Background

The primary legislation governing arbitration in Nepal is the Arbitration Act, 2055 (1999). The Act was significantly amended on March 31, 2025 to introduce modern concepts like fast-track arbitration and to limit judicial intervention, aiming to enhance the efficiency and international appeal of arbitration in Nepal. These rules apply to both domestic and international commercial arbitrations seated in Nepal.

Key Features of the 2025 Amendment

• Fast-Track Arbitration: A new Section 13A has been introduced, allowing parties to agree to resolve disputes through fast-track arbitration, significantly reducing resolution timelines.

• Limited Judicial Review: Under new Section 30(4), the High Court is explicitly prohibited from re-examining the merits of a case or re-evaluating evidence when hearing a challenge to an arbitral award.

• Grounds for Challenge: The amendment revised Section 30(3) (b), removing "detrimental to public interests" as a standalone ground to invalidate an award. The remaining ground is if the award conflicts with the fundamental "public policy" of Nepal.

• Expedited Enforcement: For fast-track arbitration awards, Section 32 now mandates that the District Court enforce the award within 15 days (reduced from the standard 30 days).

Dispute Settlement through Arbitration

Disputes of a civil or commercial nature can be settled through arbitration. If an agreement contains an arbitration clause, disputes must be settled according to that clause. If the agreement is silent on procedure, the Arbitration Act provides the default rules.

Number of Arbitrators

• As specified in the agreement.

• If the agreement fails to specify, three arbitrators are required.

• Note: If the agreement specifies an even number, the existing arbitrators must appoint an additional arbitrator to make the number odd.

Appointment of the Arbitrator

The process for appointing arbitrators must generally be initiated within 3 months from the date the dispute arises.

• By Parties: Each party appoints one arbitrator, and the two appointed arbitrators appoint a third (chief) arbitrator.

• By Court: If parties fail to appoint an arbitrator, an application can be made to the High Court. If the parties cannot reach a consensus, the High Court will appoint a qualified arbitrator within 60 days. This decision is final.

Qualifications & Removal of Arbitrator

A person is disqualified from being an arbitrator if they: - Are disqualified from contracting under prevailing laws.

• Have been convicted of a criminal offense involving moral turpitude.

• Have a personal interest in the dispute.

• Lack specific qualifications required by the agreement.

• Are insolvent or bankrupt.

Removal:

An arbitrator can be removed if they are biased, engage in fraud, frequently commit procedural errors, fail to attend proceedings without cause (more than three times), or lack necessary qualifications.

Place & Language of Arbitration

• Place: As specified in the agreement. If not specified, the parties determine it within 15 days. If they fail, the arbitrator decides.

• Language: As specified in the agreement. If not specified, the parties decide. If they cannot agree, the language of the agreement is used.

Proceedings of Arbitration

• Submission of Claim: The claimant submits a written statement of claim with evidence within the time agreed, or within 3 months of the arbitrator's appointment.

• Counter-Claims: The respondent submits objections/counter-claims within 30 days of receiving the claim.

• Rejoinders: The claimant replies within 15 days of the counter-claim.

• Extension of Time: A party may apply for an extension within 15 days of the deadline if the delay was due to circumstances beyond their control.

• Hearing & Decision: The arbitrator holds hearings, reviews evidence, and issues an order concluding the proceedings. A written decision must be issued within 30 days of the concluding order.

Power of Arbitrator

The arbitrator has powers to: - Direct parties to appear and submit documents.

• Record witness statements.

• appoint experts.

• Order bank guarantees (for foreign nationals).

• Inspect relevant sites or products.

• Issue interim or interlocutory orders.

The Award (Decision)

The arbitrator must pronounce a decision within 120 days from the date of submission of claims. If there are three or more arbitrators, the decision of the majority prevails.

Challenging the Award (Setting Aside)

An aggrieved party can file a petition to challenge the award at the High Court within 35 days of receiving the award.

Grounds for Challenge (Section 30):

The High Court may set aside an award only if: - A party to the agreement was under some incapacity, or the agreement is invalid.

• Proper notice of arbitrator appointment or proceedings was not given to the opposing party.

• The award deals with matters outside the scope of the arbitration agreement.

• The composition of the arbitral tribunal or the procedure was not in accordance with the agreement or the Arbitration Act.

• The dispute is not capable of settlement by arbitration under Nepali law.

• The award conflicts with the public policy of Nepal.

Important: Under the 2025 amendment, the High Court cannot re-examine the merits of the case or re-evaluate evidence when deciding a challenge.

Implementation of the Award (Domestic)

The parties must voluntarily implement the award within 45 days of receiving a copy. If not implemented, the concerned party files an application at the District Court within 30 days. The District Court will enforce the award within 30 days (or 15 days if it was a fast-track arbitration award) as if it were its own judgment.

Enforcement of Foreign Arbitral Awards

Nepal is a signatory to the New York Convention, 1958, which governs the recognition and enforcement of foreign arbitral awards.

Application Process:

A party seeking to enforce a foreign award must file an application with the High Court along with: - The original or certified copy of the award.

• The original or certified copy of the arbitration agreement.

• A certified Nepali translation (if the award is not in Nepali).

Grounds for Refusing Enforcement:

The Nepalese court may refuse to enforce a foreign award if: - The arbitration agreement was invalid.

• A party was not given proper notice.

• The award deals with matters outside the scope of submission.

• The award has not yet become final and binding.

• The dispute is not arbitrable under Nepali law.

• Enforcement would violate the public policy of Nepal.

Recent Development: In March 2025, the Patan High Court recognized and enforced a foreign arbitral award (ICC, seated in Singapore) for the first time, reaffirming Nepal's commitment to the New York Convention.

Frequently Asked Questions

Q. What is the main law governing arbitration in Nepal?

Q. What are the key changes introduced by the 2025 amendment?

Q. How many arbitrators are required if the agreement doesn't specify?

Q. How are arbitrators appointed if the parties fail to do so?

Q. Can I challenge an arbitral award in Nepal?

Q. Is a foreign arbitral award enforceable in Nepal?

Q. What is the time limit for enforcing a domestic arbitral award?

Q. Can all types of disputes be resolved by arbitration in Nepal?