Cooperatives Act, 1992

 

                                                            Cooperatives Act, 1992

 

 

(A law enacted to provide for cooperative societies and unions)

 

History

 

May 15, 1992                                                                                      First promulgated. Nepal Rajapatra, Vol. 42, No. 7 (E), Jestha 2, 2049

 

December 6, 2000                                                            First Amendment. Nepal Rajapatra, Vol. 50, No. 45 (E), Marga 21, 2057

 

Consolidated Text

 

 

Preamble: Whereas it is desirable to make arrangements relating to the formation and operation of cooperative societies and unions of different categories for enabling the farmers, artisans, low capital and income groups, laborers, landless and unemployed people, or social workers, of the country to work for the economic and social development of the general consumers on the basis of mutual cooperation and cooperative spirit, now therefore, the Parliament has enacted this law in the 21st year of the reign of His Majesty King Birendra Bir Bikram Shah Dev.

 

                                                                                        Chapter 1

                                                                                      Preliminary

 

 

1.            Short Title and Commencement

 

(1)          This law may be called the Cooperatives Act, 1992.

 

(2)          It shall come into force at once.

 

2.            Definitions

 

Unless otherwise meant with reference to the subject or context, in this Act,

 

(a)          Society or Union means a cooperative society or union registered under Section 5.

 

(b)          Member means any individual, society, association, or other agency acquiring membership of a society or union by purchasing its shares according to its bye-rules.

 

(c)           Board means the Board of Directors of the society or union formed according to its bye-rules.

 

(d)          Registrar means the Registrar appointed under Section 21.

 

(e)          General Assembly means the General Assembly of the concerned society or union.

 

(f)           Bye-Rules mean the bye-rules of the concerned society or union.

 

(g)          Prescribed or as prescribed means prescribed or in the manner prescribed in the rules framed under this Act.

 

                                                                                        Chapter 2

                                                                   Formation of Society or Union

 

3.            Formation of Society or Union

 

(1)          Societies or unions may be formed as follows with the objectives of providing services and facilities for the economic and social development of the members according to cooperative principles:

 

(a)          A primary society comprising at least 25 members.

 

(b)          A union dealing in any particular field with at least five societies according to Clause (a) as its members.

 

(c)           A District Cooperative Union with at least five societies as mentioned in Clause (a), or unions dealing in any particular field as mentioned in Clause (b), or both, as its members.

 

(d)          The Central Cooperative Union with at least 25 societies as mentioned in Clause (a), or at least five unions dealing in any particular field as mentioned in Clause (b), as its members.

 

(e)          The National Cooperative Union with at least 15 unions as mentioned in Clause (b), (c), and (d) as its members.

 

(2)          Notwithstanding anything contained in Sub-Section (1), several district cooperative unions, or unions dealing in a particular field of the same nature in the same district, or several central cooperative unions of the same nature, shall not be formed.

 

(3)          The jurisdiction of a society or union shall be as prescribed in its bye-rules.

 

4.            Application for Registration of Societies or Unions

 

(1)          The concerned members must submit an application to the Registrar for the registration of a society or union formed under Section 3.

 

(2)          The application mentioned in Sub-Section (1) must be accompanied by two copies of the bye-rules of the concerned society or union, its work plan, and particulars of the shares which the members have agreed to subscribe, and must have been signed at least by the members mentioned in Section 3.

 

5.            Registration of Society or Union

 

(1)          On receipt of application for the registration of a society or union according to Section 4, the Registrar shall conduct necessary investigations to ascertain whether or not the bye-rules of such society or union conform to cooperative principles.

 

(2)          If, after conducting investigations under Sub-Section (1), the Registrar so deems appropriate, he shall issue a certificate of registration in the prescribed manner after registering such society or union.

 

6.            Registration May Be Refused

 

(1)          If, after conducting investigations under Sub-Section (1) of Section 5, the Registrar considers it necessary to make any amendment, he shall notify the persons who have applied for the registration of concerned society or union for such amendment within 15 days.

