National 2 (Spotlight Weekly)

In Search Of Justice

From the courts to the central bank, Credit Agricole Indosuez is knocking every door for justice, largely in vain.

By A CORRESSPONDENT

If Credit Agricole Indosuez's (CAI) experience over the last three months is any indication, lengthy legal procedures, unhealthy business practices and indecisiveness of the central bank continue to mar Nepal's business environment.

Although the CAI's decision to sell its shares in Nepal Indosuez Bank is being challenged at Lalitpur Appellate Court by the Chaudhary Group, negligence on the part of the Nepal Rastra Bank in responding the request of the CAI has complicated matters. The CAI, one of the biggest international banks based in France, holds 50 percent of Nepal Indosuez Bank's shares.

In a country espousing a liberalized economic system, the CAI's experience unmasks the traditional working patterns of the judiciary, central bank and private business groups. If anything, this episode shows that Nepal's commitment to the rule of law remains only on paper.

Despite the existence of strong legal systems to protect foreign investors, personal interests and back-room maneuvering continue to influence business dealings. Unfortunately, private business houses, which are deemed more competent to compete in the international market, seem ready to flout fair business practices.

Chaudhary Group, a leading Nepalese industrial house, has asserted its right to buy Nepal Indosuez Bank's shares. According to sources at the CAI, however, Chaudhary Group is distorting the words and meaning of their memorandum of understanding (MoU), apparently suggesting that the group enjoyed forever the right to buy CAI's shares. The CAI maintains the MoU expired on July 15,1999. In legal terms, a MoU is subject further negotiations and is not a binding agreement.

In the last three months, the CAI won its case against Chaudhary Group in two courts of law. It prevailed in the Lalitpur Appellate Court on December 6, 2001 and in the Supreme Court on February 4, 2002. Chaudhary Group seems to be using the third case pending in the appellate court to drag the matter.

The Supreme Court directed the appellate court to settle the issue as soon as possible. Accordingly, the appellate court set a date for an expedited hearing. But it was postponed for 32 days because of the absence of Chaudhary Group's lawyer. There are concerns the group may delay the process for another few months.

Chaudhary Group, however, defends its claim that its MoU with the CAI sets no deadline on its right to buy the shares. "We are waiting for the court to give us justice and at the same time Nepal Rastra Bank to act in a manner that will not compromise the right of the aggrieved party and also not waste the country's scare foreign financial resources," said a press release issued by Chaudhary Group on March 13.

But when personal interests step in, there is always a possibility of more problems. The matter was complicated when Sushil Panta, legal advisor to the Nepal Rastra Bank, pleaded at the Lalitpur Appellate Court on behalf of Chaudhary Group. The central bank, which is supposed to direct the CAI on its decision to sell its shares to Prithvi Bahadur Pandey's group, remains a silent spectator. The CAI claims its 30 letters to the central bank have gone unanswered.

As soon as the CAI decided to sell its 50 percent stake to a group led by Pandey, Chaudhary Group claimed it retained the indefinite right to buy the shares. Interestingly, the CAI's decision was leaked by some board member to the Chaudhary Group even before formal procedures began. On that basis, Chaudhary Group went to the appellate court seeking an interim order restraining the CAI from selling its share to any other group.

The MoU signed between Chaudhary Group and the CAI envisaged negotiating an agreement to sell the CAI's shares to Chaudhary Group and or its nominee. Before the expiry of the MoU, the CAI in a letter dated April 27, 1999 requested the NRB to grant approval to the sale of its share to Nabil Bank, which was the nominee of Binod Chaudhary. In its reply in July 1999, the central bank asked the CAI to remain in Nepal or to bring some other bank of international reputation. The MoU was deemed lapsed because of the NRB's refusal to grant approval to Nabil as well as because of the expiry of time.

The NRB refused to endorse the CAI's intention to sell its share to Chaudhary Group's nominee, but is now silent about the matter. According to lawyers, the central bank should permit the CAI to sell its share.

Although the case is in court, the final decision rests with the central bank. If Nepal Rastra Bank takes a decision, the appellate court cannot do anything, since its verdict has not said anything on the dispute between the CAI and other party.

The harassment meted out to the oldest foreign joint-venture bank has done enough damage to Nepal. It also questions the authority of Nepal Rastra Bank and its regulatory capabilities.

"We are waiting for the central bank's decision. We don't have unlimited patience. The central bank is the authority that has to maintain stability in the banking sector," said M. Dumetz, chief executive director of Nepal Indosuez Bank. "We have already written 30 letters to the central bank seeking clearance to sell the shares, but we have not received a single reply."

This is not simply a question of who will get the shares of the CAI or who will get financial benefits. This is a fundamental issue of whether or not a party can sell its share to prospective parties in accordance with existing laws. If the concerned parties try to slam the door and impose their own practices, it will send the wrong message about Nepal's business environment. According to the World Bank's World Development Report, foreign direct investment will pour only into those countries where the rule of law prevails both in letter and spirit.