KATHMANDU: The Supreme Court of Nepal has issued a directive ordering that funds raised above the face value of shares issued at a premium must be deposited into a dedicated reserve fund and cannot be distributed as profits or dividends to shareholders.

The ruling was delivered by a joint bench of Justices Manoj Kumar Sharma and Srikanta Poudel regarding a writ petition filed against Himalayan Reinsurance’s primary share offering (IPO).

The court clarified that the Securities Board of Nepal (SEBON) and the Nepal Insurance Authority failed to fully discharge their legal responsibilities, noting that regulatory oversight extends beyond simply granting approvals and requires a thorough examination of prospectuses to safeguard investor interests.

While the petitioners—advocates Yam Prasad Bhattarai and Bhimsen Raymajhi—argued that the Insurance Act, 2022 mandates issuing shares strictly at face value, the court ruled that reading the law alongside the Companies Act, 2006 and Securities Regulations allows premium issuances if specific criteria are satisfied.

As Himalayan Reinsurance met the required benchmarks—such as three consecutive profitable fiscal years, positive net worth, and necessary credit ratings—and because the share allotment had already been completed, the court dismissed the petition to annul the IPO.

However, the justices instructed SEBON, the Nepal Insurance Authority, and Himalayan Reinsurance to coordinate immediately to manage all premium revenues through a restricted reserve fund in line with statutory provisions, warning regulators to maintain strict institutional governance and transparency going forward.