NEPAL Law and Practice Contributed by: Purna Man Shakya, Prakrit Shrestha and Dechen Gurung, Reliance Law Firm
5.6 Jurisdiction Over Third Parties Nepali law permits a non-signatory to become bound by an arbitration agreement only through ordinary contract succession, not through any arbitration- specific doctrine such as group of companies, alter ego or estoppel. The Arbitration Act makes consent the foundation of arbitral jurisdiction and contains no statutory mechanism for binding non-parties as such. Section 530 of the National Civil Code codifies privity of contract, limiting the right to demand performance to parties themselves, subject only to a narrow excep - tion for contracts made for a third party’s benefit. Sec - tion 529 of the National Civil Code provides the sole route around this: a party’s rights and obligations may be transferred to another person with the counter - party’s consent, provided the transfer is: • in writing, unless the contract states otherwise); • unconditional; • not prohibited by law or contract; and • accompanied by timely notice to the other party. Where these conditions are satisfied, the transferee is bound as successor to the original party’s position, not as a true non-signatory. Nepali courts have declined to resolve non-signatory objections at the threshold appointment stage, leav - ing the question to the tribunal itself. In Manjil Kha- nal (Registration No 081-FJ-0063), the High Court, Patan ordered a non-signatory company to nominate an arbitrator despite its privity objection, treating the objection as a jurisdictional matter for the tribunal to determine under the competence-competence princi - ple in Section 16 (see 5.1 Challenges to Jurisdiction ), rather than as a bar to appointment. The Arbitration Act draws no distinction between domestic and foreign non-signatories. Because the governing analysis rests on ordinary Nepali contract law rather than an arbitration-specific doctrine, the same test, a valid Section 529 transfer or a Section 530 third-party-beneficiary arrangement, applies regardless of the non-signatory’s nationality.
• contrary to prevailing law or established legal prin - ciples; • vitiated by an apparent error of law; • so vague or ambiguous as to be defective; • contrary to the parties’ agreement; or • based on an erroneous legal principle. These bases elaborate the existing statutory grounds; they do not license the court to substitute its own view of the dispute for the tribunal’s. 5.5 Breach of Arbitration Agreement Nepali courts show a marked reluctance to entertain proceedings brought in breach of a valid arbitration agreement, generally declining jurisdiction in favour of the agreed forum rather than allowing the litigation to proceed. This reluctance is rooted directly in the statutory framework. Section 39 ousts the jurisdiction of the ordinary courts over any matter governed by the Act, and Section 4 requires a court before which such a dispute has been filed to cancel the record of the suit, declining to do so only where the claim is insepara - ble from a non-arbitrable issue or another appropriate reason exists (see 3.3 National Courts’ Approach ). Phewa Meat (Regn No 072-RB-0031) illustrates how firmly this is applied even where a party frames its claim under general contract law rather than as a direct challenge to the arbitration clause. Facing termination of a land lease and the loss of structures built on the premises, the petitioner sought relief under Section 87 (2) of the Contract Act, 2056 (2000), rather than arbitrating under its lease’s dispute resolution clause. Both the Pokhara Appellate Court and, on appeal, the Supreme Court held no legal basis existed for relief under the Contract Act once the parties had agreed to resolve disputes under the Arbitration Act and dis - missed the appeal. This case confirms that a valid arbitration clause dis - places not only competing litigation on the same claim but also attempts to secure equivalent relief through an alternative statutory route. A party’s assertion of urgency or irreparable harm, without more, will not persuade the courts to bypass the agreed forum.
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