 

(2)          In case the applicants refuse to make amendments according to the notice issued under Sub-Section (1), or do not do so within 35 days after receiving such notice, the Registrar may refuse to register such  society or union. He must notify the applicants accordingly, indicating the reasons why registration has been refused.

 

(3)          In case the Registrar has refused to register any society or union according to Sub-Section (2), the applicants may submit a complaint to HMG if they are not satisfied.

 

7.            Society or Union To Be Corporate Body

 

(1)          The society or union shall be an autonomous and corporate body with perpetual succession.

 

(2)          The society or union shall have a separate seal of its own for all of its business.

 

(3)          The society or union may acquire, use, and otherwise dispose of movable and immovable property like an individual.

 

(4)          The society or union may sue or be sued in its own name like an individual.

 

8.            Liability of Society or Union to be Limited

 

(1)          The liability of a society or union shall be limited.

 

(2)          Every society or union shall use the word "Cooperative" in its name and the word "Limited" at the end.

 

                                                                                        Chapter 3

                                                                 Membership of Society or Union

 

9.            Membership of Society

 

(1)          Nepali citizens of the following categories may become members of the society:

 

(a)          Persons who have applied for the registration of the society.

 

(b)          Persons residing in the area under the jurisdiction of the society who desire to obtain the services of the society by purchasing the shares sold under Section 23, agree to bear the responsibility of membership, and fulfil the conditions mentioned in the bye-rules.

 

(c)           Agencies which purchase the shares sold under Sub-Section (1) of Section 23.

 

(2)          A person who desires to become a member of the society must apply to its Board.

 

(3)          In case the Board refuses to grant membership to any applicant, the latter may complain to the General Assembly. The decision made by the General Assembly in that respect shall be final.

 

(4)          Persons who have become members by virtue of their compulsory savings having been converted into share capital shall ipso facto lose their membership after they get refundment of their savings.

 

10.          Membership of Union

 

(1)          Societies coming under the jurisdiction of a union dealing in any particular field may acquire its membership in accordance with the arrangements made in its bye-rules.

 

(2)          All societies within the concerned district, as well as all unions dealing in any particular field, may become members of a district cooperative union according to arrangements made in its bye-rules.

 

                               (3)          Societies and unions dealing in any particular field may become members of the central cooperative union in accordance with the arrangements made in its bye-rules.

 

(4)          All unions, as well as other agencies as provided for in the bye-rules of the National Cooperative Union, may become members of the National Cooperative Union.

 

(5)          Agencies which purchase shares sold according to Sub-Section (1) of Section 23 may become members of the concerned union.

 

11.          Termination of Membership

 

The membership of societies or unions shall terminate in the prescribed circumstances.

 

 

                                                                                        Chapter 4

                                                                              Working Procedure

 

12.          Bye-Rules

 

(1)          Subject to this Act and the rules framed hereunder, a society or union may frame bye-rules to run its business. Such bye-rules shall come into force after they are approved by the Registrar.

 

(2)          The operation and management of every society or union shall be in accordance with its bye-rules.

 

(3)          The bye-rules must mention the name of the society or union, its address, its jurisdiction, objectives, procedure of operation, and other prescribed particulars.

 

(4)          Bye-rules may be amended by the two-thirds majority of the members of the concerned society or union present at a general meeting.

 

(5)          The bye-rules amended according to Sub-Section (4) shall come into force after these are approved by the Registrar.

 

13.          General Assembly

 

(1)          Every society or union shall have a General Assembly.

 

(2)          All members of a society shall be members of its General Assembly.

 

(3)          The General Assembly of a union shall comprise members as mentioned in its bye-rules.

 

14.          Functions, Duties, and Powers of the General Assembly

 

The functions, duties, and powers of the General Assembly shall be as follows:

 

(a)          To examine and endorse the annual accounts of the society or union.

 

(b)          To elect the Board of Directors and the Accounts Committee, and take decisions on the question of removing any Director or dissolving any Committee.

 

 

(c)           To discuss the reports of the Board of Directors and the Accounts Committee, and issue directives.

 

(d)          To take decisions on the question of amending the bye-rules.

