Arbitration Process in Nepal: Step-by-Step Guide Under Arbitration Law of Nepal

Arbitration has become the preferred mechanism for resolving commercial, construction, infrastructure, investment and contractual disputes in Nepal. It offers speed, confidentiality, party autonomy, specialist decision-makers and relative finality compared with the often-protracted ordinary court system. For businesses—domestic and foreign—understanding the detailed process under the Arbitration Act, 1999 (2055) (“The Arbitration Act”), its practical application, and the interpretive guidance of the Supreme Court of Nepal is essential.

 

This article provides a step-by-step analysis of the arbitration process in Nepal, highlights practical considerations that parties and counsel routinely encounter, and incorporates key Supreme Court precedent that shape current practice.

 

 

2.1. Arbitration Act, 1999 (2055)

Arbitration in Nepal is principally governed by the Arbitration Act, 1999 (2055). The Arbitration Act incorporates the detailed procedure for settlement of the dispute through arbitration in Nepal. The Arbitration Act is highly influenced by UNCITRAL Model law. The Arbitration Act draws on several concepts found in the UNCITRAL Model Law, including separability of the arbitration clause, party autonomy and finality of award. It provides a legal framework for the appointment and conduct of arbitrators, arbitral proceedings, powers and jurisdiction of arbitrators, and enforcement and challenge of arbitral awards. The Arbitration Act emphasizes party autonomy while ensuring fairness and procedural discipline in dispute resolution. It aims to provide an efficient alternative to court litigation, particularly for commercial and contractual disputes. 

 

2.2. The Arbitration (Court Procedure) Rules, 2002 (2059)

The Arbitration (Court Procedure) Rules 2002 (2059) (“Arbitration Rules”) establish the procedural framework for addressing arbitration-related matters before the courts in Nepal. The Rules regulate matters such as the appointment and removal of arbitrators, court assistance in obtaining evidence, challenges to arbitral awards, interim measures, and the enforcement of domestic and foreign arbitral awards. It also defines the procedural role of the courts in supporting and supervising arbitration while maintaining the efficiency and enforceability of arbitral proceedings.

 

2.3. The United Nations convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958

Nepal acceded to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 (“New York Convention”) on 4 March 1998, with the Convention entering into force for Nepal on 2 June 1998. Nepal's accession included the reciprocity and commercial reservations.  

The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 is highly important to Nepal because it provides the international legal framework for recognizing and enforcing foreign arbitral awards in Nepal, and for facilitating enforcement of Nepal-related awards abroad.

 

An arbitration agreement is the foundation of the entire arbitral process: it is the clause or separate contract by which parties agree to settle a dispute outside the ordinary courts, and it is what confers jurisdiction on the arbitrator or tribunal. Section 2(a) of the Arbitration Act defines "agreement" as a written agreement concluded between the concerned parties for the settlement, through arbitration, of any dispute concerning a defined legal relationship — contractual or otherwise — that has arisen or may arise in the future.

 

For an arbitration agreement to be enforceable, it must generally reflect:

 

• Mutual consent between the parties;

• A written form;

• An agreement between the parties actually concerned with the dispute;

• A clear intention to settle disputes by arbitration;

• A dispute related to a specific, defined legal relationship; and

• Coverage of present or future disputes, whether arising from contract or otherwise.

 

A written arbitration agreement is deemed to exist where there is: (a) a separate contract to arbitrate; (b) an arbitration clause in the underlying contract; (c) an exchange of letters, telex or email in which the parties agree to arbitrate; or (d) conduct such as a respondent submitting to arbitration proceedings without challenging their commencement from which an agreement to arbitrate can be inferred.

 

The clause itself should ideally address:

 

• Disputes covered by arbitration;

• Number of arbitrators;

• Method of appointment and appointing authority;

• Seat/place of arbitration and language;

• Governing substantive law and procedural rules;

• Institutional or ad hoc arbitration;

• Interim measures and confidentiality; and

• A mechanism for replacing an arbitrator.

 

An inadequately drafted clause can result in preliminary litigation before the actual arbitration begins. Notice provisions, dispute-escalation clauses, negotiation requirements, engineer/consultant determinations, adjudication provisions and contractual limitation periods may all affect a party's ability to commence arbitration. 

