The landmark provision is outlined in the draft of the new 'Company Law Bill, 2083', which intends to replace the two-decade-old Companies Act, 2063.
State Guarantee for the Public; Forfeiture for Founders
Section 41, sub-section (2), clause (d) of the proposed draft bill explicitly mandates that the Government of Nepal or its designated agency will return the invested capital to ordinary shareholders once a project is handed over to the state. The protection directly extends to:
- Ordinary Shareholders: Individuals who buy shares through Initial Public Offerings (IPOs) or via the secondary market (NEPSE).
- Project-Affected Locals: Resident communities allotted shares during project construction.
- Company Employees: Individuals holding shares under employee schemes or designated "sweat equity."
However, the bill introduces a strict restrictive proviso for the corporate architects: "Provided that the institutional and promoter shareholders shall not have the rights referred to in clause (d)."
Under this rule, any institutional backer, promoter, or individual holding more than five percent of the company's paid-up capital will be barred from receiving a refund. When a hydropower plant finishes its 30-to-35-year production permit, or a transport project reaches the end of its Build-Own-Operate-Transfer (BOOT) term, the founders' equity will automatically forfeit to the government without any state compensation.
The Secondary Market Loophole
While the bill attempts to fix the long-standing investor fear that hydropower stocks will eventually "turn into pieces of paper," capital market analysts warn that the law is practically flawed due to the structural design of Nepal’s secondary market.
[Year 0: IPO] ---> [Years 1-3: Lock-In] ---> [Year 3+: Automatic Conversion] ---> [Year 30+: Project Handover]
(Promoters Bound) (Promoters Blocked) (Promoter Shares become Ordinary) (Public Claims Govt Refund)
*Promoters sell on NEPSE and exit*
Under current regulations from the Securities Board of Nepal (SEBON), promoter shares are locked for three years post-IPO. Once this lock-in period expires, these holdings are automatically converted into ordinary shares and can be freely traded on the Nepal Stock Exchange (NEPSE).
Because the Central Depository System and Clearing (CDSC) and Demat systems do not maintain a distinct tracking mechanism for "converted" shares versus "originally public" shares, the primary restriction in the bill is easily bypassed. Promoters can sell their converted ordinary shares to the general public decades before the project is handed over to the government.
An Incomplete Shield
If passed in its current form, the draft law will inadvertently secure the investments of the very founders it aims to hold accountable. Promoters can cash out their investments and profits early, leaving the secondary market buyers holding the volume.
By the time a project reaches its expiration date, the entire company may be owned by new public buyers. Consequently, the state will be forced to refund the entire financial pool to the public, completely defeating the bill's objective of penalizing the corporate promoters.
While the draft bill has succeeded in removing ultimate asset-loss fears for everyday investors, experts emphasize that without an integrated system update at the Office of the Company Registrar (CRO) and CDSC to flag converted promoter stocks, the restriction on institutional founders remains a paper tiger.