 

(e)          To take decisions on the question of dividing a society or union, or its amalgamation with any other society or union, or its dissolution.

 

15.          Meetings of the General Assembly

 

(1)          Every society or union must convene a preliminary general meeting within three months after it is registered.

 

(2)          Every society or union must convene an annual general meeting within six months after the expiry of each fiscal year.

 

(3)          In prescribed circumstances, the society or union may convene an extra-ordinary general meeting.

 

(4)          The quorum for meetings of the General Assembly shall be as prescribed.

 

Provided that while amending the bye-rules, the presence of 51 percent of the total ordinary membership of the General Assembly shall be necessary.

 

16.          Board of Directors

 

(1)          Every society or union shall have a Board of Directors.

 

(2)          The composition of the Board, and its functions, duties and powers, shall be as provided for in the bye-rules of the appropriate society or union.

 

(3)          The term of the Board shall be as provided for in the bye-rules, with a maximum term of five years.

 

(4)          The Board shall have elections held for a new Board before its term expires.

 

(5)          In case the Board does not hold elections within the time-limit mentioned in Sub-Section (4), any member may notify the Registrar accordingly.

 

(6)          On receipt of information according to Sub-Section (4), or even otherwise, the Registrar must hold elections for the Board of Directors within six months after the expiry of its term.

 

(7)          Until a new Board is elected according to Sub-Section (4) or Sub-Section (6), the existing Board may operate the business of the society or union in the manner provided for in the bye-rules.

 

 

17.          Accounts Committee

 

(1)          The General Assembly of every society may form an Accounts Committee consisting of three members, including the Convenor, through elections.

 

(2)          The Accounts Committee may have the internal audit of the society conducted in a regular manner, and furnish suggestions to the Board.

 

(3)          The Accounts Committee must present its report about the accounts to the General Assembly.

 

18.          Expulsion of Members of the Board or Dissolution of the Board

 

(1)          In case the General Assembly approves by a majority a resolution presented by 5 percent of the members maintaining that it will be appropriate to expel any elected member of the Board, or to dissolve the Board, such member may be expelled, or the Board dissolved.

 

(2)          In case any member of the Board is expelled according to Sub-Section (1), another member shall be elected by the General Assembly to fill up that seat for the remaining term.

 

(3)          In case the Board is dissolved according to Sub-Section (1), the General Assembly shall make arrangements for electing a new Board.

 

(4)          All the provisions mentioned in Sub-Section (1), Sub-Section (2), and Sub-Section (3) shall be applicable in connection with the expulsion of members of the Accounts Committee, or the dissolution of the Accounts Committee as well.

 

19.          Sub-Committees

 

(1)          For the purpose of operating the business of the society or union, the Board may form Sub-Committee as provided for in the bye-rules.

 

(2)          The functions, duties, and powers, as well as the working procedures, of Sub-Committees formed according to Sub-Section (1) shall be as provided for in the bye-rules.

 

20.          Appointment of Employees and Advisors

 

(1)          For the purpose of running the business of the society or union, the Board may appoint employees and advisors according to need in accordance with the procedure approved by the General Assembly.

 

(2)          The remunerations and other conditions of service of employees and advisors appointed under Sub-Section (1) shall be as mentioned in the bye-rules of the concerned society or union.

 

                                                                                        Chapter 5

                                                                                         Registrar

 

21.          Appointment of Registrar

 

(1)          Subject to this Act and the rules framed hereunder, HMG shall appoint a Registrar to register societies or unions, and perform other prescribed functions.

 

(2)          The remunerations and other conditions of service of the Registrar shall be as prescribed.

 

22.          Delegation of Authority

 

The Registrar may delegate any or all of the powers vested on him under this Act or the rules framed hereunder to any subordinate officer.

 

                                                                                        Chapter 6

                                                               Financial Sources and Mobilization

 

23.          Sale of Shares

 

(1)          The society or union may collect share capital through the sale of shares to persons within the area under its jurisdiction who are eligible to become members, as well as to members and other prescribed agencies.

 

(2)          With the approval of HMG, a society or union may sell shares amounting to not more than 20 percent of its total share capital to any foreign cooperative society or union which is a member of the International Cooperative Alliance.

