The Supreme Court (SC) has ruled that the Labor Act does not apply to banks and financial institutions (BFIs), settling a long-standing legal debate on the matter. The verdict was issued last Friday by a full bench led by Chief Justice Prakashman Singh Raut and comprising Justices Til Prasad Shrestha, Binod Sharma, Sharanga Subedi, and Tek Prasad Dhungana.

The case originated from a dispute involving Swabalamban Bikas Bank, which had challenged a decision by the Labour Court mandating the reinstatement of seven employees—Purna Chandra Raj Awasthi, Biraj Bogati, Binod Nepali, Deepak Chaudhary, Chitra Bahadur Budhathoki, Hari Shankar Prasad Shrivastav, and Ramananda Mandal. The Labour Court had ruled in favor of these employees, asserting their rights under the Labor Act, while the Labour and Employment Office in Teku had also directed the bank to comply with labor law provisions. However, Swabalamban Bikas Bank contended that it operates under a special regulatory framework and is not subject to the Labor Act, prompting it to file a petition at the Supreme Court seeking to overturn the ruling.

The SC's decision comes in contrast to a 2018 verdict by a division bench of Justices Anand Mohan Bhattarai and Hari Prasad Phuyal, which had held that the Labor Act applies to the banking sector. Given the conflicting interpretations, a full bench was formed to provide a definitive ruling.

With this latest judgment, BFIs, including Swabalamban Bikas Bank, are now officially exempt from the provisions of the Labor Act concerning employee benefits and rights. The ruling establishes that banking institutions fall under a separate legal framework and are not governed by labor laws applicable to other industries in Nepal.