Nepal Cooperatives Act 2074 (2017): Key Provisions Explained

The Cooperatives Act 2074 (Cooperatives Act, 2017), popularly called Sahakari Ain 2074, is the umbrella statute that governs how cooperatives are formed, registered, run, supervised and, when necessary, dissolved in Nepal. It was authenticated on 2074-7-4 in the Bikram Sambat (BS) calendar, equivalent to 18 October 2017 in the Gregorian (AD) calendar, as Act No. 41 of the year 2074, and under Section 1 it came into force immediately. Section 152 repealed the earlier Cooperatives Act, 2048 (1992).

The Act was enacted after Nepal adopted federalism under the 2015 Constitution, so it deliberately distributes cooperative jurisdiction across the three tiers of government. Its preamble frames cooperatives as community-based, member-centric, democratic and autonomous corporate entities that pool the capital, technology and skills of farmers, artisans, workers, low-income groups, marginalised communities and consumers. Cooperatives are recognised as one of the three pillars of Nepal's economy alongside the public and private sectors.

For students, board members, managers, auditors and depositors, the Act answers practical questions: how many people are needed to register a cooperative, who audits it, how much can be paid as dividend, and what happens when funds are misused. Department of Cooperatives figures put Nepal at roughly 30,000 or more primary cooperatives with several million members, so the rules touch a very large share of households (figures are indicative and change each reporting cycle).

The Act mirrors Nepal's federal structure by assigning cooperatives to the local, provincial or federal level based on where they operate and who registers them. Section 2 defines "Local Level" as a Rural Municipality or Municipality (including Sub-Metropolitan and Metropolitan Cities). Under Section 14, a primary cooperative and a district-level association register with the authority the Registrar designates at that level, while provincial and central associations, specialized associations, the National Cooperatives Federation and the Cooperative Bank register with the Registrar.

A cooperative's working area is set at registration under Section 18. A savings-and-credit organization in a Metropolitan or Sub-Metropolitan City is generally confined to one ward, while other cooperatives operate within one Local Level. After two years, a cooperative may expand on prescribed grounds, and larger sectors such as hydropower, education, health or agro-processing can extend across districts or provinces.

Under Section 15, the Registrar or authorised authority must register a qualifying cooperative and issue a certificate within 30 days, provided the bye-laws comply with the Act and the cooperative can run on cooperative values. Registration may be denied under Section 16, usually where an applicant refuses to amend non-compliant bye-laws in time, and Section 13 prohibits operating any cooperative without registration.

At the base of the structure are primary cooperatives, which Section 3 calls Sectoral (single-purpose) or multipurpose Organizations. A minimum of three Nepali citizens may form one; labour- and skill-based cooperatives involving workers and youth need at least 15; and a savings-and-credit cooperative in a Metropolitan or Sub-Metropolitan City requires at least 100 citizens. The membership count is met at the rate of one member per family at formation, though more family members may join after registration.

Primary cooperatives combine into unions the Act calls Associations. Section 4 allows at least 11 organizations (7 in remote "Class A" districts) to form a District Sectoral Cooperative Association; Section 5 covers District Cooperative Associations; Section 6 requires at least 25 sectoral organizations from at least five districts for a Provincial Sectoral Association; and Section 7 requires at least 31 organizations across at least five districts for a Provincial Cooperative Association. Section 8 sets 51 organizations across at least seven districts for a Central Sectoral Cooperative Association, and Section 9 provides for Specialized Cooperative Associations (minimum 25) for capital-intensive ventures such as hydropower, hospitals or cold storage.

At the apex, Section 10 provides for a single National Cooperatives Federation (NCF), formed by more than half of the district, provincial and central associations, to promote good governance across the sector. Section 11 bars duplication: only one association of the same nature may exist at each district, provincial and central level, and only one central federation. Section 12 allows organizations and associations, with prior approval of Nepal Rastra Bank (the central bank), to form a Cooperative Bank that provides banking services to member cooperatives.

Under Section 30, any Nepali citizen aged 16 or over who resides within the cooperative's working area, subscribes to at least one share, agrees to the bye-laws and its responsibilities, and does not run a competing business may become a member. Certain institutions, including government and local-level agencies, community schools, trusts, registered non-profits and consumer groups, may also join. Section 31 requires the committee to decide on a membership application within 35 days, and a rejected applicant may complain to the authority designated by the Registrar within 30 days.

