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Security documentation for corporate loans in Nepalis governed by theSecured Transactions Act, 2006,National Civil Code, 2074 (2017), andNepal Rastra Bank (NRB) prudential regulations. The legal framework distinguishes between immovable property (land, buildings) and movable assets (machinery, inventory, receivables), with different perfection mechanisms for each category. A landmark development in 2025 is the enactment of theSecured Transactions Bill, 2023, which for the first time allows intellectual property and intangible assets to serve as collateral for loans, significantly expanding borrowing capacity for Nepalese businesses.
Legal Framework for Security Documentation
Primary Legislation
TheSecured Transactions Act, 2006establishes the foundational framework for creating, perfecting, and enforcing security interests over movable property. The Act was designed to facilitate access to finance by enabling businesses to use movable assets as collateral, though its full implementation has been hampered by the non-establishment of the Secured Transactions Registration Office (STRO).
TheNational Civil Code, 2074 (2017)governs immovable property mortgages through Chapter 12, recognizing two primary mortgage types:
- Mortgage with possession (Bhogbandaki):Mortgagee holds physical possession of property
- Mortgage without possession (Drishtibandhaki):Mortgagor retains possession while granting security interest
TheCompanies Act, 2063 (2006)provides for the creation of charges over company assets, requiring registration with the Office of Company Registrar (OCR) for certain security interests.
Recent Legislative Development: Secured Transactions Bill, 2023
In a significant reform, theSecured Transactions Bill, 2023received presidential assent in 2025, introducing:
| New Provision | Impact |
|---|---|
| IP-backed lending | Patents, trademarks, copyrights eligible as collateral |
| Comprehensive movable collateral | Machinery, mineral rights, livestock, agricultural crops, processed food products |
| Central registry establishment | New registrar's office for movable asset transactions |
| Notice filing system | Publicity of security interests and priority determination |
This reform addresses the long-standing limitation where banks could only lend against tangible, immovable property unless NRB specified otherwise.
Types of Collateral for Corporate Loans
Immovable Property (Real Estate)
| Collateral Type | Perfection Mechanism | Governing Law |
|---|---|---|
| Land and buildings | Registration at Land Revenue Office | National Civil Code 2074, Lands Act 2021 |
| Leasehold rights | Lease agreement registration + mortgage deed | Civil Code, Contract Act |
| Under-construction properties | Hypothecation + completion guarantees | BAFIA 2073, NRB directives |
Mortgage Registration Process:
- Execution of mortgage deed (Sadhan Sambandhi Dastawez) on stamp paper
- Submission to Land Revenue Office (Malpot) within 35 days
- Payment of registration fees (typically 4-10% of property value)
- Entry in Land Record Information System (LRIS)
- Issuance of updated Lalpurja (ownership certificate) with mortgage notation
Movable Property
| Collateral Category | Examples | Perfection Status |
|---|---|---|
| Machinery and equipment | Manufacturing equipment, vehicles | STRO registration (when operational) |
| Inventory and stock | Raw materials, finished goods | Possession-based or STRO filing |
| Receivables | Trade debts, book debts | Assignment + notice to debtors |
| Bank deposits | Fixed deposits, savings accounts | Pledge + bank acknowledgment |
| Investment securities | Shares, bonds, debentures | Demat account pledge + NEPSE notification |
| Intellectual property | Patents, trademarks, copyrights | New: IP Office registration + STRO filing |
Special Categories
Cash Collateral:
- Fixed deposit receipts (FDRs) pledged with lending bank
- Margin requirements for letters of credit and guarantees
- Escrow accounts for project financing
Personal Guarantees:
- Corporate guarantees from parent/sister companies
- Personal guarantees of promoters/directors
- Comfort letters for group company exposures
Security Perfection Requirements
Immovable Property Perfection
Essential Steps:
| Step | Activity | Authority | Timeline |
|---|---|---|---|
| 1 | Title verification and due diligence | Land Revenue Office | 3-7 days |
| 2 | Valuation by certified valuer | Nepal Valuers' Association member | 5-10 days |
| 3 | Mortgage deed execution | Before notary public | Same day |
| 4 | Registration at Land Revenue Office | Land Revenue Office | 1-3 days |
| 5 | Encumbrance certificate update | Land Revenue Office | Immediate |
Key Requirements:
- Clear title (Lalpurja) free from prior encumbrances
- Tax clearance certificate for property
- No legal disputes or court holds
- Compliance with land use regulations
- Pre-emption rights check (neighbors/relatives have 35-day claim period)
Movable Property Perfection
Current Framework (Pre-STRO Operationalization):
| Collateral Type | Perfection Method | Enforceability Risk |
|---|---|---|
| Machinery | Hypothecation deed + possession | High - no public registry |
| Inventory | Floating charge + stock statements | Very high - difficult to verify |
| Receivables | Assignment deed + debtor notice | Moderate - dependent on debtor cooperation |
| Shares | Pledge agreement + demat transfer | Low - NEPSE registry provides transparency |
| Bank deposits | Pledge + lien marking | Very low - bank's own records |
Post-STRO Operationalization (Expected):
- Notice filing with Secured Transactions Registration Office
- Priority determination based on filing date
- Public search capability for existing security interests
- Streamlined enforcement procedures
