Alternative Dispute Resolution: Arbitration

(A Clinical Report)

Submitted To:
National Law College
B.A.LL.B. Program, Faculty of Law
Tribhuvan University
Sanepa Height, Lalitpur
(In the Partial Fulfillment of Requirement for B.A.LL.B. Degree)

Submitted By:
Sonika Neupane
B.A.LL.B. 5th semester
TU Regis.: 8-2-1012-87-2020
Symbol No.: 77389
Date: 25 February 2024
 RECOMMENDATION LETTER
It is to notify that Ms. Sonika Neupane, has prepared this Clinical Report on ADR: Arbitration
under my supervision for the partial fulfillment of the requirement of fifth semester of B.A.LL.B
Program of Tribhuvan University. She has fulfilled all the requirements and formalities. I wish for
her success in her further endeavors.

I hereby recommend the concerned authority to accept the report for its further evaluation.

Date: 25 February 2024

…………………………
Mr. Krishna Bhandari
Lecturer
National Law College, T.U.

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 PREFACE
The clinical report on “Alternative Dispute Resolution: Arbitration” is prepared as the part of
clinical education. This report is intended to fulfill the need of fifth semester of B.A.LL.B program
of Tribhuvan University.

Clinical Law-I: Alternative Dispute Resolution is a subject which has been exclusively designed
in order to acquaint the students with the negotiation, conciliation, arbitration, mediation and other
dispute resolution practices with theoretical knowledge as well as through simulation exercises. It
tries to impart the various other alternation of dispute resolution. In this subject, we try to collect
the practical knowledge to solve the dispute.

The main objective of this report is to emphasize on the aspects of ADR. It discusses the basic
features, history, and procedure of arbitration in Nepal. It has been prepared by using various
books, articles, journals and with the help of our professor. It also tries to explain about the arbitral
award, its implementation and enforcement.

This report is a result of the learnings done throughout the semester. It has incorporated the basic
concept of arbitration, case laws of Nepal and other jurisdiction. I have tried to give
recommendations based on the observations and the findings of this report.

- Sonika Neupane

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 ACKNOWLEDGEMENT
I would like to acknowledge all those person whose supports have been taken in the course of
preparation of this report. I would also extend my heartily thanks to all those scholars whose name
is mentioned in the footnotes and bibliography of this report.

I take this opportunity to thank my lecturer, Mr. Krishna Bhandari, who has provided me with
valuable suggestions throughout the semester. Without this guidance and support this report would
not be refined.

I would like to thank my Principal, Mr. Rastra Bimochan Timalsena, my Deputy Director, Mrs.
Sharada Poudel, my coordinator Mrs. Trishna Neupane and the entire administration, and other
teaching and non-teaching staff for their kindness and help.

I must thanks my colleagues who have given valuable suggestions and commentaries for
appropriate corrections to rectify my mistakes.

Lastly, I thank my family for being my constant.

- Sonika Neupane

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 LIST OF ABBREVIATIONS

Abbreviations Full Forms

ADR Alternative Dispute Resolution

NEPCA Nepal Council of Arbitration

UNCITRAL United Nations Commission on International Trade Law

Med- Arb Mediation- Arbitration

Arb- Med Arbitration- Mediation

ICC International Chamber of Commerce

HMG His Majesty's Government

v. Versus

ICSID International Centre for Settlement of Investment Disputes

SJT Summary Jury Trial

Co. Cooperation

Pvt. Private

Ltd. Limited

NKP Nepal Kanoon Patrika

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 LIST OF CASES
National Case Laws:

1. Advocate Devendra Pradhan v. High Court Patan et.al. NKP 2075.

2. Anang Man Sherchan v Chief Engineer, NKP 2020.

3. Anil Kumar Pokharel v District Court Kathmandu and others, NKP, 2064.

4. Department of Road et al. V. Waiba Construction Co. Pvt. Ltd., Samakhusi, Kathmandu et al.,
NKP 2067.

5. Dhan V. HMG Kankai Development Board, NKP 2048.

6. Flora Nepal Pvt. Ltd v. Appellate court Patan, NKP 2062.

7. Hanil Engineering & Construction Co. Ltd. v. KONECO Pvt. Ltd. et al., 2017.

8. Kailash and Company v. HMG, Ministry of Education, 7 NEPCA Bulletin 24 (2057).

9. Krishi Samagri Sansthaan v. Sumit Prakasa Asia, NKP 2059.

10. Poshannath Nepal on behalf of Water Supply and Sewerage Drainage Committee v. Central
Regional Court et.al. NKP 2044.

11. Rajendra Man Sherchan vs. Appellate Court, Patan, NKP, 2064.

12. Rakesh Kumar v Ram Krishna Rawal, NKP 2066.

13. Yashasvi Shamsher JBR v. Vaiwers Developers Pvt. Ltd., NKP 2074.

International Cases:

1. Shakuntla Sawhney v. Kaushalaya Sawhney, (1979), 3 S.C.R. 232, (India).

2. Mavrommatis Palestine Concessions Case (Mavrommatis).

3. Schooner Exchange vs. M’ Faddon (1812).

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 CONTENTS
CHAPTER ONE ........................................................................................................................... 1
INTRODUCTION......................................................................................................................... 1
1.1 Background of Study........................................................................................................ 1

1.2 Statement of problem ....................................................................................................... 2

1.3 Objectives & Importance of study ................................................................................... 3

1.4 Scope & Limitations of study .......................................................................................... 3

1.5 Methodology of study ...................................................................................................... 3

1.6 Review of Literature......................................................................................................... 4

1.7 Organization of study ....................................................................................................... 6

CHAPTER TWO .......................................................................................................................... 7

CONCEPTUAL FRAMEWORK OF ADR................................................................................ 7
2.1 Concept of Alternative Dispute Resolution ..................................................................... 7

2.2 History of Alternative Dispute Resolution ....................................................................... 9

2.3 Types of Alternative Dispute Resolution ....................................................................... 11

2.4 Characteristics of Alternative Dispute Resolution ......................................................... 16

2.5 Importance of Alternative Dispute Resolution............................................................... 16

CHAPTER THREE .................................................................................................................... 18

AN INTRODUCTION TO ARBITRATION ........................................................................... 18
3.1 Concept of Arbitration ................................................................................................... 18

3.2 Characteristics of Arbitration ......................................................................................... 19

3.3 Historical Development of Arbitration .......................................................................... 20

3.4 Types of Arbitration ....................................................................................................... 23

3.5 Importance of Arbitration in Commercial Dispute Resolution ...................................... 25

CHAPTER FOUR ....................................................................................................................... 28

LEGAL FRAMEWORK ON ARBITRATION IN NEPAL ................................................... 28
4.1 Development of Arbitration Law in Nepal .................................................................... 28

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 4.2 Existing Nepalese Legislation on Arbitration ................................................................ 30

4.3 Significant Case laws related to Arbitration in Nepal .................................................... 34

CHAPTER FIVE ........................................................................................................................ 38

ARBITRATION AND ITS PROCESS ..................................................................................... 38
5.1 Process and Proceedings of Arbitration ......................................................................... 38

5.2 Stages of Arbitration ...................................................................................................... 40

5.3 Arbitral Award and its recognition as well as its enforcement in Nepal (Both Local
Arbitration & Foreign Arbitral Award) ..................................................................................... 41

CHAPTER SIX ........................................................................................................................... 46

FINDINGS, CONCLUSION AND RECOMMENDATIONS ................................................ 46
6.1 Findings .......................................................................................................................... 46

6.2 Conclusion...................................................................................................................... 47

6.3 Recommendation ............................................................................................................ 48

BIBLIOGRAPHY ...................................................................................................................... viii

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 CHAPTER ONE

INTRODUCTION
1.1 Background of Study

Human beings are considered to be the rational beings. They are able to distinguish between what
is wrong and what is right. They are opinionated. However, the opinion that one person holds
regarding a subject-matter is not necessary to be the same for the others. This differences in opinion
regarding any subject matter gives rise to “dispute”. Thus, in general terms dispute means “not
matching of mind”.

Salmond observed, “Men being what they are-each keen to see his own interest and passionate to
follow it-society can exist only under the shelter of the state and the law and justice of the state is
a permanent and necessary condition of peace, order and civilization”.1 The clash over competing
interest of the people leads to conflict and disorder in the society. It is the law of the state that
enables every society to function peacefully. The Permanent Court of International Justice in
the Mavrommatis Palestine Concessions Case (Mavrommatis) defined a “dispute” is “a
disagreement on a point of law or fact, a conflict of legal views or of interests between two
persons.”2

Administration of justice is the firmest pillar of government. Law exists to bind together the
community; it is sovereign and cannot be violated from the inception of civilization; anti-social
elements in society required to be coerced by the arm of the constable and at times by the rigor of
iron bars.3 Access to justice is supposed to reduce the unequal distribution of advantages in society;
paradoxically it may amplify these inequalities.4

1
SALMOND, JURISPRUDENCE 88, (Sweet and Maxwell), (1957).
2
Gladwin, “Dispute Existence” 27 November 2023, Mavrommatis Palestine Concessions PCIJ Judgment (Objection
to the Jurisdiction of the Court), (Jan. 12, 2024, 12:58 A.M.), https://jusmundi.com/en/document/publication/en-
dispute-existence .
3
NOMITA AGRAWAL, JURISPRUDENCE (LEGAL THEORY) 69, (Central Law Publication), (2019).
4
William L.F. Felstiner, Abel, R. L., & Sarat, A. The Emergence and Transformation of Disputes: Naming, Blaming,
Claiming . . . LAW & SOCIETY REVIEW, 15(3/4), 631–654, (1980).

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Generally, litigation and Alternative Dispute Resolution are considered two remedies to remedy
dispute. Although, litigation is an evil, its ultimate objective is justice and end dispute. It is
essential to maintain rule of law and to achieve justice for the mass of people who are never,
themselves involved in actual court proceedings. It is the traditional method of resolution of
dispute.5 A court is any official tribunal presided over by one or several judges in which legal
issues and claims are heard and determined.6 Thus, tribunals evaluate whether a “dispute” exists
or not on objective grounds, and not on the basis of statements made by either party.

Alternative Dispute Resolution, as the name suggests, is an alternative to the traditional process of
dispute resolution through courts. It refers to the set of practices and techniques to resolve disputes
outside the courts. It is not an alternative form in strict sense. The courts take longer time to resolve
the dispute because of the burden of cases laid down upon it. Thus, ADR reduces the burden of
the court and helps the judiciary to function effectively, by reducing the work load upon it. It is
just an addition to the traditional system.7

The mechanism of ADR provides for more effective resolution of disputes as the parties are more
involved in the process and the process is swift. The procedures employed in it are flexible and
informal in contrast to the formal and rigid procedures followed in the ordinary process of dispute
resolution in courts of law. However, it holds shortcomings and the governing laws should be
amended to ensure better functioning.

1.2 Statement of problem

The present world seeks to resolve their dispute using alternative form of dispute resolution over
the court litigation as ADR has proved to be much easier, faster and cost- effective as compared
to litigation. Various international laws and institutions are developed in order to regulate the same.
Nevertheless, the concept of ADR is still developing in the context of Nepal. Arbitration is the
most used form of ADR in Nepal, however the issue of implementation of those laws is still
questionable. Therefore, this report is prepared to address the following issues:

5
NOMITA AGRAWAL, JURISPRUDENCE (LEGAL THEORY) 69, (Central Law Publication), (2019).
6
Court, LEGAL INFORMATION INSTITUTE, (Jan. 1, 2024), https://www.law.cornell.edu/wex/court.
7
NOMITA AGRAWAL, JURISPRUDENCE (LEGAL THEORY) 74, (Central Law Publication), (2019).

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 i. What are the legal and constitutional frameworks for effective arbitration in Nepal?
ii. What are the challenges and flaws in the existing arbitration laws in Nepal?
iii. How does the process work for giving out an arbitral award in Nepal?

1.3 Objectives & Importance of study

The major objectives of this report is mentioned as below:

i. To understand the existing legal and constitutional provisions in regards to Arbitration

procedure in Nepal,
ii. To identify the challenges and allows in the laws,
iii. To understand the process of handing out the arbitral award.

1.4 Scope & Limitations of study

This research examines arbitration as an alternative form of dispute resolution and explains the
constitutional, legislative and procedural framework of arbitration in Nepal. It examines the role
of Supreme Court and High Court in promoting and facilitating arbitrable proceedings and
implementation of the arbitral award. It explains the role of judicial body to reform the commercial
arbitration in the country. Various laws and judicial trends has been referred to view the principles,
types and characteristics of arbitration. This report further explores the overview of ADR, its
history, types and characteristics under the scope of study.

Although, the report presents the study of arbitration focusing in the context of Nepal. It does lack
in-depth study. Due to time limitation, alongside limited educational and financial resource, it
didn’t cover the ongoing status of arbitration by doing a filed-based study. The intense study of
International Arbitration was also not possible due to similar reasons. However, the report has
covered all the necessary area with the materials available.

1.5 Methodology of study

A comparative study of national and international procedure of arbitration has been employed to
reach the objective of this paper. It has been formatted using the bluebook citation format. Various
published books, journals, articles, newspaper, expert opinions and judicial decisions have been

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referred. Thus, the report majorly uses the secondary form of data from the doctrinal research,
however various methods for research and data collection: descriptive, analytical, critical,
historical and comparative approach based doctrinal and non-doctrinal methods has been also
equally given emphasis.

