Devi Prakash Bhattachan, the director who transformed Kist Bank, which was on the verge of collapse due to the then Chief Executive Officer (CEO) Kamal Gyawali, into Prabhu Bank through acquisition a decade ago, is now embroiled in a similar controversy.

Gyawali, who was jailed for seven years for providing loans on substandard collateral in the name of Jamko Prakashan, has been released, while high-ranking officials of the Prabhu group have been arrested for investigation. 

Bhattachan, who is also a former UML MP, was arrested by the Central Investigation Bureau (CIB) of the police on 11 Kartik on charges of embezzling remittance funds. After 17 days, the Government Attorney's Office, Kathmandu, released him on bail, saying that he did not need to be detained for investigation. However, the police soon arrested Prabhu Bank's Chief Executive Officer (CEO) Ashok Sherchan, Deputy Chief Executive Officer (DCEO) Maniram Pokharel, and Chief Credit Officer (CCO) Riwas Shrestha.

The police had issued a statement saying that Sherchan and others were arrested in connection with the embezzlement of remittance funds, but the bank officials have not been made accused in the case registered in the District Court, Kathmandu on 14 Mangshar. The CIB says that they are being investigated for other banking offenses. CIB Chief AIG Manoj KC says, ‘Investigations are underway against CEO Sherchan and other officials in the irregularities seen in the loan flow.’

How did the police enter the Prabhu Bank case, shaking up the banking sector? The ups and downs in the partnership between Prabhu Group’s directors Devi Prakash Bhattachan and Kusum Lama are the center of the controversy. For that, we need to get to the background of the Prabhu Group.

Both Bhattachan and Lama became partners in the banking sector from a travel agency background. Lama, who has a permanent home in Kathmandu, took a computer course after passing the SLC exam. While working as a ‘consultant’ in a British company, she met a Korean ‘contractor’. ‘A person associated with that company offered to work for them, saying that he had a travel agency in Korea,’ Lama had said in an interview with a YouTube channel called Investing Nepal six years ago.

This was around 1990, at that time, he said, he opened an office in Korea as a representative of Nepal Airlines and Nepal Tourism Board and worked as a partner. That company used to book tickets for travelers visiting Nepal.

By that time, Bhattachan had already started Osho Travels in Kathmandu, which had an office in Thamel. After selling the company opened in 1990, he started Prabhu Travels in 1996. As the Maoist conflict was reaching its peak, the number of people going for foreign employment was increasing. Various groups were taking the initiative to find an easy way to send money to Nepal from abroad. In fact, 'Western Union' had been working in Nepal by having agents since 1991. Until 1995, Sita World Travels and Annapurna Travels were providing such services. 

Meanwhile, Bhattachan also entered the remittance business in 2001 by making Prabhu Travels a member of 'MoneyGram'. Until then, there was no provision to open a separate remittance company in Nepal, so 'lobbying' for policy formulation was also going on. After the Nepal Rastra Bank relaxed the provision to allow only remittance companies to be opened, he started Prabhu Money Transfer in July 2002. At that time, IME Money Transfer had also started its service in Nepal. 

Bhattachan had also gone to New York with a 'letter of intent' from the Nepal Rastra Bank to be able to do business from the US and Qatar. However, due to the attack on the Twin Towers by Al-Qaeda, the US had adopted a strict policy on company registration. He returned and came to Kathmandu. From 2003-04, he focused Prabhu Money Transfer on the Gulf countries where a large number of Nepalis are employed abroad.

Initially, the work started by focusing on Saudi Arabia, Qatar, Dubai, Oman and Bahrain. Earlier, when sending money through the banking process, it took one or two months to reach home. But services like Prabhu Money Transfer made it possible to receive the money in the same day. At that time, the fees of 'Western Union' were expensive and the exchange rate was also low. Therefore, along with IME, Prabhu Money Transfer also became a popular means of sending money back home.

