Kathmandu: The Supreme Court of Nepal has ruled that shareholders holding both founder and ordinary shares in a bank or financial institution cannot contest for a board seat under the public shareholder category.
The verdict settles a dispute over whether individuals owning both classes of shares should be eligible to represent ordinary shareholders on a bank’s board. The controversy had surfaced at Citizens Bank International after a shareholder challenged the bank’s board election process just before its annual general meeting, forcing the scheduled election on Mangsir 12 to be halted.
Before the AGM, the bank’s election committee had rejected the candidacy of Ratneshwar Prasad Sharma, who owned both founder and ordinary shares in the bank. Following an interim order from the Supreme Court in Sharma’s favour, the bank proceeded with its AGM without holding the board election.
However, in its final verdict delivered on Chaitra 15, 2082 BS, a joint bench of Justices Kumar Regmi and Balkrishna Dhakal dismissed Sharma’s petition, ruling that his constitutional rights had not been violated. The court upheld the election committee’s earlier decision of Mangsir 8 rejecting his candidacy.
The ruling effectively establishes that shareholders holding founder shares — even if they also own ordinary shares — may only contest board positions under the founder shareholder category.
The full text of the judgment, released recently, states that the interpretation is necessary to prevent conflicts of interest and strengthen institutional governance within Nepal’s banking and financial sector.
Sharma had filed his candidacy for a director position representing ordinary shareholders at Citizens Bank International’s 19th annual general meeting. Although he also owned ordinary shares, the bank’s election officer invalidated his nomination based on Nepal Rastra Bank’s Unified Directive No. 6/081, Clause 1.15, which states that shareholders holding founder shares cannot seek election from any category other than the founder group.
Challenging both the directive and the cancellation of his candidacy, Sharma filed a writ petition at the Supreme Court.
In its ruling, the court emphasized that banks and financial institutions operate using billions of rupees in public deposits, making institutional governance critically important. The bench argued that if founder shareholders are allowed to retain influence even within the public shareholder category, the interests of smaller investors could be undermined.
The judgment also highlighted concerns over conflicts of interest. The court noted that a person who previously served as a director representing founder shareholders may not genuinely represent ordinary shareholders if they later enter the board through the public category. Such a situation, the court said, could compromise transparency and create governance risks.
The Supreme Court further stated that both the Nepal Rastra Bank Act, 2002 and the Bank and Financial Institutions Act, 2017, clearly authorize the central bank to issue governance-related directives for regulated institutions. It concluded that Nepal Rastra Bank’s directive was legally valid and consistent with its regulatory authority.
The verdict also noted that founder shareholders and ordinary shareholders are legally recognized as distinct groups. Allowing a member of one category to enter the other for board representation would not be legally or ethically justified.
With the dismissal of Sharma’s petition, the court has now established a clear precedent: founder shareholders of any bank will no longer be eligible to become directors through the ordinary shareholder quota, even if they own public shares. Their only route to board representation will be through the founder shareholder category.
In the case, Sharma had named Nepal Rastra Bank, Citizens Bank International, the bank’s election officer and election office, the Office of the Company Registrar, and several individuals, including Shiva Sharan KC, Shatrudhan Shrestha, and Suman Chandra Acharya, as defendants.
During the initial hearing on the petition challenging the election-related decision, the Supreme Court had temporarily halted the election process, citing ambiguity between the interpretation of the central bank’s directive and provisions of banking law.
Justice Shreekant Paudel had issued the interim order suspending the election. At the time, the court observed that the Nepal Rastra Bank directive appeared to interpret the law differently from the provisions stated in the governing legislation, and ruled that the election process should remain suspended until a final legal interpretation was reached.
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