Alternative Dispute Resolution: Arbitration

(A Clinical Report)

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

Submitted By:
Diya Gurung
B.A.LL.B. 5th semester
Section C
TU Regis. 8-2-1012-30-2020
Roll no.: 10
2024
 Recommendation Letter

It is to notify that Ms. Diya Gurung 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 the formalities. I wish her a success in his further endeavors.
I hereby recommend the concerned authority to accept the report for its further
evaluation.

……………………..
Mr. Krishna Bhandari
Lecturer
National Law College, T.U.
Date: 2024/02/25

i
 PREFACE

In crafting this report on arbitration, we delve into a pivotal method within Alternative
Dispute Resolution (ADR), offering an alternative avenue for resolving conflicts
distinct from the traditional courtroom setting. This exploration encompasses not only
the historical foundations of arbitration but also a contemporary examination of its
principles and applications.

Our journey commences with an in-depth analysis of the origins of arbitration, tracing
its evolution through time and contextualizing its emergence as a viable dispute
resolution mechanism. As we navigate this historical trajectory, we shed light on the
fundamental principles that underpin arbitration, emphasizing the core elements that
distinguish it from other forms of ADR. Moving beyond historical perspectives, the
report extensively explores how arbitration operates in today's dynamic legal
landscape. From its prevalence in commercial disputes to its utilization in specialized
fields, we uncover the diverse applications of arbitration across various industries. By
dissecting real-world cases and outcomes, we aim to illustrate the adaptability and
efficacy of arbitration in addressing a spectrum of disputes.

Furthermore, we embark on an analysis of the advantages and limitations inherent in

arbitration. Through a nuanced examination of factors such as confidentiality, cost-
effectiveness, and the enforceability of arbitral awards, we provide a comprehensive
understanding of the intricacies associated with this dispute resolution method.

Ultimately, this report aims to demystify arbitration for a broad audience, offering
insights into its simplicity and effectiveness in achieving fair and expeditious conflict
resolution. Join me in this comprehensive exploration, where the pursuit of justice and
the facilitation of efficient dispute resolution take center stage.

-Diya Gurung

ii
 ACKNOWLEDGEMENT

This report would not have been completed without the mutual help of a number of
teachers, seniors, and parallel colleagues. I would like to express my gratitude and
appreciation to all those who gave me the possibility to complete this report.

First of all, I would like to express my heartfelt gratitude to respected subject teacher,
Assistant Professor Mr. Krishna Bhandari for providing necessary supervision to
complete this report. I would also like to thank respected principal Mr. Rastra
Bimochan Timalsena, College head, of National Law College for providing favorable
environment to learn and know about the concepts of Alternative Dispute Resolution.

I would also like to articulate my sincere gratitude to my seniors Aastha Giri, Ruby
Shrestha and others for judging and supervising me during the preparation of this
report.

Lastly, I express my utmost gratefulness for the support, supervision, and guidance
which I have received from my teachers, seniors, and authors whose writings have
been used for preparing this report.

-Diya Gurung

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 TABLE OF ABBREVIATIONS

ADR- Alternative Dispute Resolution

AAA- American Arbitration Association

ICC- International Chamber of Commerce

SIAC- Singapore International Arbitration Center

LCIA- London Court of International Arbitration

FITTA – Foreign Investment and Technology Transfer Act

NEPCA – Nepal Council of Arbitration

UNCITRAL – United Nations Commission on International Trade Law

BC- Before Christ

BAFIA- Bank and Financial Institution

NKP- Nepal Kanoon Patrika

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 LIST OF THE CASES

Raju K.C. on behalf of Nepal Airlines Corporation v. Appellate Court Patan, et.al.
NKP 2067, no. 12

Krishi Samagri Co. v Appellate Court Patan, NKP 2064, Decision no. 7905, pg. no
1558

Rajendra Man Sherchan v Appellate Court Patan, NKP 2064, Decision no. 7823, pg.
no 326

Rakesh Kumar v Ram Krishna Rawal, NKP 2066, Decision no. 8678, pg. no 272

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

Narendra Bikram Subedi v Chief District Office Rolpa, NKP 2044, pg. no 2

Food Corporation of India v. Joginder Pal, AIR 1989 SC 564

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 TABLE OF CONTENT

RECOMMENDATION LETTER.............................................................................. I

PREFACE .................................................................................................................... II

ACKNOWLEDGEMENT ........................................................................................ III

TABLE OF ABBREVIATIONS .............................................................................. IV

LIST OF THE CASES................................................................................................ V

CHAPTER I: INTRODUCTION ............................................................................... 1

Background of the Study ............................................................................................ 1
Statement of the Problem ........................................................................................... 2
1.2 Objectives of the Problem .................................................................................... 2
1.3 Scope of the Study ................................................................................................ 3
1.4 Importance of the Study........................................................................................ 3
1.5 Limitations of the Study ........................................................................................ 3
1.6 Research Methodology ......................................................................................... 4
1.7 Literature Review ................................................................................................. 4
1.8 Organization of the Study ..................................................................................... 5

CHAPTER II: CONCEPTUAL FRAMEWORK OF ADR..................................... 6

2.1 Concept of ADR .................................................................................................... 6
2.2 History of ADR ..................................................................................................... 7
2.3 Types of ADR ........................................................................................................ 9
2.4 Characteristics of ADR ...................................................................................... 13
2.5 Importance of ADR............................................................................................. 16
2.6 Limitations of ADR ............................................................................................. 17

CHAPTER III: AN INTRODUCTION TO ARBITRATION ............................... 19

3.1 Concept of Arbitration ....................................................................................... 19
3.2 Characteristics of Arbitration ............................................................................ 21
3.3 Types of Arbitration ........................................................................................... 22

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 3.4 Advantages of Arbitration .................................................................................. 23
3.5 Disadvantages of Arbitration ............................................................................. 24

CHAPTER IV: ARBITRATION AND ITS PROCESS ......................................... 26

4.1 Proceedings of Arbitration ................................................................................. 26
The phases that comprise the arbitration procedure are outlined here, starting with
the initial agreement and ending with enforcement and appeals............................. 26
4.2 Stages of Arbitration .......................................................................................... 28
4.3 Award and its Recognition and Enforcement ..................................................... 29
4.4 Types of Awards ................................................................................................. 31
4.5 Recognition and Enforcement of Awards ........................................................... 32

CHAPTER V: ARBITRATION PRACTICE IN NEPAL ..................................... 34

5.1 Historical Background of Arbitration in Nepal ................................................. 34
5.2 Nepalese Laws on Arbitration ............................................................................ 36
5.3 Case laws on Arbitration ................................................................................... 42

CHAPTER-6: FINDINGS, RECOMMENDATION, SUGGESTION AND

CONCLUSION .......................................................................................................... 44
6.1 Findings.............................................................................................................. 44
6.2 Recommendations............................................................................................... 45
6.3 Conclusion.......................................................................................................... 46
Bibliography ........................................................................................................... 47

vii
 CHAPTER I: INTRODUCTION
Background of the Study
Arbitration is a leading method for resolving disputes arising from international
commercial agreements and other international relationships. As
with arbitration generally, international arbitration is a creation of contract, i.e., the
parties' decision to submit disputes to binding resolution by one or
more arbitrators selected by or on behalf of the parties and applying adjudicatory
procedures, usually by including a provision for the arbitration of future disputes in
their contract.1The practice of international arbitration has developed so as to allow
parties from different legal and cultural backgrounds to resolve their disputes,
generally without the formalities of their respective legal systems. International
arbitration has enjoyed growing popularity with business and other users over the past
50 years.2 There are a number of reasons that parties elect to have their international
disputes resolved through arbitration. These include the desire to avoid the
uncertainties and local practices associated with litigation in national courts, the desire
to obtain a quicker, more efficient decision, the relative enforceability of arbitration
agreements and arbitral awards (as contrasted with forum selection clauses and
national court judgments), the commercial expertise of arbitrators, the parties'
freedom to select and design the arbitral procedures, confidentiality and other
benefits.

