A study by the Confederation of Nepalese Industries (CNI) has called for the removal of imprisonment provisions in commercial laws—except in cases involving fraud or forgery—stating that such measures are hampering investment and business growth in Nepal.
The study found that 13 different business-related laws currently allow for criminal prosecution of entrepreneurs, even for minor administrative errors. “Unnecessary imprisonment provisions instill fear among entrepreneurs, discourage innovation, and weaken investment sentiment, ultimately undermining Nepal’s economic prospects,” the report states.
Unveiled on Sunday, the report titled "Study Report on Decriminalization of Legal Provisions Created in a Way to Create Criminal Liability under Commercial Law" recommends converting most criminal liabilities into civil penalties or administrative fines.
CNI President Rajesh Kumar Agrawal pointed out that some laws prescribe jail terms for minor infractions. “For instance, the Companies Act imposes a Rs 5,000 fine and a three-month prison term for failing to submit a document to the company registrar. Section 160 of the same Act allows for a fine of Rs 20,000 to 50,000 or up to two years of imprisonment for certain violations,” Agrawal said. “Most of these mistakes are not intentional but stem from operational or managerial challenges and should be addressed administratively.”
Similarly, the Black Market and Social Offences and Punishment Act, 2030, provides for up to one year in jail or a fine of up to Rs 250,000 for hoarding and profiteering. The study recommends replacing such penalties with fines or license suspensions.
The High-Level Economic Reforms Advisory Commission, led by former Finance Secretary Rameshwor Khanal, also recommended repealing the Black Market Act. The Commission also argued against setting maximum profit margins, saying that penalizing businesses for earning over 20 percent profit creates an unhealthy investment environment.
Agrawal said India’s experience proves the benefits of reform. “Decriminalizing commercial laws in India improved the business climate and reduced opportunities for corruption within the civil service,” he said. The Confederation plans to submit its report to the Ministers of Law, Industry, and Finance.
CNI noted that even minor errors under the Income Tax Act, Value Added Tax Act, Revenue Leakage Act, and others can result in jail time of up to two years. The report also raised concerns over overlapping and contradictory provisions across different laws, which it says create confusion and increase legal risks for businesses.
“Criminal punishment continues to dominate Nepal’s commercial legal framework. However, in today’s economic context, decriminalizing business-related laws is essential,” the report said. It emphasized the need for laws to be simple, clear, and business-friendly.
The report further argues that legal provisions criminalizing commercial activities should only be used as a last resort, and that the financial magnitude of wrongdoing should determine the severity of penalties.
Citing international practices, the report draws comparisons with reforms in countries like India, France, Germany, Spain, and the UK. It highlights that India’s 2018 amendment to its Companies Act reduced the number of criminal offenses from 134 to 124 and cut compoundable offenses from 81 to 31. Likewise, India’s Public Trust Act of 2023 amended 42 laws across various sectors, replacing imprisonment with administrative fines.
The report concludes that retaliatory use of imprisonment in business matters is unjust and urges the government to eliminate such provisions to foster a more secure and growth-friendly investment climate.