Bhattachan, who had reached Korea in the course of expanding the money transfer service, and Kusum Lama, who was working there, met around 2004. ‘After getting information about remittances from him (Bhattchan), I thought of doing something new, and I started doing it,’ Lama said in an old interview, ‘At that time, there was no facility for Indo-Nepal (between India and Nepal) remittances. We tried since 2004 and got permission in 2006.’ Bhattachan and Lama had been partners in almost all the transactions since 2004.

Meanwhile, as per the old plan to expand the money transfer business to the US, Bhattachan bought a company called Janata Express, which was already registered in New York. After buying the company in 2009, he changed its name and brought it into the Prabhu group. Three years ago, he had also started the process of opening a finance company for the stability of the company. In 2006, he obtained permission from the National Bank to run a finance company. He quickly expanded his finance branches to 33 locations. Gradually, he also entered into insurance companies. 

Against the backdrop of remittance business, Prabhu Finance was also quickly reaching the heights of success. In such a situation, Bhattachan started looking for an option to create an environment where money could be distributed to villages through Prabhu Money Transfer. The process of opening agricultural cooperatives in villages was rapid. He made a plan to deliver remittances to villages through those cooperatives. Accordingly, he established Prabhu Management as a super agent company to coordinate with the cooperatives.

In this way, a mechanism was developed whereby Prabhu Money Transfer would collect remittances abroad, cooperatives would make payments in villages, and Prabhu Management would mediate between them. In the meantime, more than a thousand cooperatives signed agreements with Prabhu Management. For that, Prabhu Management also took an advance deposit of an average of Rs. 300,000 from each cooperative. Similarly, an agreement was reached to claim the amount from Prabhu Management based on the payment made by the cooperative. 

In their statements to the police, both Bhattachan and Lama have stated that Prabhu Management was established on 21 Baisakh 2069 to act as super agents of Prabhu Money Transfer. At that time, the company's articles of association stated that it would 'act as an agency, dealer, subdealer, and stockist of domestic and foreign companies with similar objectives'. 

Bhattachan had sold 20,000 shares of Prabhu Management to Kusum Lama and made her the director. Initially, Bhattachan had 50 percent, Kusum had 20 percent, Bhattachan's relative Binod Thakali had 20 percent, and Daksha Poudel Subhash had 10 percent. On 20 Magh 2070, Binod sold the shares. After that, Bhattachan's share remained at 55 percent and Lama's 25 percent. 

Prabhu Technology was also brought into operation under Prabhu Management. Bhattachan had 60 percent of the shares in the company registered on 15 Paush 2071 and Prabhu Management had 40 percent. ‘Bhattchan had tried to get Prabhu Pay purchased by Prabhu Bank, where he was the chairman,’ Lama said. ‘At that time, Prabhu Bank said that if he removed his name from the list of chairman and shareholders, Prabhu Bank could buy it, so he instructed me to remove my name from Prabhu Management.’ 

Bhattachan left the company on 13 Paush 2071, handing over Prabhu Management’s shares to his nephew Mijas Bhattachan. But even 12 years after his formal exit, Bhattachan is at the center of Prabhu Management’s controversy. Because the police have called the share transaction that took place at that time suspicious. 

On 11 Jestha 2074, it seems that the shares in the name of Bhatij Mijas were also sold and kept in the names of employee Dhruv Chandra Dhital, Bhattachan’s daughter Shiksha Bhattachan, and Shiva Sharma Acharya. The shares of Shiksha were later transferred to the names of employees Shrutika Tamang Lama, Ganesh Kumar Ghimire, and Hem Kumar Mahaju. As of 16 Ashad 2077, the company's shareholders appear to have been Kusum Lama, Shrutika Tamang Lama, Daksha Poudel Subhash, Ganesh Kumar Ghimire, Hem Kumar Mahaju, and Narayan Dhakal.

According to Kusum's statement to the police, apart from the initial investment of Rs 10 million, no shareholder invested from their own assets in the capital increase. 'The capital increase was made from the money received in remittances to the company and the deposit amount raised from the agent cooperative,' she said. 