 

(3)          A society must sell shares according to Sub-Section (1) in such a manner that no individual or society gets more than 20 percent of the total share capital.

 

Provided that this restriction shall not be applicable to HMG or a society or agency owned by it.

 

(4)          Irrespective of the number of shares purchased by any member, voting shall be only according to the principle of one person one vote while operating the business of the society or union.

 

24.          Loan Bonds and Loans

 

A society or union may issue loan bonds, or obtain loans from any local or foreign bank or any other agency.

 

Provided that before issuing loan bonds, or obtaining loans from a foreign bank, it must obtain the approval of HMG.

 

 

 

25.          HMG Guarantee for Loans

 

(1)          In case any society or union desires to obtain the guarantee of HMG for loan bonds issued by it, or loans to be obtained by it from any foreign bank or other agency, it must submit an application to HMG for that purpose.

 

(2)          HMG shall consider the application submitted according to Sub-Section (1) and, in case it so deems appropriate, provide guarantee for such loan bonds or loans. While providing such guarantee, HMG may prescribe necessary conditions and restrictions in respect to the redemption of such loan bonds or loans. The society or union must redeem such loan bonds or loans subject to such conditions and restrictions.

 

26.          Power to Undertake Banking Business

 

(1)          A society or union may accept saving deposits from its members and also supply loans to them.

 

(2)          A society or union must obtain the prior approval of the Nepal Rastra Bank in order to engage in other banking businesses, including accepting deposits and supplying loans, in addition to the businesses mentioned in Sub-Section (1), but only with its own members. Such societies or unions must comply with the terms and conditions prescribed and the directives issued by the Nepal Rastra Bank.

 

(3)          Every society or union which has been engaged in (such) businesses after being registered before the commencement of this Act must make arrangements for operating its businesses under Sub-Section (1) or Sub-Section (2) within one year from the date of commencement of this Act.

 

(4)          Notwithstanding anything contained elsewhere in this Act, societies or unions may unitedly establish a cooperative bank.

 

(5)          In case an application is filed for the establishment of a bank according to Sub-Section (4) along with the recommendation of the Nepal Rastra Bank, the Registrar may conduct necessary investigations and register such a bank.

 

(6)          A bank established after being registered under Sub-Section (5) may engage in any such banking businesses under the 1974 Commercial Bank Act as are approved by the Nepal Rastra Bank, and it shall be mandatory for such a bank to comply with the terms and conditions prescribed and the directives issued by the Nepal Rastra Bank from time to time.

 

27.          Distribution of Savings

 

(1)          After at least one-fourth of the net savings of any year is credited to the reserve fund, a society or union may use the balance to set up funds in the prescribed manner.

(2)          Funds other than the reserve funds may be used for the distribution of dividends or bonus within the limits mentioned in the bye-rules according to the objectives of the funds.

 

Provided that the amount of dividends in any year shall not exceed 15 percent of the share capital.

 

28.          Financial Cooperation Not To Be Provided

 

No society or union shall make contributions or provide any other type of financial cooperation to any political party, or any institution or association which works for any religion or sect.

 

29.          Contracts Not To Be Given

 

A society or union shall not grant its contract to any member of its Board or Accounts Committee or to any employee.

 

30.          Shares or Rights of Members Not To Be Sold by Auction

 

The shares or rights of any member in the principal capital of any society or union shall not be sold by auction in consideration of any loan or liability, other than the loans or liabilities of such society or unions.

 

                                                                                        Chapter 7

                                                                        Amalgamation or Division

 

31.          Amalgamation or Division

 

(1)          A two-thirds majority of the General Assembly of the concerned society or union is necessary for the amalgamation of two or more societies or unions, or the division of any society or union into two or more societies or unions. While taking such decision, the conditions and procedures of such amalgamation or division must also be mentioned.

 

(2)          On the basis of the decision taken under Sub-Section (1), the Registrar may amalgamate or divide the concerned society or union.