For international commercial transactions, parties may face many different choices
when it comes to including a mechanism for resolving disputes arising under their
contract. If they are silent, they will be subject to the courts of wherever a disaffected
party decides to initiate legal proceedings and believes it can obtain jurisdiction over
the other party. This may not sit well with parties that need to know at the time of
entering into their contract that their contractual rights will be enforced. The
alternative to silence is to specify a method of binding dispute resolution, which can
be either litigation before the domestic tribunal of one of the parties or arbitration. If

1
Gary B. Born, International Commercial Arbitration, 2009, pp 11-14.

2
Julian M. Lew, Loukas A. Mistelis & Stefan M. Kröll, Comparative International Commercial Arbitration,2003, pp 1-
10 .

1
the parties choose to resolve their disputes in the courts, however, they may encounter
difficulties.3

The first is that they may be confined to choosing one or the others' courts, as the
courts of a third country may decline the invitation to devote their resources to
deciding a dispute that does not involve any of that country's citizens, companies, or
national interests. An exception to that rule is New York State, which will not
entertain a forum non convenience motion when the dispute concerns a contract that
is worth one million dollars or more and in which the parties included a choice-of-law
clause calling for application of New York law. 4 The second, and perhaps more
significant difficulty, is that judicial decisions are not very "portable" in that it is
difficult and sometimes impossible to enforce a court decision in a country other than
the one in which it was rendered.

Statement of the Problem

The report deals with “Basic concept of Arbitration, its proceeding in Nepal”. The
study is based on case law rendered by arbitrator and related provision enshrined in
convention and acts. However due to the complicity of the issue, an attempt has been
made to dig out the prospect and challenges of provision from remedial perspective.
Therefore following statement of problem has been detected.5

 Are the provisions related to the proceedings of Arbitration in Nepal

thoroughly followed in a judicial hearing or during an arbitral award?
 Has Nepal shown its commitment towards obtaining the goal of arbitration in
Nepal?
 Are the available national legal instruments related to ADR and arbitration
sufficient?

1.2 Objectives of the Problem

The primary objective of this study is to delve into arbitration practice as an
alternative to dispute resolution in Nepal. The Arbitration Act, rules and statutes has
been explored to inspect the practice of arbitration. In addition to partial fulfillment of
B.A.LL.B, the study has following objectives:

3
Sachs Klaus, "CMS Guide to Arbitration: Foreword".( Accessed date: 18th Jan, 2024)
4
"Guide to Arbitration in New York". CMS Legal Retrieved May 8 2012.
5
Arbitration law ,Nayadoot,Nepal Bar Association.No.141,English special issue,2004,pp10-11.

2
 1. To get acquainted with the provisions of arbitration.
2. To analyze the goal of judiciary in regulating arbitration practices in Nepal.
3. To point out the inadequacies and vagueness of arbitration laws.

1.3 Scope of the Study

There has been a comparable increase in the number of litigations as the number of
personal disputes and conflicts between people has increased. In light of this, this
paper examines the role of alternative dispute resolution (ADR) in resolving such
issues quickly without resorting to the courts. To that aim, the research will look at
current ADR methods, with a focus on arbitration. Over a period of time, it was
followed all over the world. The study's scope is limited to alternative dispute
resolution (ADR) processes and does not cover formal adjudicative procedures. The
study examines the scant literatures on ADR and arbitration principles and practices
that are currently available. The research also includes an examination of jurists' and
writers' viewpoints on Nepalese arbitration procedures. As a result, the study's scope
is limited to ADR activities, with a particular focus on arbitration methods and their
implementation in Nepal.

1.4 Importance of the Study

The major goal of this research is to examine how ADR approaches are used to
resolve conflicts. The development of a positive relationship between the use of ADR
and the rate at which conflicts are resolved may lead to evidence of the rising
efficiency of ADR processes, which would benefit society. It can help the group as a
whole. This research not only looks at ancient literatures, but it also contributes to the
field. The importance of ADR processes would be realized by the society or interested
stakeholders as a result of this research. Consequently, the community will be
encouraged to promote the use of alternative dispute resolution mechanisms at the
grassroots level. Anyone interested in learning more about this topic might use this
report as a resource. Based on the outcomes of this study, future scholars may
investigate new ideas and concepts.

1.5 Limitations of the Study

This report is limited to a comparative and critical analysis of arbitration in Nepal by
illuminating the Arbitration Act. To interpret, support and suggest our practice foreign
and international and case laws are applied but in limited number. The report prepared

3
is based upon the guidelines issued by the B.A.LL.B. Administration and framework
provided by the lecturer.

1.6 Research Methodology

This research is based on doctrinal method of study. Researcher had presented more
descriptive as well as analytical research design. The primary and secondary both
sources have been used as per the necessity. Information has collected from different
articles, books, seminar papers, law journals, especially from Nepal law campus
library some reports of NEPCA Nepal have also been reviewed.6 And websites are
searched. Uniform rule of citation has been adopted by the researcher. This study is
based on the doctrinal method of scientific research. Hence the research methods of
field survey and primary empirical data gathering are not applied. Rather, it is
textually driven and the main research materials are derived from published books,
articles, newspapers, expert opinions and judicial decisions are also discussed here to
bring the alternative view and opinion

1.7 Literature Review

The aim of this research is to analyze the Nepalese situation about the participation
and contribution of the Judiciary in the different phases of arbitration system, mainly
the literatures published about Nepalese context are reviewed, which are mentioned
below:

 Bharat Raj Upreti's a renowned jurist on commercial matters wrote a article in

Nepali language that "Arbitration Act, 1999 and Questions it Raised' published in
Nyayadoot, No. 111 (2056 BS). In the article the author has commented on the
conceptual dilemma appeared in Supreme Court in arbitration cases. He has also
referred to the delay in court on arbitration cases.

 Concept of Arbitration and application by Biswadeep Adhikari(2055)

This book deals with the guidelines for the ADR, how the disputes of different
sectors are to be solved. Court is a formal institution and arbitration is the
informal justice system.

 Law of Arbitration in Nepal, SR Acharya , Nepal Journals Online(2022)

6
Section 3 of Arbitration Act 1999

4
 Arbitration Law in Nepal by Birendra Raj Pokhrel.

This book provides a comprehensive overview of the arbitration landscape in

Nepal, including relevant legal provision, procedural aspects and practical guides
for parties involved in arbitration

 Law relating to Arbitration and Conciliation (4th edition), NV Paranjape

 Arbitration Review by Kluwer Law International
This journal regularly publishes articles and book reviews on arbitration from a
global perspective
 Recognition and Enforcement of Foreign Arbitral Award Under National and
International, Dr. DN Parajuli, Nepal Bar Council Journal (2017)
 Prof. Dr. Bharat Bahadur Karki, on „A Comparative Analysis of Some of the
Important Rules of Commercial Arbitration in existence‟ has comparatively
analyzed various arbitration rules, such as UNCITRAL Rules, ICC Rules, LCIA
Rules, ICSID Rules, Arbitration Act,1999 of Nepal and NEPCA Rules.
 Arbitration Law and Practice in Nepal by Bishnu Bahadur Basnet
This book examines the theoretical and practical aspects of arbitration in
Nepal, with a focus on recent developments and case studies.
 Bed Prasad Uprety, Evolution of Commercial Arbitration in Nepal: Issue and
Challenges, NJA (2008) is consulted for the knowledge of the historical
development of arbitration in Nepal under different laws and challenges of
commercial arbitration in the changing context.

1.8 Organization of the Study

The research report is divided into Six Chapters each having varying number of sub-
chapters. Chapter One (Introduction) has 9 sub-chapters.

Chapter Two (Conceptual Framework of ADR) has 6 sub-chapters.

Chapter Three (An Introduction to Arbitration) has 6 sub-chapters.

Chapter Four (Arbitration and its Process) has 4 sub-chapters.

Chapter Five (Arbitration Practice in Nepal) has 3 sub-chapters.

Chapter Six (Findings, Recommendations, and Conclusions) has 3 sub-chapte

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 CHAPTER II: CONCEPTUAL FRAMEWORK OF ADR
2.1 Concept of ADR
Alternative dispute resolution (ADR) is a means of addressing and settling parties
disputes outside of court‟s traditional adversarial setting. Today, alternative out-of-
court mechanisms for settling disputes are so effective that courts often require parties
to pursue these alternatives before litigating. Any method of resolving disputes other
than by litigation abbreviated as ADR. ADR typically includes early neutral
evaluation, negotiation, conciliation, mediation, and arbitration. It is a collective term
for the ways that parties can settle disputes, with the help of a third party.

Duhaime‟s Law Dictionary defines; 'ADR' as methods by which legal conflicts and
disputes are resolved privately and other than through litigation in the public courts,
usually through one of two forms: mediation or arbitration.
It typically involves a process much less formal than the traditional court process
and includes the appointment of a third party to preside over a hearing between the
parties. This differs from other form of ADR in which the parties themselves are part
of the decision making mechanism and the neutral third party‟s involvement is of a
faclitative nature, for e.g., mediation, conciliation, neutral evaluation, non-binding
opinion arbitration.7
Arbitration, one of the forms of ADR is a leading method for resolving disputes
arising from international commercial agreements and other international
relationships. As with arbitration generally, international arbitration is a creation
of contract, i.e., the parties' decision to submit disputes to binding resolution by one or
more arbitrators selected by or on behalf of the parties and applying adjudicatory
procedures, usually by including a provision for the arbitration of future disputes in
their contract.8The practice of international arbitration has developed so as to allow
parties from different legal and cultural backgrounds to resolve their disputes,
generally without the formalities of their respective legal systems. International
arbitration has enjoyed growing popularity with business and other users over the past
50 years.9 There are a number of reasons that parties elect to have their international

7
www.duhaime.org/legal dictionary/category/ADR law dictionary.aspx
8
Gary B. Born, International Commercial Arbitration, 2009, pp 11-14.

