NEPAL Trends and Developments Contributed by: Purna Man Shakya, Prakrit Shrestha and Dechen Gurung, Reliance Law Firm
face of the record – a decision that sits close in time to, and anticipates, the statutory restriction that Sec - tion 30 (4) now imposes. The 2025 amendment gives that judicial trend statutory force. Hydropower, Foreign Direct Investment and the Continuing Rise of the State as a Counterparty Nepal’s arbitration caseload continues to be shaped disproportionately by its energy and infrastructure ambitions. With an estimated hydroelectric potential exceeding 80,000 MW and only a modest fraction currently developed, hydropower concession, con - struction and power-purchase agreements remain the single largest generator of high-value arbitration in the country, frequently involving multilateral devel - opment banks, foreign engineering, procurement and construction (EPC) contractors and long project life cycles that make a neutral, technically competent arbitral forum considerably more attractive to inves - tors than sequential litigation before Nepal’s ordinary courts. A recurring theme in these disputes is the govern - ment of Nepal’s own position as a contracting party. In Kumar Pandey v Ministry of Energy and Others (NKP 2017, DN 9753), the Supreme Court held that the government cannot invoke sovereign immunity once it has voluntarily entered into a commercial agreement, a principle reinforced in practice by the government’s own contracting behaviour: key project agreements, including the Arun III Hydroelectric Pro - ject development agreement (Section 15.8), contain express undertakings by the government not to assert immunity from either jurisdiction or execution. This is consistent with the general statutory position under Section 9 (3) of the National Civil Procedure (Code) Act, 2074 (2017), which expressly denies the government of Nepal, and provincial and local gov - ernments, any special status, privilege or immunity in civil proceedings unless the law or a court otherwise provides. For foreign investors, the practical message is that a well-drafted arbitration clause with the gov - ernment or a state-owned entity as counterparty is, in principle, as enforceable as one between private com - mercial parties, though careful attention to enforce - ment mechanics remains essential.
Investment-treaty arbitration has also entered the Nepali conversation more concretely following Axiata Investments ( UK ) Ltd and Ncell Pvt Ltd v Nepal , a claim brought under the Nepal-UK bilateral investment treaty of 1993 and administered by the International Centre for Settlement of Investment Disputes (ICSID) under its Additional Facility Rules, with Nepal itself never having ratified the ICSID Convention. Nepal successfully defended the claim, which practitioners on both sides of the table have read as an early indi- cation of how Nepali courts and the government are likely to approach treaty-based claims arising from tax, licensing and regulatory measures affecting for - eign investors going forward. Public Procurement Disputes and the Construction Claims Backlog Away from headline hydropower and telecoms dis - putes, the steadiest source of day-to-day arbitration work in Nepal remains public construction and infra - structure contracting under the Public Procurement Act, 2063 (2007), whose Section 58 directs unresolved disputes between a procuring entity and a contrac - tor, supplier or consultant to arbitration once mutual negotiation has failed. Road, irrigation and building contracts generate a disproportionate share of this caseload. In practice, disputes in this sector tend to cluster around variations, unforeseen site conditions and delay-related claims, with matters often remaining pending for years before resolution. Two structural features of the Nepali public contract - ing market help explain this backlog. First, standard public procurement contracts in Nepal have tradition - ally been drafted in an owner-favourable form that leaves contractors with limited contractual entitle - ment to claim for many categories of loss, encourag - ing disputes over entitlement itself rather than mere quantum. Second, contractors, particularly smaller domestic firms, often have limited familiarity with their contractual rights and the procedural steps needed to preserve a claim, resulting in claims being raised late or inadequately particularised. For foreign contractors and lenders financing Nepali infrastructure, the practical lesson is to negotiate clear, time-bound claims and variation procedures at the outset, since the arbitration process itself, once
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