Kathmandu: The Supreme Court of Nepal has delivered a landmark verdict clarifying that funds accumulated in a Staff Welfare Fund, created from surplus profits after bonus distributions, cannot be disbursed to employees as individual cash payments.
A joint bench of Justices Hari Prasad Phuyal and Abdul Aziz Musalman overturned a previous Labour Court ruling, explicitly stating that employees do not hold a “vested personal right” to these funds. The court interpreted such reserves as collective institutional assets intended solely for the broader welfare of the workforce rather than as a form of deferred salary or individual profit-sharing.
The legal battle originated from a dispute between Nepal SBI Bank and its former Junior Officer, Prabhakar Pudasaini. Following his resignation, Pudasaini filed a lawsuit claiming his individual share of the Staff Welfare Fund generated during the 2074/75 fiscal year. While the Labour Court initially ruled in his favour, treating the fund as an earned benefit similar to remuneration, the Supreme Court found this interpretation to be legally flawed. The apex court noted that while a bonus is a personal right paid in cash, a welfare fund is an institutional safety net designed for collective social security.
In its detailed explanation, the Supreme Court highlighted the statutory distinction established by the Bonus Act, 1974, and the Labour Rules, 2018. According to the court, the law mandates that these funds be managed by a Labour Relations Committee for specific collective purposes such as medical treatment, education, sports, and recreation for employees and their families.
The judgment emphasized that no employee can claim these reserves as personal property based on their tenure at an establishment, and such funds can only be distributed proportionally among individuals in the extreme event of the organization’s liquidation.
Furthermore, the ruling took a firm stance against the prevailing practices of some financial institutions. The court scrutinized Nepal SBI Bank’s own history of distributing cash from the welfare fund to its current employees, declaring such actions illegal. The bench clarified that Rule 84 of the Labour Rules, 2018, strictly limits the use of these funds to collective welfare activities. Providing direct cash or performance-based shares from this fund was deemed a violation of the spirit of labour welfare, as it deviates from the intended purpose of creating a sustainable social security framework within the workplace.
The Supreme Court concluded by warning bank managements and labour relations committees to strictly adhere to the law, ensuring that welfare funds are used only for the educational, medical, and collective developmental needs of the staff. By nullifying the Labour Court’s decision and correcting the bank’s internal practices, the verdict establishes a clear legal precedent: Staff Welfare Funds are instruments of collective social protection and cannot be converted into individual dividends or additional cash incentives.
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