NEPAL Law and Practice Contributed by: Purna Man Shakya, Prakrit Shrestha and Dechen Gurung, Reliance Law Firm
1. General 1.1 Prevalence of Arbitration
with notable activity in telecommunications and for - eign investment. As a developing country, Nepal continues to invest heavily in large-scale infrastructure – hydropower plants, roads, transmission lines, airports and other public works – mostly procured by the government of Nepal, the country’s largest purchaser of construction and consulting services. Disputes arising from pub - lic procurement contracts accordingly account for a substantial share of arbitration proceedings, driven by Section 58 of the Public Procurement Act, 2063 (2007). Many of these projects also involve foreign contractors, consultants, suppliers and technology providers, making arbitration the preferred neutral forum for cross-border disputes. Financing structure reinforces this trend: many large infrastructure and hydropower projects are financed by multilateral development banks, including the World Bank and Asian Development Bank, whose standard procurement documents typically mandate arbitration. Hydropower generates particularly significant activ - ity. Although Nepal’s economically feasible potential remains substantially undeveloped, the financing, construction, engineering, procurement and power purchase arrangements for existing projects involve significant foreign investment, long life cycles and technically complex obligations – factors that favour arbitration over litigation. Telecommunications and foreign direct investment have likewise generated notable arbitration, includ - ing investor-state proceedings such as Axiata Invest- ments ( UK ) Ltd and Ncell Pvt Ltd v Nepal . As with infrastructure, substantial foreign capital and sophis - ticated contractual arrangements make international arbitration a more suitable forum than domestic litiga - tion. 1.3 Arbitration Institutions The Nepal Council of Arbitration (NEPCA), established in 2048 (1991) as an autonomous, non-profit body, is the most widely used institutional arbitration centre in Nepal and administers the majority of institutional arbitrations seated in the country. NEPCA maintains
Litigation before the ordinary courts remains dominant for domestic disputes, but international arbitration is steadily gaining ground as an established method of resolving commercial disputes in Nepal, particularly in cross-border matters involving foreign investment, foreign contractors, hydropower, infrastructure and public procurement. Domestic parties are also increasingly turning to arbi - tration for commercial disputes. Litigation and court- annexed mediation nonetheless remain more com - mon for smaller-value or non-commercial matters, the latter given further emphasis as a pre-trial step under the National Civil Procedure (Code) Act, 2074 (2017). Arbitration is used in Nepal on two principal bases: • contractual submission – parties voluntarily insert arbitration clauses into commercial contracts, including loan and joint-venture agreements, engi - neering, procurement and construction (EPC) and construction contracts, and public procurement contracts under Section 58 of the Public Procure - ment Act, 2063 (2007); and • statutory submission – Section 40 of the Foreign Investment and Technology Transfer Act, 2075 (2019) (FITTA) prescribes arbitration for disputes between the government of Nepal or Nepali counterparties and foreign investors, requiring the arbitration to be seated in Nepal and, absent con - trary agreement, conducted under the UNCITRAL Arbitration Rules. This legislative trend was reinforced by the 2081 (2025) amendments to the Arbitration Act, 2055 (1999), which introduced a fast-track arbitration option under Sec - tion 13A and narrowed the grounds for setting aside an award under Section 30 (3)(b) (see 2.2 Changes to National Law ). These developments are expected to further improve the attractiveness of Nepal-seated arbitration relative to litigation. 1.2 Key Industries International arbitration in Nepal is concentrated in infrastructure, construction, hydropower and energy,
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