 

Supreme Court Decision Arbitration Contract:

In Adv. Devendra Pradhan (on behalf of Hanil Engineering & Construction Co. Ltd.) v. Appellate Court, Patan (Decision No. 10138), the Supreme Court reaffirmed the doctrine of separability—the arbitration clause is independent of the main contract and survives challenges to the validity of the underlying contract. The Court also held that parties may choose different laws for the substantive contract and the arbitration agreement/procedure.

 

In Yakshyadhoj Karki v. High Court Patan (Decision No. 10369), the Court emphasised that an arbitration clause remains enforceable until disputes arising from the contract are resolved, and unilateral communications or conduct do not amend the clause.

 

Yashasvi Shamsher J.B.R. v. Bhaivers Developers Pvt. Ltd. (Decision No. 9847) — the Supreme Court held that, to be binding, an arbitration agreement must reflect the parties' clear intention to refer disputes to a neutral third party for a final and binding decision. "Social courtesies," such as clauses stating that parties will "sit together with witnesses" or "discuss in good faith," are mere negotiation mechanisms and do not amount to a valid arbitration agreement.

 

The Oriental Insurance Company Ltd. v. Ram Krishna Rawal (Decision No. 8078) — where a party filed a lawsuit in the regular courts instead of following the dispute-resolution process set out in an insurance policy, the Supreme Court held that when parties agree to resolve disputes via arbitration, they effectively oust the jurisdiction of the courts for those specific disputes. The Court also invoked the principle of estoppel: filing a court case contrary to an existing arbitration agreement constitutes estoppel and a breach of contract. The Court separately emphasised that arbitration offers parties a faster, more expeditious remedy than court proceedings and the liberty to select their own arbitrators.

 

Varun Beverages Pvt. Ltd. v. National Marketing & Sales Pvt. Ltd. (Decision No. 8097) — established the principle of "Supplementary Contracts Unity": where secondary agreements (such as vehicle or ancillary contracts) are made to execute a main contract and cannot stand alone without it, they are treated as an integral part of that main contract and subject to its arbitration clause.

 

 

4.1. Commencement of Arbitration Proceedings

 

Arbitration begins when a party invokes the arbitration agreement and formally communicates its intention to refer the dispute to arbitration. Once a dispute arises within the scope of the arbitration agreement, the claimant generally issues a notice of arbitration to the opposing party. The notice informs the other party that arbitration has been invoked and identifies the dispute that is proposed to be referred to arbitration.

 

The notice may contain details such as the nature of the dispute, the relevant contractual provisions, the relief sought, and matters relating to the appointment of arbitrators. The respondent may then submit a response and, where appropriate, raise objections concerning jurisdiction, the existence or validity of the arbitration agreement, or the claims made by the claimant.

 

4.2. Appointment of Arbitrators

 

The proper constitution of the tribunal is central to the efficiency, neutrality and legitimacy of arbitral proceedings. According to the Section 5 of the Arbitration Act, the number of arbitrators follows the agreement; where the agreement is silent, the Arbitration Act defaults to three, and any even number of the arbitrator is converted to an odd number by the addition of a further arbitrator chosen by those already appointed .

 

As per Section 6(1) of the Arbitration Act unless otherwise provided in the agreement, the process of appointing an arbitrator must be initiated within 30 days from the date on which the cause for resolving the dispute through arbitration arises. Where the agreement specifies the name of the person who is to act as the arbitrator, that person shall be deemed to have been appointed as the arbitrator under Section 6(2) of the Arbitration Act. Where the agreement contains a specific provision regarding the appointment of an arbitrator, the appointment shall be made in accordance with such provision, as provided under Section 6(3) of Arbitration Act. In the ordinary case where the agreement is silent on mechanism, the appointment of arbitrator is done as per Section 6(4) of the Arbitration Act, each party appoints one arbitrator, and the two party-appointed arbitrators then appoint a third, who acts as chief arbitrator.

 

Supreme Court Decision Appointment of Arbitrator 

Rajendraman Sherchan (Vijay Construction Pvt. Ltd.) v. Patan Appellate Court (Decision No. 7823) — the Supreme Court held that this three-month limitation is mandatory: a party that fails to commence the appointment process within the period cannot later approach the court for assistance under Section 7of the Arbitration Act. The decision underscores the judiciary's strict stance on procedural compliance arbitration, though flexible, remains subject to statutory discipline.

