The Insurance Board (IB) has summoned board of directors of NB Insurance to seek clarification over the latter´s failure to restore misappropriated sum of Rs 35.3 million in its coffers. The decision to summon board members of the troubled non-life insurer was taken as the three-month deadline extended to the company to recoup the embezzled amount expired on Thursday.

"We called them to our office to listen to their side of the story. We will decide on the future course of action only after that," Binod Aryal, executive director of the Insurance Board, told Republica. The insurance sector regulator, on October 2, had given a period of three months to the company to return Rs 35.3 million that was siphoned off to a fixed deposit account in World Merchant Banking and Finance Company by violating investment norms set by the Insurance Board.

Based on the condition of recouping the money, the regulator at that time had also lifted two-month ban put on business activities of the company, which was found guilty of misappropriating millions of rupees raised in the form of insurance premium from the public.

The insurance company, promoted by NB Group, had landed in trouble after it was found making a controversial payment of Rs 59 million in the pretext of clearing house rent. Since the payment was made without taking prior consent of the Insurance Board, it directly violated the regulatory norm that bars insurers from making expenses in excess of Rs 2 million without taking prior permission.

As investigation continued, it was found that the payment was made by misappropriating cash lying in the ´earmarked fund´ -- which is made up of amount parked in reserve fund, insurance fund, unexpired risk reserve and outstanding claim reserve. Although insurance companies are barred from using any amount parked in this fund, NB Insurance had managed to draw off over Rs 70 million from the reserve.

Of this amount, Rs 21.5 million, deposited at Nepal Housing and Merchant Finance, was later transferred to various commercial banks, and Rs 15.3 million was parked at call and current accounts of different finance companies. But a huge chunk of money - Rs 35.3 million - currently lies in World Merchant Banking and Finance Company, which is in deep financial trouble.

So far, the finance company has denied releasing the amount citing there is few months left for the two-year fixed deposit to mature. But the Insurance Board is not interested in listening to these excuses, as the company had flouted the law that bars insurers from parking more than three percent of gross amount allocated for investment purpose in one finance company Bikrant Pandey, acting CEO of NB Insurance, said: "We would be able to fix everything in a few months time as only the deposit at World Merchant is maturing in around three months."