Company Charge Registration
UnderCompanies Act, 2063, certain security interests require OCR registration:
| Charge Type | Registration Requirement | Consequence of Non-Registration |
|---|---|---|
| Mortgage of immovable property | Mandatory within 30 days | Charge void against liquidator/creditors |
| Hypothecation of movable property | Mandatory for company assets | Unenforceable in winding-up |
| Pledge of shares | Mandatory if company is pledgor | Priority issues in enforcement |
| Floating charge | Mandatory for current assets | Invalid against subsequent creditors |
OCR Registration Process:
- Filing of Form 10 (Particulars of Charges)
- Attachment of security instrument
- Payment of registration fee (NPR 500-2,000 depending on secured amount)
- Certificate of charge registration
Documentation Requirements by Loan Type
Term Loan Security Package
| Document | Purpose | Execution Requirements |
|---|---|---|
| Loan Agreement | Primary credit facility terms | Board resolution, authorized signatories |
| Mortgage Deed | Immovable property security | Notarized, registered at Land Revenue Office |
| Hypothecation Agreement | Movable asset security | Board resolution, asset schedule attached |
| Promissory Note | Evidence of debt | Stamped, executed by borrower |
| Letter of Continuity | Continuing security for revolving facilities | Cross-referenced to primary documents |
| Guarantee Deeds | Third-party liability support | Guarantor board resolution, notarized |
| Security Trustee Agreement | For syndicated/consortium loans | Inter-creditor arrangement documentation |
Working Capital Security
| Document | Purpose | Special Features |
|---|---|---|
| Hypothecation of Stocks | Inventory financing | Floating charge, periodic stock statements |
| Book Debt Assignment | Receivables financing | Notice to major debtors, collection account control |
| Cash Credit Agreement | Overdraft facility | Drawing power calculations, margin maintenance |
| Letter of Credit Facilities | Trade finance | Cash margin, shipping document control |
Project Finance Security
| Document | Purpose | Project-Specific Elements |
|---|---|---|
| Project Assets Mortgage | Immovable project property | Step-in rights, completion guarantees |
| Assignment of Project Agreements | Off-take contracts, EPC contracts | Direct agreements with counterparties |
| Escrow Account Agreement | Cash flow control | Waterfall payment priorities |
| Completion Guarantee | Construction risk mitigation | Parent company or sponsor guarantee |
| Performance Bonds | Contractor performance security | Bank/insurance company instruments |
NRB Prudential Requirements
Loan-to-Value (LTV) Ratios
| Collateral Type | Maximum LTV | Additional Requirements |
|---|---|---|
| Residential real estate | 70-80% | Valuation by approved valuer |
| Commercial real estate | 60-70% | Title insurance recommended |
| Industrial machinery | 50-60% | Insurance coverage mandatory |
| Inventory (finished goods) | 40-50% | Regular stock audits |
| Raw materials | 30-40% | Quality and marketability assessment |
| Receivables | 60-70% | Creditworthiness of major debtors |
| Bank deposits | 90-95% | Same bank or approved correspondent |
| Listed securities | 50-70% | Margin maintenance, price monitoring |
Single Obligor and Concentration Limits
- Class A banks:Maximum 25% of core capital to single borrower/group
- Consortium financing:Mandatory for exposures exceeding NPR 2 billion
- Sector concentration:Monitoring for real estate, construction, hydropower
Foreign Currency Loan Security
Forforeign loansapproved by NRB:
- Security documentation must comply with NRB Foreign Investment and Loan Management Bylaws
- Registration of security with NRB for monitoring
- Foreign exchange risk hedging requirements
- Repatriation approval coordination for enforcement proceeds
Enforcement of Security
Immovable Property Enforcement
| Enforcement Route | Process | Timeline |
|---|---|---|
| Judicial foreclosure | Court application under Civil Code Chapter 12 | 2-5 years |
| Power of sale | If mortgage deed includes power of sale clause | 6-12 months |
| Private treaty | Negotiated sale with mortgagor cooperation | 3-6 months |
| Auction | Public auction under court supervision | 1-2 years |
Civil Code Provisions:
- Interest rate capped at 10% annually on mortgage loans
- Maximum mortgage duration: 10 years (with possession), 5 years initially (without possession)
- Redemption right: Mortgagor may redeem anytime by repaying loan
Movable Property Enforcement
Self-Help Remedies (Post-STRO):
- Repossession without judicial order for certain collateral types
- Sale or disposition of collateral after notice
- Application of proceeds to debt satisfaction
Current Practice (Pre-STRO):
- Judicial intervention typically required
- Writ of attachment from court
- Court-supervised sale or auction
- Protracted timelines due to procedural requirements
Cross-Border Security Considerations
Foreign Law Governing Security
Forinternational syndicated loans:
- English or New York law often governs security agreements
- Recognition and enforcement under Nepalese law requires:
- Proper authentication and legalization
- Compliance with foreign exchange regulations
- NRB approval for foreign security interests
Parallel Security Structures
| Structure | Application | Documentation |
|---|---|---|
| Local security | Assets located in Nepal | Nepalese law documentation, local registration |
| Offshore security | Assets held abroad | Foreign law documentation, foreign registration |
| Share pledge | Foreign holding company shares | Law of share location, NRB notification |
Frequently Asked Questions About Security Documentation
What types of collateral can be used for corporate loans in Nepal?