9
Julian M. Lew, Loukas A. Mistelis & Stefan M. Kröll, Comparative International Commercial Arbitration,2003, pp 1-
10 .

6
disputes resolved through arbitration. These include the desire to avoid the
uncertainties and local practices associated with litigation in national courts, the desire
to obtain a quicker, more efficient decision, the relative enforceability of arbitration
agreements and arbitral awards (as contrasted with forum selection clauses and
national court judgments), the commercial expertise of arbitrators, the parties'
freedom to select and design the arbitral procedures, confidentiality and other
benefits.

2.2 History of ADR

The firm Arbitration Act (a form of ADR) Act was passed in 1698 under William III.
This was an Act for rendering the award of arbitrators more effectual in all cases for
the final determination of controversies referred to them by merchants and traders. In
1854, Common Law Procedure Act expressly empowered courts to remit an award for
reconsideration by the arbitrators. It empowered courts to stay (stop) an action in
court if the parties had agreed to take the dispute to arbitration.

The history of ADR can be traced back to Ancient Greeks. There is a mythology
regarding the practice of Arbitration. The goddesses Juno,Athena, and Aphrodite were
squabbling over who was the most beautiful and called on Paris, the royal shepherd,
to decide. Paris, it seems, was not above accepting a bribe from Aphrodite, who thus
won the contest. But Juno, wife and sister of Jupiter, was not one to forgive and
forget. She was so furious at Paris that she unleashed a host of plagues on Troy.10
Thus, one of the classics of western literature, Virgil‟s The Aeneid, can be read as
along mediation on the evils wrought by an arbitration gone awry.` Arbitration was
not only limited in Ancient Greeks but it was also practiced in other places. For
instances, India used to follow Arbitration twenty five hundred years ago. The
arbitrator, called a Panch, was given such high status that his decisions were
irreversible. All types of cases could be subject to arbitration, including criminal
matters.

This practice of arbitration was so strong that it continued even during the eight
hundred years of Muslim rule in India.11the old Irish Brehon law system, a body of

10
CHATTERJEE CHARLES, LEFCOVITCHANNA, ALTERNATIVE DISPUTE RESOLUTION, A PRACTICAL
GUIDE,110
(2008).
11
JEROME T. BARRETT AND JOSHEP BARRETT, HISTORY OF ADR, 2004

7
indigenous law that existed in Ireland from the Celtic settlement before Christ also
used to practice Arbitration and other alternative methods. A brithem who had trained
in law but not appointed by King was called as arbitrator.

China embraced Mediation quite early because of its conservative opinions about the
resolution of disputes, which have originated from Confucius ethics. Confucius told
that harmony should not be disrupted and adversarial proceedings were the antithesis
of harmony. Given the emphasis on harmony, Chinese mediators have played quite a
far-reaching role. Chinese mediators do more than solving and settling disputes, they
also guide the parties on how to have a more harmonious relationship in the future.
Hawaiian Highlanders of Polynesian ancestry used their own traditional system for an
amicable resolution of disputes. It involved a family‟s coming together to discuss
interpersonal problems under the guidance of a leader. The leader of the session is a
person both sides revere and therefore, leads the session and has the role of a
mediator. After hearing out both sides and attempting to get at the crux of the matter,
the leader works to bring out a solution.

History of ADR in Nepal

The practice of ADR in Nepal has long history behind it. Mostly, Arbitration and
Mediation are the methods of dispute resolution which were practiced in ancient
Nepal which are still continuing but in an advanced form. Muluki Ain 2020,
Development Board Act, 2013 B.S. , Local self governance Act 2055 B.S., Nepal
petroleum Act, 2040 B.S., Foreign Investment and Technology Transfer Act 2049
B.S. Labour Act 2048 B.S., Contract Act 2056 B.S., Banks and Financial Institutions
Act, 2063 B.S. are also come into force to address ADR.

Though we get a portrayal of Arbitration and Mediation when we hear the term ADR,
practice of Panchayat, Community Mediation, Gathering of Family Council, etc were
the terms used for the ADR methods.

 Panchayat: Panchayat were/are usually prevalent in rural areas. It is a place

where the chosen people from the area gather to hear the matter of two
parties and try to settle them amicably.
 Gathering or Family Council: In case of a dispute arising in a family, the

8
 elders of the family intervene by hearing the matter and then providing a
solution to disputes.
 Community Mediation
The village elders and elected representative used to resolve disputes at
local level.
However, the traditional practice of ADR in Nepal appears informal and
coercive, rather than private and consensual. The solution of disputes was
imposition community sanctions like denying the culprit in community
functions. Modern method of ADR started after adoption of Development
Committee Act, 2013. This Act gave legal recognition to ADR in Nepal.

• Arbitration Act , 2038

• Arbitration Act , 2055

This Act replaces Arbitration Act, 2038. Section 2(a) of this act defines the term
agreement as written one reached between parties of dispute to settle issues arises or
will arise in future.

2.3 Types of ADR

In the ever-evolving landscape of dispute resolution, the significance of alternatives to
conventional legal processes cannot be overstated. This report embarks on an
insightful journey into the realm of Alternative Dispute Resolution (ADR), examining
the diverse methodologies designed to steer away from traditional adversarial
approaches. As we navigate through the intricacies of ADR, a comprehensive
understanding of its types will unfold, illuminating the pathways that lead to effective
and harmonious conflict resolution. Basically there are four types of ADR namely;
Arbitration, Negotiation, Mediation and Conciliation. However, some other types
maybe found in different areas depending upon the laws, jurisdiction and practices of
those particular areas. Here are some common types of ADR:

a) Negotiation

Negotiation is most common among the dispute resolution processes. People

negotiate every day without knowing what they are doing. Basically, negotiation is a
'bargaining process' between the parties. In negotiation, parties discuss their matters of
conflict with a view to narrow down differences and reaching an agreement.

9
Mainly, there are two types of negotiation; positional and interest-based. Positional
negotiation is 'Win-Lose' result oriented. The purpose of this approach is: to win, to
increase gain, to refuse reciprocity, to give as little as possible to the other side and to
settle the dispute slightly below the primary demand. On the contrary, interest-based
approach is directed to achieve a 'Win-Win' result. Specific forms of negotiation are
used in many situations: International affairs, the legal system, government, industrial
disputes or domestic relationships as examples. However, general negotiation skills
can be learned and applied in a wide range of activities. Negotiation skills can be of
great benefit in resolving any differences that arise between you and others.

In order to achieve a desirable outcome, it may be useful to follow a structured

approach to negotiation. For example, in a work situation a meeting may need to be
arranged in which all parties involved can come together.

b) Arbitration

'Arbitration means "settling a dispute between parties by referring it to an arbitrator

instead of going to a court." Arbitration is a privatized system of dispute resolution.12
Arbitration in the legal sense is done after conflicting parties refer the issue to one or
more persons with or without an umpire and the award is enforceable by the sovereign
power.13 Nepalese Arbitration Act, 1999 defines the term agreement in sec 2(a) of the
Act. It defines the term agreement as "a written agreement reached between parties by
arbitration of a dispute which has arisen at that time or which may arise in future in
respect of a defined-legal relationship, whether contractual or not."14

Arbitration is essentially a consensual process, the parties in dispute agreeing to refer

that dispute to an independent third party for adjudication on the basis of evidence and
arguments to be represented to him and that adjudication shall be binding upon them.
The arbitrator's decision thus acquires its binding force from the parties' agreement.
Arbitration is regarded as way more advantageous than that of the litigation. As
professor Schmitt Hoff observed: In International disputes the parties are sometimes
disinclined to go to the national courts. They prefer their dispute to be settled by

12
Encyclopedia Britannica 110, (Encyclopedia Britannica INC 1968).
13
S.B. MALIK, PRINCIPLE OF DIGEST OF ARBITRATION LAW 1, (Allahabad: University Book Agency)
(1998).
14
Nepalese Arbitration Act, Sec.2 (1) (1999).

