Shareholder Agreements and Joint Ventures: What Is Enforceable

The consensus agreement

Nepal has a statutory form of shareholders’ agreement, and the first thing to establish about a joint venture document is which of the two instruments you are drafting.

The Companies Act 2063 (2006) defines a consensus agreement as an agreement made unanimously by all the shareholders of a private company existing for the time being, in respect of the operation of the company. Three conditions are built into that definition. The company must be private. The agreement must be unanimous. And it must concern the operation of the company rather than some collateral commercial arrangement between the parties.

An agreement that satisfies those conditions acquires statutory effects that an ordinary contract does not have. An agreement that does not satisfy them is a contract like any other, governed by Part V of the Muluki Civil Code 2074 (2017), binding only those who signed it and enforceable only by the remedies the Code provides.

What statutory recognition buys

Four provisions carry the consensus agreement into the company’s own machinery.

Filing. The incorporation application for a private company must include any unanimous shareholders’ agreement. The instrument therefore sits on the Registrar’s file. It is not a side letter and cannot be treated as one.

Transfer control. Section 10(d) prohibits a private company from pledging or transferring title to its securities to any person other than a shareholder without fulfilling the procedures contained in the memorandum of consensus agreement. This is a prohibition on the company, not merely an obligation of the shareholders.

Registration refusal. Section 44(1)(b) permits the company to refuse to record a pledge or effect a transmission where it would be contrary to the articles of association or the agreement concluded between the shareholders, with notice to both transferor and transferee within fifteen days. A transfer made in breach is more than actionable after the event. It can be stopped at the register.

Directors’ duty. Every director must comply with the Act, the memorandum, the articles and the consensus agreement. Breach of the agreement is therefore a breach of directors’ duties. That brings the Act’s own remedies into play alongside the contractual ones: recovery of personal benefit as if it were a loan, and damages for acts done with ulterior motive.

The price of all this is unanimity and disclosure. A consensus agreement that admits a new shareholder without that shareholder acceding to it stops being unanimous, and the statutory hooks come loose. Any joint venture contemplating future investors needs a self-executing accession mechanism.

What does not work

Obligations on the company that the Act does not permit. The articles and the consensus agreement can restrict transfer, allocate board seats and set reserved matters. They cannot authorise the company to do something the Companies Act prohibits. A private company cannot publicly offer shares by agreement, and the requirement that regulated businesses take public form cannot be contracted around.

Agreements among some shareholders. A side agreement between the foreign investor and one Nepali shareholder is a contract, and only the signatories are bound. It does not engage the directors’ statutory duty, and its status under section 44(1)(b), which speaks of “the agreement concluded between the shareholders”, is not obviously settled where the agreement is not unanimous.

Fixed-price exits involving a foreign party. This is the largest practical failure. A transfer of shares to or from a foreign investor is a regulated event under the Foreign Investment and Technology Transfer Act 2075 (2019). Approval is a state decision, and so is the repatriation channel that gets the proceeds out. A put option expressed as an unconditional obligation to buy on a fixed date at a fixed price commits the parties to an act neither of them controls. Drafting that survives makes the approval a condition, allocates the burden of pursuing it, and provides for delay or refusal, including whether the price is adjusted for the delay.

Specific performance as an assumption. The Muluki Civil Code lists specific performance among the remedies for breach. No Nepali decision was located applying it to compel the transfer of shares under a shareholders’ agreement, and nobody should assume a Nepali court will order transfer rather than award damages. Where the arrangement depends on getting the shares rather than getting compensated, build the control into the articles and the register, where the refusal power operates, rather than relying on a court order.

Deadlock provisions dependent on a company act. Buy-outs funded by the company itself run into the Companies Act’s own constraints on a company dealing in its own shares. A deadlock mechanic funded by the shareholders is on firmer ground than one funded by the company.

Arbitration and enforcement

Commercial joint venture agreements in Nepal are ordinarily arbitrated under the Arbitration Act 2055 (1999), frequently with a foreign seat. Nepal is a party to the New York Convention.

