NEPAL Law and Practice Contributed by: Purna Man Shakya, Prakrit Shrestha and Dechen Gurung, Reliance Law Firm
3. The Arbitration Agreement 3.1 Enforceability
2.2 Changes to National Law The most significant recent development is the Act to Amend Some Nepal Acts Relating to Improving Economic and Business Environment and Enhancing Investment, 2081 (2025), in force from 18 Chaitra 2081 (31 March 2025), together with a further amending act in force from 14 Shrawan 2082 (30 July 2025), both amending the Arbitration Act (see 2.1 Govern- ing Law ). Key changes include the following. • Fast-track arbitration: a new Section 13A permits parties to agree to fast-track arbitration; the District Court must enforce a fast-track award within 15 days of an enforcement application. • Accountability of government officials: a new Sec - tion 14.7 exposes government officials to depart - mental action for delaying or failing to submit a claim, counterclaim, defence or rejoinder within the prescribed time. • Interest regime: interest may now be claimed only up to the day before the arbitrator-appointment process begins (Section 27 (e)), with none accru - ing until the deadline for implementing the award under Section 33. • Narrowed setting-aside grounds: “public inter - est” has been removed as an independent ground under Section 30, leaving “public policy” as the sole residual ground alongside the enumerated procedural grounds. • Restriction on merits review: a new Section 30 (4) prohibits the High Court from re-evaluating evidence or reviewing the merits on a set-aside application. • Automatic stay removed: filing a set-aside petition no longer automatically suspends enforcement. A stay is available only where the High Court is satis - fied there is prima facie evidence of corruption or fraud in the award or agreement. These reforms are widely regarded as a shift towards a more pro-enforcement, minimal-court-intervention regime. Further proposals remain under discussion, including an express domestic/international distinc - tion and codification of emergency-arbitrator and tribunal-ordered interim relief.
An arbitration agreement is enforceable in Nepal if it satisfies the formal requirement of Section 2 (a) of the Arbitration Act: it must be in writing. This is satisfied by: • an arbitration clause within a contract; • a separate submission agreement; or • an exchange of letters, telex, telegram, fax or similar recorded telecommunication evidencing an agreement to arbitrate. A written claim invoking arbitration to which the respondent replies without objecting is also treated as a written agreement. The written agreement should not merely provide that disputes “shall be resolved through arbitration”; it should also set out the arbitral procedure, appoint - ing authority, the number of arbitrators, and applica - ble procedural law and forum. In Hanil Engeeneering (Decision No 10138, NKP, 2017), the court held that, absent such a recorded exchange or explicit submis - sion agreement, a party’s unilateral reference to arbi - tration is not legally valid. Beyond this, the general contractual validity require - ments of Section 505 of the National Civil Code, 2017 apply, including capacity, free consent and a lawful object. No separate seal, registration or notarisation is generally required. Nepali courts have consistently upheld parties to their agreement to arbitrate, holding that no court has pri - mary jurisdiction over a dispute the parties agreed to refer to arbitration (the Oriental Insurance case, DN Section 2 (e) of the Arbitration Act confines “dispute” to matters “which can be settled through arbitration”, and Section 30 (3)(a) permits an award to be set aside where the underlying dispute was not arbitrable under Nepali law. On this basis, the following fall outside the scope of arbitration: 8078, NKP, 2009). 3.2 Arbitrability
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