1.6 Review of Literature

ADR is a consensual procedure i.e., based on the agreement of the parties. Although it is an
alternative form of dispute resolution, it is not alternation in strict sense. While preparing this
report, I came along various books, articles, journals and website to gather information about ADR,
specifically arbitration. These literature provided with the basic features of arbitration, and gave
an insight about the how it can be improved in the coming years.

International Arbitration Law and Practice by Gray B. Born is widely used book on
international arbitration covering the concept of international commercial arbitration, international
investment arbitration and state-to-state arbitration. The aim of the book is to introduce “the key
legal principles and customary practices in an accessible and straightforward manner, tailored to
the needs of general practitioners, law students, and others seeking an introduction to the
international arbitral process.”8 It is written from a practitioner’s perspective with many insightful
observations of theoretical relevance focusing on the basic legal framework and its contemporary
practice. 9

Complex Problems, Negotiated Solutions Tools to Reduce Conflict in Community

Development by Michael Warner, suggests strategies, principles and tools to reduce
development-induced disputes and inter-personal conflict as obstacles to achieving sustainable
rural livelihoods. The book also provides a way to systematize the complexity of conflict situations
in rural environments, offering a guide to designing practical conflict mitigation and prevention

8
ROGER ALFORD, Gary Born’s International Arbitration: Law and Practice, KLUWER ARBITRATION BLOG
(Notre Dame Law School) (2013), (Feb. 12 2024, 22:57 P.M.),
https://arbitrationblog.kluwerarbitration.com/2013/02/11/gary-borns-international-arbitration-law-and-practice/ .
9
MANIRUZZAMAN, A. F. M., International Arbitration: Law and Practice by Gary B. Born, (2013),
https://ssrn.com/abstract=2207622 or http://dx.doi.org/10.2139/ssrn.2207622 .

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strategies. The key principles and tools of consensual negotiation are described, illustrated with
examples from around the developing world by the author.

Latham and Watkins’ Guide to International Arbitration, provides a comprehensive,

descriptive and analytical road map to international arbitration rules and practices. The authors
have made clear about the provisions of arbitration, discussed the model arbitration clause. It aims
of elucidating the purpose of international arbitration, its processes, and best practices. It further
explains about relevant vocabulary used to better understand this method of conflict resolution for
cross-border business or investment disagreements.

The article entitled “The Benefits of Alternative Dispute Resolution for International
Commercial and Intellectual Property Disputes” by Marc J. Block provides an overview of
the benefits of ADR to international intellectual property and commercial disputes, and argues that
ADR and the support of world intellectual property organizations offers a proper medium to
address the unique substantive and procedural issues of international litigation.10

On an e-book by Chetna Upadhyay on “Alternative Dispute Resolution Mechanism” examines

the role of the judiciary in ADR and the objective of ADR to not only resolve disputes but also
harmonize relations between parties. The study ultimately seeks to understand the functioning of
ADR mechanisms, especially arbitration and conciliation, and provide recommendations for
improvement.

The article on “Arbitration Laws and Judicial Response to Settling the Disputes through
Arbitration in Nepal” by Saroj Kumar Giri was published in the Nepal Law Journal in 2022.11
The article aims to analyze the arbitration-related laws in Nepal, the domestication of international
arbitration treaties and conventions, settlement procedures of arbitration disputes and the role of
the Nepalese judiciary to settle the disputes through arbitration. It explains how the Supreme Court
and high court in Nepal, has played a significant role through arbitration, and the implementation
of award.

10
Mark J. Block, “The Benefits of Alternative Dispute Resolution for International Commercial and Intellectual
Property Disputes”, 44 RUTGERS L. REC. 1 (2016).
11
S. K. Giri, Arbitration Laws and Judicial Response to Settling the Disputes through Arbitration in Nepal, JOURNAL
OF MANAGEMENT, 5(1), 109–123, (2022).

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1.7 Organization of study

This report has been divided into six chapters. Chapter one provides an introduction, including the
background and the objectives behind preparing this report. The scope provides the area of the
study. Various books, articles, journals have been cited to prepare this report, thus this chapter
contains a section of literature review as well.

Chapter two establishes the conceptual framework of alternative dispute resolution. It deals with
the types, characteristics and importance of arbitration ad explains how the modern day arbitration
has a long standing history. The next chapter introduces arbitration more specifically dealing its
concept, development and its need in the commercial dispute resolution. It also explains how
various types of arbitration are used globally.

The fourth chapter of this report examines the legal framework on arbitration in Nepal, covering
the development of arbitration law and deals with the existing Act and Rules that guide the process
of arbitration. It has also explained some of the landmark decisions in Nepal. However, the process
of arbitration, its stages and recognition and enforcement of arbitral awards in Nepal for both local
arbitration and foreign arbitral awards are dealt in the fifth chapter.

Finally, chapter six presents the findings based on the doctrinal research conducted with some
recommendations, and conclusion of the study.

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 CHAPTER TWO

CONCEPTUAL FRAMEWORK OF ADR

2.1 Concept of Alternative Dispute Resolution

“Resolving conflict is rarely about who is right. It is about acknowledgement and appreciation of
differences.” ~ Thomas Crum

The above mentioned quote rightly puts forward the objective carried by Alternative Dispute
Resolution. Alternative Dispute Resolution, abbreviated as ADR comprises of three words:
“alternative”, “dispute” and “resolution”.

The definition of the term “alternative” as per Oxford Advanced Learners Dictionary is “a thing
that you can choose to or have out of two or more possibilities.” It describes the existence of
dispute settling mechanisms other than the traditional ones, e.g. the formal litigation. However,
ADR is not an alternative to the court system but only meant to supplement the same aiming on
less lawyering. 12

The term “dispute” is interchangeably used as “conflict.” It is simply the conflict of opinions,
interests, values and principles.13 Still scholars like Chornenki, draw distinction whereby they state
that conflict is the parent which manifest itself through attitudes, behavior and situations whereas
disputes are the children- the subset of conflict that includes the specific manifestation of conflict.14
That is why disputes should be treated properly, else it may recur.15

The Oxford Advanced Learner‘s Dictionary defines Resolution “as the act of resolving or settling
a problem, dispute etc.” These words when put together, suggests that, “alternative dispute
resolution” is the procedure of dispute settlement without the involvement of courts. It is a shift
from the traditional litigation to the modern mechanism of resolution.

12
CHETNA UPADHYAY, ALTERNATIVE DISPUTE RESOLUTION MECHANISM, 2 (Isara Publications),
(2016).
13
MICHAEL WARNER, COMPLEX PROBLEMS, NEGOTIATED SOLUTIONS TOOLS TO REDUCE
CONFLICT IN COMMUNITY DEVELOPMENT (ITDG, UK), (2001).
14
CHETNA UPADHYAY, ALTERNATIVE DISPUTE RESOLUTION MECHANISM, 3 (Isara Publications),
(2016).
15
Id.

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Thus, ADR refers to any method of resolving disputes without litigation16 allowing interested
parties to explore options, to handle global commercial and intellectual property disputes.17 It leads
to a binding resolution if provided for in the agreement by which the parties agree to submit their
dispute to ADR.18

The court proceedings do not offer a satisfactory method for settlement of disputes as it involves
inevitable delays due to its lengthy procedures and technicalities- economic, expeditious and
informal remedy for disputes. It is generally less formal, and less stressful than traditional court
proceedings, at the same time saves money and time. It runs with the objective that the delay in
the dispensation of justice might itself result in injustice to the litigants.19

In Shakuntla Sawhney v. Kaushalaya Sawhney20, the Supreme Court has observed that “Finest
hour of justice is the hour of compromise when parties after burying the hatchet, re-unite by a
reasonable and just compromise”. This can be achieved only through ADR mechanisms, as it is
viewed as litigant friendly system in any kind of society or economic set-up.21

Typically, the most widely used forms of ADR include: mediation, negotiation, arbitration, neutral
evaluation, etc. Unlike litigation, these process are confidential, flexible with the parties holding
the full autonomy over its procedure. They also have control over the outcome of the case whereas
in litigation, once the case goes to trial, the parties feel a loss of control.22 However, here they can
actively participate in the process and mostly get to make the final decision. It focuses on a win-
win situation, thus resulting in the amicable dispute resolution. The court congestion, delays,
expenses and procedural inconveniences are the usual arguments that seek to justify the search for
alternatives.23

16
Alternative dispute resolution, LEGAL INFORMATION INSTITUTE, (Feb 23, 2024, 16:10 P.M.),
https://www.law.cornell.edu/wex/alternative_dispute_resolution.
17
Marc J. Block, The Benefits Of Alternate Dispute Resolution For International Commercial And Intellectual
Property Disputes, Vol. 44, RUTGERS.L.R, 1, 1 (2016-17).
18
Alternative dispute resolution, LEXIS NEXIS, (Feb 23, 2024, 16:44 P.M.),
https://www.lexisnexis.co.uk/legal/guidance/what-is-adr.
19
Goda Raghuram, ‘Alternative Dispute Resolution’, Vol. VIII, NYAYA DEEP, Issue 2, 17 – 24, 22 (2007).
20
Shakuntla Sawhney v. Kaushalaya Sawhney, (1979), 3 S.C.R. 232, (India).
21
Georgios Zekos, “The Role of Courts and ADR in the Rule of LAW”, VOL. VII, NO. 3, ICFAI UNIVERSITY
JOURNAL OF ALTERNATIVE DISPUTE RESOLUTION, (2008).
22
Leonard L. Loeb, New Forms of Resolving Disputes- ADR, 33 FAMILY LAW QUARTERLY 581, 581-588 (1999),
https://www.jstor.org/stable/25740227?read-now=1&seq=1#page_scan_tab_contents.
23
CHETNA UPADHYAY, ALTERNATIVE DISPUTE RESOLUTION MECHANISM, 11 (Isara Publications),
(2016).

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Thus, conflict is an inevitable form in the society, and efforts should be made for the resolution of
disputes in more efficient manner, with less judicial intervention, and swiftly. “Justice delayed is
justice denied” therefore, justice should be made easily accessible to all, irrespective of their
economic status in the society. ADR evolved as a procedure to guarantee the shortcomings of
litigation. However, it does need to improve, all methods of ADR besides arbitration, are not
binding upon the parties. One party can show their supremacy over the other, as a result ADR
occasionally elevates the question of biasness of the neutral party’s pronouncement.24

2.2 History of Alternative Dispute Resolution

The alternative form of dispute resolution exited since ancient times, as we look throughout
anthropological and sociological studies about the process of dispute resolution. The modern form
of dispute resolution as we see today came into existence because of the primitive ways. However,
the means were not the same for all the communities.

The Hawaiian Highlanders involved a family’s coming together to discuss interpersonal problems
under the guidance of a leader who the role of the modern day “mediator”. The leader would hear
the parties and then bring out a solution to the problem that existed. 25 The “mediator” is a neutral
party.

China being guided by Confucian ethics have always given the emphasis on harmony, following
which the Chinese mediators have played quite a far-reaching role as their task didn’t just involve
solving and settling the disputes rather guide the parties on how to have a more harmonious
relationship in the future.26 They believed that harmony should not be disrupted and adversarial
proceedings (court proceedings) were the antithesis of harmony.

Ancient Greek roots of Arbitration

In the Western world, the story of ADR can be traced back to the ancient Greeks. One famous
story of arbitration comes down through mythology. The procedure of arbitration set up by the

24
Umag Yadav, Limitations of Alternative Dispute Resolution, VIA MEDIATION CENTRE, (Jan. 25, 2024, 18:15
P.M.), https://viamediationcentre.org/readnews/NjQx/LIMITATIONS-OF-ALTERNATIVE-DISPUTE-
RESOLUTION.
25
Astha Dhawan, Origin of ADR across the globe, VIA MEDIATION CENTRE, (Jan. 25, 2024, 18:31 P.M.),
https://viamediationcentre.org/readnews/MjY3/Origin-of-ADR-across-the-globe.
26
Id.

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Greeks was surprisingly formal. A lottery was used to choose an arbitrator for a given case. His
foremost duty was to attempt to have an amicable settlement between the parties. If this didn't
work out, then witnesses would be called and evidence was submitted in writing by the parties.
Having said that, the parties often adopted various stratagems to postpone rulings or challenge the
decision of the arbitrator. An appeal would be brought before the Arbitrators, who would further
refer the matter to the courts. In such an appeal, Demosthenes had once alleged that one Midias
had used discourteous language towards Demosthenes. This outcome may seem like a setback at
a very early age but also be seen as a self-policing mechanism. A traditional later upheld the
board’s censure of the arbitrator. The system, it seemed, had worked.

The present-day international adjudication dates from the establishment of three mixed claims
commission under the Jay Treaty of 1774 between Great Britain and the US.27 This arbitration
served as an alternative to court proceedings. Encouraged by the Jay Treaty, US entered into other
Arbitration treaties with Columbia and Chile in 1880. Washington Treaty of 1871 between Great
Britain and US concluded, and Alabama case (Alabama Claims Arbitration) was settled under this
treaty.

In Nepal, alternative dispute resolution existed since a long time as it has been practiced in various
forms. The phrase 'Chaar Jana Samaj Jodne'- meeting of four people from society provides how
people favored mediation and negotiation. The main reason for people to choose peaceful means
over court system was due to the poor court procedure. The villagers respected the decisions given
by the Panchayat- a group of five influential older men acknowledged by the community as its
governing body is called a Panchayat.28 They were tasked with solving the disputes among the
people by hearing the issues and proposing fair solutions.

