A division bench comprising Justices Manoj Kumar Sharma and Shreekanta Poudel issued the verdict, highlighting that the Insurance Act, 2079 acts as a special law that strictly governs the sector over general corporate regulations.

The ruling comes in response to a public interest writ petition filed by Advocates Yam Prasad Bhattarai and Bhimsen Rayamajhi against the Securities Board of Nepal (SEBON), the Nepal Insurance Authority, and Himalayan Reinsurance Company, among others.

While the petitioners sought to halt the issuance of Himalayan Reinsurance's shares, the court formally dismissed the writ on procedural grounds as the share issuance process had already been completed. However, citing public interest and investor protection, the court issued a binding directive order regarding the governance of future IPOs and the handling of the funds already raised.

The Supreme Court raised serious concerns over the actions of market regulators SEBON and the Nepal Insurance Authority.

The court pointed to Clause 45 (5) of the Insurance Act, 2079, which stipulates that an insurer must collect exactly 100 percent of the face value of shares when inviting applications from the public. The court emphasized that as a special act, the Insurance Act overrides both the Companies Act and standard Securities Registration and Issue Regulations.

"Issuing and selling shares to the general public at a premium price contrary to the law will have an adverse impact on investors' confidence in the stock market and weaken corporate governance," the court stated in its verdict, concluding that the regulators failed in their statutory duty to safeguard investor interests.

Key Highlights of the Ruling

• Legal Primacy: The Insurance Act, 2079 supersedes general securities rules and corporate law regarding insurance share issuances.

• Premium Prohibited: Insurance firms can no longer issue primary shares above face value (Rs 100 per share).

• Reserve Fund Mandate: Premium funds already collected must be frozen into a dedicated reserve account rather than utilized arbitrarily.

Impact on Himalayan Reinsurance

Himalayan Reinsurance had previously issued shares to its promoters at face value (Rs 100 per share) while charging the general public Rs 206 per share (including a Rs 106 premium).

The petitioners argued that charging the public a steep markup while providing promoters base pricing unfairly disadvantaged retail investors and led to losses in capital gains tax. While regulators and Himalayan Reinsurance defended the pricing based on net worth, independent valuations, and credit ratings under standard SEBON regulations, the court rejected these arguments.

To address the already-collected funds, the Supreme Court ordered Himalayan Reinsurance, SEBON, and the Nepal Insurance Authority to coordinate under Section 29 of the Company Act, 2063 and Section 39 of the Insurance Act, 2079 to lock the premium amount into a formal reserve fund.