10
persons with an international outlook.15 If the dispute cannot be settled in the manner
as referred to in conciliation, it shall be settled by the Arbitration Rules of the
UNICITRAL.16 Arbitration can be called as a referral of matters of difference/dispute
between the parties to an arbitrator. Here, the dispute is referred to one or more
persons other than the court. The arbitration tribunal should act judicially in rendering
the decisions.

c) Conciliation

Conciliation is the oldest and most traditional method of settling disputes.

Conciliation is a very much popular, useful and less burdensome alternative to court
adjudication with intent to search for a prompt, more effective and participatory
procedure. This has specific relevance in corporate issues. It is the process of
adjusting or settling disputes in a friendly manner through extra-judicial means. It
means bringing two opposing sides together to reach a compromise in an attempt to
avoid taking a case to trial.

Conciliation is a process of dispute resolution before the arbitration process. Under

this process, a third party selected by the disputant renders a decision after hearing
and collecting evidence from both parties. Hence, conciliation is a process in which
parties appoint a conciliator and the conciliator formulates a possible settlement and
submits it to the parties for their observation. Conciliation is the most important part
of ADR in settling both national and international disputes. Its popularity has
increased with the liberalization of economics, globalization and privatization. The
United Nations Commission for International Trade Law (UNICITRAL) adopted a set
of conciliation Rules in 1980. The UN General Assembly has recommended using
these rules in international commercial relations so as to seek amicable settlement of
disputes.

We have no separate Conciliation Act despite the fact that we have various legal
provisions in its scattered form such as the Nepalese Labor Act, 1992. The "Foreign
Investment and Technology Transfer Act (FITTA), 1992" has some of the most
important provisions on commercial disputes.

15
SCHMITTOFF, WHY ARBITRATION IS THE FAVORED METHOD OF DISPUTE SETTLEMENT, (Financial
Times) (1985).
16
Nepalese Foreign investment and Technology Transfer Act, sec.7 (1) (1992).

11
d) Mediation

The term Mediation is derived from the Latin term 'Medious' which was later called
as 'Mediare' which later form into the English term 'Mediate' which means "In the
middle". In Roman History, Mediator was addressed by various terms like:
Internuncios, Intercessor, Interpolator, Interlocutor, Medium, Philantropus,
Conciliator, Interpres etc. Later, it was called as "Mediator".

Mediation is the most popular form of dispute resolution around the world. According
to Claudia Kappacher, in China around 90% of disputes are resolved through
mediation. It is cheaper than others. Biggest American Companies like TOYOTA and
MOTOROLA even follow the process of mediation for resolving disputes in order to
save unnecessary expenses of litigation.

It can be broadly defined as the neutral third party assisted dispute resolution process
in which the conflicting parties are supreme. The third party or mediators have only
those powers that the parties confer on them. They do not advise or dictate their views
to the parties. Their role is to act as a catalyst to improve the process of decision
making and to assist the parties to obtain an agreed outcome. Mediation is a flexible
process however some "Standard mediation Process" has been developed. In the pre-
mediation step all preparatory activities between the mediator and the parties in
conflict are managed. This primary store also greatly differs in accordance with the
nature of the dispute and the scheme of mediation.

After the Pre-mediation stage, the actual mediation process begins. There are four
sub-stages to be followed in this stage. They are: Introduction of the mediator,
understanding of the matters involved in the conflict, identification of issues and
finding alternatives for settlement and agreement. In the meeting, the mediator firstly
explains the method to be followed during the whole process. He may also explain his
facilitative and neutral role and some basic regulatory rules for the meeting. After
that, the parties present their case to each other. During the case presentation,
interruption is not allowed but the mediator may question and clarify what the parties
want to say exactly. In the next step, agendas of discussion are prepared in order of
importance. Through the decision, reciprocal interests are identified and options of
solution produced. Lastly, the parties have to think about the best alternative to a
negotiated agreement.

12
Besides the above mentioned two main stages of mediation, a third stage can also be
added, i.e. 'post mediation activities'. It includes Ratification and review, official
sanction, referrals and reporting, mediator debriefing and other follow-up activities
should be conducted in this stage.17 Mediation doesn‟t involve decision making by the
neutral third party. Mediation is generally a short-term, structured, task-oriented, and
"hands-on" process.18

e) Med-Arb

Med-arb, a combination of mediation and arbitration is a short-hand reference to the

mediation-arbitration procedure. In med-arb procedure, the parties to a dispute
mutually agree to mediate the dispute with an undertaking that, if the issues are not
settled through the mediation then they will resolve the dispute by arbitration. Med-
arb is a mixture of mediation and arbitration that pulls from the benefits of the two. In
Med-Arb, the parties try to resolve their differences through mediation. However, if
mediation fails to resolve some or all areas of the dispute, the remaining issues are
automatically submitted to binding arbitration.

f) Early Neutral Evaluation

An early neutral evaluation (ENE) is used when one or both parties to a dispute seek
the advice of an experienced individual, usually an attorney, concerning the strength
of their cases. An objective evaluation by a knowledgeable outsider can at least
provide them with more insight into their cases strengths and weaknesses. Of course,
the success of this technique depends upon the parties' faith in the fairness and
objectivity of the neutral third-party and their willingness to compromise.

g) Fact-finding

It is related with " labour management dispute". The fact-finding Board has power to
present report after research works. Without the presentation of report by Fact-
Finding Board, nobody can lock-out and Strike. After heavy research, the Board will
flash-out the decision. The parties have right to accept that decision or not as well.

2.4 Characteristics of ADR

Even though all forms of ADR processes follow different nature and procedure, they

17
Ramesh Karkee ,Alternative Dispute Resolution (ADR): An Overview, at 36-42.
18
What is mediation, (Nov 15,2018, 10:00PM), http://adr.findlaw.com/mediation.

13
are similar to some extent. Such common feature of ADR processes are as follows:

1. Voluntary Participation

A hallmark of ADR is its voluntary nature, wherein parties engage willingly to seek
resolution. This fosters a sense of ownership over the process, often leading to more
cooperative and mutually agreeable outcomes. The absence of coercion allows for a
more collaborative atmosphere, conducive to constructive dialogue.

2. Informality

ADR processes, in contrast to formal court proceedings, are characterized by their

informal structure. This promotes open communication and a less intimidating
environment for disputing parties. The relaxed setting encourages individuals to
express their concerns openly, facilitating a deeper understanding of each party's
perspective.

3. Neutrality of the Third Party

Central to many ADR methods is the involvement of a neutral third party, such as a
mediator or arbitrator. This impartial figure facilitates discussions, ensuring a
balanced exploration of issues. Neutrality is crucial for building trust and confidence
among disputing parties, as they perceive the resolution process as fair and unbiased.

4. Confidentiality

ADR often operates under a veil of confidentiality, safeguarding the privacy of the
parties involved. This confidentiality encourages openness by assuring participants
that sensitive information disclosed during the process will not be divulged publicly.
This feature contributes to a more candid exchange of information, fostering a
conducive environment for resolving disputes.

5. Flexibility

One of the strengths of ADR lies in its adaptability to diverse situations. The
flexibility of ADR processes allows parties to tailor the resolution mechanism to their
specific needs and circumstances. This versatility is especially beneficial in complex
disputes where a rigid approach may not be suitable, enabling a more customized and
effective resolution strategy.

14
6. Cost-Effectiveness

ADR is often a more cost-effective option compared to traditional litigation. The

streamlined processes, reduced formalities, and quicker resolutions contribute to
lower overall costs. This financial efficiency makes ADR particularly attractive to
individuals and businesses seeking a pragmatic and economical approach to
dispute resolution.

7. Speedier Resolution

ADR is renowned for its ability to provide swift resolutions compared to the often
lengthy court processes. The efficient timeline can be crucial, especially in situations
where a prompt resolution is essential, such as in business or family disputes. This
expeditious nature contributes to minimizing the impact of prolonged uncertainty on
the involved parties.

8. Preservation of Relationships

Unlike adversarial court battles that can strain relationships, ADR mechanisms
emphasize preserving the ongoing or future interactions between disputing parties.
The collaborative nature and focus on mutual agreement often lead to outcomes that
are more conducive to maintaining amicable connections, vital in scenarios where
ongoing relationships are integral.

9. Empowerment of Parties

ADR empowers the parties involved by allowing them greater control over the
resolution process. The active participation of individuals in crafting solutions
enhances their sense of agency and satisfaction with the final outcome. This
empowerment fosters a more sustainable resolution, as parties are more likely to
adhere to agreements they have played a role in shaping.

10. Customized Solutions

ADR methods provide the flexibility to tailor solutions to the unique nuances of each
dispute. Parties can collaboratively design resolutions that go beyond legal remedies,
addressing specific concerns and needs. This customization ensures that the outcomes
are not only legally sound but also align with the practical and personal considerations
of the involved parties.

