Case Background

Swawalamban Microfinance Financial Institution Limited, a development bank licensed by Nepal Rastra Bank (NRB), terminated the employment of several respondents on grounds of misconduct, specifically for unauthorized absence exceeding 30 days. The decision, initially made by the Chief Executive Officer, was upheld by the Board of Directors (BOD) following an internal appeal by the respondents. Dissatisfied, the respondents escalated the matter to the Labour Court, which overturned the BOD’s decision, prompting Swawalamban to file a writ petition before the Supreme Court challenging the Labour Court’s jurisdiction.

The Supreme Court’s Full Bench, in a 4-1 majority ruling, held that the Labour Court lacked jurisdiction over employment disputes involving banks and financial institutions. This decision not only dismissed the Labour Court’s reinstatement order but also invalidated its authority to hear similar cases, fundamentally reshaping the application of labour laws in Nepal’s financial sector.For the full case text in Nepali, refer to the Supreme Court’s official document.

Key Legal Issues Addressed

The case raised critical questions about the interplay between the Labour Act, 2074, and the Banks and Financial Institutions Act (BAFIA), 2073, particularly regarding their applicability to employment matters in banks. The primary issues examined by the Court include:

1. Which Law Governs: Labour Act or BAFIA?

The Labour Act, 2074, defines “companies” broadly, potentially encompassing banks and financial institutions. However, BAFIA, under Section 133, mandates that employee-related matters—such as appointment, discipline, and dismissal—be governed by internal byelaws approved by NRB. Prior to the Labour Act’s enactment, BAFIA was considered the special law for banks. However, A previous Supreme Court ruling in 2023, as reported by myRepublica, had applied the Labour Act to banks, creating ambiguity.

In the present case, the Full Bench clarified that BAFIA is the special law for banks and financial institutions. Supported by Section 108(3) of the Labour Act, the Court ruled that employee matters are exclusively regulated by NRB-approved byelaws, rendering the Labour Act inapplicable to such institutions.

2. Labour Court’s Appellate Jurisdiction

Section 165 of the Labour Act allows employees to appeal employment-related decisions to the Labour Court, provided internal appeal processes are exhausted. However, the Supreme Court held that since banks are governed by BAFIA and NRB byelaws, the Labour Court has no jurisdiction over their employment disputes. The Court further reasoned that banks, like Special Economic Zones, fall outside the Labour Act’s scope due to their specialized regulation by NRB.

3. Internal Appeal Mechanisms

The Court emphasized that employees retain appeal rights within the bank’s internal framework, first to the CEO and then to the BOD. These authorities, deemed competent and procedurally sound, fulfill the requirement for a fair appeal process, eliminating the need for Labour Court intervention.

Implications of the Ruling

This landmark decision has far-reaching consequences for Nepal’s banking and financial sector:

• Exemption from Labour Act
  Banks and financial institutions are no longer subject to the Labour Act, 2074, for employment disputes, reinforcing NRB’s regulatory authority.
• Limited Recourse for Employees
  Employees cannot appeal to the Labour Court, restricting their remedies to internal appeals or writ petitions under Articles 133 and 144 of the Constitution of Nepal, 2072.. This shift may increase reliance on High Court or Supreme Court writs as the primary legal remedy.
• Impact on Pending Cases
  The ruling led to the dismissal of several labour-related cases involving banks at the Labour Court, citing lack of jurisdiction.
• Regulatory Clarity
  The decision strengthens the autonomy of banks to manage employment matters through NRB-approved byelaws, potentially streamlining disciplinary processes.

However, the ruling raises concerns about employee protections, as the absence of Labour Court oversight may limit access to justice for aggrieved employees. A balanced approach could have recognized BAFIA’s sectoral governance while preserving Labour Court jurisdiction for disputes not explicitly covered by byelaws.

For a detailled analysis, download the full case brief here.

Disclaimer: This article is for informational purposes only and does not constitute legal advice.