Enforcement of Foreign Arbitral Award in Nepal

Arbitration Act, 1999 (2055) and Arbitration Rules, 2003 (2059) are the primary Laws governing the arbitration in Nepal.

Additionally, Nepal has signed The Convention on Recognition and Enforcement of Foreign Arbitral Awards, 1958 (“New York Convention”), which is the main international convention governing the enforcement of foreign arbitral award in Nepal.

For any foreign arbitral award to be enforced in Nepal the following grounds should be satisfied:

Any party willing to implement an award made in a foreign country in Nepal should submit an application to the High Court along with;

 a. Original copy of the arbitrator's award,

 b. The original or certified copy of the agreement, and

c. If the award is in any other language than Nepali language, official translation in Nepali language is required.

                                                Figure: Explaining Detail Process of Enforcement of Arbitration Award

Once the High Court is satisfied that the conditions mentioned above are fulfilled, such decision is sent to the concerned district court for enforcement.

A foreign arbitral award cannot be enforced in Nepal if;

a. The arbitral award is in contrary to the public policy.Same has been recognized in case of Hanil Engineering & Construction Co. Ltd. (Supreme Court of Nepal Decision No.10138, 2075). It was held that the court considered arbitration award unenforceable as it was in contrary to the public policy.

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

India is party to the New York Convention. In has also ratified the New York Convention, India declared both the commercial relationships reservation and the reciprocity reservation. Consequently, Indian Courts will only enforce foreign awards that arise out of relationships that are made in the territory of a state that is party to the New York Convention and that is specified by the Indian government as a reciprocating territory to which the Convention applies.

As a matter of practice, India does not enforce arbitral award provided by Nepal as Nepal has not been notified as a reciprocating territory by India. Nepal on the other hand is also the party to New York Convention with declaration of reciprocity reservation based on which even Nepal will not enforce the foreign award provided in India.

Fee that is prescribed by the courts for the enforcement of award is 0.5 percent of total amount to be recovered after the implementation of the award. In case the payable fee could not be determined, fee equal to 0.5 percent of amount of the action shall be payable. However, amount equals to NPR 500 shall be payable in case of no exact valuation made. If the other party files an application to the concerned district court, all amounts paid to court shall be recovered from him/her.

 Adv. Devendra Pradhan (on behalf of Hanil Engeeneering & Construction Co. Ltd.) v. Appellate Court, Patan, 2075

It was held that dispute resolution clause, such as arbitration, is considered a distinct agreement from the main contract, meaning it remains intact regardless of the status of the primary contract. Parties have the freedom to choose different laws for the substance and procedure of arbitration, even if they select a specific country's law for the contract's substance.

If a contract mandates amicable dispute resolution, parties must genuinely attempt to resolve the dispute as outlined in the contract before initiating arbitration. Ignoring this requirement contradicts the contract's intention, especially in multi-tiered dispute resolution clauses, which involve various stages of dispute resolution before arbitration. It's essential to serve separate notices for different issues as per the law's requirements, and failing to do so can render the arbitral award invalid. Additionally, ensuring both parties have a fair opportunity to be heard is crucial for upholding principles of natural justice, as an arbitral award may not be enforceable if one party's voice is not adequately heard.

Date of Publication: 22 August 2023

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