 

4.3. Court Appointment of Arbitrators

 

Problems may arise where a party refuses or fails to appoint an arbitrator or where the agreed appointment mechanism cannot operate. In such circumstances, court intervention may become necessary.

 

The court's role at this stage is primarily to facilitate the constitution of the arbitral tribunal in accordance with the applicable legal framework. The court is not expected to determine the substantive merits of the underlying contractual dispute while making an appointment.

 

This distinction is important because arbitration is based on party autonomy. Judicial intervention is generally intended to support the arbitral process rather than replace it.

 

Section 7 of the Arbitration Act allows a party to apply to the High Court for the appointment of an arbitrator where the parties fail to appoint one, or are unable to agree on the constitution of the tribunal. The High Court's role at this stage is facilitative rather than adjudicatory. As per Section 7(2) of the Arbitration act while applying for the appointment of an arbitrator, the application must name at least three prospective arbitrators, with their names, addresses, occupations and fields of specialization, and must be accompanied by a copy of the arbitration agreement.

 

According to Section 7(3) of the Arbitration Act, on receiving such an application, the High Court notifies all parties and, within 60 days, appoints arbitrators from among the persons proposed if the parties can agree; failing agreement, the Court appoints whomever it considers appropriate. The Court's decision is final.

 

Supreme Court Decision  on Court Appointment of Arbitrators

Flora Nepal Pvt. Ltd. v. Patan Appellate Court (Decision No: 7516) — the Court clarified that judicial intervention under Section 7 is limited to confirming the effectiveness of the arbitration agreement; the court cannot, at the appointment stage, delve into the merits of the underlying contractual dispute. Once a valid arbitration agreement is shown to exist, the court must facilitate constitution of the tribunal.

 

4.4. Constitution of the Arbitral Tribunal

 

Once the arbitrators have been appointed, the arbitral tribunal is constituted.Before commencing proceeding, every arbitrator must sign a written oath of impartiality and honesty in the form prescribed in the schedule to the Arbitration Act, sending one copy to the high court and retaining other in the case file, as provided under Section 9(1). Before taking that oath, the arbitrator must disclose any matter that could reasonably raise doubt about their impartiality or independence in relation to the dispute, as required under Section 9(2).

 

Section 10 disqualifies certain persons from acting as arbitrator, including those disqualified from contracting under prevailing law, those convicted of a criminal offence involving moral turpitude, undischarged bankrupts or insolvents, persons with a personal interest in the dispute, and persons who lack a qualification the agreement specifically requires.

 

Supreme Court Decision e on Constitution of Arbitral Tribunal 

Kalika Swachhanda Kanchanjangha JV v. Department of Roads(Decision No: 8437) — the Court held that judicial interference in constituting the tribunal should be limited to filling the specific vacancy that has arisen, not to reconstituting or over-appointing the tribunal beyond the framework the parties agreed.

 

4.5. Interim Measures and Court Assistance

 

The Arbitration Act, empowers the arbitral tribunal to issue preliminary, interim, and interlocutory orders under Section 21(1) (g). These measures may be used to preserve assets or evidence, maintain the status quo, or prevent actions that could affect the effectiveness of the final award. The tribunal may also require a bank guarantee or other security from a foreign party under Section 21(1) (d), or order the sale of perishable or deteriorating property under Section 21(1) (e).

 

A party dissatisfied with an interim order may appeal to the High Court within 15 days, and the High Court's decision is final under Section 21(2).

 

Separately, Section 23 allows the tribunal to seek assistance from the District Court in obtaining or examining evidence, including assistance in securing documents or witnesses. This is different from interim relief because it focuses on evidence collection rather than protection of the dispute or assets.

 

4.6. Evidence in Arbitration

 

Evidence may consist of contracts, correspondence, invoices, technical documents, expert reports, witness testimony, and other relevant materials. Because arbitration is generally more flexible than ordinary litigation, the tribunal may adopt procedures appropriate to the nature of the dispute.

 

In construction and commercial disputes, documentary and expert evidence can be particularly important. The tribunal may also hear witnesses and permit examination and cross-examination where necessary.

