Nepal court finds loan misuse grounds for investigation — Kathmandu Post
Nepal’s Supreme Court has ruled that using a loan for purposes other than those intended may constitute grounds for a criminal investigation under banking legislation, even if the borrower regularly pays the principal, interest and installments. At the same time, the court stressed that the mere fact of alleged misuse of funds does not automatically mean a person is found guilty — the circumstances must be supported by evidence and examined during court proceedings.
As reported by the Kathmandu Post, the ruling was issued on July 30, 2026, by a panel of judges Tek Prasad Dungana and Meghraj Pokhrel. It concerned a habeas corpus petition challenging the legality of the detention, filed on behalf of Prabhu Bank borrower Shashidhar Sharma. The court dismissed the petition but did not make a final determination as to whether he had in fact used the loan funds in breach of the terms.
Regulator’s inspection
On January 17, 2025, Sharma obtained a 480 million rupee loan from Prabhu Bank to buy land for a resort in Rupandehi. According to a special on-site inspection by the central bank, Nepal Rastra Bank, the funds were not used for their stated purpose.
More current news is available on the UA.News Telegram channel Telegram.
According to the court’s account, the money was transferred to accounts of persons linked to Sharma and then to other individuals and institutions. Part of the funds, according to the inspection, was used to repay loans of other companies owned by the same person. On July 14, 2026, Nepal Rastra Bank sent the report to the Central Investigation Bureau of Nepal Police, after which law enforcement began an investigation under Article 8 of the Banking Offence and Punishment Act 2008 and detained Sharma.
Risks for lending
The court noted that neither a complaint from the lending bank nor a prior demand for the borrower to return the funds was required to launch an investigation. It also stated that Nepal Rastra Bank had lawful authority to forward the inspection findings to the body authorized to investigate the case. At the same time, the court cautioned against unjustified detention: when extending detention, the stage of the investigation, the necessity of such a measure and the grounds for it should be assessed.
Bankers said that this interpretation of the law could weaken lending. Nepal Bankers’ Association President Santosh Koirala said that in the past loans were often used for purposes other than those approved, and some of these funds are still tied up in investments. According to him, the banking system already has excess liquidity, historically low interest rates and weak demand for loans.