Collateral types Nepalinclude: immovable property (land, buildings), movable assets (machinery, vehicles, inventory), receivables, bank deposits, investment securities, and now under the 2023 Secured Transactions Bill,intellectual property(patents, trademarks, copyrights).
How is a mortgage registered in Nepal?
Mortgage registration Nepalrequires: execution of mortgage deed on stamp paper, submission to Land Revenue Office within 35 days, payment of registration fees (4-10% of property value), verification of title and tax clearance, and entry in the Land Record Information System (LRIS).
What is the Secured Transactions Act 2006?
TheSecured Transactions Act 2006 Nepalprovides the legal framework for creating security interests over movable assets, establishing priority rules, and enabling enforcement. However, the Act has not been fully operational due to the non-establishment of the Secured Transactions Registration Office (STRO), limiting its practical effectiveness.
Can intellectual property be used as loan collateral in Nepal?
Yes, theSecured Transactions Bill 2023(enacted 2025) explicitly allows intellectual property rights—patents, trademarks, copyrights—to serve as collateral for loans, creating new financing opportunities for technology and creative industries.
What is the difference between mortgage with possession and without possession?
Mortgage with possession (Bhogbandaki):Mortgagee holds physical possession of property, maximum 10-year duration.Mortgage without possession (Drishtibandhaki):Mortgagor retains possession, initially 5-year term, renewable. Both require Land Revenue Office registration under Civil Code 2074.
What happens if security documentation is not properly perfected?
Imperfect security consequencesinclude: unenforceability against liquidators in company winding-up, loss of priority to subsequent creditors, inability to foreclose or repossess collateral, and treatment as unsecured creditor in bankruptcy proceedings.
Are there any restrictions on foreign banks taking security in Nepal?
Foreign bank security Nepalis permitted subject to NRB approval for the underlying loan. Security documentation must comply with Nepalese registration requirements, and enforcement proceeds may require NRB approval for repatriation.
What is the role of the Office of Company Registrar in security documentation?
OCR charge registrationis mandatory for company-created security interests. Non-registration renders charges void against liquidators and creditors. Registration provides public notice and priority protection.
How are security interests enforced in case of default?
Security enforcement Nepalinvolves: judicial foreclosure proceedings (2-5 years), power of sale if contractually provided (6-12 months), private treaty sale with cooperation, or court-supervised auction. Movable asset enforcement is more complex due to lack of operational STRO.
What documentation is required for a complete security package?
Complete security documentation Nepalincludes: loan agreement, mortgage/hypothecation deeds, promissory note, guarantee deeds, board resolutions, security trustee agreement (for syndicated loans), insurance policies, and perfection certificates from relevant registries.
Professional Security Documentation Services
Attorney Nepal Pvt. Ltd.provides comprehensivesecurity documentation services for corporate loans in Nepal, including:
- Collateral structuringand security design optimization
- Mortgage documentationand Land Revenue Office registration
- Movable asset securitydocumentation (hypothecation, pledge, assignment)
- IP-backed lendingdocumentation under new 2023 Act
- Company charge registrationwith OCR
- Syndicated loan securityand inter-creditor arrangements
- Cross-border securitycoordination and perfection
- Security enforcementstrategy and litigation support
- Due diligencefor existing security portfolios
- NRB complianceand prudential requirement advisory
ContactAttorney Nepal Pvt. Ltd.to ensuresecurity documentation for corporate loans in Nepalmeets perfection requirements, maximizes enforceability, and protects lender interests throughout the credit lifecycle.
References
- Secured Transactions Act, 2006 - Nepal Law Commission- Framework for movable asset collateral
- World Bank - Secured Transaction Act 2006 Overview- STRO establishment and operational status
- National Civil Code, 2074 (2017) - Nepal Law Commission- Chapter 12 mortgage provisions
- Secured Transactions Bill, 2023 - Presidential Assent 2025- IP-backed lending authorization
Disclaimer:This blog provides general information aboutsecurity documentation for corporate loans in Nepaland does not constitute legal or financial advice. The Secured Transactions Bill 2023 represents significant changes subject to implementing regulations. Security laws and perfection requirements are complex and situation-specific.
This article is for general informational purposes only and does not constitute legal advice. For advice on your specific situation, please contact Attorney Nepal directly.
