Highlights of Arbitration Act of Nepal : Arbitration Law in Nepal

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

 

Further, Nepal is the party to the Convention on the recognition and enforcement of Foreign Arbitral Award also known as New York Convention, 1958 having assessed to the convention on March 4, 1998.

 

Nepalese Arbitration Law seems to have been influenced by the UNCITRAL Model Law, as some provisions in Nepalese Arbitration Act were borrowed from UNCITRAL Law.

 

Party should initiate the arbitration in mentioned ground:

a. If the agreement compromises arbitration clause as the way of settlement of dispute,

b. If the parties agree to settle dispute through arbitration mutually an

c. Parties can initiate the arbitration in between the court case proceeding on mutual consent.

 

Once the parties to the arbitration agree to arbitrate, the Arbitration Act has incorporate the following provision to initiate the arbitration proceeding in Nepal:

 

3.1. Appointment of Arbitrator

Parties to the arbitration has been given the exclusive right to choose the arbitrator(s). If the parties could not choose any, the arbitrator is appointed as per the process prescribed in the Act.

 

Parties shall appoint one arbitrator each and the appointed arbitrators shall appoint the third arbitrator.

 

3.2. Appointment of Arbitrator through Court

If the parties fail to appoint an arbitrator, an application can be submitted to the High Court along with a copy of the agreement and details of minimum three persons who are to be appointed as arbitrator.

 

The court shall appoint an arbitrator within period of 60 days after receiving the application if the parties fail to make consensus on the name of arbitrator.

 

3.3. Qualification of Arbitrator

The qualification that are required for an arbitrator are as mentioned;

a. Have capacity to enter into a contract,

b. Have not been punished for a crime involving moral turpitude,

c. Are not insolvent or bankrupt,

d. Not possessing any personal interest in the dispute and

e. Are qualified as per the qualification specified in the agreement.

 

3.4. Number of Arbitrator

Number of arbitrators shall be as per the arbitration agreement and if the agreement is silent, three arbitrators must be appointed. Each party must appoint an arbitrator and the appointed arbitrator shall appoint a chair.

 

3.5. Place of Arbitration

The place of arbitration shall be as per the agreement however,

a. If the agreement is silent regarding the place of arbitration the parties should select the place for arbitration.

b. If parties are unable to select the place of arbitration, then arbitrator will select the place of arbitration.

As per the Section 19 of Arbitration Act, the arbitration should be held in-camera.

 

3.6. Submission of Claim

 

3.6.1. Claim

The claimant shall submit its claim to the arbitrator within the following mentioned time:

a. If agreement has mentioned time, should submit within the prescribed time,

b. If time is not specified in agreement and the name of arbitrator is specified in the agreement then party should submit claim within 3 months from the date when a dispute arises,

c. In case an arbitrator is appointed after the dispute has arisen, the time for submission of claim is 3 months from the date of appointment of Arbitrator.

 

3.6.2. Counter Claim

Party must submit counter claim within the time prescribed in the agreement. However, if the agreement is silent regarding the time for counter claim, such should be submitted within 30 days after the receipt of the claim.

Time to submit counter claim can be extended up to 15 days upon certain conditions as prescribed in the arbitration act.

 

3.7.3. Rejoinder

The time frame for submission of rejoinder is for 15 days however, time can be extended up to 15 days upon certain conditions as prescribed in the arbitration act.

 

The language that shall be used in the arbitration shall be specified in the agreement. However, if it has not been specified, shall be as determined by the parties to the agreement.

 

The arbitrator appointed shall have the power as mentioned;

a.  To guide the concerned parties to appear before an arbitrator, compelling them to furnish necessary documents and provide their statements as required.

b. To document the testimonies of witnesses involved in the case.

c. To engage the services of an expert and seek their professional opinion or arrange for their examination regarding specific issues in question.

d. Secure appropriate guarantees, such as bank guarantees, for foreign nationals involved in the dispute.

e. To conduct inspections of locations, objects, products, structures, production processes, or any relevant matters tied to the dispute.

f. When deemed necessary after consultation with the parties involved, to arrange for the sale of materials or objects at risk of destruction or damage.

g. To exercise any specific authority granted by the involved parties in accordance with the arbitration process.

h.To issue preliminary rulings, interim orders, or provisional decisions pertaining to any aspect of the dispute upon the request of any party or as deemed necessary.

i. To provide certified copies of relevant documents as required.

 

The removal of arbitrator shall be as per the contract. However, if the contract is silent regarding the removal, an application shall be given mentioning the reason for removal within 15 days after the knowledge of the following conditions;

a. If arbitrator seems to be biased and shows impartiality in between the parties,

b. If arbitrator does anything contrary to the law in between the period of arbitration,

c. If arbitrator performs faulty activities repeatedly,

d. If the arbitrator does not participate in the meeting and shows baseless reasons for not attending the meeting,

e. If any arbitrator does any act that is in contrary to the principal of Natural Justice and law,

f. If any arbitrator is not eligible or does not possess eligibility criteria as prescribed by the law.

