Nepali Supreme Court Case: Clarifying Guarantor Responsibilities for Foreign Businesses

February 10, 2025

This is a legal document details from the Supreme Court of Nepal.

Supreme Court, Joint Bench

Honorable Justice Mr. Anil Kumar Sinha

Honorable Justice Dr. Mr. Kumar Chudal

Decision Date: 2079.8.1 (Vikram Samvat)

Case No.: 073-CI-0029

Case: Certiorari / Mandamus

Appellant/Plaintiff: Jethmal Golchha, resident of Mechinagar Municipality Ward No. 3, Jhapa District

Versus

Respondent/Defendant: Inland Revenue Office, Bhadrapur, Jhapa, et al.

Subject: If a foreign citizen's registered firm fails to pay tax or revenue, the liability to pay such tax or revenue shall pass to the guarantor who guaranteed at the time of firm registration.

(Principle No. 5)

Cited Precedents:

Related Laws:

Decision-Making at the Appellate Level:

Honorable Chief Justice Ms. Mira Khadka

Honorable Justice Mr. Ramesh Pokhrel

Ilam Appellate Court

Order

Justice Dr. Kumar Chudal: The brief facts and findings of this case, in which the defendant has filed an appeal in this court under Section 9(1) of the Justice Administration Act, 2048, against the decision of the Ilam Appellate Court dated 2072.7.18, are as follows:

Factual Background

I am a Nepali citizen permanently residing in Mechinagar Municipality Ward No. 1, Jhapa District. I own a house and land with plot number 64 in Ward No. 1 of Mechi Municipality, Jhapa District, and land with plot number 32. When I went to the Land Revenue Office, Jhapa to get a copy of my land ownership certificate, I found that my house and land were under restriction. I learned that it was restricted by the letter dated 2071.7.20 (Ch. No. 1996) of the first defendant.

Upon reviewing the note order dated 2072.7.16, I found that the taxpayer, Shri Chamunda Enterprises, had outstanding income tax dues that had not been paid, despite repeated reminders. It is clear that the defendants' act of restricting my property, without any tax payment and recovery process by the first defendant until today regarding the business conducted by the first defendant's taxpayer since 2055 and the tax dues owed by him to this office, infringes upon my constitutional rights. Since the proprietor of Chamunda Enterprises is an Indian citizen, it is legally clear that the guarantee I provided for him to pay the tax dues he owes is not for perpetuity but for a specific period. In fact, it is legally clear that the guarantee I provided for the proprietor of Chamunda Enterprises, Nemchand Jain, is limited to the tax dues he owes. The tax dues or liabilities for the period I provided the guarantee have not remained outstanding by the said Chamunda Enterprises' proprietor Nemchand. It is clear that it is not in accordance with justice, law, and conscience to hold me, as the guarantor of the deceased proprietor, liable for the dues without any knowledge or information to me even after the firm was transferred, sold, or assigned to other persons after the death of the proprietor of the firm for which I had provided the guarantee. It is clear that it is not in accordance with justice, law, and conscience to hold me, as the guarantor of the deceased proprietor, liable for the dues without any knowledge or information to me even after the firm was transferred, sold, or assigned to other persons after the death of the proprietor of the firm for which I had provided the guarantee. Since there is no provision anywhere in the Income Tax Act, 2058 that I should pay the tax dues owed by someone else, and since Article 89, Sub-section 1 of the Interim Constitution of Nepal, 2063 clearly states that no tax shall be levied or collected except in accordance with the law, the note order dated 2071.7.16 of the first defendant is contrary to the Interim Constitution of Nepal, 2063, and therefore, the said note, decision, and order of the defendant are liable to be quashed. A writ petition has been filed requesting that the aforementioned house and land with plot number 64 and land with plot number 32 in Mechinagar Municipality Ward No. 1, Jhapa District, registered, possessed, and owned by the petitioner, be revoked from the restriction imposed for the purpose of recovering the tax dues liability owed by Chamunda Enterprises to the first defendant, and that a prohibitory order be issued against the defendants restraining them from recovering any amount from the petitioner's aforementioned house and land or any of his property towards the tax dues liability of Chamunda Enterprises, and from arresting the petitioner as the guarantor of the said Chamunda Enterprises, and from recovering the tax liability owed by the said firm to the first defendant from the petitioner, and that a mandamus order be issued against the defendants to release the aforementioned land plot numbers from restriction. Furthermore, since there is a strong apprehension of arrest as a guarantor for the said recovery, and since the present petition may become infructuous and cause irreparable harm to the petitioner if the defendants do so, an interim order may be issued against the defendants restraining them from auctioning, selling, transferring, or assigning the petitioner's said house and land property until the final decision of this petition.