15
11. Global Applicability

ADR transcends geographical boundaries and legal systems, making it a versatile

option for resolving international disputes. The adaptability of ADR to diverse
cultural and legal contexts enhances its applicability on a global scale, offering a
common ground for resolving conflicts irrespective of the parties' backgrounds or
locations.

12. Educative Element

ADR processes often include an educative element, where parties gain a deeper
understanding of the underlying issues and potential solutions. This educational
aspect contributes to long-term conflict prevention by equipping individuals with
skills to handle disputes more effectively in the future, fostering a culture of proactive
conflict management.

2.5 Importance of ADR

Alternative Dispute Resolution (ADR) holds paramount significance in contemporary
legal landscapes, offering a range of advantages that contribute to efficient and
effective conflict resolution. These advantages underscore ADR's pivotal role in
alleviating the burden on traditional court systems while promoting more
collaborative and tailored solutions.

1. Reducing Court Backlogs

ADR mechanisms, such as mediation and arbitration, alleviate the strain on court
systems by providing alternative avenues for dispute resolution. This is particularly
crucial in jurisdictions grappling with extensive court backlogs.19

2. Cost-Effectiveness

ADR often proves more cost-effective than protracted litigation. The streamlined
processes and reduced formalities contribute to lower overall costs, making ADR an
attractive option for individuals and businesses seeking economic and pragmatic
resolutions.20

19
Smith, 2018
20
Jones, L., et al. (2020). "The Economics of Alternative Dispute Resolution." Oxford Research
Encyclopedia of Communication. DOI: 10.1093/acrefore/9780190228613.013.863

16
3. Preserving Relationships

The emphasis on collaboration and mutual agreement in ADR helps preserve

relationships that may be strained through adversarial court proceedings. This is
especially vital in family or business disputes where ongoing relationships are
integral.21

4. Timeliness

ADR offers expedited resolutions compared to the often lengthy court processes. The
efficient timeline is essential in scenarios where a prompt resolution is critical, such as
commercial transactions or contractual disputes.22

5. Empowerment of Parties

ADR empowers parties by providing them with greater control over the resolution
process. Active participation enhances their sense of agency and satisfaction with the
final outcome, contributing to more sustainable resolutions.23

6. Global Applicability

ADR's flexibility and adaptability transcend borders, making it a versatile option for
resolving international disputes. Its applicability on a global scale provides a common
ground for parties from diverse backgrounds or legal systems.24

In conclusion, the importance of ADR lies not only in its ability to offer efficient and
customized resolutions but also in its capacity to address systemic challenges within
traditional legal frameworks.

2.6 Limitations of ADR

21
Brown, A., & Miller, R. (2019). "Alternative Dispute Resolution: A Comprehensive Guide." Palgrave
Macmillan.
22
Johnson, P. (2017). "ADR in Practice: The Importance of Alternative Dispute Resolution in Today's
Legal Landscape." Journal of Dispute Resolution, 38(2), 245-260.
23
Garcia, M. (2021). "Empowering Dispute Resolution: The Role of Alternative Dispute Resolution in
Promoting Access to Justice." Harvard Negotiation Law Review, 26(1), 112-134.
24
International Mediation Institute. (2022). "Global Pound Conference Report." Retrieved from
https://www.imimediation.org/global-pound-conference-report/

17
While ADR can offer quicker and less formal ways to resolve disputes compared to
traditional litigation, it has some limitations too such as:

1. Enforceability Concerns

Decisions reached through ADR may not always have the same enforceability as
court judgments.

2. Lack of Formal Legal Procedures

ADR processes often lack the structured legal procedures and protections found in
traditional litigation.

3. Potential for Imbalance of Power

There might be an imbalance of power between parties, especially if one is more

experienced or has greater resources.

4. Dependence on the Skill of Mediators/Arbitrators

The effectiveness of ADR heavily relies on the skills and neutrality of the mediator or
arbitrator involved.

5. Limited Discovery Process

ADR may have limited discovery processes, meaning parties may not have access to
as much information as in a court setting.

6. Limited Precedent Value

ADR decisions may not create legal precedents, reducing their impact on future
cases.

7. Potential for Coercion or Unequal Bargaining

Coercion or unequal bargaining power might affect the fairness of settlements or

awards.

8. Limited Appeal Options

Opportunities for appeal in ADR are often more restricted compared to traditional
litigation.

18
CHAPTER III: AN INTRODUCTION TO ARBITRATION
3.1 Concept of Arbitration
As a means of resolving disputes, arbitration has been employed in England and
elsewhere for centuries. The need of a definition has always been subsidiary to its
purpose although attempts have been made at a definition. 25 Arbitration is a term
derived from the nomenclature of the Roman law. It is applied to an arrangement for
taking, and abiding by the judgment of a selected person in same disputed matter
instead of carrying it to the established courts of justice. 26Arbitration, in the law, is a
form of alternative disputes resolution-specifically, a legal alternative to litigation
whereby the parties to a dispute agree to submit their respective positions to a neutral
third party for resolution.27

According to the Black Law Dictionary, Arbitration is a process of dispute resolution

involving one or more neutral third parties renders a decision after hearing at which
both parties have an opportunity to be heard.28

Arbitration is defined by the International Law commission (ILC) as "a procedure for
the settlement of disputes between states by a binding award on the basis of law and
as a result of an undertaking voluntarily accepted.29

To sum up, Arbitration is a dispute resolution process where parties submit their
disagreements to a neutral third party, the arbitrator, who makes a binding decision,
concluding the dispute outside of traditional court proceedings.

3.2 Historical Background of Arbitration

Arbitration can be traced back to the system of „Panchayat‟ in Nepal long before the
codified judicial system developed. Panchayat was an informal tribunal of five

25
David St John Sutton, John Kendell & Judith Gill, Russell on Arbitration, (21 edition) Sweet and
Maxwell, London, 1997, 4
26
S. K. Roy Chowdhury and H. K. Saharay, Law of Arbitration and Conciliation (4th edition). Eastern
Law House, Calcutta, New Delhi, 1996, 3
27
M. A. Mannan, Dispute Resolution through Arbitration, Business Law Journal, Nepal, Quarterly, Vol.
8, 2005, Commercial Law Society Nepal Kathmandu (COLAS), Shangrila Printing Press, Babar Mahal
Kathmandu, 10
28
Bryan A. Garner, Black's Law Dictionary, (9th edition), West Publishing Company, United States of
America, 2009
29
Timothy Hillier, Public International Law (Lecture Note Series), (1st edition), Cavendish Publishing
Limited, U.K., 1994, 250

19
gentlemen chosen from among the villagers to render an impartial decision in the
settlement of disputes between the members of villages. 30 Since early times the
decisions of Panchayats were acceptable and binding on the parties. Panchayat as
private tribunal was a different system of arbitration and was subordinate to a regular
court of law. In the Lichhavi era, the Panchali which was also known as Pancha Sava,
was empowered to decide disputes at the local level. This form of dispute settlement
mechanism that was practiced for a long period should be considered as the
foundation of the concept of arbitration in Nepal‟s context, but not the same as the
modern notion of arbitration.31

In Nepal, the concept of arbitration in its modern sense was first found in government
contracts. The history of the modern notion of arbitration in Nepal is brief. Before the
enactment of general legislation on arbitration in 1981, statutory provisions of
arbitration were found in a scattered form in different legislation with different
purposes. 32Such a provision first appeared in section 9 of the current Development
Board Act 1957 which provided for the resolution of a dispute under a contract to
which the Board is a party.11 This type of arbitration is termed compulsory
arbitration. Therefore parties are forced to follow the rules set out in the statute. 33The
objective behind introducing such an arbitral process may be looked at in the context
of inviting foreign capital and technology for economic enhancement and fostering
development plans and industrialization in the country.
The Arbitration Act of 1981 was superseded by the Arbitration Act of 1999 and is the
prevailing general law on arbitration. Furthermore, it was made in line with the
UNCITRAL Model law. On the basis of this new act, the Supreme Court of Nepal has
promulgated Arbitration (Court Procedure) Rules, 2002 relating to court procedure in

30
Dr. Bharat B. Karki, UNCITRAL Model Law on International Commercial
Arbitration; (1985) and Nepalese Arbitration Law, 15 NEPCA HALF YEARLY
BULLETIN 8 (2061).

31
Ibid
32
Ibid
33
Ibid

20
order to promote arbitration in Nepal. 34Despite the above legal framework promoting
and facilitating arbitration in Nepal, there are still many remaining challenges.