The Muluki Ain, 2020 B.S. acknowledged ADR for the first time. Various Acts formed after that,
mentioned the procedures of ADR. The Acts were: Nepal Petroleum Act 2040 B.S., the Foreign
Investment and Technology Transfer Act 2049 B.S., the Contract Act 2056 B.S., and the Banks
and Financial Institutions Act 2063 B.S. Similarly, the Development Board Act 1936, introduced
arbitration for the first time in Nepal. The promulgation of the Arbitration Act, 2038 B.S. marked

27
Thailand Arbitration Centre, Get to know the Jay Treaty of Arbitration, THAC.OR.TH, (Jan. 25, 2024, 18:39 P.M.),
https://thac.or.th/get-to-know-the-jay-treaty-of-arbitration/.
28
“Panchayat”, MERRIAM-WEBSTER, (Jan. 25, 2024, 17:34 P.M.), https://www.merriam-
webster.com/dictionary/panchayat .

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another milestone in the development of Arbitration in Nepal, this Act was later replaced by the
Arbitration Act, 1999 which still remains in force.29 Now, we have various institution to administer
arbitration- NEPCA, Nepal Council of Arbitration, was founded in 1991 A.D. to administer
arbitration, which is influenced by the UNICITRAL Rules.30

2.3 Types of Alternative Dispute Resolution

ADR has two forms: Adjudicative Method and Non- Adjudicative Method.31 Adjudication or
Adjudicative method is the legal process by which an arbitrator or judge reviews evidence and
argumentation, including legal reasoning set forth by opposing parties or litigants to come to a
decision which determines rights and obligations between the parties involved. The neutral third
party plays a significant role of the decision maker in the Adjudicative method, whereas there is
no such authority in the non-adjudicative method, this method helps the parties to reach to an
agreement.

ADR can be best understood in the following types:32

1. Negotiation

Negotiation is characterized as the “preeminent mode of dispute resolution”33which includes

discussions between interested parties without the involvement of any third party involvement. It
is referred to as a “win-win” approach. The outcome of a negotiation only binds those parties who
were involved in the negotiation.34

It is simply “bargaining”, whereby the disputing parties are given a chance to discuss on their point
of differences, find a solution, for which the parties even might have to make certain concessions.
Therefore, it involves a “give and take” procedure which means one or both parties will usually

29
K.B. Dahal, Arbitration Law in Nepal – Everything you need to know (2079), MERO ADALAT, (Jan. 25, 2024, 18:
42 P.M.), https://meroadalat.com/arbitration-law-in-nepal/ .
30
NEPCA, (Jan. 25, 2024, 18: 52 P.M.), https://www.nepca.org.np/ .
31
Leonard L. Loeb, New Forms of Resolving Disputes- ADR, 33 FAMILY LAW QUARTERLY 581, 581-588 (1999),
https://www.jstor.org/stable/25740227?read-now=1&seq=1#page_scan_tab_contents.
32
Id.
33
Department of Justice Government of Canada, Dispute Resolution Reference Guide, NEGOTIATION - DISPUTE
PREVENTION AND RESOLUTION SERVICES (2022), (Feb. 23, 2024, 17:03 P.M.), https://www.justice.gc.ca/eng/rp-
pr/csj-sjc/dprs-sprd/res/drrg-
mrrc/03.html#:~:text=Negotiation%20has%20been%20defined%20as,the%20dispute%20between%20them%201 .
34
Id.

11 | P a g e
need to make some concessions.35 It involves two or more parties who come together to reach
some end goal that is agreeable to all those involved and such a process continues until both
parties agree to a resolution or negotiations break off without one. 36

2. Mediation

Mediation may be defined as a structured negotiation process assisted by a neutral person.37 This
involvement of a neutral third party dates back to the term having its Latin origin “mediāre” which
mean to be a middle.38 It is a process through which a third party (party other than the disputants)
endeavors to bring the disputants together and assists them in reaching a settlement.

The mediation session is private and confidential.39 The third party is called mediator, who actively
and directly participates in the settlement itself by giving offers, creating proposals. It is best
known for its flexibility, the mediator can call for a private discourse- called “private caucus”
which means a confidential meeting of members of one side of a dispute, with the mediator,
to clarify the issues, reflect on goals, review options and proposals, gain new facts, develop
new agreement offers which is separate and distinct from the joint session. 40 However, his
proposals are only regarded as “recommendations”. The parties are not bound to follow it- they
are free to either accept or reject it. In Nepal, the mediation is guided by Mediation Act 2068.

3. Arbitration

35
Rajeev Dhir, NEGOTIATION: DEFINITION, STAGES, SKILLS, AND STRATEGIES, INVESTOPEDIA, (Feb. 12, 2024, 13:51
P.M.),
https://www.investopedia.com/terms/n/negotiation.asp#:~:text=The%20term%20negotiation%20refers%20to,need%
20to%20make%20some%20concessions.
36
Id.
37
Mirzayev Ruslan, WIKI NOTE: MEDIATION IN INVESTMENT DISPUTES, JUS MUNDI, (Jan. 23, 2024, 13:45 P.M.),
https://jusmundi.com/en/document/publication/en-mediation-in-investment-
disputes#:~:text=Mediation%20may%20be%20defined%20as,assisted%20by%20a%20neutral%20person.
38
“Mediation”, MERRIAM-WEBSTER, (Jan. 25, 2024, 18:49 P.M.), https://www.merriam-
webster.com/dictionary/mediation .
39
What is mediation? U.S. DEPARTMENT OF COMMERCE (2019), (Jan. 25, 2024, 12:22 P.M.),
https://www.commerce.gov/cr/reports-and-resources/eeo-mediation-guide/what-mediation .
40
Steven Leigh, CAUCUS: AN AID IN MEDIATION MEDIATE.COM (2018), (Jan. 25, 2024, 12:45 P.M.),
https://mediate.com/caucus-an-aid-in-mediation/ .

12 | P a g e
The term arbitration is derived from Latin verb arbitrāri, which means “to give judgment.”41It is
the most widely used form of Alternative Dispute Resolution. The parties opt for a private dispute
resolution procedure instead of going to court.42 Arbitration has developed as the third party
method of settling disputes which is used in issues like: disputes concerning the interpretation of
multilateral and bilateral treaties, and those related to violation of international law. The rules
governing commercial arbitration are set out in domestic procedural laws, which are widely
harmonized on the basis of the 1985 UNCITRAL Model Law on International Commercial
Arbitration.43

The key feature of arbitration is “mutual consent”. It is a formalized process which renders a
binding award. Unlike mediation, here, the parties have to abide by the arbitral award. It’s the
arbitral tribunal who has a duty to render an enforceable award.44

4. Conciliation

Conciliation is a voluntary, flexible, confidential, and interest based process.45 It is the adjustment
and settlement of a dispute in a friendly, unantagonistic manner used in courts before trial with a
view towards avoiding trial and in labor dispute before arbitration. Court of Conciliation is a court
with proposed terms of adjustments, so as to avoid litigation.46

The procedures are generally instituted by the parties who agree to refer their dispute to an already
established organ, commission or a single conciliator. The main objective of conciliation is to
propose a solution to a dispute and to win the acceptance of the parties to solution. It allow the
parties to resolve their differences with the benefit of maintaining business relationships47

41
“Arbitration”, MERRIAM-WEBSTER, (Jan. 25, 2024, 18:59 P.M.), https://www.merriam-
webster.com/dictionary/arbitration .
42
What is arbitration? WIPO, (Feb 23, 2024, 12:51 P.M.), https://www.wipo.int/amc/en/arbitration/what-is-
arb.html#:~:text=Arbitration%20is%20a%20procedure%20in,instead%20of%20going%20to%20court .
43
Fernández Antuña Antolín, Arbitration, JUSMUNDI, (Feb 12, 2024, 13:43 P.M.),
https://jusmundi.com/en/document/publication/en-arbitration#:~:text=I.,-
Definition&text=2.,another%20arbitral%20tribunal%20or%20court.
44
J. M. Waincymer, Procedure and Evidence in International Arbitration, Kluwer Law International, 97, (2012).
45
What is conciliation? DISPUTE RESOLUTION HAMBURG, (Feb 12, 2024, 13:11 P.M.), https://www.dispute-
resolution-hamburg.com/information/conciliation .
46
Conciliation, ADCOLAW, (Feb 12, 2024, 13:19 P.M.), https://adcolaw.com/blog/conciliation-an-alternative-
dispute-resolution/ Black’s Law Dictionary
47
Conciliation, CONCILIATION ADVICE AND SERVICES - JMW SOLICITORS, (Feb 12, 2024, 13:25 P.M.),
https://www.jmw.co.uk/services-for-business/commercial-litigation-dispute-resolution/alternative-dispute-
resolution/conciliation .

13 | P a g e
 5. Good Offices:

The term ‘Good offices’ was used by ‘Justice Marshall’ for the very first time in Schooner
Exchange vs. M’ Faddon (1812).48 "Good offices" denotes a procedure whereby a third party or
State either on its own initiative or upon request seeks through diplomatic means to bring the
Parties to the disputes to a conference table to resume direct negotiations or to agree on a method
of pacific settlement with the view to bringing an end to the existing conflict.49Article- 33 of the
UN Watercourses Convention mandates the parties to resolve the disputes by either seeking good
offices or by requesting mediation or conciliation.

"Good offices" is often confused with "mediation", however it implies a more discreet action,
limited to initiating direct negotiations between the parties concerned without active participation,
whereas a mediator generally takes a more active part in the discussion and is often expected to
suggest some solutions to the problem.50

6. Facilitation

Facilitation as an ADR tool refers to an outside person staying neutral, leading the process, and
creating participation in a group. 51 The neutral person being- the facilitator, identifies the issues,
develop options, consider alternative and enter into an agreement, if the parties agree to. 52 They
assist the parties to develop options, consider alternatives and try to reach an agreement, however
facilitation has no advisory or determinative role on the outcome of the process.

7. Mediation- Arbitration (Med-Arb)

In Med-Arb, disputants hire a neutral mediator and if the mediator is unable to resolve the dispute
through mediation, dispute is solved through arbitration, as explained by Sander.53 However,

48
Rakhi, Good Offices' As A Peaceful Means of Settling Disputes, VIA MEDIATION CENTRE, (Jan. 12, 2024, 18:31
P.M.), https://viamediationcentre.org/readnews/MzI2/Good-Offices-as-a-peaceful-means-of-settling-disputes .
49
A chapter in: International Arbitration, Liber Amicorum for Martin Domke, 338-347, 339 (Pieter Sanders, ed.,
Martinis Nijhoff), (1967).
50
Id.
51
Linda Gallagher, ADR: Negotiation and Facilitation, MRCS, (2020), (Jan. 12, 2024, 18:19 P.M.),
https://mrsc.org/stay-informed/mrsc-insight/september-2020/adr-negotiation-and-
facilitation#:~:text=Facilitation%20as%20an%20ADR%20tool,with%20their%20teams%20and%20employees .
52
Facilitator Definition: Legal Terms Explained, ADR Times, Oct 27, 2023.
53
Katie Shonk, WHAT IS ALTERNATIVE DISPUTE RESOLUTION? HARVARD DAILY BLOG, (Dec. 27, 2023, 23:15
P.M.), https://www.pon.harvard.edu/daily/dispute-resolution/what-is-alternative-dispute-resolution/ .

14 | P a g e
Disputants may be reluctant to be candid with a mediator who could later use the information they
share against them in the arbitration phase of the process.

8. Arbitration-Mediation (Arb-Med):

As its name suggests, Arb-Med is a mixture of Meditation and Arbitration that combines the
benefits of these two methods or two-step dispute resolution process. It is the process in which the
neutral, first functioning as the arbitrator writes an award but keeps it from the parties and then
attempts to mediate the dispute.

9. Mini-trial:

Large-scale disagreements are settled via mini-trials. Generally, lawyers and experts present
summary version of the case to top management of both the parties. A neutral advisor and
sometimes an expert in the subject area conduct hearing after these presentations.

10. Early Neutral Evaluation:

A neutral person with subject-matter expertise hears abbreviated arguments, reviews the strengths
and weaknesses of each side’s case, and offers an evaluation of likely court outcomes in an effort
to promote settlement.54

11. Summary Jury Trial:

Here, both the side presents its case in a shortened form to a jury which will then makes a decision
that is advisory only, unless parties request that it be a binding decision. A summary jury trial gives
parties a preview of a potential verdict should the case go to trial. SJTs are available in limited
jurisdictions.55

54
What is ADR? NYCOURTS, (Dec. 27, 2023, 23:15 P.M.),
https://ww2.nycourts.gov/ip/adr/What_Is_ADR.shtml#:~:text=Alternative%20dispute%20resolution%20(ADR)%20
refers,%2C%20arbitration%2C%20and%20neutral%20evaluation .
55
Id.

15 | P a g e
2.4 Characteristics of Alternative Dispute Resolution

a. The parties voluntarily agree to settle the disputes. The domestic laws now-a-days have
included the provision that parties are free to solve their disputes via ADR. In fact, they
should be given a chance to mediate.
b. The sessions are held in private, only the parties involved are present in the hearing unless
the parties agree otherwise. The sessions and are not reported.
c. ADR is not typically bound by the same rules in the same way that a court or tribunal would
be. They are flexible and less formal than the court litigation. Unlike arbitration which are
subject to rules agreed by the parties.
d. It is conducted by a specialist over the given subject matter. The parties generally choose
experts having proper understanding over the subject matter, to ensure fairness and the best
outcome.
e. ADR process can move forward even without lawyers, one need not have a law degree to
be a negotiator. Usually, while choosing the neutral third party, an expert in the given
subject matter is chosen. However, lawyers are mostly preferred.
f. ADR is focused on resolving the issue and how the parties can address the issue and move
on, rather than what has already happened and apportioning fault or blame. It creates a win-
win situation, prioritizing the beneficial of both parties.
g. Parties to ADR can actively participate in the process and mostly get to make the final
decision, sometimes facilitated by an intermediary.