Section 32 restricts a person from being a member of more than one cooperative of the same nature at the same local level, a key rule aimed at curbing the abuses that led to failures in the savings-and-credit sector. Section 34 lists how membership ends, including voluntary withdrawal, missing three consecutive annual general meetings without notice, or repeated violations of the Act, rules or bye-laws. However, membership cannot be terminated while a member still owes money to, or is owed money by, the cooperative.

Members exercise power through the General Meeting, described in Section 36 as the supreme body of a cooperative, which approves budgets and audit reports and elects the Board and Accounts Supervision Committee. Under Section 136, voting follows the cooperative principle of one member, one vote regardless of shares held, preserving democratic control.

Section 41 requires each cooperative to have a Board of Directors elected by the General Meeting, with a four-year term and, to the extent possible, at least 33 percent women members. No more than one person from the same family may be a director at the same time, and a person may be a director of only one cooperative at a time. Section 48 requires an Accounts Supervision Committee to strengthen internal control, and Section 47 allows the General Meeting or the Registrar to dissolve a Board in defined circumstances.

The Ministry responsible for cooperative affairs designates a first-class officer of the Civil Service as the Registrar of the Department of Cooperatives (Section 92). The Registrar, and authorities to whom power is delegated under Section 94, sit at the centre of the regulatory system: they register cooperatives, may direct an extraordinary general meeting (Section 40), can order overdue elections (Section 42), inspect and check accounts at any time (Section 95), investigate on a petition of at least five percent of members (Section 96), and impose fines.

Nepal Rastra Bank plays a parallel role for cooperative banks and large savings-and-credit cooperatives, with powers to inspect, take over management (Section 59) and sanction (Section 128). After recurring cooperative fraud and liquidity crises, the government issued the Cooperatives-related Some Nepal Acts Amendment Ordinance, 2081 (December 2024), proposing a National Cooperative Regulatory Authority; readers should check its latest status, as ordinances need parliamentary endorsement to stay in force.

The Act channels cooperative earnings into mandatory funds. Section 68 requires a Reserve Fund holding at least 25 percent of net savings (surplus) each fiscal year, and this fund is indivisible. Section 69 requires a Secured Capital Redemption Fund receiving at least 25 percent of the amount left after the reserve allocation, returned to members based on their annual patronage. Section 70 requires a Cooperative Promotion Fund of 0.25 percent of the post-reserve amount, deposited with the ministry and used, at least 75 percent of it, for cooperative business infrastructure.

Section 71 permits additional funds, including one for dividends, but caps the annual share dividend at 18 percent of share capital. This 18 percent ceiling is reinforced on the penalty side: distributing a dividend above it is a finable act under Section 125. Section 78 gives cooperatives tax exemptions on amounts set aside for the reserve, redemption and promotion funds, subject to conditions.

On audit, Section 75 requires every cooperative to have its accounts of each fiscal year audited within three months of the year's end by an auditor licensed under prevailing law; if it fails, the Registrar may arrange the audit at the cooperative's cost. The audit report goes to the General Meeting for approval. Section 76 lets the General Meeting appoint the auditor and bars appointing the same person, firm or company for more than three consecutive years, while Section 77 disqualifies directors, members, employees and conflicted persons from auditing. Section 74 mandates double-entry bookkeeping to recognised accounting standards.

Section 122 lists the acts treated as offences, including running an unregistered cooperative or misusing the word "cooperative," diverting members' savings, embezzling assets, lending against fake enterprises or inflated collateral, tampering with records, and preparing false audit reports. Section 130 makes the Government of Nepal the plaintiff in such cases, and Section 124 sets graduated punishments that scale with the amount involved.

For lower-level offences under Section 124, punishment can be up to one year's imprisonment and a fine up to Rs 100,000. For embezzlement-type offences, the claimed amount is recovered, an equal amount is fined, and imprisonment rises with the sum, from up to one year for claims up to Rs 1 million to eight-to-ten years for claims above Rs 1 billion. Falsifying or destroying records under clause (n) can bring up to ten years' imprisonment, the maximum term under the Act.

Separately, Section 125 empowers the Registrar or authorised authority to impose administrative fines of up to Rs 500,000 for acts such as charging excessive interest, letting the savings-lending interest spread exceed six percent, collecting deposits beyond 15 times the primary capital fund, distributing a dividend above 18 percent, or trading outside the working area. Section 127 doubles the fine for repeat offences, and Section 126 allows freezing of transactions, accounts and assets. Nepal Rastra Bank has its own graduated sanctions for cooperative banks under Section 128, up to suspending or revoking the bank's licence.