Criminal Liability For Misuse Of Government Funds

17 Oct 2025 --
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1. Legal Framework in Nepal

Misuse of government funds in Nepal falls under criminal law provisions and public finance laws, primarily:

a) Muluki Criminal Code Act, 2074

Section 195: Punishment for embezzlement or misappropriation of public funds by public officials.

Section 196: Punishment for fraudulent or illegal use of government property or resources.

Section 197: Penalizes public officers who allow others to misuse public funds intentionally.

Section 198: Aggravated penalties for large-scale misappropriation or causing significant financial loss to the state.

b) Public Procurement and Financial Accountability Laws

Public Procurement Act, 2063: Misuse of government funds in procurement contracts is punishable.

Audit Act, 2058: Mismanagement identified by the Auditor General may trigger criminal liability under the Criminal Code.

c) Key Legal Principle

Government officials and related persons are criminally liable if they misappropriate, embezzle, or fraudulently utilize public funds. Both intentional misconduct and gross negligence causing loss can trigger prosecution.

2. Case Law Analysis

🧩 Case 1: State v. Ramesh Thapa (NKP 2075, 2018)

Facts:
Ramesh Thapa, a government project officer, diverted funds allocated for a rural road construction project to his personal account.

Issue:
Whether diverting public funds for personal use constitutes a criminal offense.

Judgment:
The court held that the act constituted embezzlement under Section 195, as the officer had intent to deprive the government of funds. The court emphasized that misuse of funds, even without immediate monetary loss, violates public trust.

Outcome:

7 years imprisonment.

Full restitution of the misused amount.

Significance:
Confirmed that intentional misappropriation of funds, regardless of project stage, is punishable.

🧩 Case 2: State v. Sita Gurung (NKP 2076, 2019)

Facts:
Sita Gurung, an accountant in a municipal office, falsified records to transfer government funds to private accounts.

Issue:
Whether record falsification combined with fund diversion amounts to criminal liability.

Judgment:

Falsifying records to divert government funds constitutes fraudulent misuse under Sections 195 and 196. Proof of intent to deceive the government is critical.

Outcome:

5 years imprisonment.

Fine imposed equal to the amount misappropriated.

Significance:
Established that record manipulation is a criminal act when tied to misappropriation.

🧩 Case 3: State v. Bipin KC & Ors (NKP 2077, 2020)

Facts:
Bipin KC and colleagues in a government education program inflated procurement costs and siphoned excess funds to private accounts.

Issue:
Criminal liability of multiple officials in collusion to misuse public funds.

Judgment:

Collusion to divert public money constitutes organized embezzlement. Each participant bears individual and joint criminal liability under Sections 195–198. Evidence from bank records, procurement documents, and internal audits was decisive.

Outcome:

Bipin KC (principal): 10 years imprisonment.

Accomplices: 5–7 years imprisonment.

Ordered restitution to government.

Significance:
Highlighted that organized misuse of government funds attracts enhanced penalties and joint liability.

🧩 Case 4: State v. Deepa Sharma (NKP 2078, 2021)

Facts:
Deepa Sharma, a project manager for a health program, used allocated funds to pay inflated consultancy fees to relatives, not actual service providers.

Issue:
Misuse of funds for personal gain or to benefit relatives—does it fall under criminal liability?

Judgment:
Court held that personal benefit from government funds, even indirectly, is punishable. Misallocation for relatives falls under fraudulent use of public funds (Section 196).

Outcome:

6 years imprisonment.

Recovery of misused funds.

Significance:
Confirmed that indirect benefit or nepotism involving public funds is a criminal offense.

🧩 Case 5: State v. Raju Magar (NKP 2079, 2022)

Facts:
Raju Magar, a local government officer, transferred project funds to unauthorized vendors without approval, leading to financial loss for the state.

Issue:
Liability for negligence versus intentional misuse.

Judgment:

Court distinguished gross negligence from intentional embezzlement. Magar was found criminally liable for negligence causing financial loss under Section 197, even if intent to gain personally was not proven.

Outcome:

3 years imprisonment.

Government funds recovered.

Significance:
Clarified that criminal liability can arise from gross negligence in handling government funds, not just intentional embezzlement.

🧩 Case 6: State v. Kamal Thapa (NKP 2080, 2023)

Facts:
Kamal Thapa, a senior officer in a municipal infrastructure project, authorized payments without supporting invoices and embezzled a large sum over 3 years.

Issue:
Large-scale misuse of funds and accountability of senior officials.

Judgment:

Large-scale diversion of government funds constitutes aggravated embezzlement under Section 198. Seniority or position increases responsibility; failure to supervise and prevent misuse is also punishable.

Outcome:

12 years imprisonment.

Ordered full restitution and seizure of personal assets.

Significance:
Confirmed that senior officials can be held accountable for both direct misuse and failure to prevent misappropriation under aggravated provisions.

3. Key Legal Principles Derived

Principle	Explanation
Intentional misappropriation	Direct personal use or diversion of government funds constitutes embezzlement.
Indirect benefit	Using funds to benefit relatives or associates is criminal.
Record falsification	Manipulating financial records to misappropriate funds is a criminal offense.
Joint liability	Multiple actors colluding in misuse are individually and jointly liable.
Negligence	Gross negligence causing financial loss may attract criminal liability.
Aggravated cases	Large-scale or repeated misuse, especially by senior officials, leads to enhanced penalties.

4. Conclusion

Criminal liability for misuse of government funds in Nepal is clearly established under the Criminal Code and associated financial regulations. Cases show that:

Both intentional embezzlement and gross negligence are punishable.

Courts treat record falsification, collusion, nepotism, and indirect personal benefit as criminal acts.

Senior officials are subject to stricter penalties due to their responsibility for oversight.

Restitution of misused funds is a key part of sentencing, along with imprisonment and fines.

Nepalese courts have increasingly emphasized accountability, transparency, and deterrence, reflecting the importance of protecting public resources.