The report prepared by Deputy Director Krishna Sharan Phuyal and Deputy Director Maniraj Shrestha, who were deployed from the Rastra Bank, also states that 'the company has mobilized funds from sources other than the share invested by the shareholders themselves to operate its business.' 

Lama has given a statement to the police that the employees were used to remove the share records on paper because the Rastra Bank did not allow Bhattachan's daughter to purchase Prabhu Pay when Prabhu Management was a shareholder. 'The employees are people who do not have the financial capacity to purchase shares and operate the company as owners.

On the instructions of Devi Prakash, without any written decision of the board of directors of Prabhu Management, the amount required for the share purchase was transferred from the company's account to the employee's account on 5 and 6 July 2020, and the employee's check was taken and deposited in the personal accounts of Shiksha Bhattachan and Dhruvchandra Dhital.' Thus, although it is shown that shares were transferred from Devi to Mijas, from Mijas to Shiksha and from Shiksha to the employee, Kusum has given a statement that the money was from the cooperative and remittance. 

On 29 July 2078, Prabhu Management was registered only in the names of Kusum Lama and Shrutika Tamang Lama, and since 7 Bhadra 2081, it has been solely owned by Kusum. But Prabhu Management Pvt. Ltd., which was acting as a 'super agent' between Prabhu Money Transfer and the service recipients, did not provide the amount due to the cooperatives that had become agents on the same day or the next day.

On the one hand, the company's liabilities were continuously increasing due to Prabhu Management's 'mismanagement', while on the other hand, problems were also increasing in Kusum's partnership with Devi Prasad Bhattachan after a Malaysian citizen was informally involved in her business. Their dispute escalated to the point that they were arrested by the police and competed to eliminate each other financially and socially.

The cooperatives, which had not received the refund of the remittance payment to the service recipients and the refund of the security deposit, started writing letters repeatedly. Meanwhile, Kusum wrote on Prabhu Management's letterhead, claiming that she was in trouble because she had not received all the amount due from Prabhu Money Transfer and that Devi Prakash Bhattachan, the former director and president of Prabhu Money Transfer, had not paid the company's liabilities including the amount due.

A letter written to the Kanchanjungha Savings and Loan Cooperative in Morang on 6 Shrawan 2081 states, ‘Bhattchan, the chairman of Prabhu Money Transfer and former director of Management Pvt. Ltd., cannot be seen in isolation. There are repeated requests to pay and submit the amount in this regard.’

Not only that, Prabhu Management had also filed a written complaint with the National Bank on 23 Shrawan 2081 regarding the non-return of the amount by Bhattachan and Prabhu Money Transfer. It is mentioned in the internal account that Prabhu Management had kept the amount for the remittance of 1,103 cooperatives and the deposit given by the agent till then. Bhattachan, along with Lama, had filed a complaint in the District Police Complex, Kathmandu in Asoj 2081, alleging that

‘advances’ were made in various places and not returned. But the police ignored it. At that time, UML Chairman KP Sharma Oli was the Prime Minister. The businessman Bhattachan was made a proportional member of parliament by the UML. 

Later, Lama filed a complaint with the District Attorney's Office. District Attorney Santosh Raj Katuwal sent Lama's complaint to the Kathmandu Police on 11 Asoj 2081, saying it was necessary. Meanwhile, Bhattachan filed a case against Lama, saying he had been defamed. Meanwhile, after 38 cooperative organizations filed separate complaints alleging that they had not received Rs 65.255 crore from Prabhu Management, both Bhattachan and Lama came under investigation. Bhattachan was arrested, but Kusum, who had previously filed a complaint with the District Attorney's Office alleging that she had been cheated by Bhattachan, is absconding.