2.5 Importance of Alternative Dispute Resolution

People now a days choose ADR over litigation, it is due to its cost effective and speedy nature. It
ensures fairness and justice, alongside provide flexibility to the parties involved. Thus, the
importance of ADR is enlisted below:56

56
Wadhah Al Hinai, The importance of an Alternative Dispute Resolution Clause in Contracts: Resolving conflicts
with confidence, (Dec. 27, 2023, 23:41 P.M.), https://www.linkedin.com/pulse/importance-alternative-dispute-
resolution-clause-wadhah .

16 | P a g e
 1. Cost Effective: Overtime, Litigation has been an expensive yet a lengthy process despite
it being the only method of dispute resolution. However, the forms of ADR like mediation,
arbitration offers cost-effective resolution of conflict.

2. Less complexities: There are no any specific rules and procedures to be followed in
arbitration, reducing the technicality and clearing the confusions of the parties. However,
arbitration is guided by a specific agreement.

3. Confidentiality: It is generally closed hearing- which includes only the disputants,

allowing greater flexibility and confidentiality which ultimately helps to come with
solutions that best suit the specific circumstances of the dispute.

4. Speedy and efficient: With a pre-defined clause on the agreement parties can set the time
and procedure for resolution of disputes, ensuring a more efficient and timely resolution.

5. Preserves business relationships: The parties get to interact with each other and hear their
concerns directly from them which helps in maintaining future business relations even if
one of the parties loses57, it encourages to find mutually beneficial solutions.

6. Tailoring the process to fit the dispute: Every dispute is unique, and a one-size-fits-all
approach may not be the most effective solution. A neutral party has their expertise in the
relevant filed, ensuring more effective resolution, as the parties choose the best for the
resolution- from procedures to the neutral party. 58

7. International considerations: Including an internationally recognized method of dispute

resolution, provides parties with confidence and a familiar framework for resolving cross-
border conflicts.

8. Reduces the works of Courts: The resolution of disputes outside the court provides more
attention towards other cases, so that the court can focus on their pending cases.

57
The importance of ADR, EBC, (Dec. 27, 2023, 23:58 P.M.), https://ebc.co.in/the-importance-of-adr/ .
58
Wadhah Al Hinai, The importance of an Alternative Dispute Resolution Clause in Contracts: Resolving conflicts
with confidence, (Dec. 27, 2023, 23:41 P.M.), https://www.linkedin.com/pulse/importance-alternative-dispute-
resolution-clause-wadhah .

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 CHAPTER THREE

AN INTRODUCTION TO ARBITRATION
3.1 Concept of Arbitration

The term arbitration come from Latin verb arbitrāri, which means “to give judgment.”59 It is a
form of alternative dispute resolution, which includes the submission of a legal dispute to the
binding decision of one or more independent third persons other than a court.60 The power of the
third person (i.e., the arbitrators) to decide the dispute is based on the consent of the parties which
makes “mutual consent”, an essential part of arbitration. Generally, it is conducted in accordance
with the procedures agreed by the parties (as defined in the contract) and supplemented by
domestic or international law, or the arbitration rules provided by an arbitral institution.

Black’s Law Dictionary, defines arbitration as “Arbitration is a method of dispute resolution

involving one or more neutral third parties who are usually agreed to by disputing parties and
whose decision is binding.”61

The rules governing commercial arbitration are set out in domestic procedural laws, which are
widely harmonized on the basis of the 1985 UNCITRAL Model Law on International Commercial
Arbitration (revised in 2006). In addition, arbitral institutions such as the International Court of
Arbitration of the International Chamber of Commerce (ICC) and similar institutions provide
arbitration rule sets and deliver professional services for the administration of arbitration disputes.
The recognition and enforcement of arbitral awards is widely secured on the international level by
the 1958 New York Convention, which is ratified by more than 160 States, and the ICSID
Convention.62

59
“Arbitration”, DICTIONARY.COM, (Jan. 12, 2024, 13:11 P.M.), https://www.dictionary.com/browse/arbitration/
.
60
Fernández Antuña Antolín, Arbitration, JUSMUNDI, (Feb 12, 2024, 13:43 P.M.),
https://jusmundi.com/en/document/publication/en-arbitration#:~:text=I.,-
Definition&text=2.,another%20arbitral%20tribunal%20or%20court.
61
“Arbitration”, Black‘s Law Dictionary, (4th edition), 134-135.
62
Fernández Antuña Antolín, Arbitration, JUSMUNDI, (Feb 12, 2024, 13:43 P.M.),
https://jusmundi.com/en/document/publication/en-arbitration#:~:text=I.,-
Definition&text=2.,another%20arbitral%20tribunal%20or%20court.

18 | P a g e
The Supreme Court in the case of Kailash and Company v. HMG (2057) 63, has recognized the
basic difference between arbitration and litigation is that, arbitration is a special means of dispute
settlement rather than litigation to provide a legal remedy to the suffering party. It is not the process
to be used in alternation to litigation, but to take along to reduce the case burden over the courts,
and ensure proper functioning of the judiciary.

Arbitration is recognized internationally and nationally, in matters related to commerce, business

and trades. Today, arbitration has been one of the reason to promote and encourage international
investments giving rise to the term, commercial arbitration. It is a private form of binding dispute
resolution, conducted before an impartial tribunal, which emanates from the agreement of the
parties, but which is regulated and enforced by the State.64

Thus, arbitration is a process by which parties consensually submit a dispute to a non-

governmental decision-maker, selected by or for the parties, to render a binding decision resolving
a dispute in accordance with the adjudicatory procedures affording each party an opportunity to
present its case.65

3.2 Characteristics of Arbitration

The following are the defining characteristics of Arbitration:

1. Consensual: Arbitration being a consensual dispute resolution mechanism, consent is the

cornerstone of arbitration.66 Usually, the parties express their consent to submit any future
dispute to arbitration in a written agreement- the Dispute Resolution Clause. Arbitrators
are also expected to apply rules, procedures, and laws chosen by the parties.

2. Time and Cost Efficiency: Arbitration is generally faster and more cost-effective than
traditional litigation.

63
Kailash and Company v. HMG, Ministry of Education, 7 NEPCA Bulletin 24 (2057).
64
LATHAM & WATKINS, GUIDE TO INTERNATIONAL ARBITRATION, (2014).
65
G. BORN, INTERNATIONAL ARBITRATION: LAW AND PRACTICE, (Wolters Kluwer), (2012).
66
Laura Reynaud Esq., How Important is Consent in Arbitration? (Dec. 8, 2023, 20: 40 P.M.),
https://www.linkedin.com/pulse/how-important-consent-arbitration-laura-reynaud .

19 | P a g e
 3. Confidentiality: Confidentiality is a significant characteristic of arbitration, which
safeguards sensitive information, protects the reputation and business interests of the
parties involved by not revealing delicate information to the public.67

4. Expertise: Disputes are resolved by experts who understand the technical and legal
complexities involved, which enhances the quality and reliability of the decisions.

5. A Final and Binding Award: The decision of arbitration is called award. It is legally
binding on both the parties. The parties have very limited right to challenge it in the court.

6. Arbitration is neutral: The parties can choose other important elements of proceeding
such as the law applicable, language in which the proceedings should be conducted, the
venue for arbitration proceedings which ensure that no party enjoys a home court
advantage.68

7. Non-Governmental Decision-Makers: Arbitrators are chosen by the parties, and, of

course, they would like to be chosen again as it is in their interest to be perceived as even-
tempered, thoughtful, fair-minded, and reasonable. With no inclination towards any of the
parties/groups, they try to solve the issue as per the best interest of the parties involved.

3.3 Historical Development of Arbitration

The history of Arbitration, as a method of dispute resolution dates back to ancient times with
conciliation appearing as the first signs of arbitration in the sixth century. 69 Ancient Greece and
Roman Empire are believed to be the pioneer of arbitration, who applied it in resolving political
disagreements and territorial misunderstandings.70 In Roman law, ‘compromissum’ was used to
indicate a process of dispute resolution which would draw out a compromise between the parties.71

67
Arbitration, BUSINESS JARGONS, (Dec. 8, 2023 20: 48 P.M), https://businessjargons.com/arbitration.html .
68
Anita Kush, Kinds of Arbitration, LEGAL SERVICE INDIA E-JOURNAL, (2019), (Dec. 13, 2023 10:31 A.M),
https://www.legalserviceindia.com/legal/article-1126-kinds-of-arbitration.html .
69
Gábor Szalay, Arbitration and Transparency – Relations Between a Private Environment and a Fundamental
Requirement, (Dec. 8, 2023 20: 48 P.M), https://arno.uvt.nl/show.cgi?fid=142480 .
70
Frank D. Emerson, History of Arbitration Practice and Law, 19 CLEVELAND STATE LAW REVIEW, 155-
156(1970).
71
Ria Verma, Arbitration – Types and Significance, IPLEADERS, (Dec. 13, 2023 10:11 A.M),
https://blog.ipleaders.in/arbitration-type-significance/#Historical_background_of_arbitration .

20 | P a g e
However with increment in international trade among states the concept of arbitration of disputes
with a commercial nature arose.72

It is believed that King Solomon, was the first arbitrator of the world, who applied procedure
similar to the modern-day arbitration while resolving a dispute between two women who protested
that they were the mother of a baby boy.73 Philip the Second, is considered to be another influential
figure who had used arbitration to amicably resolve a territorial dispute that took place way back
in 337 BC. 74

In the thirteenth century the use of arbitration showed an increase in certain areas of Europe. The
Church and the spread of Christianity played a major role in setting arbitration in motion in
medieval Europe.75 Italian states had arbitration well developed, with arbitral articles being
included in peace treaties. In German territories, they started including, arbitration clauses in their
treaties through which smaller states formed alliances among each other. 76 Arbitration was slowly
used to solve not just the interstate dispute, but also the private individual matters.

Later in the early modern period, the private merchants started submitting their disputes to
specialized tribunals having their seat at commercial centers (such as port cities of the
Mediterranean Sea) through Europe, seeking the reasonable resolution of their domestic or
international business matters.77 The application of “lex mercatoria”, further set the framework for
the rules of trade, including arbitration and were incorporated to the legal culture of emerging
states and nations through Europe.78 The emergence of legal scholars like Locke, Kant, Rousseau
and Bentham in the seventeenth and the eighteenth century further contributed greatly to the
creation of the path towards international peace, favoring the global emergence of arbitration. 79

72
P. Temin, Statistics in Ancient History, MASSACHUSETTS INSTITUTE OF TECHNOLOGY (MIT)
DEPARTMENT OF ECONOMICS, Working Paper No. 13-06, (2013).
73
Frank D. Emerson, History of Arbitration Practice and Law, 19 CLEVELAND STATE LAW REVIEW, 155-
156(1970).
74
Ria Verma, Arbitration – Types and Significance, IPLEADERS, (Dec. 13, 2023 10:11 A.M),
https://blog.ipleaders.in/arbitration-type-significance/#Historical_background_of_arbitration .
75
T. Twiss, International Arbitration in the Middle Ages, 22, LAW MAGAZINE AND LAW REVIEW, 6- 7, (1896).
76
H. S. Fraser, A Sketch on the History of International Arbitration, 11, CORNELL LAW REVIEW, 190- 193, (1926).
77
W. R. Slomanson, Historical Development of Arbitration and Adjudication, 1 MISKOLC JOURNAL OF
INTERNATIONAL LAW, 238, (2004).
78
I. F. Turley, Lex Mercatoria Quo Vadis, 1999 JOURNAL OF SOUTH AFRICAN LAW, 455-456, (1999).
79
Gábor Szalay, Arbitration and Transparency – Relations between a Private Environment and a Fundamental
Requirement, (Dec. 8, 2023 20: 48 P.M), https://arno.uvt.nl/show.cgi?fid=142480 .