3.2 Characteristics of Arbitration

While arbitration sometimes mirrors the court room process, there are a number of
distinguishing features that often persuade parties to choose arbitration as opposed to
court litigation for the resolution of their dispute. These include:

A. Flexibility: Due to its consensual nature, parties are able to agree to the
processes that they want to apply to their arbitration. These agreed processes
will usually be contained in that arbitration agreement or in a set of tools
which the parties agree to apply in the course of arbitration or will be agreed
between the parties on an ad hoc basis during the course of arbitration.
Accordingly, arbitration provides the parties with the flexibility to apply
processes which are tailor made for their dispute.
B. Enforceability: Arbitration awards are more widely and readily enforceable
than court judgment primarily as a result of the 1958 New York convention a
multilateral treaty for the enforcement of arbitral awards to his over which
over 150 states are party.
C. Party autonomy: The parties to an arbitration can shape their dispute
resolution process by for example selecting the governing law, the place of
arbitration, many aspects of the arbitral procedure and of course arbitrators
whom they believe will ensure a fair hearing of their case.
D. Neutral Forum: A party will often prefer not to submit to the jurisdiction of
another party‟s national courts. International arbitration can provide a neutral
forum for dispute resolution.
E. Consensual: Arbitration can only take place if both the parties have agreed to
it. Existing disputes can be referred to arbitration by the means of submission
agreement between the parties.
F. Expertise: Expertise of arbitrator ranks as one of the essential characteristics
of arbitration. Arbitrators can be selected for their expertise in technical areas

34
Evolution of Commercial Arbitration in Nepal: Issues and Challenges 209

21
 such as engineering, economics, science, the customs of the sea or
commercial law.
G. Confidentiality: The parties to the dispute may not be willing to disclose
their business secrets and are reluctant to have public hearing. For many
parties to arbitral contracts, privacy or avoidance of public is the single most
important feature and arbitration satisfies this demand by maintaining a veil
of secrecy.

3.3 Types of Arbitration

1. Ad-hoc arbitration
At first arbitration was resorted to as and when a dispute arose between the
parties to a business transaction, which could not be settled by negotiations in
the shape of conciliation or mediation as the occasion required arbitration, it
was termed as ad-hoc.
2. Contractual inbuilt arbitration
As business transactions increased in number and complexities with
concomitant increase in clashes between the parties, occasions requiring
arbitration became frequent and the increase in number called for regular
machinery in the shape of inbuilt arbitration clause, an integral part of contract
covering present or future disputes-existing or potential-and machinery
devised was reference to a named arbitrator or an arbitrator to be appointed by
a designated authority.
3. Domestic Arbitration: In domestic arbitration, both of the parties must be of
the same country, and proceeding must take place in that same country. the
proceedings must be held in the domestic territory. The arbitration that takes
place in Nepal to solve Domestic disputes, i.e., disputes not involving any
foreign element is Domestic Arbitration and the resultant arbitral award is
considered to be a Domestic Award. The award is given according to the laws
of Nepal. The subject matter of the dispute and subjects of disputes are also of
Nepal.
4. International Arbitration: Arbitration that is conducted at a place outside of
the domestic territory is International Arbitration and the resultant award is
designated as a „foreign award‟.

22
 5. Institutional Arbitration: This type of arbitration is administered by an
arbitration institution. The parties to an arbitration agreement may stipulate in
their agreement to refer the dispute between them to an arbitration institution
for resolution of disputes35. If the disputes are resolved under NEPCA, such
can be called as Institutional Arbitration. n. There are various such institutions/
organizations such as ICC, LCIA, SIAC, AAA, NEPCA etc. which offer
facilities for conduct of arbitration.
6. Flip flop arbitration or pendulum arbitration: In this type of arbitration,
the parties formulate their cases beforehand and they invite the arbitrator to
choose one of the two. The arbitrator makes an award favoring any one of the
parties. He cannot decide somewhere in between. He must, after hearing the
evidence adduced by the parties, decide as to the case of which of the parties is
correct. In this type of arbitration the party who inflates his claim may lose
everything. Also called baseball arbitration36.

3.4 Advantages of Arbitration

Parties often seek to resolve disputes through arbitration because of a number of
perceived potential advantages over judicial proceedings:
 In contrast to litigation, where one cannot "choose the judge “arbitration allows
the parties to choose their own tribunal. This is especially useful when the subject
matter of the dispute is highly technical: arbitrators with an appropriate degree of
expertise
 Arbitration is often faster than litigation in court.
 Arbitration can be cheaper and more flexible for businesses
 Arbitral proceedings and an arbitral award are generally non-public, and can be
made confidential
 In arbitral proceedings the language of arbitration may be chosen, whereas in
judicial proceedings the official language of the country of the competent court
will be automatically applied.
 Because of the provisions of the New York Convention 1958, arbitration awards
are generally easier to enforce in other nations than court verdicts.

35
ASHWINIE KUMAR BANSAL, ARBITRATION AND ADR (2nd ed), Universal Law Publishing
16 (2009)
36
Ibid. pg. no 17

23
 In most legal systems there are very limited avenues for appeal of an arbitral
award, which is sometimes an advantage because it limits the duration of the
dispute and any associated liability.

3.5 Disadvantages of Arbitration

Although, it is seen as an effective method for settlements of disputes, it possesses
some drawbacks.
 Arbitration may be subject to pressures from powerful law firms representing the
stronger and wealthier party
 Arbitration agreements are sometimes contained in ancillary agreements, or in
small print in other agreements, and consumers and employees often do not know
in advance that they have agreed to mandatory binding pre-dispute arbitration by
purchasing a product or taking a job
 If the arbitration is mandatory and binding, the parties waive their rights to access
the courts and to have a judge or jury decide the case
 In some arbitration agreements, the parties are required to pay for the arbitrators,
which adds an additional layer of legal cost that can be prohibitive, especially in
small consumer disputes
 In some arbitration agreements and systems, the recovery of attorneys' fees is
unavailable, making it difficult or impossible for consumers or employees to get
legal representation; however most arbitration codes and agreements provide for
the same relief that could be granted in court
 If the arbitrator or the arbitration forum depends on the corporation for repeat
business, there may be an inherent incentive to rule against the consumer or
employee
 There are very limited avenues for appeal, which means that an erroneous
decision cannot be easily overturned
 Although usually thought to be speedier, when there are multiple arbitrators on
the panel, juggling their schedules for hearing dates in long cases can lead to
delays
 In some legal systems, arbitral awards have fewer enforcement options than
judgments; although in the United States arbitration awards are enforced in the
same manner as court judgments and have the same effect

24
 Arbitrators are generally unable to enforce interlocutory measures against a party,
making it easier for a party to take steps to avoid enforcement of member or a
small group of members in arbitration due to increasing legal fees, without
explaining to the members the adverse consequences of an unfavorable ruling
 Rule of applicable law is not necessarily binding on the arbitrators, although they
cannot disregard the law

25
 CHAPTER IV: ARBITRATION AND ITS PROCESS
4.1 Proceedings of Arbitration
The phases that comprise the arbitration procedure are outlined here, starting with the
initial agreement and ending with enforcement and appeals.
 Unveiling the Dance of Arguments: Exploring the web of Arbitration Proceedings

Imagine two knights engaged in a ferocious yet disciplined combat, but instead of
using swords, they will use words interwoven with objections, rejoinders, and
assertions. This is the core of arbitration proceedings: a fascinating, often bewildering
maze where conflicts are resolved by a careful dance of arguments regulated by
evidence and procedural norms rather than the force of a gavel.

 Initiating the Quest: Setting the Stage for Arbitration

Before the battle of words commences, the stage must be set. This begins with the
invocation of an arbitration clause, often nestled within a contract, preordaining the
dispute's path towards arbitral resolution37. Alternatively, the arbitral process may be
sparked by a submission agreement that was created in the heat of an ongoing dispute.

Now, the parties meticulously select the arbitrators, neutral figures entrusted with
wielding the scales of justice. Their expertise and integrity are paramount, for they
will become the navigators of this legal odyssey38.

 Charting the Course: The Procedural Framework

With the stage set and the arbitral panel assembled, the procedural rules emerge as the
compass guiding the course of the proceedings. These may be enshrined in the
arbitration clause, chosen from established institutional rules, or meticulously crafted
by the parties themselves.39

37
9 U.S.C. §§ 1–16, 2012

38
Article 5(1), International Chamber of Commerce (ICC) Rules

39
Article 19, UNCITRAL Model Law on International Commercial Arbitration

26
The initial salvo is often the statement of claim, outlining the party's grievances and
desired remedies40. The respondent then raises its shield with a statement of defense,
parrying the claims and potentially launching counter-claims.41

 The Art of Evidence: Building the Case

Now the battleground shifts to the realm of evidence. Witness testimonies, expert
reports, documents – each piece meticulously presented and challenged, constructing
narratives and dismantling them brick by logical brick42.The arbitral panel examines
the evidence closely, serving as both a jury and a judge.