Questions have also been raised that the police committed a criminal offense because the family of the person sending remittances from abroad received the money and there was a dispute between the agent and the sub-agent in between, which should be considered a commercial transaction. However, the police have said that this dispute involves the issue of receiving remittances from abroad, paying them, and following the policy instructions issued by the National Bank. The police claim that the cooperative was motivated by criminal intent to defraud by collecting a large amount of money as a deposit from the cooperative and investing it in companies affiliated with Lama and Bhattachan. 

The police have accused the cooperative of committing an illegal act by appointing a super agent company in violation of the Remittance Regulations of the Nepal Rastra Bank, 2079 BS. The regulations of the Nepal Rastra Bank stipulate that the person concerned must pay for the remittance in foreign currency himself or through a 'sub-agent' or 'sub-representative' appointed by him. However, Prabhu Money Transfer appointed Prabhu Management as a super agent and made the cooperative a 'sub-agent' for remittance transactions, and even collected the deposit amount from them.

However, Bhattachan's legal advisors have objected, saying that an attempt is being made to criminalize the transactions that Prabhu Remittance has been doing since 2069 BS by showing the regulations issued by the Nepal Rastra Bank in 2079 BS. According to the police report, Prabhu Money Transfer appointed Prabhu Management as a super agent on 1 Poush 2069. Similarly, Prabhu Management had been doing remittance transactions by making various cooperative organizations sub-agents. The police claim that the creation of the super agent and sub-agent levels in this way is against point 9 of the Nepal Rastra Bank Remittance Regulations issued by the Rastra Bank in Poush 2079.

However, before the 2079 regulations came into force, the Nepal Rastra Bank Remittance Regulations, 2067 were in force. It had a provision that remittance companies could appoint agents and agents could appoint sub-agents. At that time, there was a provision that the agent was responsible to the remittance company and the sub-agent to the agent.

‘Agent means a firm, company or institution licensed by the National Bank to bring remittances in convertible foreign currency from a principal abroad through the banking system and provide payment in Nepali currency to the stakeholders,’ the 2067 regulations state, ‘Sub-agent means a person, firm, company or institution appointed by the agent to provide payment in rupees to the stakeholders.’ This is according to the legal practitioners of the Prabhu group, who will argue the matter in court.

In the charge sheet submitted by the police to the government attorney’s office and submitted by the government attorney’s office to the court, it is stated that Prabhu Management has yet to pay 1,883,481,976 rupees to 1,000 cooperatives. However, in the case filed against Bhattachan and others, only 65,255,421 rupees have been claimed as a loss.

According to CIB Chief KC, only 38 cooperatives have filed a complaint against Prabhu Management, so only that amount has been claimed as a loss. ‘Some have filed separate complaints with the Cooperatives Department, and more complaints are coming,’ he said, ‘If other complaints come, supplementary charges may be filed again.’

Bhattachan says that he left Prabhu Management on 13 Paush 2071 and is not aware of the transactions that took place after that. ‘According to the agreement between Prabhu Management Pvt. Ltd. and the cooperative society, Prabhu Management Pvt. Ltd. is supposed to pay cooperative societies on the same day and if not for some reason, the next day, Prabhu Money Transfer has no involvement or fault in Prabhu Management taking payment from Prabhu Money Transfer and not giving it to the cooperative society,’ he said in a statement given to the police in the presence of the government lawyer. ‘Since the payment has already been made through Prabhu Money Transfer, Prabhu Management Pvt. Ltd. is responsible for it.’

Prabhu Finance took his flight that started with Prabhu Money Transfer to a higher level. The special general meeting of Prabhu Finance Company Limited held on 14 Ashad 2070 decided to merge Vaibhav Finance Limited and Sambriddhi Bikas Bank to form Prabhu Bikas Bank of ‘K’ category. After that, Prabhu continued to merge one financial institution after another.

Kist Bank, Prabhu Bikas Bank, Gaurishankar Development Bank and Zenith Finance were merged to form a ‘K’ category commercial bank on 31 Bhadra 2071. This process did not stop, Prabhu Bank also acquired the then Grand Bank on 29 Magh 2072 and Century Commercial Bank in 2079 Pus. In this way, Bhattachan formed the current Prabhu Bank by merging 9 banks and financial institutions.