21 | P a g e
The modern development of international arbitration can be traced to the Jay Treaty (1794)
between Great Britain and the United States, negotiated by John Jay, which established three
arbitral commissions to settle questions and claims arising out of the American Revolution.80
Being encouraged by the Jay Treaty, US entered into other Arbitration treaties with Columbia and
Chile in 1880. The Washington Treaty of 1871 between Great Britain and US concluded, the
Alabama case (Alabama Claims Arbitration), settling the major tensions regarding British support
for the Confederacy during the American Civil War. Later, in France, the Decree of 16-24 August
1790 defined arbitrations as “the most reasonable means of dispute resolution between citizens”,
greatly contributing to the advancement of arbitration.81

International arbitration was given a more permanent basis by the Hague Conference of 1899,
which adopted the Hague Convention on the pacific settlement of international disputes, revised
by a conference in 1907. Later on, a Permanent Court of Arbitration, composed of a panel of
jurists appointed by the member governments, from which the litigant governments select the
arbitrators, was established at The Hague in 1899.82 These are considered to be the important
milestone in the history of arbitration as the Hague Convention formed the Permanent Court of
Arbitration having its seat in the Peace Palace in Hague, else arbitration would primarily set up in
an ad hoc manner.83

The need of national and international chambers of commerce to have their own set of arbitration
rules and the ability to choose their jurisdiction to manage international business disputes lead to
the creation of the 1958 New York Convention which set forth, with respect to the domestic courts
of signatory states, the obligation to recognize and enforce arbitral awards adopted in another
signatory state.84

In 1976 the UNCITRAL created its Arbitration Rules, providing a thorough set of procedural rules
which the signatory states may utilize and agree upon to regulate their arbitration (both ad hoc and

80
Martin Domke, International Arbitration, BRITANNICA, (Dec. 13, 2023 11:29 A.M),
https://www.britannica.com/topic/arbitration/International-arbitration.
81
Id.
82
Id.
83
M. O. Hudson, the Permanent Court of Arbitration, 27, AMERICAN JOURNAL OF INTERNATIONAL LAW,
441-446 (1933).
84
M. L. Movsesian, International Commercial Arbitration and International Courts, 18, DUKE JOURNAL OF
COMPARATIVE & INTERNATIONAL LAW, 5-8, (2008).

22 | P a g e
institutional).85 In 1985 the UNCITRAL Model Law was created with the purpose to guide the
member states with respect to the modernization and development of their domestic regulations
regarding arbitration, and to provide a model which the parties might incorporate into their national
law.86 Thus, the modern day arbitration is a result of the past, which provided future developments
and fine-tuning in the present century.

3.4 Types of Arbitration

Arbitration is a form of ADR, where a procedure for the settlement of the dispute between parties
by a binding award, on the basis of law, is voluntarily accepted. It is further divided into various
types which are discussed below:

a. Domestic and International Arbitration:

The dispute in which both the parties are the national of that particular country, such type of
arbitration is called domestic arbitration. The parties are subject to such nation’s jurisdiction and
the cause of action for the dispute has completely arisen therein. The proceedings must be held in
the domestic territory and must be in lieu of the procedural and substantive law of that very
nation.87

Arbitration is of international nature when the parties agree that the subject matter of the arbitration
agreement relates to more than one country, also when the cause of action arises from a foreign
element relating to the dispute or to the parties.88 Here, no one is a foreigner or an outsider.

b. International Commercial Arbitration:

International Commercial Arbitration takes place because of a dispute arising from a commercial
contract where either one of the parties resides in a foreign country or is a foreign national; or the
core management committee of an association, company or a body of individuals is controlled by
foreign individuals. 89

85
G. Petrochilos, Introductory Note to the 2010 UNCITRAL Arbitration Rules. 49, INTERNATIONAL LEGAL
MATERIALS, 1640-1643, (2010).
86
J. M. H. Hunter, The UNCITRAL Model Law, 13, INTERNATIONAL BUSINESS LAWYER, 399-401, (1985).
87
Ria Verma, Arbitration – Types and Significance, IPLEADERS, (Dec. 13, 2023 10:11 A.M),
https://blog.ipleaders.in/arbitration-type-significance/#Historical_background_of_arbitration .
88
Id.
89
Id.

23 | P a g e
 c. Ad-hoc and Institutional Arbitration:

Ad Hoc Arbitration means that the parties have agreed upon themselves that the arbitration shall
continue in the absence of institutional proceedings, or it need not be conducted according to the
rules of an arbitral institution. The parties are free to state their own rules and procedures. The
jurisdiction is of utmost importance since a majority of the issues are resolved in conformity with
the applicable law in respect to the seat of arbitration.90

The arbitration conducted by an arbitral institution is Institutional Arbitration, whereby the parties
have the choice of specifying, in the agreement that the parties shall comply by the rules of the
arbitral institution. One or more arbitrators can be appointed from a pre-selected panel by the
governing body of the institution or the disputants themselves can select their panel, but it has to
be restricted to the limited panel.91

d. Fast track Arbitration:

Some processes of arbitration face delay and consumes maximum time in the proceedings. Thus,
fast track arbitration works as a remedy to such issues. It is a method, which is time dependent in
the provision of the arbitration and conciliation act.92 Even, one sole arbitrator is sufficient to
resolve the dispute.

e. Voluntary and Mandatory Arbitration:

The arbitration in which parties voluntarily submit a dispute to the arbitrator before or after
approaching the court of law is voluntary arbitration. It permits and liberates the parties only when
a civil cause is filed, to elect to resolve their dispute by Arbitration.93 It has mainly two forms: “pre-
dispute arbitration”, whereby the arbitration requires a contract between the parties, through an
arbitration clause before the dispute. And “post- dispute arbitration”, there is no such agreement
between the parties, still parties can still arbitrate if any dispute rises.

90
Id.
91
Anita Kush, Kinds of Arbitration, LEGAL SERVICE INDIA E-JOURNAL, (2019), (Dec. 13, 2023 10:31 A.M),
https://www.legalserviceindia.com/legal/article-1126-kinds-of-arbitration.html.
92
Id.
93
Voluntary and Compulsory Arbitration, WEBNYAY (2023), (Dec. 14, 2023, 15:13 P.M.),
https://www.webnyay.in/blog/33 .

24 | P a g e
In mandatory arbitration, the parties are required to solve the dispute with the help of a neutral
third party. It is also called forced or compulsory arbitration. This arbitration may also be ordered
by the court as a measure to prevent a situation from going to trial, and the parties must abide by
it or face possible sanctions.94

Some other types of Arbitration are:

f. Contractual Inbuilt Arbitration: There is arbitration clause as an integral part of the

contract to retain their existing or future dispute to the impartial arbitrator for the arbitrator
appointed by the authority.
g. Statutory Arbitration: “Statutory Arbitrations” are arbitrations conducted in accordance
with the provisions of certain special Acts which provide for arbitration in respect of
disputes arising on matters covered by those Acts. 95
h. Judicial Arbitration: Judicial arbitration can be effective when the parties want a neutral
party to decide the outcome of their dispute but want to avoid the formality, time and
expense of a trial.96

3.5 Importance of Arbitration in Commercial Dispute Resolution

Commercial arbitration is a method of settling disputes selected by the parties and conducted in
accordance with law.97 The importance of arbitration in commercial dispute resolution are:

1. Party Autonomy: The disputing parties are free to choose where the arbitration takes
place, the language, who will make up the arbitration panel (number of arbitrators) and
what procedure to be followed. This flexibility ensures parties to resolve dispute in a way

94
Upasana Sarkar, VOLUNTARY ARBITRATION, IPLEADERS, (Dec. 14, 2023, 15:32 P.M.),
https://blog.ipleaders.in/voluntary-arbitration/ .
95
All Answers ltd, Statutory Arbitrations and Conciliation, Law Teacher, (Feb. 8, 2024, 8:22 A.M.)
https://www.lawteacher.net/free-law-essays/commercial-law/statutory-arbitrations-and-conciliation-commercial-
law-essay.php?vref=1 .
96
Judicial Branch of California, Judicial Arbitration, STANISLAUS, (Dec. 14, 2023, 16:12 P.M.),
https://www.stanislaus.courts.ca.gov/divisions/civil/alternate-dispute-resolution-adr/judicial-arbitration .
97
Sỹ Ngô, What are Advantages Resolving Disputes by Commercial Arbitration? , SAC ATTORNEYS LLP, (Dec. 12,
2023, 21:45 P.M.), https://antlawyers.vn/library/what-are-advantages-resolving-disputes-by-commercial-
arbitration.html .

25 | P a g e
 that is convenient and suitable for them.98 If there is a failure of each side to select an
arbitrator, under the Centre rules the arbitrator is then appointed by the Centre.99

2. Impartial: The parties choose their arbitrators together. Both sides usually have
confidence about the arbitrator being impartial and unbiased while solving the dispute.

3. Presence of Expert: Generally, the commercial conflict can be technical in nature,

therefore an expert on the subject matter, are usually appointed as the arbitrator as they are
knowledgeable about the subject matter of the issue.100

4. Maintains confidentiality: The proceedings are held in private, only the parties involved
in the proceedings will be present. Except otherwise agreed by the parties, the proceedings
can be publicized, especially those related to international concerns are often shared outside
the tribunal.

5. Cost Effective: Arbitration has proved to be cost effective because arbitration proceedings
are less formal and streamlined, and parties do not have to pay for court fees or legal
representation.101 They split the arbitrator’s fee, which customarily costs less than
preparing for trial.102

6. Speedy and Efficient: Arbitration has proved to be less time consuming compared to
litigation, it gets completed within 6-12 months.

7. Less Complicated: Arbitration does not include a long procedure of filing papers and
motions, and attending court processes such as motion hearings. Most matters, such as who

98
Arvind Sehdev, The Importance of Arbitration in India: A Comprehensive Guide, (Dec. 12, 2023, 20:10 P.M.),
https://www.linkedin.com/pulse/importance-arbitration-india-comprehensive-guide-arvind-sehdev .
99
Vancouver International Arbitration Centre, The Advantages of Arbitration, VANIAC, (Dec. 14, 2023, 16:20 P.M.),
https://vaniac.org/arbitration/what-is-arbitration/the-advantages-of-arbitration/ .
100
Clare Farmer, Advantages and Disadvantages of Using Arbitration for a Commercial Dispute, LEGAL VISION,
(Dec. 12, 2023, 20:32 P.M.), https://legalvision.co.uk/disputes-litigation/advantages-disadvantages-arbitration-
commercial-dispute/ .
101
Arvind Sehdev, The Importance of Arbitration in India: A Comprehensive Guide, (Dec. 12, 2023, 20:10 P.M.),
https://www.linkedin.com/pulse/importance-arbitration-india-comprehensive-guide-arvind-sehdev .
102
R. Clayton Allen, Arbitration: Advantages and Disadvantage, ALLEN AND ALLEN, (Dec. 12, 2023, 20:45 P.M.),
https://www.allenandallen.com/arbitration-advantages-and-disadvantages/ .

26 | P a g e
 will be called as a witness and what documents must be produced, are handled with simple
phone calls with the arbitrator. 103

8. Finality: There are limited opportunities for appeal in binding awards giving finality to the
arbitration. The trial at Commercial Arbitration takes place only at one trial.104

9. Flexibility: The settlement of disputes by arbitration is not territorially limited so the

parties may agree to choose any arbitrator to resolve their disputes.105 However, the
arbitrators must decide the dispute in accordance with the law governing the dispute.

10. Attracts foreign and domestic investment: Usually the investors ask about how much
the foreign investor is ensured and protected; the state of operation of the regular courts is
and how arbitration functions in a certain given country. 106 The law should offer and
guarantee to foreign investors basic rights that give assurance to foreign investors that their
investments be protected and treated fairly in accordance with the standards and
internationally accepted practices.

103
Sac Attorneys, The Advantages and Disadvantages of Arbitration, SAC ATTORNEYS LLP, (Dec. 12, 2023, 21:15
P.M.), https://www.sacattorneys.com/the-advantages-and-disadvantages-of-
arbitration.html#:~:text=Unlike%20a%20trial%2C%20arbitration%20leads,arguments%20will%20be%20completel
y%20confidential .
104
Sỹ Ngô, What are Advantages Resolving Disputes by Commercial Arbitration? , SAC ATTORNEYS LLP, (Dec. 12,
2023, 21:45 P.M.), https://antlawyers.vn/library/what-are-advantages-resolving-disputes-by-commercial-
arbitration.html .
105
ANT Lawyers, What Are Advantages And Disadvantages Resolving Disputes By Commercial Arbitration? ANT
CONSULTANTS & LAWYERS, (Dec. 12, 2023, 21:23 P.M.), https://antlawyers.vn/library/what-are-advantages-
resolving-disputes-by-commercial-arbitration.html .
106
Valbon Mulaj, The Advantages and Disadvantages of Arbitration in Relation to the Regular Courts in Kosovo, 59,
HJLS, 127, 118–133 (2018).

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 CHAPTER FOUR

LEGAL FRAMEWORK ON ARBITRATION IN NEPAL

4.1 Development of Arbitration Law in Nepal

The concept of dispute resolution was not developed as we see today in the earlier societies.
“Dharma” was a major pillar of trade.107 The customs and laws heavily followed the religious
paths, as such the fair play in trade, was generally the norm, and disputes were resolved amicably
when they arose.108 The systems of court and arbitral tribunal were not developed.

The development of the modern concept of arbitration is very recent, in Nepal. The foundation of
this subject was laid down by the enactment of the “Development Boards Act, 1956”, giving
recognition to the concept of arbitration in the judicial system.109 It authorized its use in disputes
involving the Government on the one hand and the donor or construction companies on the
other.110

Even in the absence of a specific law governing arbitration, the Supreme Court promoted a
landmark development in Anang Man Sherchan vs. Chief Engineer, directed the parties to refer
the dispute before arbitration, since they had mutually agreed to arbitrate the dispute.111 However,
there remained a risk for the execution of the arbitral award, because according to the normal
execution procedure in the Civil Code only the decisions of the courts of Nepal were then
executable.112

The development of international relations, involvement of foreign construction companies in

development activities in Nepal, and the expansion in trade, commerce and investment

107
P.C. Rao, Alternatives to Litigation in India, Alternative Dispute Resolution: What it is and How it Works,
UNIVERSAL LAW PUBLICATION CO. PVT. LTD, 24-32, (2002).
108
S. K. Giri, Arbitration Laws and Judicial Response to Settling the Disputes through Arbitration in Nepal,
JOURNAL OF MANAGEMENT, 5(1), 109–123, (2022).
109
I. C. Sharma, Recent Development in Arbitration Law in Nepal, NEPAL LAW REVIEW, 13, 279-294, (2012).
110
Id.
111
Anang Man Sherchan v Chief Engineer, NKP 2020, Decision No. 220, (Nepal).
112
Anil Kumar Sinha, The Asia-Pacific Arbitration Review 2014: Nepal, GLOBAL ARBITRATION REVIEW, (Dec. 27,
2023, 23:11 P.M.), https://globalarbitrationreview.com/review/the-asia-pacific-arbitration-review/2014/article/nepal.

