Laws · Analysis

Citizen Investment Trust board: its Act puts the stock exchange's general manager on the board, while a securities regulation bars directors who hold an office of profit in the securities market

Possible conflict between lawsMedium confidenceEnacted ActRegulationReform recommendation

Section 25(1)(घ) of the Citizen Investment Trust Act 2047 makes the general manager of Nepal Stock Exchange Limited an ex officio director of the Trust. The Auditor General reports that this conflicts with rule 14(ख) of the Securities Businessperson Regulation 2064, under which a person holding an office of profit in the securities market cannot be a director. Our reading of the Securities Businessperson (Merchant Banker) Regulation 2064 published by the Securities Board finds a rule 14(ख) to that effect for directors of merchant bankers. Whether the rule reaches the Trust, and which text prevails, is a question for legal review.

Laws and sections involved

नागरिक लगानी कोष ऐन, २०४७ · Citizens Investment Trust Act,1991 s.25(1)(घ); s.25(2)
Our paraphrase: the Trust has a board of directors made up of, among others, 'the general manager of Nepal Stock Exchange Limited – director' (s.25(1)(घ)). The Auditor General also notes that s.25(2) requires a woman director, which had not been appointed.
Law Commission consolidated text (Act No. 25 of 2047); the latest amending Act listed is the Citizen Investment Trust (Second Amendment) Act 2077 (2077/04/13). s.25 on PDF pp.13–14. Official text
r.14(ख)
Our translation: a director or chief executive of a merchant banker must not be a person who holds any office of profit in the Board, the securities market, a securities broker or dealer, the central depository service, another merchant banker or a credit rating agency.
Securities Board of Nepal consolidated text 'with second amendment' (in force 2064/11/3; first amendment 2074/4/3; second 2076/11/1; schedule change 2081/12/7), listed on the Board's regulations page as registration no. 36/082. Not in the Law Commission catalogue. The Auditor General cites 'the Securities Businessperson Regulation 2064, rule 14(ख)' without naming the merchant-banker version; that this is the rule meant is our inference. Official text

The apparent issue

An Act requires a specific stock-market office holder to sit on the Trust's board, while a regulation aimed at preventing conflicts of interest in the securities market says such a person cannot be a director. The Act does not refer to the regulation, and the regulation does not exempt directors appointed by statute.

Evidence

The Auditor General found that the provision in s.25(1) of the Citizen Investment Trust Act making the general manager of Nepal Stock Exchange a director, and rule 14(ख) of the Securities Businessperson Regulation 2064 making a person holding an office of profit in the securities market ineligible to be appointed director, conflict with each other. It also found that the Act does not set out the executive director's duties and powers and that no woman director had been appointed as s.25(2) requires, and asked for compliance to be improved. Office of the Auditor General Fully government-owned organised bodies chapter, Citizen Investment Trust, para 5, printed p.637 (PDF p.671)
Section 25 of the Act was read in the Law Commission text, and rule 14 of the merchant-banker regulation in the Securities Board's consolidated text. Nepal Law Commission · Securities Board of Nepal CIT Act PDF pp.13–14; Regulation PDF p.6

Possible readings

Reading 1: an Act prevails over a regulation made under another Act, so the general manager may sit on the Trust's board despite the rule; the 'conflict' is only apparent and the regulation should be read as not applying to statutory ex officio directors.
Reading 2: the rule regulates the Trust only in its capacity as a licensed securities businessperson; if the Trust holds such a licence, it must meet the licence conditions, and the way to reconcile the two is to amend the Act or for the Board to grant a specific exemption.
Reading 3: the rule's purpose (avoiding conflicts between the exchange and market participants) is a sound policy that the 2047 Act predates, so the inconsistency signals that the Act's board composition is outdated rather than that either text is invalid.

Why it matters in practice

If the rule applies, the Trust's board composition could be questioned, and decisions involving market dealings might face conflict-of-interest concerns because the exchange's chief executive sits on the board of a market participant. If the Act prevails, the regulator's conflict-of-interest standard does not reach one of the largest institutional investors.

Hypothetical example

Hypothetical: the Trust's board decides to apply for a new listing of a fund it manages on the stock exchange. The exchange's general manager, sitting on the Trust's board, must then also decide on the application at the exchange. One reading sees a lawful statutory role; another sees a breach of the regulator's eligibility rule.

Possible improvements and trade-offs

Amend s.25(1) of the Citizen Investment Trust Act to replace the stock-exchange seat with another member (for example an independent capital-markets expert).
Removes the conflict; the Trust loses direct market expertise from the exchange on its board.
Keep the Act and have the Securities Board clarify, by amendment or exemption, that statutory ex officio directors are outside the rule.
Quick and keeps current arrangements; weakens the regulator's conflict-of-interest rule for one large market participant.
Keep both texts and manage the overlap through recusal rules on the Trust's board for matters involving the exchange.
Practical; does not resolve the formal eligibility question the Auditor General raised.

Questions for legal review

Is the Citizen Investment Trust licensed as a securities businessperson (merchant banker or otherwise) so that the Securities Board's eligibility rules apply to its directors?
Which regulation and rule did the Auditor General mean by 'Securities Businessperson Regulation 2064, rule 14(ख)'?
Where a specific Act fixes a board seat and a regulation under a different Act sets director eligibility, does the regulation have any effect on that seat?

Research status

Researched: 2026-10-12
Confidence: Medium confidence — The Auditor General states the conflict directly and both texts were read. Confidence is medium because the Auditor General does not name the exact regulation, we have not confirmed the Trust's licence category, and under ordinary hierarchy an Act would prevail over a regulation.
Review: Not yet reviewed by a qualified lawyer.

Still unresolved

The Trust's securities-business licence category was not confirmed from the Securities Board's register.
The Trust's or the Ministry of Finance's response to the Auditor General was not found.
A separate point in the same audit (para 6: investment of the retirement fund and a Supreme Court certiorari decision of 2080/4/22 linking it to Income Tax Rules r.20(2)) was not researched here.