 Discovery's Double-Edged Sword:

Finding pertinent knowledge through discovery may be both a useful tool and a
dangerous one. Interrogatories, requests for production of documents, and depositions
probe for hidden truths, but can also become quagmires of delay and obfuscation. The
arbitral tribunal wields the power to manage discovery, ensuring a fair and efficient
process43.

 Hearings: Facing the Tribunal

The heart of the proceedings often beats in the hearings, where lawyers weave
arguments, witnesses are grilled, and the case takes on a tangible form 44. These can
be formal court-like affairs or more informal gatherings, depending on the parties'
wishes and the nature of the dispute.

 Reaching the Summit: The Award and Beyond

After careful deliberation, the arbitral tribunal issues its award, the culmination of this
legal trek.45 The award settles the issue and grants remedies, such as monetary
compensation, specified performance, or a declaration of rights. It is usually final and
binding.
40
Rule 14, AAA Rules
41
Rule 14, AAA Rules; Article 4(1), ICC Rules
42
Federal Rules of Evidence; Rule 17, AAA Rules; Article 18, ICC Rules
43
Rule 16, AAA Rules; Article 6, ICC Rules
44
Section 9, Federal Arbitration Act; Rules 18–22, AAA Rules; Article 19, ICC Rules
45
Section 9, Federal Arbitration Act; Rule 28, AAA Rules; Article 20, ICC Rules

27
However, the journey might not stop here. Court battles may ensue from challenges to
the award that claim procedural or substantive mistakes.

 Navigating the Nuances: A Tapestry Woven with Considerations

Many factors impact the proceedings during this complex dance. One of arbitration's
main features is confidentiality, which protects commercially sensitive material. Costs,
though generally borne by the losing party, can become a contentious issue46. Even
while deadlines are meant to speed up resolution, they might be extended or delayed.

4.2 Stages of Arbitration47

1. Introduction

During the introduction, the commissioner will start recording the process, stating the
case details and asking the parties to state their names and positions (for example,
manager/employee). The commissioner will deal with what language will be used and
will explain the procedure that will be followed. The commissioner will describe the
process of arbitration and explain the parties‟ rights. The commissioner may ask the
parties whether they would like to go back into conciliation mode to try to resolve the
matter before proceeding with arbitration.

2. Preliminary issues

Before proceeding with the arbitration, the commissioner must ensure that the CCMA
has the power or authority to hear the matter (jurisdiction). Furthermore, if a party
wants to have legal representation, the application must be made at this stage (if this
has not already occurred in writing). Any other preliminary issues should be raised at
this stage.

3. Outline and narrowing of issues in dispute

The commissioner may ask the parties to explain what the dispute is about. This is
usually done in the form of opening statements where both parties explain why they

46
Rule 47, AAA Rules; Article 26, ICC Rules

47 nd
Summary of the stages of an arbitration hearing, (Accessed Date: 22 Jan2024),
https://smelaboursupport.org.za/download/summary-of-the-stages-of-an-arbitration-hearing/

28
see the dismissal as being fair or unfair. The commissioner may also ask specific
questions to obtain background information such as the date of employment, the date
of dismissal and the reason for dismissal. The commissioner will then try to determine
which issues are not in dispute (common cause) and which issues are in dispute.
Evidence is only needed on issues that are in dispute.

4. Hearing of evidence

The parties then present their case. They may call witnesses and submit relevant
documents. After each witness has testified, the other party can cross-examine that
witness. Cross-examination may be used to get additional information from the
witness, to dispute anything that the other side does not agree with and to put a
version to the witness so that s/he has an opportunity to respond to it. After that, the
party that called the witness may re-examine the witness (based only on the questions
that witness faced during cross-examination).

5. Concluding arguments

During this last phase of the hearing, the parties are invited to argue their case. They
may summarise the evidence that was presented on which they would like to rely;
indicate what evidence they feel carries more weight than others and argue why a
certain version should be accepted or not; refer to case law; and explain what outcome
they seek..

6. Arbitration award

The arbitration award, which is issued within fourteen (14) days after the hearing, is
the final binding outcome of the matter.

4.3 Award and its Recognition and Enforcement

After the hearing, the tribunal will produce its award. Awards refer to the final
decision made by a tribunal in regard to a dispute submitted before it. This will set
out the decisions it has reached on the issues between the parties. Unless the award is
challenged, it determines the rights and obligations of the parties. According to Born,
an award is a written instrument, drafted and signed by arbitrator(s), stating tribunal‟s

29
final decision on particular claims or disputes48. In simple language, arbitral award is
the expression by an arbitral tribunal of education of a dispute between the parties
before the tribunal.

The successful party in an international commercial arbitration expects the award to

be performed without delay. This is a reasonable expectation, The purpose of
arbitration unlike mediation and other methods of ADR is to arrive at a binding
decision on the dispute. Once this decision has been made in the form of an award, it
is an intrinsic element of every arbitration agreement that all the parties will carry it
out. For example, the arbitration rules of the United Nations Commission on
International Trade Law (UNICTRAL) expressly sets out that the award shall be final
and binding on the parties and that the parties undertake to carry out the award
without delay49.

As already stated, the vast majority of awards are performed voluntarily. However, if
the losing party fails to carry out an award, the winning party needs to take steps to
enforce performance of it. Effectively, only two steps may be taken. The first is to
exert some form of pressure, commercial or otherwise, in order to show the losing
party that it is in its interests to perform the award voluntarily. The second is to
invoke the powers of the state, exercised through its national courts, in order to obtain
a hold on the losing party‟s assets, or in some other way to compel performance of the
award. The ultimate sanction for non-performance of an award is enforcement by
proceedings in a national court 50 . Some rules of arbitration contain an express
provision that the arbitrator shall make every effort to make sure that the Award is
enforceable at law51.

In International practice, UNCITRAL Model Law and New York Convention are two
main laws that have provided for recognition and enforcement of award. Articles 35
and 36 of the UNCITRAL Model Law provide that award shall be recognized.
Generally, an award, that may be either domestic or a foreign award are recognized
and enforced by the institutional and national legislations. The enforcement of awards

48
GARY B. BORN, INTERNATIONAL ARBITRATION: LAW AND PRACTICE (2 ND ed), Wolters
Kluwer 2016, 286 -287
49 th
NIGEL BLACKABY et al., REDFERN AND HUNTER ON INTERNATIONAL ARBITRATION (6 ed), Oxford
University Press 605 (2009)
50
Ibid 607- 608
51
ICC Rules, Art 26

30
is based on the lex arbitri of a particular arbitration, but it is more or less influenced
by the international practices. Most arbitration statutes treat arbitral awards as
binding, with res judicata effect as soon as they are made. Likewise, most arbitration
legislation treats awards as presumptively valid, subject to review only in exceptional
cases.

4.4 Types of Awards

Final Award: A final award of an arbitral tribunal finally determines all the issues in
dispute between the parties. It determines on the issues of the arbitration once and for
all. It is a complete decision on the matter it dealt with52.

Interim Award: An interim award is the determination of some preliminary issue(s)

arising out of the dispute. It is a temporary or provisional arrangement and is subject
to final determination of the dispute. It is final in respect to those issues which it has
decided and is binding on the parties and persons claiming under them53.

Additional Award: An award made after the final order because of request of the
party because the tribunal‟s final award mistakenly fails to dispose of a claim that had
been asserted in the arbitration. In this award arbitrator can manage the omitted issues
upon the request of the party.

Settlement or Agreement Award: This type of award is made on the basis of the
terms of settlement or agreement between the parties. An arbitral award so made on
the basis of the agreed terms will have the same status end effect as any other arbitral
award in the substance of the dispute. A settlement or agreed award is final and
binding when the parties and persons claiming under them54.

Default Awards: One party sometimes fails to appear and present its case in the
arbitration. A party‟s default does not prevent the tribunal from considering and
resolving the parties‟ dispute. On the contrary, most arbitration legislation provides
that tribunals may make default awards and that such awards are subject to
confirmation (and annulment), just as contested awards are.