28 | P a g e
cumulatively ushered in the evolution of a new legal regime on the subject finally leading to the
enactment of the Arbitration Act in 1981.113

 Arbitration Act in 1981

It was the first comprehensive legislation which was wholly concentrated with arbitration. After
being existed for approximately 18 years, it was replaced by Arbitration Act, 1999 AD. 114 It had
32 sections with different features. It had the provision that there would be a single arbitrator in
cases where the parties didn’t specify the arbitrator in the agreement. The parties had autonomy
and the enforcement of local and foreign award was done through the district court. However, it
was a developing concept as a result of which defective arbitration agreement would be drafted. It
had minimal or no exposure to the international rules.

 Arbitration Act in 1999

The lacunae and the inadequacies felt during the exercise of the 1981 Act for nearly 18 years led
to the enactment of the Arbitration Act, 1999. This law was by and large a local adaptation of the
Model UNCITRAL Law (1995).115 It conferred party autonomy and the tribunal could determine
their own jurisdiction. A provision of oath taking by arbitrators was also introduced. It was a local
adaptation of the Model UNCITRAL Law (1995). This act has been discussed in the following
sub-topic.

Today, Nepal has ratified the New York Convention on the Recognition and Enforcement of
Foreign Arbitration Award, 1957 on 4th of March, 1998 which came into effect from 2nd of June,
1998, with the following declarations:

 Nepal will apply the Convention, on the basis of reciprocity, to the recognition and
enforcement of awards made only in the territory of another contracting state, and

113
S. K. Giri, Arbitration Laws and Judicial Response to Settling the Disputes through Arbitration in Nepal,
JOURNAL OF MANAGEMENT, 5(1), 109–123, (2022).
114
Bed Prasad Uprety, Evolution of Commercial Arbitration in Nepal: Issues and Challenges, 2 NJA LAW JOURNAL
205, 209 (2008).
115
S. K. Giri, Arbitration Laws and Judicial Response to Settling the Disputes through Arbitration in Nepal,
JOURNAL OF MANAGEMENT, 5(1), 109–123, (2022).

29 | P a g e
  Nepal will apply the Convention only to the differences arising out of legal relationship,
whether contractual or not, which are considered as commercial disputes under the law of
Nepal.

Nepal Council of Arbitration (NEPCA), was founded in 1991 to administer arbitration and other
alternative methods of dispute resolution in an expeditious and less expensive manner by arranging
co-operation from the concerned sector and to do institutional development of acts and proceedings
related thereto, for the settlement of national and international disputes of development,
construction, industrial, trade and other nature which are to be resolved through arbitration.116

4.2 Existing Nepalese Legislation on Arbitration

The existing Nepalese Legislation on Arbitration include the Acts and Rules which govern the
arbitral proceedings in Nepal. They are discussed below:

1. Arbitration Act, 2055 B.S.

It is the main Act governing the arbitral proceedings in Nepal which was adopted on 2 Chaitra,
2056 (15 April, 1999). It repealed the previous Arbitration Act, 2038 B.S. It comprises of 6
Chapters and 44 Sections. It defined disputes, “to be those which could be solved through
arbitration”.117 However, it has not defined the word arbitration.

In the similar manner, ‘agreement’ has been defined as, “a written agreement reached between the
concerned parties for a settlement by arbitration of any dispute relating to any specific legal issue
that has arisen or may arise in the future as under a contract or not”. 118 If any agreement requires
a dispute to be solved through arbitration, such disputes are settled through arbitration according
to the procedure provided in the agreement and the Act. 119 As such the recourse to arbitration
becomes mandatory and no suit may be filed in any court of Nepal. 120 The Supreme Court in
Rakesh Kumar vs. Ram Krishna Rawal, 2066, established the principle that no court will have

116
Preamble, Statute of the Nepal Council of Arbitration (NEPCA), 2048.
117
Arbitration Act, 1999, §2, Acts of Parliament, 1999 (Nepal).
118
Arbitration Act, 1999, §2-a, Acts of Parliament, 1999 (Nepal).
119
Arbitration Act, 1999, §3, Acts of Parliament, 1999 (Nepal).
120
Anil Kumar Sinha, The Asia-Pacific Arbitration Review 2014: Nepal, GLOBAL ARBITRATION REVIEW, (Dec. 27,
2023, 23:11 P.M.), https://globalarbitrationreview.com/review/the-asia-pacific-arbitration-review/2014/article/nepal.

30 | P a g e
primary jurisdiction over a dispute arising out of a contract in which parties have agreed upon
arbitration as the form of dispute resolution.121

Furthermore, the act recognizes the process of appointing an arbitrator which shall commence
within three months from the date that the cause of action for dispute resolution arose.122 The
Supreme Court, in Rajendra Man Sherchan vs. Appellate Court, Patan 2064, interpreted that, the
process of appointing an arbitrator must commence within three months from the date on which
the dispute arose.123 The number of arbitrators is also specified in the agreement, and sometimes
along with their names. 124 In cases where it has not been specified, the parties choose an odd
number of arbitrators to form the tribunal. Such arbitrators need to be appointed within three
months from the starting of the dispute.125

The arbitrators need to be qualified.126They are required to take an oath of impartiality and
confidentiality.127 They may be removed if found to have acted improperly, or even lacks their
qualification.128 A proper procedure has been defined under the act for the removal. Besides, it
also states the rights and duties of an arbitrator: to have submission, determine the jurisdiction and
procedure, to fix the venue, to seek the assistance of the court, to issue different kinds of award
and be fair, impartial, to respect the principle of natural justice.129

The arbitration proceedings shall take place at the location specified in the arbitration agreement.
In the absence of mutual agreement between the parties, the arbitrator has the authority to
determine the location for the arbitration proceedings.130 During the 10 years of political conflict
prior to the Comprehensive Peace Accord concluded between the government of Nepal and the
Communist Party of Nepal (Maoist) on 21 November 2006, most arbitrations involving foreign
parties or arbitrators conducted their hearings and sittings outside Nepal, citing security reasons,

121
Rakesh Kumar v Ram Krishna Rawal, NKP 2066, Decision No. 8078, (Nepal).
122
Arbitration Act, 1999, §6, Acts of Parliament, 1999 (Nepal).
123
Rajendra Man Sherchan v. Appellate Court, Patan, NKP 2064, Decision No. 7823, (Nepal).
124
Arbitration Act, 1999, §5, Acts of Parliament, 1999 (Nepal).
125
Arbitration Act, 1999, §6, Acts of Parliament, 1999 (Nepal).
126
Arbitration Act, 1999, §10, Acts of Parliament, 1999 (Nepal).
127
Arbitration Act, 1999, §9, Acts of Parliament, 1999 (Nepal).
128
Arbitration Act, 1999, §11, Acts of Parliament, 1999 (Nepal).
129
Arbitration Act, 1999, §21, Acts of Parliament, 1999 (Nepal).
130
Arbitration Act, 1999, §12, Acts of Parliament, 1999 (Nepal).

31 | P a g e
but still maintained that the venue would continue to be prescribed in the agreement. 131 The
proceedings shall also be conducted in the language specified in the agreement. If no language is
specified, the parties may mutually agree on the language to be used. Even upon the failure of the
parties fail to agree on this, then the language of the agreement shall be applied.132

With the submission of claims from the claimant, within ninety days of the appointment of the
arbitrator, the process of arbitration is initiated. It is followed by the statement of defense and
counter claims from the respondent, within thirty days of such receipt which then allows the
Claimant to submit their rejoinder within fifteen days of receipt of the statement of defense.133

Confidentiality is one of the major advantage of arbitration and in order to maintain the
confidentiality of the matter and the parties to the disputes, the arbitration hearings are held in
camera.134 One of the unique features of the Act is the arbitrator’s power to determine the
jurisdiction. There is no time limit prescribed for an arbitrator’s decision on jurisdiction; however,
once such decision is taken on a jurisdictional issue, the party that is not satisfied with the decision
may file a petition before the appellate court within 30 days of receipt of the arbitrator’s decision.

The arbitral tribunal has the authority to issue summons to any party to the arbitration, whether
they reside in Nepal or abroad, to appear for the proceedings or produce evidence.135 The District
Court provides assistance to the arbitral tribunal in examining evidence and witnesses. 136The
decision given by the arbitration tribunal is called an award. Such awards need to be pronounced
within 120 days from date of submission of the documents.137

2. Arbitration (Court Procedure) Rules, 2059 B.S.

The Supreme Court of Nepal promulgated the Arbitration (Court Procedure) Rules, 2059 B.S.
under the authority granted by Section 43 of the Arbitration Act, 2055 B.S. These Rules primarily
outline the procedures related to arbitration that must be followed by the High Court of Nepal. The

131
Anil Kumar Sinha, The Asia-Pacific Arbitration Review 2014: Nepal, GLOBAL ARBITRATION REVIEW, (Dec. 27,
2023, 23:11 P.M.), https://globalarbitrationreview.com/review/the-asia-pacific-arbitration-review/2014/article/nepal.
132
Arbitration Act, 1999, §13, Acts of Parliament, 1999 (Nepal).
133
Arbitration Act, 1999, §14, Acts of Parliament, 1999 (Nepal).
134
Arbitration Act, 1999, §19, Acts of Parliament, 1999 (Nepal).
135
Arbitration Act, 1999, §20, Acts of Parliament, 1999 (Nepal).
136
Arbitration Act, 1999, §23, Acts of Parliament, 1999 (Nepal).
137
Arbitration Act, 1999, §24, Acts of Parliament, 1999 (Nepal)

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Rules contain 5 Chapters and 23 provisions that provide clarification and guidance for the
implementation of the Arbitration Act, with the aim of reducing ambiguity in the Act's application
by the courts.

The Rules provide the following information in general:

- The fees required by the court for when the parties submit an application to appoint an
arbitrator, to file complaints and petitions for reasons like invalidation of the award.138
- The information on things that need to be included in the application submitted to the High
Court as per the purpose of the application.
- The process of appointment of the arbitrator.139 The arbitrators are then appointed from the
rooster maintained by the Registrar of the High Court.140 Along with that, the decision of
the arbitrator may also be altered by the Court if errors of law found.141
- The petition requires for the name of at least three people who are eligible to be
arbitrators.142
- As per the petition received, the Court evaluates the concerns. The Court may remove the
arbitrator, if found necessary.143
- The Rules also mention provision relating to serving the summons.144 The High Court is
also required to give a record of its activities and its report is submitted before the Supreme
Court.145
- The hearing is not stopped in the absence of legal practitioners or the parties.146

The parties of civil cases of commercial nature may apply in the court for the settlement through
arbitration.147 The arbitration-related rules are supplemented by the Arbitration (Court Procedure)

138
Arbitration (Court Procedure) Rules, 2002, Rule 4, 2002 (Nepal).
139
Arbitration (Court Procedure) Rules, 2002, Rule 5, 2002 (Nepal).
140
Arbitration (Court Procedure) Rules, 2002, Rule 6, 2002 (Nepal).
141
Arbitration (Court Procedure) Rules, 2002, Rule 8, 2002 (Nepal).
142
Arbitration (Court Procedure) Rules, 2002, Rule 5, 2002 (Nepal).
143
Arbitration (Court Procedure) Rules, 2002, Rule 7, 2002 (Nepal).
144
Arbitration (Court Procedure) Rules, 2002, Rule 15, 2002 (Nepal).
145
Arbitration (Court Procedure) Rules, 2002, Rule 16, 2002 (Nepal).
146
Arbitration (Court Procedure) Rules, 2002, Rule 17, 2002 (Nepal).
147
Arbitration (Court Procedure) Rules, 2002, Rule 22, 2002 (Nepal).

33 | P a g e
Rules, 2059 B.S. It stipulates what information must be included in the application that must be
submitted to the High Court as a result of which arbitration can run smoothly.

4.3 Significant Case laws related to Arbitration in Nepal

Some of the landmark decisions that has set guiding principles, and given correct interpretations
of arbitration-related cases in Nepal are listed as below:

A. Yashasvi Shamsher JBR v. Vaiwers Developers Pvt. Ltd., 2074

The landmark decision of the Supreme Court in the case of Yashasvi Shamsher JBR v. Vaiwers
Developers Pvt. Ltd., 2074148 stated that an Arbitration Agreement is deemed to be constituted
in the following situations:

1. Agreement between the parties to resolve the dispute through arbitration as per Section
3(a) of the Arbitration Act, 2055 within the contract, or;

2. Through a separate agreement, or;

3. When parties exchange written communications deciding to submit the dispute to

arbitration, or;

4. When Respondent submits its Statement of Defense in response to Statement of Claim

submitted by Claimant without protesting arbitration as the dispute settlement mechanism.
The Hon. Supreme Court also held that in the absence of the abovementioned conditions,
an agreement between parties to resolve any dispute themselves cannot be construed to
mean that the parties had an intention to resolve the dispute through arbitration.