 

The tribunal is required to give an award within 120 days after the rejoinder is received by the tribunal. The award given must be written and should incorporate every detail of the case as per the arbitration agreement. However, if the agreement is silent regarding the same the award should contain;

a. A brief description of the dispute;

b. Jurisdiction over the arbitration;

c. Ground of the decision;

d.Regarding the amount to be recovered and the amount that need to be paid to compensate the other party;

e. The place and the date of the award provided.

 

After receiving the copies of the decision, the award should be implemented by the parties voluntarily within 45 days. In case an award is not implemented within 30 days from the expiry of time limit, the court should implement the award within 30 days as its judgment.

 

8.1. Implementation of Domestic Award

Domestic Award is implemented after the party receives a copy of the award.

 

8.1.1. Implementation of Domestic Award voluntarily

Once the award is provided to the parties, they should enforce it within 45 days after receiving the copy of award.

 

8.1.2. Implementation of Domestic Award through Court Procedure

The implementation of decision through the court process takes place if the party fail to implement the award in his/her own. Concerned parties can make an application before the district court within 30 days from the lapse of 45 days after the award has been provided.

 

8.1.2.1. Process of implementation of Domestic Award through Court Procedure

For the implementation of decision through court procedure, parties should submit an application with a copy of award and the acknowledgement receipt of the award along with;

(i) Details of parties and arbitrators; and

(ii) Fact of the dispute of arbitration.

Hence, the district court will enforce the award as the judgment.

 

A party can file an application to relevant high court to quash the award. The high court shall quash the award if it is not enforceable as per the Nepalese law or if it is against the public policy.

 

Figure: Explaining Detail Process of Implementation of Domestic Arbitral Award

 

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

a. Original copy of the arbitral award,

b. The original or certified copy of the agreement,

c. If the award is in any other language than the award should be translated into official Nepali language.

 

 

 Figure: Explaining Detail Process of Enforcement of Arbitration Award

 

Once the High Court is satisfied that the application submitted is in consistent with the grounds mentioned above, it shall forward the award to the District Court for its implementations.

 

A foreign award cannot be enforced in Nepal if;

a. The enforcement is in contrary to the public policy,

b. The arbitral award cannot be settled through Arbitration Law of Nepal.

 

Generally, the Arbitration Act, 2055(1999) has provided the role of facilitator to the Court. However, below mentioned are some matter provided in the act where the Court can intervene during the arbitration proceeding;

I. Section 7 of the act has provided power to the Court to appoint an arbitrator if the arbitration agreement has no provision regarding the appointment of if the parties to the contract are not able to appoint any arbitrator in their consensus.

II. Section 11(4) of arbitration act has granted power to the Appellate Court to remove an arbitrator if the parties became unable to remove the arbitrator.

III. Section 16 of the act has provided the Court to take final decision regarding arbitrator's jurisdiction.

IV. Section 21(2) of the act has granted power to the court to give final decision regarding the power of the Arbitrator.

 

Note: Above mentioned power to the Court can be quashed by the parties if they give their consensus to choose any other law except Nepalese law or by clearly mentioning the procedures of arbitration in the agreement itself.

 

Interim relief can be granted to any party by the arbitrators. The other party can file an appeal to override the interim relief within 15 days of issuance of such relief before the concerned High Court. The decision of High Court will be final.

 

 

Parties not satisfied by the judgment of the high court can challenge to the Supreme Court through writ petition as held in Agricultural Tools Agency V. Sumit Prakash Asia Pvt.Ltd.[1] (Agricultural Tools Agency V. Sumit Prakash Asia Pvt.Ltd, NKP 2058, page 285) the Parties not satisfied by the judgment of appeal regarding the application filed to quash the decision of arbitrator can file the writ petition in absence of any alternate remedy. A writ petition can be filed to the Supreme Court with appropriate ground for not implementing the judgment of High Court.