Prabhu acquired the former Kist, Grand and Century Banks after they fell into financial crisis. The NRB, which had a policy of merging banks, was exerting informal pressure, while on the other hand, Prabhu Bank was expanding as a result of Bhattachan's ambition to bring all banks under its umbrella.

'Prabhu was getting relief from the regulatory body for supporting the NRB's strategy of reducing the number of banks and improving their quality by taking over bad banks. The NRB felt that if the NRB merged with the expanding NRB, the bad loans of banks like Grand and Century would also improve,' says a former executive director of the NRB. 'Other banks were also given similar encouragement and pressure. Prabhu was also considered successful because he had merged many institutions.'

Former NRB employees say that when Century Bank started facing many problems, the then Governor Mahaprasad Adhikari repeatedly summoned Prabhu Bank's Chairman Bhattachan, CEO Sherchan and others to take over the bank.

But in an attempt to improve the loan quality of the merged banks, Prabhu Bank adopted various methods. ‘Our policy and leadership are responsible for weakening the good governance of the institution by infiltrating various bad institutions,’ says an official of the National Bank, ‘The bank directors also continued to listen to the words of the National Bank to fulfill their ambitions. They thought that it would be easier for them if they listened to the words of the National Bank. The current problem is the result of that.’

It has been four years since Bhattachan Prabhu left the chairmanship of the bank. It was the National Bank that forced him to resign. The National Bank had taken action against Prabhu Money Transfer in 2077 for keeping remittances collected abroad instead of bringing them to Nepal.

The National Bank had taken three actions, namely warning, paying a fine and paying interest on the amount kept abroad for keeping about 2.25 billion rupees collected for remittances abroad since the fiscal year 2074/75. At that time, Prabhu Money Changer was warned and a fine of Rs 500,000 was paid under the Money Changer Licensing and Inspection Regulations and interest was paid at the rate of 10 percent of the amount kept abroad.

Prabhu Bank had also given an advance loan of Rs 270 million to Prabhu Management about four years ago. Now, that amount has been returned from Prabhu Management. However, the police have accused CEO Sherchan of causing losses to the bank by not charging interest for three years.

‘It appears that Prabhu Bank has suffered losses of Rs 89.3 million 19.986 by giving advance money to Prabhu Management Pvt. Ltd. to conduct remittance transactions by creating a super agent against the rules and allowing vested interests to use the money for a long time, even after the remittance transactions with Prabhu Management Pvt. Ltd. were suspended, contrary to the instructions of Nepal Rastra Bank and the law,’ the police said.

The Rastra Bank had investigated Prabhu Bank regarding the loan it had given to its subsidiary Prabhu Money Transfer. There is a provision that the bank, which is the director, cannot give loans to another company it is involved with. However, Prabhu Money Transfer had taken a loan from Prabhu Bank against that provision. After the NRB started investigating, Bhattachan resigned from the post of chairman of Prabhu Bank at its annual general meeting held on 27 Paush 2077. But his shares in the bank are also continuously declining.

In fact, Bhattachan's well-wishers say that he is in trouble because of his investments in other companies than Prabhu Bank. 'He had an ambition to invest in all the sectors he was seen in. He had invested about two billion in Prabhu TV, which went into loss.

Prabhu also had to sell his helicopter at a loss. Similarly, he had also invested in Nepal Shipping Company to run a shipping company, which went into loss,' his partners say. 'The investment from Janaki Medical College also added to the problem. He had also been managing the debt by selling the company's shares. But the partnership and competition with Kusum have put him in such big trouble.'

When Prabhu Bank became a 'A' class commercial bank on 31 Bhadra 2071, its paid-up capital reached 3.2 billion rupees in 2072. At that time, the investment of Prabhu Group led by Bhattachan was about 21.32 percent. His other companies and family members had 68 lakh 38 thousand 298 shares (68 crore 38 lakh 29 thousand 800 rupees) in their names.

