KATHMANDU, April 13: The Supreme Court has directed the government to set up a dedicated relief fund for victims of cooperative fraud, stressing that protecting depositors’ savings falls under the state’s constitutional responsibility.
A division bench of Justices Kumar Regmi and Megh Raj Pokharel issued an eight-point directive, urging the state to strengthen oversight of cooperatives. The court suggested that cooperatives require a regulatory structure closer to banking supervision, while clarifying that they cannot function like commercial banks.
The ruling comes as authorities weigh compensation measures for small depositors affected by large-scale cooperative scams. The government has already identified 23 problematic cooperatives, with reported liabilities reaching Rs 39.93 billion.
The court ordered that the proposed relief fund be financed through confiscation of assets belonging to operators of troubled cooperatives. It also allowed the use of a portion of annual government revenue and budget allocations to sustain the fund. Priority in compensation must go to vulnerable groups, including single women, senior citizens, indigenous communities, deprived groups, and persons with disabilities.
Alongside compensation measures, the court instructed authorities to publish a national digital list of problematic cooperatives, freeze assets of suspected operators and their families, and enforce mandatory external audits for cooperatives handling significant transactions.
The bench also called for structural reforms. It recommended forming an independent commission to investigate cooperative fraud cases over the past decade and establishing a dedicated judicial mechanism at district courts to handle such disputes. Free legal assistance for victims was also suggested.
In governance reforms, the court ordered restrictions on overlapping family representation in cooperative boards, limiting it to two members per family. It also proposed a two-term cap for office bearers and a mandatory cooling-off period of four years.
The directive further asks the government to amend the Cooperatives Act, 2017, introducing deposit insurance, personal liability for officials, and a tiered regulatory system based on transaction size.
Separately, the court dismissed a petition seeking cancellation of licences for cooperatives operating without Nepal Rastra Bank approval, noting that cooperative deposits are internal member-based transactions, unlike public banking systems.
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