B. Advocate Devendra Pradhan v. High Court Patan et.al.,149 2075 No. 11, Decision No. 10138

Case: Certiorari/Mandamus

148
Yashasvi Shamsher JBR v. Vaiwers Developers Pvt. Ltd., NKP 2074 Decision No. 9847, (Nepal).
149
Advocate Devendra Pradhan v. High Court Patan et.al. NKP 2075, Decision No. 10138, (Nepal).

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Ratio- The provision of appointment of arbitrators has to be made in the contract itself or in some
separate agreements and the laws and procedures or arbitration has to be as per such agreement.
This is the very ground which determines the validity of any foreign award. (No. 3)

The Hon’ble Supreme Court held that:

1. A dispute resolution clause is considered to be a separate contractual agreement in terms

of the doctrine of severability, and the arbitration clause is not affected by the status of the
main contract.

2. The parties are free to choose separate substantive and procedural laws for the purpose of
the arbitration clause. If the parties choose the law of one country for substantive part of a
contract, it shall not be understood that the parties have chosen the law of the same country
for procedural and appointment related matters.

3. Where the contract provides that disputes shall be settled through amicable settlement, the
parties must attempt to amicably resolve the dispute as envisioned by the contract.

4. Initiating arbitration proceeding or giving of an award overlooking the provision requiring

the parties to first attempt dispute resolution through amicable settlement is contrary to the
intention of the contract in terms of which the parties were to first attempt amicable
settlement.

5. Separate notices should be served for separate matters as prescribed by the law. The arbitral
award shall lose its validity if the notice requirements have not been adequately fulfilled.
If one of the parties has not been given sufficient opportunity to be heard, the same is
contrary to the principles of natural justice and the resultant arbitral award is not
enforceable.

C. Department of Road et al. V. Waiba Construction Co. Pvt. Ltd., Samakhusi, Kathmandu et
al., 2067

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Supreme Court in the case of Department of Road et al. V. Waiba Construction Co. Pvt. Ltd.,
Samakhusi, Kathmandu et al., 2067,150 held that where the dispute is to be resolved through
arbitration, the court cannot enter into factual questions, consider the evidence and provide a
decision in a manner similar to a normal case. Further, the Hon’ble Supreme Court also held that
where there has not been any grave error in law, the court cannot invalidate an arbitral award.

D. Poshannath Nepal on behalf of Water Supply and Sewerage Drainage Committee v. Central
Regional Court et.al.151

It set a milestone principle regarding the appointment of the arbitrator. It was concerned with the
appointment of the arbitrator whereby the district court had appointed the chief arbitrator according
to Section 5(2) of the Arbitration Act 1981. Two parties have a contract with the Water Supply
and Sewerage Drainage Committee to carry out the work according to the program. However, the
respondent (Bhandari Builders Pvt. Ltd), delays the work.

The respondent request the court to choose a chief arbitrator, the court names one arbitrator;
however, the appointed arbitrator declines to serve as the chief arbitrator, and the respondent again
asks for the appointment of a different arbitrator. In this instance, the court intervened and
appointed Ishwari Chandra Sharma as the chief arbitrator to fill the vacancy left by the previous
chief arbitrator's refusal to work.

On the other hand, the writ applicant declines to choose an arbitrator. The writ petitioner then files
an appeal with the Central Regional Court, but the court dismisses it, stating that Section 5(2) of
the Arbitration Act, 2038 prohibits the filing of appeals. The applicant then submits a writ petition
in the Supreme Court, citing extraordinary jurisdiction, and claims that the Justice Administration
Reform Act, 2031, Section 13(1), provides to make an appeal before the superior court.

In conclusion, the Hon’ble Supreme Court stated the following:

150
Department of Road et al. V. Waiba Construction Co. Pvt. Ltd., Samakhusi, Kathmandu et al., NKP 2067, Decision
No.8479, (Nepal).
151
Poshannath Nepal on behalf of Water Supply and Sewerage Drainage Committee v. Central Regional Court et.al.,
NKP 2044, Decision no 3111, (Nepal).

36 | P a g e
  Arbitration Act, 2038 does not contain any provisions regarding the appeal hearing on the
appointment of the Chief Arbitrator, who is nominated in a tribunal in accordance with
Section 5(2) of the Act.

 The Regional Court's ruling to revoke the applicant's writ application is valid, and Section
13(1) of the Justice Administration Reform Act, 2031 cannot be invoked to hear the appeal.

E. Krishi Samagri Sansthaan v. Sumit Prakasa Asia152

The court established the rule that, in the event that no other legal remedies are available, a writ
petition may be filed based on the ruling of the High Court on a petition to invalidate the judgment
of an arbitrator. The court elucidated that the Arbitration Act, 2038 or the Justice Administration
Act, 2048 do not offer the option to file a revision petition or file an appeal against the ruling made
by the Court of Appeal about a petition seeking to invalidate the judgment of an arbitrator. In the
meantime, there are no other alternative remedies, thus the writ petition can be filed.

F. Flora Nepal Pvt. Ltd v. Appellate Court Patan153

It is a unique example of unnecessary intervention by the Appellate court. It is regarding the

appointment of an arbitrator by invoking Sec.7 of the Act. In this case the appellate court, by
entering into the merit of the case, had declined to appoint the arbitrator as, according to it, the
transaction between the parties itself had been frustrated.

On the writ petition filed by the applicant, the apex court cautioned the lower courts that it should
not cross the limit imposed by the Legislature, and so should remain confided within the limit of
the ambit of Section 7 of the Act which should be the guiding principle, and no other matters. It
observed, the court has no authority to go into the merit of the case and see whether the parties
have done one way or the other. The decision of the Supreme Court is a lesson to the lower courts
to see the arbitration cases with self-restraint.

152
Krishi Samagri Sansthaan v. Sumit Prakasa Asia, NKP 2059, Decision No. 7089, (Nepal).
153
Flora Nepal Pvt. Ltd v. Appellate Court Patan, NKP 2062, (Nepal).

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 CHAPTER FIVE

ARBITRATION AND ITS PROCESS

5.1 Process and Proceedings of Arbitration

One of the basic feature of arbitration is that, “it is consensual.” The parties should agree to resolve
the dispute through arbitration. Although, the parties can choose the rules and procedure of the
arbitration, there are various elements required to be checked before entering into the arbitration.
They are154:

a. Arbitrability: Arbitrability indicates whether a dispute is “arbitrable”, i.e. capable of being

settled by arbitration.155 Arbitrability is determined, generally, in accordance with
the law of the seat of arbitration; as such, which disputes are arbitrable will vary between
jurisdictions, although there is some consistency internationally.156

b. Consent: The arbitral proceedings cannot proceed further in the absence consent from both
the parties. Only the disputes mentioned in the contract regarding can be resolved through
arbitration.

c. Arbitration Agreement: Any disagreement must be agreed upon by both parties before it
can be brought before the appointed tribunal. They must also agree on the steps to be taken
during the arbitration process and the tribunal's declaration of the award's finality.

d. Presiding Authority: The Authority settling the dispute is otherwise called the arbitral
council or the tribunal who is like an adjudicator that directs an official courtroom.
Therefore, is responsible for choosing the disputes between the gatherings.

154
Adya Singh, Elements of Arbitral Proceedings, VIA MEDIATION & ARBITRATION CENTER (Jan.1, 2024,
10:01 A.M.), https://viamediationcentre.org/readnews/OTI2/ELEMENTS-OF-ARBITRAL-PROCEEDINGS .
155
Bakalarou Eleni Arbitrability, JUS MUNDI (Jan. 1, 2024 10:15 A.M.),
https://jusmundi.com/en/document/publication/en-arbitrability .
156
LexisNexis Arbitration expert, Arbitrability Definition, LEXIS NEXIS (Jan 1, 2024, 10:05 A.M),
https://www.lexisnexis.co.uk/legal/glossary/arbitrability#:~:text=What%20does%20Arbitrability%20mean%3F,%2
C%20usually%2C%20court%20proceedings .

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 e. The seat of Arbitration: Seat of arbitration is a location selected by the parties as the legal
place of arbitration, which consequently determines the procedural framework of the
arbitration.157 It is the place where arbitration is conducted and will generally determine
the procedural law governing the arbitration.158

f. Autonomy and Procedure: Arbitration gives the gatherings the decision to choose
appropriate laws, particularly if the arbitration is global business arbitration. Moreover,
there is tremendous adaptability to pick the procedure that will be relevant.

g. Tribunal and its power: In light of the selected norms and relevant legal framework, the
parties ought to deliberate over the tribunal's authority and determine whether or not to
modify or elucidate it by explicit language.

h. Confidentiality: There is no standard procedure in either domestic legislation or arbitration

regulations about the degree to which parties to an arbitration are required to protect the
privacy of any information pertaining to the arbitral proceedings.159

i. Place and Language: The parties can choose the place and language of arbitration. This
is crucial in the event of a dispute between states or one involving parties or subjects from
other states. Usually, the arbitral tribunal or the arbitral institution conducting the
arbitration will have to choose the arbitration location at the beginning of the arbitral
proceedings if the parties have not agreed upon the language and location of the arbitration.

j. The finality of the Outcome: An arbitral award is not inherently objectionable; however,
it must be preserved in the event that the said award is deemed to be an illegal arbitration
agreement, the parties' inability to reach a mutual understanding, the independence and
objectivity of the mediator, improper procedure, etc.160

157
Savić Milica, Seat of Arbitration, JUS MUNDI, (Dec 23, 2023, 9:18 A.M.),
https://jusmundi.com/en/document/publication/en-seat-of-arbitration .
158
The Seat of Arbitration & Its Significance, CHAMBERS AND PARTNERS, (Jan 1, 2024, 10:15 A.M),
https://chambers.com/articles/the-seat-of-arbitration-its-significance .
159
UNCITRAL Notes on Organizing Arbitral Proceedings, UNCITRAL, (Dec 28, 2023, 11:29 A.M.),
https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/arb-notes-2016-e.pdf .
160
Adya Singh, Elements of Arbitral Proceedings, VIA MEDIATION & ARBITRATION CENTER (Jan.1, 2024,
10:01 A.M.), https://viamediationcentre.org/readnews/OTI2/ELEMENTS-OF-ARBITRAL-PROCEEDINGS .

39 | P a g e
 5.2 Stages of Arbitration

Various stages/steps of arbitral proceedings are listed below161:

A. Case Initiation Stage:

1. Claimant’s request for arbitration with the inclusion of summary of their claims (issue)
2. Answer by the Respondent, counterclaims are made if any required
3. Reply of Counterclaim by Claimant (if appropriate)
B. Arbitrator Invitation and Appointment Stage:
4. Appointment of the tribunal
5. Procedural hearing to determine the procedure and the timeline for the arbitration.
6. Upon the failure to serve with the Request for Arbitration, the Claimant serves the full
statement of the case
7. Upon the failure to serve with the Request for Arbitration, the Respondent serves the whole
defense and the counterclaim of the respondent.
8. Claimant's Reply and Defense to Counterclaim
9. Disclosure of the relied-upon documents or the limited categories of information requested
by the opposing party
10. Exchange of Witness statements (with rebuttal statements being exchanged when needed).
11. Exchange of expert reports (sometimes followed by rebuttal reports)
12. Meeting of experts to narrow issues and joint statement of matters agreed/in dispute
C. Preliminary Hearing and Exchange of Information Stage
13. Exchange of Pre-hearing submissions
D. Hearing Stage
14. Post-hearing submissions
E. Award Stage

These are the general stages of arbitration followed both nationally and internationally. The similar
provisions are used to resolve the disputes, with few exceptions at times. This is because each case
is different and may have unique circumstances that can change the usual procedures.

161
Stages of the Arbitration Process, AMERICAN ARBITRATION ASSOCIATION, (Dec 29, 2023, 11:26 A.M.),
https://www.adr.org/sites/default/files/document_repository/AAA_Stages_of_the_Arbitration_Process.pdf .

40 | P a g e
 5.3 Arbitral Award and its recognition as well as its enforcement in Nepal
(Both Local Arbitration & Foreign Arbitral Award)

Everything comes to an end, and so does the arbitral proceedings. Arbitral proceedings conclude
when the arbitral tribunal renders the award.162 An award is a formal document setting out
an arbitral tribunal’s decision.163 The formal and procedural requirements the arbitral award may
stem either from the applicable arbitration law (lex arbitri), the parties’ arbitration agreement or
the institutional arbitration rules that parties choose to be applicable.164 If the award does not meet
such procedural requirements, it may be subject to annulment.165

There are various types of Arbitral Award which are listed as below166:

a. Interim Award: This is a temporary award until the tribunal has given its final decision,
however it affects the rights of the parties. An arbitral tribunal may at any time during the
arbitral proceedings make an interim arbitral award on any matter with respect to which it
may make a final arbitral award.

b. Partial Award: The type of award where some elements of the parties’ claim have been
determined but other issues need to be resolved before the final award is made is called
partial award. Article 34(1) of the UNCITRAL rules provides that the arbitral tribunal may
make separate awards on different issues at different times i.e. issue of jurisdiction, time
bar, liability etc. Parties can continue arbitrating the remaining issues.

c. Final Award: Article 32(1) of the UNCITAL Rule mentions that final award terminates
the arbitration proceedings and mandate of the arbitral tribunal. This should be in writing
and signed by all the arbitrators with all the details required to be mentioned.