The instructive authority is Hanil Engineering & Construction Co. Ltd v KONECO Pvt. Ltd., decided by a Division Bench of the Supreme Court on 26 December 2017 (2074.9.11), case number 067-WO-0419. It is reported as the first case in which enforcement of a foreign arbitral award was sought in Nepal. Enforcement of an award of the Korean Commercial Arbitration Board failed. The grounds read better as drafting instructions than as an outcome:

• the arbitrator had not been appointed as the parties had agreed, and an ex parte appointment request did not cure that;
• notice at each stage had to reach the party itself, and service on someone without authority to receive it was insufficient;
• where the contract required good-faith attempts at amicable settlement before arbitration, that step could not be skipped;
• the law governing the contract did not automatically govern the arbitration clause or the arbitral procedure.

The pattern is a court policing the process rather than reviewing the merits. Enforceability in Nepal therefore turns on the appointment mechanism, the notice provisions, the escalation clause and the law of the arbitration agreement. The substantive covenants that absorb most of the negotiating attention are not where the risk sits.

What remains unsettled

Nepali case law on shareholders’ agreements is thin, and the published record leaves several questions open. Whether a non-unanimous agreement engages section 44(1)(b). Whether a Nepali court will grant specific performance of a share transfer obligation. And how a conflict between the articles and a consensus agreement is resolved where the two diverge after an amendment to one of them.

The practical response is to put the operative restrictions in the articles as well as in the agreement, keep the agreement unanimous, and file it. That is not elegant drafting. It is the arrangement with the most statutory support behind it, which is what counts where reported authority is scarce.

Sources

1. Companies Act, 2063 (2006) — section 2, definitions [unofficial reproduction, actnepal.com]

   Government of Nepal (English translation) · In force, as amended · Tier 6 — Professional or news source

   Supports: The definition of consensus agreement as an agreement made unanimously by all shareholders of a private company in respect of the operation of the company, and the definitions of officer, holding company and subsidiary.

   Accessed 26 August 2026

2. Companies Act, 2063 (2006) — sections 4, 10, 44 and 99 [unofficial reproduction, actnepal.com]

   Government of Nepal (English translation) · In force, as amended · Tier 6 — Professional or news source

   Supports: Filing of the unanimous shareholders' agreement at incorporation; the bar on transferring securities to a non-shareholder without following the consensus agreement procedure; the grounds on which a company may refuse to register a transfer, including breach of the agreement concluded between the shareholders; and the directors' statutory duty to comply with the consensus agreement.

   Accessed 26 August 2026

3. An Analysis of Major Provisions of Nepalese Law of Contract (Part V of Muluki Civil Code, 2074)

   Molung Educational Frontier (NepJOL) · Peer-reviewed article; Code in force from 1 Bhadra 2075 (17 August 2018) · Tier 5 — Research

   Supports: That the Contract Act 2056 was repealed by the Act to Amend, Unify, Adjust and Repeal Some Nepal Laws 2074 and that contract law is now Part V of the Muluki Civil Code 2074, in force from 1 Bhadra 2075, with remedies including damages, cancellation, quantum meruit and specific performance.

   Accessed 26 August 2026

4. Publication of Supreme Court Ruling in the First Case of Enforcement of Foreign Arbitral Award in Nepal

   Pradhan, Ghimire & Associates · Decision of 26 December 2017 (2074.9.11); case 067-WO-0419 · Tier 6 — Professional or news source

   Supports: The case name, court, date and number, and the grounds on which enforcement of the Korean Commercial Arbitration Board award was refused: arbitrator appointment otherwise than as agreed, defective notice, bypassing a contractual amicable settlement step, and separability of the arbitration clause from the contract's governing law.

   Accessed 26 August 2026

5. The Foreign Investment and Technology Transfer Act, 2019 (2075)

   Investment Board Nepal · 2019; in force, as amended 31 March 2025 · Tier 1 — Primary legal instrument

   Supports: That the acquisition of shares in a Nepali company by a foreign investor, and the repatriation of proceeds, are regulated events requiring approval.

   Accessed 26 August 2026