominate candidates for the directorship from the general group and considered the integrated instructions of Nepal Rastra Bank as legal. A joint bench of Justices Kumar Regmi and Balkrishna Dhakal gave this decision in a dispute related to Citizen Bank International. The court ruled that if the same person tries to be the representative of both the founder and the general group, a conflict of interest will be created and the rights of the common shareholders may be affected.

The controversy started with the election of directors during Citizen Bank's 19th Annual General Meeting. Advocate Ratnashwar Prasad Sharma nominated from the common shareholders group. However, after it was found that he also had founder shares, the Election Officer canceled his candidature as per the instructions of Nepal Rastra Bank. After that, Sharma filed a petition in the Supreme Court and claimed that he should be allowed to stand as a common shareholder.

The Supreme Court dismissed the writ and made it clear that the directives of Rashtra Bank are binding to maintain good governance in the banking sector. The court stated that priority should be given to protecting the interest of common depositors in the bank. After this decision, it is expected that the practice of the founding group becoming the director from the seat of the ordinary group in banks and financial institutions will end.