162
F. Dasser and E. O. Igbokwe, Efficient Drafting of the Arbitral Award: Traditional Ways Revisited- Lesson Learned
from the Past? 282, Austrian Yearbook on International Arbitration, (2019).
163
Arbitral Awards- Types, Requirements and Effect, LEXIS NEXIS, (Dec. 29, 2023, 11:29 A.M.),
https://www.lexisnexis.co.uk/legal/guidance/arbitral-awards-types-requirements .
164
R. TURNER, ARBITRATION AWARDS: A PRACTICAL APPROACH, 8, (Blackwell Publishing), (2005).
165
G. BORN, INTERNATIONAL ARBITRATION: LAW AND PRACTICE, 285, (Wolters Kluwer), (2012).
166
Id.

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 d. Consent Award: Article 30(1) of UNCITRAL Model Law provides if the parties reach a
settlement during the arbitration, the tribunal, if requested by parties and not to be objected
to by the tribunal, record the settlement in the form of arbitral award in agreed term.

e. Additional Award: The parties can request an additional award be made on an undecided
issue still in dispute. Such an award is made upon application by a party when a claim or
claims are presented in the arbitral proceedings but omitted from the arbitral award.

f. Default Award: The type of award rendered when one of the parties fails to appear and
presents its case in arbitration or refuses to participate in the arbitration, it is called default
award. The tribunal is not barred from issuing an award upon such situation.

Recognition and Enforcement of Arbitral Award:

The enforcement of awards represents the conversion of a favorable award into concrete relief for
the claimant, for example, by leading up to execution proceedings.167The difference between
recognition and enforcement is that “an award may be recognized, without being enforced; but if
it is enforced, then it is necessarily recognized by the court which order its enforcement. 168 The
laws that govern the recognition and enforcement of awards in international practice are:
UNCITRAL Model Law and the New York Convention. Some of the important provisions
highlighted therein are:

Article 34: Application for setting aside as exclusive recourse against arbitral award

These are the exclusive list of grounds for annulment. It presumes the validity of international
awards, subject to the same restrictions as Article 36 of the Model Law and Article V of the New
York Convention (dealing with recognition of foreign awards).169

167
BLACKABY N., PARTASIDES C., REDFERN A. AND HUNTER, M., REDFERN AND HUNTER ON
INTERNATIONAL ARBITRATION, 11-22 (Oxford University Press), (2015).
168
Enforceability of Foreign Arbitral Awards: A Comparative Study of the Law and Practice in Nepal and China, (Jan
30 2024, 12:50 A.M.),
https://www.researchgate.net/publication/345898421_Enforceability_of_Foreign_Arbitral_Awards_A_Comparative
_Study_of_the_Law_and_Practice_in_Nepal_and_China .
169
ALAN REDFERN AND MARTIN HUNTER, LAW AND PRACTICE OF INTERNATIONAL COMMERCIAL
ARBITRATION, 10-09, (Sweet and Maxwell, London), (1999).

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Article 35: Awards shall be enforced and recognized

Article 36: Grounds for refusing the award

However, an award made under the UNCITRAL Model Law is binding on all parties to the
proceeding, and upon the party’s failure to comply with that award, another succeeding party can
seek to have that award recognized and enforced in domestic courts.170

Implementation of Local Award in Nepal:

The concerned parties must implement the award within 45 days from the date of the receival of a
copy of the award. In case an award is not implemented, the concerned party should file an
application before the district court within 30 days from the date of expiry of the time limit. The
district court should implements the award within 30 days as its own judgment. In Anil Kumar
Pokharel v District Court Kathmandu and others171, the Supreme Court interpreted that where
either party files a petition for the setting aside of an arbitral award, said award shall not be deemed
final until the decision of the appeal court.

Implementation of Foreign Arbitral Award in Nepal

Nepal is a signatory to the New York Convention and is the most effective diplomatic tool for
enforcing overseas arbitral awards. An international arbitral award is enforceable in Nepal if it
complies with the conditions set out in Article 34 of the Arbitration Act, founded on the New York
Convention.172 A party intending to execute, in Nepal, an award from a foreign country, must
submit an application to the appellate court along with an original or certified copy of the
arbitrator’s award; an original or certified copy of the agreement; and certified translations of both
into Nepalese.173

170
Stages of the Arbitration Process, AMERICAN ARBITRATION ASSOCIATION, (Dec 29, 2023, 11:26 A.M.),
https://www.adr.org/sites/default/files/document_repository/AAA_Stages_of_the_Arbitration_Process.pdf .
171
Anil Kumar Pokharel v District Court Kathmandu and others, (NKP, 2064), decision No. 7836, (Nepal).
172
Friyana Damania, Supreme Court Of Nepal On Recognition And Enforcement Of An Arbitral Award Under The
New York Convention, VIA MEDIATION & ARBITRATION CENTER , (Dec 29, 2023, 11:41 A.M.),
https://viamediationcentre.org/readnews/MTEzNQ==/Supreme-Court-of-Nepal-on-Recognition-and-Enforcement-
of-an-Arbitral-Award-under-the-New-York-Convention .
173
Anil Kumar Sinha, The Asia-Pacific Arbitration Review 2014: Nepal, GLOBAL ARBITRATION REVIEW, (Dec. 27,
2023, 23:11 P.M.), https://globalarbitrationreview.com/review/the-asia-pacific-arbitration-review/2014/article/nepal .

43 | P a g e
A foreign award will be enforced pursuant to the Arbitration Act if the award fulfils the
following174:

 The arbitrators must have been appointed pursuant to laws or procedures prescribed in the
arbitration agreement.
 The parties must have been notified of the proceedings on time.
 The arbitration must be limited to the conditions set out in the arbitration agreement or
limited to the issues submitted to the arbitration.
 The arbitration award must be final and binding in the seat country, and the applicant’s
country or seat country must give reciprocal recognition to Nepalese awards.
 The recognition of the foreign award application must be filed within 90 days of the
issuance of the award.

The high courts will determine whether the above conditions have been met. If they have, the court
will enforce the award, unless the dispute is not arbitrable pursuant to Nepalese law or the award
is against public policy.

Hanil Engineering & Construction Co. Ltd. v. KONECO Pvt. Ltd. et al175., is the first case of
foreign arbitral award enforcement in Nepal, whereby the Hanil Engineering Co. Ltd. of South
Korea submitted a Writ Petition for enforcement of an arbitral award made in its favor by the
Korean Commercial Arbitration Board against KONECO Pvt. Ltd, a corporation established in
Nepal (1999). The Supreme Court of the United States found that the international arbitral award,
in this case, was unenforceable, citing the following principles:

 Appointment of Arbitrator(s): The parties must consent to select an arbitrator (s). An

arbitral award must have been made by arbitrator(s) chosen in compliance with the
agreement's laws and procedures.

Under the case that the parties have not decided on appointing a person(s) or an institution as an
appointing body, the agreement's substantive rule for arbitral hearings would apply when

174
Id.
175
Hanil Engineering & Construction Co. Ltd. v. KONECO Pvt. Ltd. et al, (2017) Case No. 067-WO-0419, (Nepal).

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appointing arbitrator (s). In the case that the parties cannot settle on the protocols for appointing
arbitrator(s) or refuse to appoint the arbitrator(s) by mutual consent, the courts have the power to
select the arbitrator(s) under the statute.

A notice must be issued formally for parties to have a fair hearing. For an award to be legitimate
and enforceable, a separate notification must be given at each stage of the arbitration process in
compliance with the statute.176

For the first time in this situation, the Supreme Court has ruled on the enforceability of an
international arbitral award after twenty years of implementation of the Arbitration Act. The
judgment confirms that an international arbitral award designed for recognition and enforcement
in Nepal must guarantee that the arbitration proceedings meet the conditions set out in Section 34
of the Arbitration Act and the New York Convention.

Fee for enforcement of award

The statutory fee for enforcement of award through courts is 0.5 per cent of the amount received
through the implementation of the award.177 If the amount of the award cannot be quantified, but
its value can nonetheless be determined, a fee amounting to 0.5 per cent of the current market
value or amount of the action to be taken shall be payable. If the value cannot be quantified, the
execution fee shall be 500 Nepalese rupees.178 All amounts paid to the court may also be recovered
from the other party if the concerned party files an application before the district court.

176
Friyana Damania, Supreme Court Of Nepal On Recognition And Enforcement Of An Arbitral Award Under The
New York Convention, VIA MEDIATION & ARBITRATION CENTER , (Dec. 29, 2023, 11:41 A.M.),
https://viamediationcentre.org/readnews/MTEzNQ==/Supreme-Court-of-Nepal-on-Recognition-and-Enforcement-
of-an-Arbitral-Award-under-the-New-York-Convention .
177
Anil Kumar Sinha, The Asia-Pacific Arbitration Review 2014: Nepal, GLOBAL ARBITRATION REVIEW, (Dec. 27,
2023, 23:11 P.M.), https://globalarbitrationreview.com/review/the-asia-pacific-arbitration-review/2014/article/nepal .
178
Id.

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 CHAPTER SIX

FINDINGS, CONCLUSION AND RECOMMENDATIONS

6.1 Findings

The purpose of this study was to understand the procedures of Alternate Dispute Settlement. It is
prepared using a variety of national and international legal instruments pertaining to arbitration
proceedings. The primary emphasis of this report is on the arbitration procedure in Nepal. It also
covers the legal and constitutional foundations of arbitration as well as its importance in resolving
disputes. This research offers insights into various forms of arbitration, arbitral procedures, arbitral
award, and case law. The following observations and conclusions were drawn from the doctrinal
research:

1. Arbitration is the developing form of Alternative Dispute Resolution in Nepal. The

precedent set by the Supreme Court of Nepal in case of Dhan V. HMG Kankai Development
Board NKP 2048, has shown that, in matters related to commercial disputes, the courts
prioritize arbitration.

2. Nepal has ratified various international treaties, and the domestic laws are guided by
similar legal provisions. The major laws governing the arbitral proceeding in Nepal are:
Arbitration Act, 2055 B.S. and Arbitration Rules, 2059 B.S. (Court Procedure).

3. Nepal needs to work upon the law governing arbitration, they are inconsistent. The
procedural complexity and inconsistency have become the leading discouraging factors for
foreign investor to lodge investment in Nepal.

4. The Arbitration Act, 2055 B.S. stipulates that claims must be submitted within 90 days of
the arbitrator's appointment date, whereas NEPCA rules provide that claims must be
submitted within 60 days of the arbitrator's appointment date.

5. The Arbitration Act, 2055 B.S. in article 26 mentions that upon the failure of the panel of
three arbitrators to reach conclusion, the decision of the chief arbitrator shall be regarded

46 | P a g e
 as the final and binding decision. However, this may not be the appropriate resolution that
a tribunal seeks.

6. Arbitration is a less formal procedure compared to the court proceedings, however, it has
a procedure to be followed. The parties can choose the rules of arbitration, the seat and the
law, the language and also appoint the arbitrators. Despite, all such, it is considered to be
the most formal form of Alternative Dispute Resolution.

7. There are certain shortcomings in the arbitration procedure, unlike litigation, no appeal can
be made against the arbitral award.

8. Arbitration is prioritized for its speed and cost- efficiency, but some of the cases take longer
time to complete with higher fees.

9. In Nepal, some of the cases don’t get fully solved by arbitration, it requires the intervention
of the Court, hampering the confidentiality of the parties.

Arbitration is a developing concept in Nepal. Therefore, Nepal lacks proper arbitrator and even
the general public have minimal idea about the working mechanism of arbitration. These might be
the reasons that even today the people are heavily influenced by traditional way of dispute
resolution.

6.2 Conclusion

In conclusion, disputes and conflict existed with the origin of human civilization. There were
various methods followed in the early times to resolve the dispute. The modern form of dispute
resolution has come a long way. The study helped to gather information about the various types of
procedure followed for the resolution of the dispute. From litigation to alternative forms, both have
its own significance and limitation.

Arbitration is the most common form of alternative dispute resolution having root in the ancient
society. With the advancement of UNCITRAL rules, New York Convention, the popularity of
arbitration is on rise. Nepal has also accepted the UNCITRAL rules and have included their
provisions in the Arbitration Act, 2055 B.S. Thus, this study deals with the procedure of the arbitral

47 | P a g e
proceedings and the enforcement of arbitral award with the significance of arbitration over
litigation.

However, arbitration does include various drawbacks which needs to be addressed by the
concerned authority in order to smoothen the administration of justice through arbitration.

6.3 Recommendation

The laws governing the arbitral procedure should be improved to make justice easily accessible to
common people. Upon the observations, the following recommendations are suggested:

1. The concept of ADR, although evolved from the ancient society, the people still prioritize
court proceedings over it, as they have very few understanding upon the given topic.
Therefore, the courts should play an encouraging role in settling the disputes via ADR. It
should be included in the subject matter of the students in the Universities.

2. The legislature should enact bills that ensure effective mechanism of resolution of dispute
using alternatives to court proceedings. This can ultimately help judiciary function properly
with less burden of cases.

3. Finality of decision is considered to be one of the importance of arbitration, however,

parties should be given a chance to express their dissatisfaction, so the provision of hearing
appeals should be included (with some special circumstances).

4. The proceedings are getting lengthy and the cost of arbitration is also on rise, this disrupts
the objective of arbitration. So, the time should be allocated for resolving of dispute.

5. The provisions has to be made to ensure that arbitration is kept away from judicial
intervention.

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 BIBLIOGRAPHY
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The Hague Convention for the Pacific Settlement of International Disputes of 1899.

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