 

                                                                                        Chapter 8

                                                  Notices, Records, and Examination of Accounts

 

32.          Records of Decisions

 

Every society or union must maintain updated records of the meetings and other business of its General Assembly the Board, the Accounts Committee, and Sub-Committees.

 

33.          Accounts and Other Records

 

Every society and union must maintain records of the accounts of its entire business, as well as other necessary records, in the prescribed manner.

34.          Notice To Be Furnished

 

Every society or union shall submit an annual report of its business, the audit report, as well as a report containing the following particulars, to the Registrar or to an authority designated by him, within the prescribed time limit.

 

(a)          Policies and plans finalized in respect to the distribution of savings.

 

(b)          Names of Directors and their remaining term.

 

(c)           The date fixed for meetings of the General Assembly, and

 

(d)          Other particulars prescribed by the Registrar from time to time.

 

35.          Power to Seek Explanations and Clarifications

 

(1)          In case at least 5 percent of the members of any society or union submit an application to the effect that such society or union has not worked in a satisfactory manner, the Registrar may personally demand explanations or clarifications, or empower any officer in writing to do so.

 

(2)          In case the Registrar feels that any society or union is not conducting its business in a satisfactory manner, he may demand explanations and clarifications, or have any officer do so.

 

(3)          In case the Registrar, or any officer empowered by him according to Sub-Section (1) and Sub-Section (2), demands explanations and clarifications, it shall be the duty of every member and employee of the society or union to furnish the information requested and extend cooperation in every manner.

 

(4)          Notice of the results of the explanations or clarifications sought according to Sub-Section (1) or Sub-Section (2) shall be made available to such society or union in writing.

 

36.          Power to Conduct Inspection and Offer Suggestions

 

(1)          The Registrar, or an officer empowered by him, may inspect the society or union.

 

(2)          While conducting inspection according to Sub-Section (1), in case it is found that this Act or the rules or bye-rules framed hereunder are not being complied with, the concerned officer may offer necessary suggestions to make arrangements consistent with the Act, rules or bye-rules.

 

37.          Examinations of Accounts

 

(1)          A society or union must have the accounts of each financial year audited by a registered auditor approved by the Registrar or an officer designated by him within three months after the expiry of such financial year.

 

(2)          Notwithstanding anything contained in Sub-Section (1), the General Assembly of the concerned society or union may, with the approval of the Registrar, appoint a registered auditor for auditing its accounts.

 

(3)          While appointing an auditor according to Sub-Section (2), the same person or company shall not be appointed for more than three consecutive terms.

 

(4)          The report of the examination of accounts must be presented to the General Assembly for its endorsement.

 

(5)          In case the General Assembly does not endorse the report of the examination of accounts presented to it according to Sub-Section (4), it may appoint another auditor and conduct investigations or a fresh audit.

 

(6)          The remunerations and facilities of the auditor shall be as determined by the General Assembly.

 

 

                                                                                        Chapter 9

                                                Immunities and Facilities for Societies and Unions

 

38.          Immunities and Facilities for Societies and Unions

 

(1)          Notwithstanding anything contained in current law, a society or union shall be entitled to the following immunities and facilities:

 

(a)          A society or union need not register any document relating to its transactions, except in the case of immovable property.

 

(b)          No revenue stamp fee or registration fee shall be charged on documents relating to transactions or sale or purchase of immovable property by a society or union, or in any other type of document.

 

(c)           No income tax shall be collected on the profits made by a society or union, and on the dividends received by its members. No house and compound rent tax or property tax shall be collected from a society or union.

 

(d)          Local taxes shall not be collected on goods dealt in by a society or union.

 

(2)          HMG may wholly or partially waive by notification in the Nepal Rajapatra according to current law customs duty or sales tax on machinery, industrial and agricultural equipment, parts thereof, raw materials, official equipment, and means of transport to be imported by a society or union for its use.

 

(3)          HMG may wholly or partially waive by notification in the Nepal Rajapatra according to current law the excise duty or sales tax due on any goods produced by any society or union.

 

(4)          A society or union engaged in industrial production shall be entitled to other immunities and facilities, as well as protection, due to industries under current law, in addition to the immunities mentioned in Sub-Section (1), (2) or (3) above.