 

 

The timeline required for the process of Arbitration in Nepal is illustrated below:

 

Procedure	Timeline
To appoint an arbitrator	3 months from the date of beginning Arbitration Proceeding
Submission of Claim	3 months from the date of initiation of Arbitration Proceeding
Submission of Counter Claim	30 days from the date of receipt of claim (as per agreement, additional 15 days can be extended upon certain conditions)
Rejoinder	15 days (can be extended up to 15 days upon certain conditions like a situation out of control)
Award to be pronounced	Arbitrator shall pronounce the decision within 120 days from the date of submission of documents
Implementation of Award	45 days from the date after receiving the copy of Award
Additional time for implementation of Award	30 days from the date of expiry of the time limit prescribed for the implementation of Award
Implementation by District Court	30 days after the petition for implementation is filed

 

Some important features of the Nepalese Arbitration Act are as mentioned:

 

a) Arbitration Act has recognized some key principles of UNCITRAL Model Law on Arbitration.

b) This act has provided supremacy of parties to the contract as it has given authority to the parties to designate or determine the arbitrator, determine the substantive as well as procedural law applicable in dispute resolution.

c) The act has provided specific time frame for decision making once the dispute has raised in order to make the arbitration process speedy.

d) This act has provided power to the court to facilitate the arbitration proceeding without any interference.

e) The High Court has been given the supervisory jurisdiction over the proceedings and decision of arbitration.

f) The act has explicitly provided for the removal of dishonest and arbitrator with no good conduct.

g) This act has provided for the arrangement of jurisdiction through arbitration.

h) The act has provided for additional financial liability i.e. interest upon the parties in case of delay in implementation of arbitral award.

i) Act has provided a clear provision regarding the language to be used in the arbitration proceeding.

j) The act has given the authority to the parties to take help of court for collection of evidence.

k) Fee required during the process of implementation of arbitral award has been determined in the act.

 

a) Yakshyadhoj Karki V. High Court Patan and others, 2076, Decision No. 10369

It was held that the applicant did not have a clear arbitration agreement as per Section 3 of the Arbitration Act, 2055 to adopt the arbitration route for resolving the dispute between the parties to carry out the construction work as per the agreement. The high court did not have the power to appoint an arbitrator in accordance with the Arbitration Act, 2055. Meanwhile, in terms of blacklisting the company, the agreement between the two parties has no any provision of time extension after the termination of contract, upholding the decision to blacklist the company. Thus, the writ petition is quashed on the ground that no any application is filed for any of the legal proceeding as per the Contract Act 2056.

 

b) Department of Road et al. V. Waiba Contruction Co.Pvt.Ltd., Samakushi, Kathmandu et al., 2067, Decision No. 8479

It was held in this case that, where a dispute is subject to arbitration, the court's role is limited. The court cannot get involved in examining facts, considering evidence, or making decisions as it would in a regular legal case. Additionally, the Hon’ble Supreme Court also held that unless there is a significant legal mistake, the court cannot invalidate an arbitral award. This means that courts generally defer to the decisions made through arbitration and do not interfere unless there are clear legal errors and that the arbitrator are the last judge in such matter.

 

c) Anil Goyal on behalf of Varun Beverage Pvt. Ltd. V. National Marketing and Sales Pvt. Ltd. et al., 2066

It was held in this case that when a party has already implemented the arbitral award and the decision of the Hon'ble Appellate Court upholding such award, then the same cannot be challenged through writ jurisdiction of the Hon'ble Supreme Court.

d) Department of Roads, Babarmahal v. Arbitral Tribunal comprising of Mr.Sureshman Shrestha, Ms. Kamala Upreti and Mr. Narendra Kumar Shrestha & ors., 2077

It was held in this that the Appellate Court can revert an arbitration decision and send the case back for arbitration in specific situations mentioned in Section 30(2) of the Arbitration Act, 2055.

 

e) Yakshyadhoj Karki v. High Court Patan and others, 2076

It was held in this case that when a contract includes an arbitration clause, it is considered separate from the main contract and remains valid until any disputes related to the contract or its performance have been resolved through arbitration. Changes in behavior, general communication, or one-sided offers by one party do not alter the terms of the contract. However, if the parties have not agreed to settle disputes through arbitration, Section 3 of the Arbitration Act, 2055, which pertains to arbitration dispute resolution, does not apply to their situation.

 

f) 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.

 

g) Krishi Samagri Co. Ltd., Head Office, Kathmandu V. Appellate Court, Patan, 2064

It was held by Hon'ble Supreme Court that when interpreting a contract, the parties' original intentions should be derived from the contract's explicit terms. In essence, the contract's meaning cannot be inferred from sources external to the contract itself. However, in cases where a dispute relates to a condition not explicitly stated in the contract, the court may consider the contract's context, prior communications, general principles of contract law, international practices, and the court's previous rulings to discern the parties' intent.

 

h) Raju K.C. on behalf of Nepal Air Service Corporation v. Appellate Court Patan, 2067

The Hon’ble Supreme Court held in this case that if any party refuses to participate in the arbitration proceeding despite receiving notice of the same, such party cannot approach the Hon’ble Appellate Court in order to invalidate the arbitral award on the ground of non-issuance of notice.

 

Date of Publication: 22 August 2023

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