An order was issued by the Ilam Appellate Court on 2072.4.21 stating, "What is the matter? Why should an order as requested by the petitioner not be issued? If there is any reason and basis for not issuing the order, the defendants are required to submit a written response along with evidence within 15 (fifteen) days, excluding travel time, from the date of receipt of this order, through the Ilam Appellate Public Prosecutor's Office, in accordance with Rule 33(2) of the Appellate Court Rules, 2048. After the written response is received within the time limit, or after the expiry of the time limit, it shall be submitted as per the rules."

"On 2056.06.25, when an Indian citizen, Nemchandra Jain, came to register a firm named Chamunda Enterprises at the then Tax Office, Bhadrapur, Jhapa, since he was an Indian citizen, the first defendant, son of Dipchandra Golchha, resident of Mechinagar Municipality Ward No. 3, Jhapa District, signed and stamped a guarantee letter at the Tax Office, Bhadrapur, Jhapa on this day, stating that if the said Indian citizen fails to deposit all the tax revenue due from the Tax Office, Bhadrapur, Jhapa, he agrees that it may be recovered from his movable and immovable property, and submitted a copy of his citizenship certificate, a copy of the land ownership certificate, etc., and the firm was also registered. Nowhere in the said guarantee is it mentioned that the guarantee is for 1 year."

"After the death of Nemchand Jain, the proprietor of Chamunda Enterprises, the firm was transferred to the name of Rabindra Jain. Even after the transfer to the name of Rabindrakumar Jain, the first defendant, as the representative, even gave a statement to the office on 2057.11.23 regarding the transaction. Despite repeated verbal and written reminders to the said Chamunda Enterprises firm for the recovery of tax arrears, it was ignored, and due to the fact that there was no response from him, Rabindrakumar Jain, regarding the payment and deposit of such a serious matter of state revenue, and due to the fact that there was no movable or immovable property in the name of the said Rabindrakumar Jain in the state of Nepal, the land registered in the name of the first defendant was restricted. Since the defendant Jethmal Golchha, on 2056.05.25, gave a general guarantee to the Tax Office, Bhadrapur, Jhapa stating that if the Chamunda Enterprises firm fails to deposit all the tax revenue due from the Tax Office, Bhadrapur, Jhapa, he agrees that it may be recovered from his movable and immovable property, and informed the proprietor of Chamunda Enterprises, Rabindrakumar Jain, there was no need to repeatedly inform the first defendant."

"After the death of his father, Nemchandra Jain, the proprietorship was established in the name of his son, and since the said firm was not transferred to any other person, the claim of the first defendant is false and fabricated. The arrears of the said Chamunda Enterprises are still outstanding," according to the written response of the Internal Revenue Office, Bhadrapur, Jhapa, and the office head of the same office on their behalf.

"In accordance with the provision in Section 4 of the Chapter on Guarantees in the Muluki Ain that when a property guarantee is provided, the office accepting the property guarantee shall specify that so and so has provided a guarantee for this amount, specifying the property, and that the said property shall be restricted from being sold or given to anyone else in any way, and in accordance with the letter (Ch. No. 1996) dated 2071.7.20 of the Internal Revenue Office, Bhadrapur,

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