 

Evidence is principally submitted in writing at the pleading stage. Section 14(1) requires the claimant to file its claim together with all supporting documents and evidence; equivalent obligations attach to the respondent's objection, counter-claim and any rejoinder. Where a party wishes to rely on a witness, Section 14(5) requires it to name the witness and their address in its pleading, and the party is responsible for producing the witness before the arbitrator on the fixed day. Likewise, Section 14(6) requires each party to supply the other with copies of any documents it submits.

 

The Arbitration Act does not require arbitrators to follow the strict rules of evidence used in ordinary courts. The parties may agree on the procedure, or the arbitrator may decide it under Section 17(1). However, both parties must have an equal opportunity to present their case under Section 22(1). The arbitrator may require documents, witnesses, and experts, and may seek the District Court’s assistance to obtain evidence under Section 23.

 

Supreme Court Decision on Evidence in Arbitration 

Department of Roads v. Arbitral Tribunal (Sureshman Shrestha and Others) (Decision No: 10586) — the Court held that documents physically attached to and signed together with the main agreement form part of the contract and therefore fall within the tribunal's interpretative jurisdiction. Applying the doctrine of estoppel, the Court held that a party cannot later deny the validity or contractual status of documents it voluntarily attached and signed as part of the agreement. The Court also stressed judicial restraint: courts should not substitute their own interpretation of factual or contractual matters for that of the tribunal, except where the tribunal has exceeded its jurisdiction.

 

4.7. Hearing

 

Arbitration hearings are generally held in private (in camera) unless the parties agree otherwise, ensuring the confidentiality of the process as provided under Section 19. The arbitrator must inform the parties about the type, date, and time of the proceedings and record this information in the case file under Section 17(3).

 

As per section 17(4), if there are three or more arbitrators, the arbitrators present may conduct the proceedings, except for making the final decision or order. Accordingly section 17(5) states, if a party fails to attend a hearing despite receiving proper notice, the arbitrator may continue the proceedings and decide the case based on the available evidence.

 

After the hearing is completed, the arbitrator issues an order declaring the hearing closed. After this, no new evidence or submissions can generally be accepted under Section 17(6). Notices and summons may be sent directly or through recordable communication methods, while registered post must be used when sending documents by mail as provided under Section 20.

 

As per section 22(2), parties may participate in arbitration personally, through a representative, or with the help of a legal practitioner. 

 

Supreme Court Decision on Hearing 

Hanil Engineering & Construction v. Patan Appellate Court (Decision No;10138)— the Court held that notice served on a director could not be treated as valid notice to the company itself, underscoring the importance of procedural fair play and due process at the hearing stage.

 

4.8. The Arbitral Award

 

Unless the parties agree otherwise, the arbitrator applies the relevant law to decide the dispute as stated by Section 18(1). Section 17(7) of the Arbitration Act states that once the hearing is closed, the arbitrator must normally read out the decision within 30 days. Section 24 of the Arbitration Act prescribes that in any event, the decision should generally be made within 120 days from the submission of the claim documents.

 

Where there are three or more arbitrators, the majority opinion becomes the decision of the tribunal, reflecting the statutory rule in Section 26(1). If no majority can be reached, the chief arbitrator's opinion prevails, unless the parties have agreed otherwise, as provided in Section 26(2).

 

The award must bear the signatures of all arbitrators. Where an arbitrator is unable to sign for a valid reason, the reason for the absence of that signature must be recorded. An arbitrator who disagrees with the majority may also provide a separate dissenting opinion, thereby preserving the individual position of the dissenting arbitrator as part of the arbitral record.

 

Contents and Finality of the Award

Section 27 of the Arbitration Act requires the award to contain key details, including:

 

• The dispute referred to arbitration; 

• Reasons for deciding that the dispute can be arbitrated, where jurisdiction was challenged; 

• The tribunal's decision and reasons; 

• The amount to be paid or compensation awarded; 

• The applicable interest rate; and 

• The date and place of the decision. 

 

The award must be read out to the parties, and each party should receive a copy. If a party is absent or refuses to accept the award, a copy is sent to that party with proper notice, as provided by section 28.

