Kathmandu-Nepal Investment Mega Bank CEO Jyotiprakash Pandey has been arrested on charges of 'illegally auctioning Smart Telecom’s assets with the intention of depriving the government of its rightful ownership, amounting to fraud and criminal breach of trust.' However, the arguments presented by bankers regarding the arrest do not align with the government’s position.

There has been widespread criticism from the banking sector, which argues that a banker has been arrested merely for recovering bad loans (NPLs) through the lawful auction of collateral assets. The Smart Telecom case has now become a major point of dispute among the banking sector, the telecommunications industry, and government agencies.

After Nepal Police’s Central Investigation Bureau (CIB) detained Pandey, the banking sector described the move as 'interference in a loan recovery process carried out in accordance with the law.'

At the center of the dispute is a multi billion rupee loan extended to Smart Telecom Pvt. Ltd. Questions have been raised over the collateral pledged against the loan and the bank’s subsequent recovery process through the sale of those assets.

Smart Cell had obtained a license from the Nepal Telecommunications Authority on April 15, 2013, to operate telecommunications services. However, the company failed to renew its license as required by law. Under Nepal’s legal framework, a telecom license is automatically revoked if not renewed.

According to Rule 18 of the 'Telecommunications Service Provider Asset Management Regulation, 2022,' all company assets, telecommunications infrastructure, structures, systems, and communication equipment came under the control of the telecommunications authority. Authorities allege that assets already under government control were auctioned illegally with the intention of undermining the government’s rights.

Nepal Investment Mega Bank stated that its actions were based on provisions in the Banks and Financial Institutions Act, 2017. The law states that if a borrower fails to comply with loan agreements, repay principal and interest within the agreed period, or misuses the loan, the bank has the authority to auction collateral or adopt other measures to recover outstanding dues.

A consortium led by Nepal Investment Mega Bank, with participation from Prime Commercial Bank, had provided various banking facilities to Smart Telecom beginning January 12, 2018. The company received financial facilities worth more than Rs 5.20 billion, including letters of credit, overdrafts, bank guarantees, long term loans, and short term loans for network expansion, equipment imports, and telecom infrastructure development.

To secure the loans, Smart Telecom pledged its entire network, machinery, equipment, and tools as collateral. According to the bank, those assets were formally registered with the Secured Transactions Registry Office under the Secured Transactions Act, 2006. The loan agreement also clearly stated that the bank could seize and auction the collateral in the event of default.

The bank said that while the loan was initially serviced regularly, Smart Telecom later stopped repaying both principal and interest. Despite repeated written and verbal reminders, the loan remained unpaid. As a result, the bank initiated recovery proceedings under Section 57 of the Banks and Financial Institutions Act, 2017.

Under that legal provision, the bank published a 35 day public notice in national newspapers on August 8, 2025. When the loan still remained unpaid, another 15 day public notice for the auction of collateral assets was issued on September 19, 2025.

According to the bank, Smart Telecom itself had written to the bank on September 5, 2025, authorizing it to auction the collateral assets to recover outstanding dues.

Three companies submitted sealed bids during the auction process. Under the procedure carried out according to banking laws, Transgate Tech Pvt. Ltd. offered Rs 445 million, while Professional Business Network Pvt. Ltd. offered Rs 425 million. The highest bid came from Ncell Axiata, which proposed Rs 4.60 billion.

The bank said Ncell’s proposal was considered the most appropriate based on asset valuation and loan recovery needs, and the process was moved forward accordingly.

According to the bank, the bids were opened in the presence of representatives from Kathmandu Metropolitan City Ward No. 28, the Kathmandu District Administration Office, the Darbar Marg Police Circle, and participating banks. Ncell was then formally requested to deposit the remaining amount. Once the payment was received, Smart Telecom’s loan file was closed.

The legal arguments presented by the bank and the basis cited by the Nepal Telecommunications Authority appear to conflict with each other. A lack of inter agency coordination and differing legal interpretations have further complicated the matter.

The Telecommunications Service Provider Asset Management Regulation, 2022, states that after a telecom license is revoked, all associated assets, networks, and infrastructure remain under the authority’s control. The government revoked Smart Telecom’s license effective April 16, 2023, after the company failed to renew it. Following the cancellation, the company came under government control.

The banking side, however, argues that it had already established a 'first charge' over all company assets before the telecommunications authority took control of the company. Under the Secured Transactions Act, 2006, collateral rights registered earlier receive priority. Banks have cited several legal precedents in support of this position. According to the banks, the Supreme Court has previously established the principle that once a bank’s first collateral right is secured, another agency cannot later assert a superior claim over the same assets.

The law is also clear that a company’s liabilities do not disappear simply because ownership changes. Both assets and liabilities remain attached to the company. Therefore, any party taking over the company’s assets must also assume responsibility for its liabilities.

The government side has also accused the bank of failing to pay outstanding rent owed by Smart Cell to various property owners, as well as unpaid electricity dues, even after recovering funds through the auction process. The bank responded by saying the money remains secured with the bank, but distribution has been delayed because Smart Cell has not provided written details specifying who should receive how much.

In this context, the CIB says it is investigating issues related to government assets, telecom infrastructure transfers, and the asset sale process. Meanwhile, the banking sector has expressed growing concern that even after selling collateral assets in accordance with the law, bank officials are now being arrested.