After about a decade, by Asad 2081, the paid-up capital of this bank had reached 23 billion 54 crores. During this period, Prabhu Group's share ownership has decreased from 21 percent to about 3 percent. The total share of this group is 68 lakh 28 thousand 478 shares (68 crore 28 lakh 47 thousand 800 rupees).

As of 2081, the largest shareholder in the bank is Asian Life Insurance Company. This company's share investment is 1 crore 117 lakh 59 thousand 28 shares (1 billion 17 crore 59 lakh 28 thousand rupees). This is 4.99 percent of the total paid-up capital. The second largest shareholder is Gaurav Agarwal with 2.71 percent and the Employees Provident Fund with 2.53 percent. Apart from this, the share investment of all other shareholders is less than one percent.

Kusum Lama of Prabhu Management, who initially filed a complaint alleging fraud, has now become an absconding defendant herself. According to a CIB officer, on 5 Asho 2080, the police had completed the investigation in this case and submitted a report with an opinion to the government prosecutor.

However, the government prosecutor had sent the file to the CIB only two years later, on 31 Asho, citing the reason that ‘the deadline for investigating the complaint was still pending and that regular services, except for some services, of the court were closed during the Gen-G movement’. In a letter sent to the bureau along with the file, District Attorney Govinda Prasad Humagain asked the bureau to arrest or produce the defendants in the case and submit them for statements.

The CIB had also arrested Kusum Lama from the airport during the investigation. But the police had released her after taking her statement after she showed the prohibitory order issued by the High Court, Lalitpur. The prohibitory order has now been revoked by the High Court, but she has absconded. The investigation officers suspect that she has gone to Malaysia. The officer says, "The investigation is currently underway, and Interpol's help can also be sought in the investigation as needed."

The investigation into the remittance-related case has been completed and has reached the stage of court trial, while the police are continuing their investigation into other cases involving loan misuse. According to sources, the police claim that irregular loans were made to companies including Lazimpat Apartment, Ram Janaki Medical College, Prabhu TV, and Hello Paisa.

The police also took businessman Rajendra Shakya into custody on November 17 during the investigation. He had already taken a loan of two billion rupees from Prabhu Bank for the purposes of Guna Airlines, but the police claim that the bank gave him a loan of 150 million rupees even though he was not allowed to give additional loans. Police claim that Shakya gave a statement during the initial interrogation that he took out the loan not for himself but for Prabhu Bank.

‘He has stated that money was withdrawn in his name to manage the payment of Prabhu Management as per the bank’s management,’ says an officer involved in the investigation. ‘Although Shakya appears to be a debtor on paper, the amount was withdrawn to be returned to the bank through Prabhu Management. The police are investigating this matter as a banking offence as the loan was used for one purpose for another.’

According to the police, the bank also took out a loan of Rs 270 million to manage the amount that Prabhu Management owed to the bank. ‘It seems that after the National Bank made a complaint about the previous loan, another loan was taken to manage it,’ says an investigation officer.

Normally, the National Bank supervises commercial banks at least once a year. Special surveillance supervision is carried out when any complaint is found. In the case of Prabhu Bank, the last time special surveillance supervision was carried out was from Asar to Shrawan. At that time, provisioning was made for some loans that could not be recovered. But the report did not contain any complaint that the bank's CEO and DCEO should be arrested.

According to NRB officials, the financial condition of Prabhu Bank is not bad. 'The NRB is also aware of the incidents of some of the loans that were disbursed, some of which were overvalued and loans were disbursed. Because the NRB has been monitoring Prabhu Bank on the basis of the above-mentioned complaints and complaints,' says a NRB official. 'If complaints are found during regular investigations, a special investigation is carried out for further investigation. In a special investigation conducted three months ago, problems were also found in some large loans, and accordingly, provisioning has been made.'