 

Once the award is issued, it is generally final and cannot be changed by the arbitrator. However, the arbitrator may correct minor arithmetic, typing, or printing errors, or add information that was accidentally omitted, without changing the substance of the award. Changes may also be made pursuant to a High Court order under Section 30, as contemplated by (Section 29).

 

A party may also request correction, a supplementary decision, or clarification of the award, generally within 30 days of the decision. 

 

 

An arbitral award in Nepal is generally final and binding, and there is no ordinary appeal against it. However, under Section 30 of the Arbitration Act, 2055 (1999), a party may apply to the competent High Court to set aside an award within 35 days of receiving or being informed of the decision.

 

The grounds for setting aside include: invalidity or incapacity of a party, lack of proper notice, decisions beyond the scope of the arbitration agreement, and non-compliance with the agreed or statutory arbitral procedure. Section 30(3) further permits the High Court, on a petition under Section 30(1), to invalidate an award where the dispute is not capable of being resolved through under Nepalese law or the award is detrimental to public policy.

 

The Arbitration Rules, particularly Rule 11, require the application to contain details of the parties, arbitrator, dispute, award, and specific grounds for setting aside, along with the award, arbitration agreement, and relevant documents.

 

The Court's review is limited and supervisory; it does not function as an appellate court or re-examine the merits or factual findings of the tribunal. This principle has been repeatedly affirmed by the Supreme Court in cases such as Kanchanjunga Tamang JV v. Patan Appellate Court,( Decision No:11322), Manjit Singh v. Kankai Irrigation Project,(Decision No:8397) 

 

The Supreme Court in Kanchanjunga Tamang JV v. Patan Appellate Court,(Decision No:11322) has also recognized that an award may be challenged where it is biased, contrary to prevailing law or established legal principles, affected by a patent legal error, unclear or defective, contrary to the parties' agreement, or based on an incorrect legal principle.

 

A High Court decision on setting aside is generally final, although in exceptional circumstances an extraordinary writ may be brought before the Supreme Court. Cases such as Yakshyadhoj Karki v. High Court, Patan also demonstrate that a party who received proper notice but chose not to participate cannot later rely on lack of notice as a ground for setting aside.

 

 

Domestic arbitral award refers to the award given by the arbitrators as a result of domestic arbitral proceedings. Once an award becomes final, the focus shifts from adjudication to enforcement. As per section 31, after receiving the copies of the decision, the award should be implemented by the parties voluntarily within 45 days.

 

If an arbitral award is not voluntarily implemented within the period prescribed under Section 31, the successful party may apply to the District Court within 30 days after the expiry of that period for enforcement. The District Court must enforce the award as if it were its own judgment within 15 days for fast-track arbitration awards and generally within 30 days for other awards.

 

Importantly, merely filing an application to set aside the award under Section 30(1) does not automatically stop its enforcement. However, the party challenging the award may separately apply to the High Court for suspension of enforcement. The High Court may grant a stay only on the statutory grounds, including where there is prima facie evidence of corruption or fraud in the arbitration agreement or award, or where non-suspension would cause irreparable harm.

 

Enforcement Fee

When a party asks the court to enforce an arbitral award, an execution fee must be paid to the concerned court.

 

• If the award requires payment of money, the fee is 0.5% of the amount recovered. 

• If the award concerns something other than money, but its value can be determined according to the prevailing market value, the fee is 0.5% of that value. 

• If the value cannot be determined, a fixed fee of NPR 500 is payable. 

• If the party paying the execution fee wants to recover it from the other party, the District Court can recover it as court costs.

 

Preservation and Confidentiality of Records

After the arbitration ends, Section 42 of the Arbitration Act requires the arbitrator to prepare and submit the complete arbitration file to the District Court, including documents, evidence, statements, and the award. The court must preserve these records in the same way as its own case records.

 

The confidentiality of the arbitration continues even after the records are transferred to the court. Documents relating to the arbitration cannot generally be given to persons other than  the parties without their consent.

 

 

Nepal acceded to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards on 4 March 1998, the Convention entered into force for Nepal on 2 June 1998. Nepal's accession carries the two reservations Article I(3) of the Convention permits: reciprocity, meaning Nepal recognizes and enforces only awards made in the territory of another contracting state; and commerciality, meaning the Convention is applied only to disputes arising from relationships considered commercial under Nepal law.

