Arbitration Law Nepal

The Law relating to Arbitration in Nepal is governed by Arbitration Act, 1999. Arbitration agreement is the foundation of arbitration under the Nepal Act. It must be an agreement for the settlement (through arbitration) of any dispute concerning any specific legal issue, arising under a contract or otherwise.
The number of arbitrators that may be specified in agreement or if there is no such specification ordinarily three persons may be appointed as Arnitrators.
If an even number is provided for, then the arbitrators must choose an additional arbitrator. Subject to agreement, the process of appointing arbitrators must be started within 30 days from the date when the 'reason for the settlement of a dispute through arbitration arises'.
The method of appointment is left to the agreement. Failing agreement, each party shall appoint one arbitrator and the arbitrators so appointed shall appoint a third arbitrator, who shall work as 'chief arbitrator'.
The concept of 'chief arbitrator' is not to be found in the Indian Act of 1996. The 'presiding arbitrator' mentioned in the Indian Act does not have that status.
Under the Nepal Act, where the agreement is silent about the appointment of arbitrators or where no arbitrator can be appointed according to the agreement, then a party may apply to the Appellate Court for appointing three arbitrators.
The Act contains a provision requiring the arbitrator to take a written oath of impartiality and honesty, for which a Form is provided in the Schedule. A copy is to be sent to the Appellate Court. Any matters raising a reasonable doubt about impartiality or independence of an arbitrator must be cleared by the arbitrator before signing the oath.
Qualifications of the arbitrators
The following persons shall not be qualified for appointment as arbitrators:
  1. Those who are disqualified for entering into contracts under 'current law' - a phrase which pithily expresses the concept of 'any law for the time being in force'.
  2. Those who have been punished by a court on criminal charges involving a moral turpitude. This is a very interesting provision, not found in most Arbitration Acts.
  3. Those who have become insolvent or who have been declared bankrupt.
  4. Those who have any personal interest in the dispute that is to be settled through arbitration.
  5. Those who do not possess the specific qualifications laid down in the arbitration agreement.
The 'office' of the arbitrator under the Nepal Act is to be located at the place chosen by the parties. If the parties fail to agree, then the office shall be at the place, specified by the arbitrator in the light of all the circumstances.
However, (unless the parties have made other arrangement), the arbitrator may record the statements of witnesses, obtain opinion of experts and inspect any document, object or place at any other appropriate place.
After the arbitrator is being appointed the proceeding of Arbitration starts with the filing of claim by the aggrieved party.
Failure to submit claims
If there is failure to submit the claim within the prescribed time limit, the arbitration proceedings 'shall terminate' - unless the agreement provides to the contrary. If there is failure to submit the 'objection' (i.e., the defence) within the specified time limits, then the arbitrator must still proceed to determine the claim on the merits.
Working procedure
The Nepal Act deals with the procedure to be followed by the arbitrator, as under:
  1. The parties may, in the arbitration agreement, lay down the procedure. Failing agreement, the procedure laid down in the Act shall be followed.
  2. If, on a particular matter, the Act is silent, the arbitrator can seek the consent of the parties consent on that matter.
  3. If the parties fail to reach an agreement on any procedural matter, the procedure (in that respect) 'shall be as prescribed by the arbitrator himself'.
Documents to be given with pleadings
The Nepal Act has a provision of considerable practical use, regarding the material that should accompany the pleadings (i.e., claim, objection, counter-claim or rejoinder). The following must be submitted along with the pleadings:-
  1. documents intended to be relied upon,
  2. evidence substantiating the documents,
  3. list of witnesses proposed to be produced.
The court assistance may be requested by the arbitrator, to examine any evidence concerning the dispute.
As per the arbitration Act, any party may attend the arbitration proceedings:-
  1. either personally, or
  2. by proxy, or
  3. through legal practitioner,
It is further provided in the Nepal Act that if any party does not present itself at the arbitration proceedings after due notice, the arbitrator may nevertheless continue the arbitration proceedings and pronounce his decision on the basis of the available material.
On completion of the hearing, the arbitrator has to issue an order that the hearing has concluded. The Act lays down that evidence may not be examined or the parties heard thereafter.
Unless the agreement provides otherwise, the arbitrator must read out his written decision, within 30 days of the order closing the hearing.
The Nepal Act provides that the Nepal law shall be the substantive law applicable, unless the agreement provides otherwise. But the arbitrator must settle the dispute according to the 'conditions stipulated in the concerned contract' He has also to take into account the applicable commercial usages.
The Act also confers on the arbitrator power to issue (on the request of a party) preliminary orders or interim or provisional orders, in respect of any matter connected with the dispute or to take a 'conditional decision'. Against the various interim orders issued by the arbitrator an appeal lies to the Appellate Court.
The Nepal Act also lays down time limits for filing the various categories of claims mentioned above. Subject to an agreement between the parties laying down a different time limit, these time limits are as under:
  1. to be filed within three months from the date when the dispute arose or when the arbitrator is appointed (whichever is later];
  2. to be filed within thirty days from the date of receipt of the claim;
  3. to counter, claim to be filed within 15 days from date on which counter claim is filed;
The arbitrator is empowered to extend the time limit for not more than seven days.
Time limit for passing award
The Nepal Act does contain provisions regarding the time limit for pronouncing the award, as under:
Subject to agreement between the parties, the award must be pronounced within 120 days from the date on which the process of submission of pleadings is complete or within 30 days of the date on which the hearing is 'closed' by a formal order.
An award may be challenged on a petition filed before the Appellate Court within 35 days from receipt of a copy by the petitioner. The grounds of challenge are as under:
  1. Incompetence of a party to sign the agreement or invalidity of the agreement.
  2. Notice of arbitration proceedings not given to the petitioner.
  3. Decision has been rendered:
    1. on a matter not referred to the arbitrator; or
    2. in a manner contrary to the prescribed conditions; or
    3. by acting beyond the arbitrator's jurisdiction.
  4. Procedure of designation of arbitrators or their functions and actions do not conform to the agreement or the Act.
  5. The matter is not arbitrable under the law of Nepal.
  6. The award is likely to prove detrimental to the 'public interests or policies'.
The award is to be implemented by the District Court, under the Nepal Act on a petition filed within 30 days from the date of expiry of the time limit prescribed for implementing it.