 

39.          Collection of Arrears of Payment Due to Societies or Unions

 

The society or union, or the Registrar on its recommendation, may sell by auction according to the prescribed procedure the assets of any person who has defaulted in the repayment of loans obtained from the society or union, or of other arrears due to such society or union, or the amount or the value of the property of the society or union which he has misappropriated, along with interest thereon.

 

 

40.          Society or Union to Get Priority

 

In case any member defaults in the payment of any amount due to a society or union, provision shall be made for the settlement of the rights or claims of HMG, if any, to the property of such member, and the society or union shall have preemptive right to the balance.

 

                                                                                       Chapter 10

                                  Dissolution of Society or Union, and Cancellation of Registration

 

41.          Dissolution and Cancellation of Registration of Society or Union

 

(1)          A two-thirds majority of the total membership of the General Assembly of the society or union may take a decision to dissolve such society or union.

 

(2)          After receiving an application along with a copy of the decision taken under Sub-Section (1), the Registrar, or a person empowered by him, may cancel the registration of such society or union.

 

(3)          In case enquiries conducted according to Sub-Section (2) of Section 35, or inspection conducted according to Section 36, reveal that any society or union has conducted no transaction and has remained inactive for two consecutive years, or in case any society or union is found to have performed actions contrary to its objectives, the Registrar, or a person empowered by him, may cancel the registration of such society or union. In case registration is cancelled in this manner, the society or union shall be dissolved, and the certificate of its registration shall be ipso facto invalid.

 

42.          Appointment of Liquidator

 

(1)          In case a society or union is dissolved under Section 41, the Registrar, or a person empowered by him, shall appoint a liquidator to implement the related matter.

 

(2)          The functions, duties, powers and the remunerations of liquidator shall be as prescribed.

 

 

                                                                                       Chapter 11

                                                                              Fines and Penalties

 

 

43.          Fine For Failure to Submit Particulars

 

A society or union which does not submit a report under Section 34, or does not furnish information according to Sub-Section (3) of Section 35, shall be fined with an amount not exceeding Rs 1,500 on the order of the Registrar.

 

44.          Fine for Conducting Business by Using the Term "Cooperative"

 

Any person who engages in trade or other enterprise in contravention of Section 46, except in the case of a society or union registered under this Act, shall be fined with not more than Rs 2,000 on the order of the Registrar. In case such person repeats the offense, he shall be fined with an amount not exceeding Rs 5,000 for each additional offense.

 

45.          Appeals

 

The concerned society or union, or individual who is dissatisfied with the cancellation of the registration of any society or union by the Registrar or the person empowered by him according to Sub-Section (3) of Section 41, or with the order issued by the Registrar under Section 43 or Section 44, may file an appeal to the Appellate Court within 35 days.

 

 

                                                                                       Chapter 12

                                                                                   Miscellaneous

 

 

46.          Prohibition to Use The Term Cooperative or Any Equivalent Term

 

No person, firm, or institution, other than a society or union registered under this Act, may use the term cooperative, or its English equivalent, in his/its name or business.

47.          1964 Company Act Not To Be Applicable

 

The 1964 Company Act shall not be applicable in the case of societies or unions registered under this Act.

 

48.          Power to Frame Rules

 

(1)          HMG may frame necessary rules to implement the objectives of this Act.

 

(2)          Without prejudices to the generality of the powers conferred by Sub-Section (1), such rules may provide for the following matters in particular:

 

(a)          Specimen forms of application for registration of societies or unions, and certificate.

 

(b)          Powers and working procedures of general meetings and extraordinary general meetings of societies or unions.

 

(c)           Financial sources of societies or unions, and mobilization thereof.

 

(d)          Supervision and inspection of societies and unions.

 

49.          Repeal and Saving

 

(1)          The 1984 Cooperative Societies Act has been repealed.

 

(2)          Societies and unions registered under the 1984 Cooperative Societies Act shall be deemed to have been registered according to this Act.

 

Royal Seal Affixed on: Jestha 2, 2049 (June 15, 1992).