 

Section 34 of the Arbitration Act supplies the domestic mechanism for giving effect to this treaty framework. As per section 34(1) of the Arbitration Act, a party seeking to enforce a foreign award in Nepal applies to the High Court, along with:

 

• The original or a certified copy of the arbitrator's award;

• The original or a certified copy of the arbitration agreement; and

• Where the award is not in Nepali, an official Nepali translation of it 

 

Under Section 34(2) of Arbitration Act, a foreign arbitral award can be recognized and enforced in Nepal only when certain requirements are satisfied. These requirements are intended to ensure that the arbitration was conducted fairly and in accordance with the parties' agreement.

 

The important conditions include:

 

• The appointment of the arbitrator and award should have been made in accordance with the processes agreed in the agreement entered between the parties, 

• The parties to the dispute should have been duly notified as to the proceedings of the arbitration, 

•  The award should be rendered only on the matter strictly entrusted to the arbitrator and in accordance with the provisions of the agreement, 

• The award should have become final and binding upon the parties as per the laws of the jurisdiction in which such award was rendered, 

•  The laws of the country of the applicant or the laws of the country where such arbitration award was rendered should not prevent the recognition and enforcement of any arbitral award given in Nepal, 

• The application for the enforcement of an arbitral award should have been filed before the court of Nepal within 90 days from the date of the arbitral award. 

 

These requirements ensure that Nepal does not automatically enforce every foreign award but instead verifies whether the award satisfies the statutory and treaty requirements.

 

Role of the High Court and District Court

The High Court initially examines whether the foreign arbitral award satisfies the requirements of Section 34 of the arbitration Act. If the High Court is satisfied that the necessary conditions have been fulfilled, it forwards the award to the concerned District Court for enforcement under Section 34(3) of the Arbitration Act. The District Court then proceeds with enforcement in substantially the same practical manner as enforcement of a domestic arbitral award under Section 32 of the Arbitration Act.

 

Grounds for Refusing Enforcement

Even when the procedural requirements are satisfied, Section 34(4) of the Arbitration Act provides important safeguards against enforcement.

 

A foreign award will not be enforced in Nepal where:

• In case the  dispute cannot be settled through arbitration under the laws of Nepal.

•  In case the implementation of the award is detrimental to the public policy. 

• If the high court is satisfied that the award has to be enforced in Nepal, it should forward the award to the district court for its implementation.

 

For the first time since the enactment of the Arbitration Act in 1999, the Act to Amend Some Nepal Acts Relating to Improving Economic and Business Environment and Enhancing Investment, 2025 (2081), which took effect on 31 March 2025, introduced a new fast-track arbitration mechanism into the Arbitration Act, commonly cited as a new Section 13A, allowing parties to agree to resolve their dispute through an accelerated procedure. The important feature of this mechanism is speed at the enforcement stage: once a fast-track award is made, the District Court must enforce it within 15 days of an application for enforcement. This represents a significant reduction compared with the ordinary enforcement timeline under Sections 31 and 32 of the Arbitration Act.

 

The fast-track mechanism forms part of a wider package of 2025 reforms intended to make Nepal-seated arbitration more efficient and enforcement-friendly. These reforms include the narrowing of grounds for setting aside an award under Section 30, the introduction of a restriction on merits review under Section 30(4), and the removal of the automatic stay of enforcement merely because a set-aside application has been filed. The amendments also introduce greater accountability for delays in government-related arbitrations. In particular, new Section 14(7) of the Arbitration Act provides for departmental action against government officials who delay or fail to submit a claim, counter-claim, defense or rejoinder within the prescribed period.

 

As fast-track arbitration is a newly introduced mechanism, detailed procedural matters, such as shortened timelines for pleadings, evidence and hearings comparable to Sections 14, 17 and 24 of the Arbitration Act governing ordinary arbitration, may be further developed through rules., the clearest statutory feature is the 15-day period for District Court enforcement. The detailed timetable for pleadings, evidence and hearings in a fast-track arbitration is largely left to party agreement, consistent with the principle of party autonomy recognized under Section 17(1) of the Arbitration Act.

 

 

Published date: 8th October 2026

 

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