52
ASHWINIE KUMAR BANSAL, ARBITRATION AND ADR (2nd ed), Universal Law Publishing
19 (2009)
53
Ibid.
54
Ibid.

31
4.5 Recognition and Enforcement of Awards
The court of Arbitration and the arbitrators shall make every effort to make sure that
the Award is enforceable at law.55The parties undertake to carry out the award without
delay.56 The UNCITRAL Model Law and the New York Convention are two major
statutes that have allowed for the recognition and enforcement of awards in
international practice. Several key clauses in this respect have been highlighted here:

An award made under the UNCITRAL Model Law is binding on all parties to the
proceeding.57 If a party fails to comply with the award, the successful party can seek
to have that award recognized and enforced in domestic courts.58 But the UNCITRAL
Model Law do not contain a recognition and enforcement mechanism. 59 The
recognition and enforcement of an award made under the UNCITRAL Rules is
governed by the law of the place of arbitration, including any applicable treaties.
60
When the award is rendered, the Secretary-General authenticates and deposits the
original award in the archives and transmits certified copies to the parties. 61

Generally, an award, that may be either domestic or a foreign award are recognized
and enforced by the institutional and national legislations. The enforcement of awards
is based on the lex arbitri of a particular arbitration, but it is more or less influenced
by the international practices. Articles 35 of UNCITRAL Model Law provide that
awards shall be recognized and Article 36 provides grounds for refusing recognition
and enforcement of award. Article 34 of the Model Law establishes the presumption
of 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).

Article 34 of the Model Law provides a detailed list of grounds for “recourse to a
court against an arbitral award”; these are the exclusive, exhaustive list of grounds for
annulment. Under Article 34(2), an award may be set aside “only if” the party

55
ICC Rules, Art.26
56
UNCITRAL Arbitration Rules, Art.32(2)
57
Stages of the Arbitration Process (Jan. 1, 2022, 2.16 PM ),
https://www.adr.org/sites/default/files/document_repository/AAA_Stages_of_the_Arbitration_Process.
pdf
58
Id.
59
Id.
60
Id.
61
Id.

32
challenging the award establishes one of the specified grounds set forth in the Article.
National courts have made clear, as the Model Law‟s language provides that Article
34‟s grounds for annulment are exclusive.

The text of the New York Convention does not expressly limit the forums in which an
action to annul an award may be pursued. Nonetheless, the Convention‟s language
and structure clearly impose such limits, requiring that actions to annul a Convention
award be pursued exclusively in the place where the award was made or under whose
laws it was made. These limits have vital importance to the arbitral process,
restricting the jurisdictional competence of national courts to non-recognition of
awards made abroad, rather than permitting annulment of such awards. Article V (1)
(e) and VI limits on forums for annulling awards.

Regardless of all these enforcement and recognition mechanisms, the realities of

enforcement vary depending on such factors as:

1. The jurisdiction in which enforcement is likely to be sought.

2. The status of the party against whom enforcement is sought e.g. certain assets may
be immune from execution if the award is against a State.

3. Whether it is possible to take steps to ensure the other side does not get rid of its
assets to frustrate enforcement.

33
 CHAPTER V: ARBITRATION PRACTICE IN NEPAL
5.1 Historical Background of Arbitration in Nepal
Historical development of arbitration in Nepal can be categorized under following
headings on the basis of time:

A) Early period:

The early period refers to the period since the Malla dynasty. Mostly at that time,
trade relation of Nepal was with Tibet, dispute that used to arise with the Tibetan
businessman were settled by arbitration .Ancient Hindu jurist laid the most important
on the settlement of disputes by arbitrators or tribunals. The Kulani (village council),
sreni (corporation) and puga (assemblies) were the examples, recognized by the
religious digests of Yagavalkya, Smriti, and Narad Smriti, In this period there wasn't
any authorized laws relating to the arbitration. However, there were various
administrative authorities allowed to exercise their professional knowledge on the
settlement of dispute under different names.

B) Middle period:

In this period, first phase of laws were formulated and formally with the legal validity
arbitration procedure commenced. Development Committee Act, 2013 came into
existence and applied to dispute resolution process under the contract to which the
board is party.

In 2014/11/2, Development Committee Act was first amended 62 and arbitration

provision was inserted in section - 9 but it didn't compel the parties to make
agreement for administration on the dispute related to the contract with development
committee but it compelled the parties to follow the arbitration procedure if there is an
agreement. Same ways other laws came into limelight which incorporated arbitration
process such as:

1. Development Board Act, 2013

2. Royal Nepal Corporation Act, 2020

62
Prof. Pawan Kumar Ojha et.al., Procedural Law: Principle and Practice, p. 199

34
3. Bonus Act, 2030

4. Commercial Bank Act, 2031

5. Nepal Petroleum Act , 2040

C) Modern period:

Modern period started when Arbitration Act, 2038 came into existence. This law was
the first comprehensive legislation on the commercial arbitration with 32 sections
having different features.

Some of its features are given below:

1. If no arbitrator is specified on agreement, there shall be sole arbitrator.

2. The parties had right to make procedure for the appointment of arbitrators.

3. Any dispute indicated bi- lateral or multilateral

4. Lack of arbitration institution

5. Drafting of defective arbitration clauses in contract

6. Lack of proper arbitral knowledge among the judges and arbitral

7. Enforcing the domestic or foreign award through the district court

8. Enforcement of arbitration under international treaty, Agreement or arrangement

Later on, this Act was replaced by a new one called Arbitration Act, 2055 which was
very much elaborative and met the criteria as prescribed by various international
conventions related to arbitration, particularly UNCITRAL Model Law and New
York Convention.

Also, the Statute of the Nepal Council of Arbitration (NEPCA), 2048 has established
an institution by the name of: Nepal Council of Arbitration(NEPCA) 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

35
national and international disputes of development, construction, industrial, trade and
other nature which are to be resolved through arbitration.63

5.2 Nepalese Laws on Arbitration

Particularly, when Nepal adopted liberal economic policy with the restoration of
democracy in 2047 BS, Nepal tried to reform its Industrial Policy, 2049 64 . The
practice of arbitration was gaining popularity in Nepal when a revised version of
Foreign Investment and Technology Transfer Act, 2049 was getting introduced. At
that time, the Act of 2038 was prevalent to govern the area of arbitration. However, a
need to reform the old provisions was vehemently felt and a new statute was passed to
attract the trust of foreign investments in Nepal i.e. Arbitration Act, 2055. The new
Act has been praised by modern scholars to have been of international standard and
providing of solutions to problems that the old Act couldn‟t solve. However, there are
still many things that can be better. Some of the features of Arbitration Act, 2055 are
listed below:

1. Adopted the basic principles of UNCITRAL Model law, 1985

2. Arbitrators have to take oath (sec.9)

3. Appointment of arbitrators under the agreement (sec.6)

4. Persons who have been disqualified by law, shall not be appointed as arbitrators

5. In-camera arbitral hearing

6. Both parties have equal opportunity

7. Substantive law has to be applied by arbitrators

8. Arbitration shall work on its jurisdiction

9. Adopted the international norms and principles

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:

63
Preamble, Statute of the Nepal Council of Arbitration (NEPCA), 2048
64
Ibid. at 200

36
1. 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

2. 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.

As mentioned above, at present Arbitration Act, 2055 and Arbitration (Court

Procedure) Rules, 2059 are the two governing laws prevalent to undertake cases under
arbitration in Nepal. Here, we now discuss the procedure administered by Arbitration
Act, 2055 while undertaking any dispute.

Procedure administered by Arbitration Act, 2055:

A) Arbitration Agreement:

In this Act, unless the subject or the context otherwise requires, “Agreement” means a
written agreement reached between the concerned parties for a settlement through
arbitration of any dispute concerning any specific legal issue that has arisen or may
arise in the future under a contract or otherwise.65 This is the definition of Arbitration
Agreement given by the Act according to which such agreement has to be written.
However, this agreement may be expressed or implied as provided by the
"Explanation" section of Section 2(a).

Expressed agreement is said to exist if any contract containing provision for

arbitration or any separate agreement is signed in that connection or any letter, telex,
telegram or telefax message, or any other similar at time message exchanged through
telecommunication media whose records can be maintained in a written form have
been concluded between the concerned parties which provide for referring their
disputes to arbitration. Implied agreement is said to exist if any one party refers the
dispute to the arbitrator and the other party replies without opposing the arbitration
proceeding.

B) Appointment of arbitrators:

Chapter-3 of the Act provides for the appointment of arbitrators:

65
Section 2(a), Arbitration Act, 2055

37
1. Number of arbitrators: The number of arbitrators is as per agreement or generally
three if not specified. 66 If this number is an even one, an additional arbitrator is
designated to turn into odd number.67

2. Timeline for appointment: The time limitation of appointment of arbitrators is as

per agreement or the process of appointing arbitrators must be started within 30 days
from the date when the reason for the settlement of a dispute through arbitration
arises.68

3. Named/Deemed arbitrator: In case the agreement mentions the names of

arbitrators, they themselves shall be recognized as having been appointed as
69
arbitrators.

4. Process of Appointment: In case the agreement has made any separate provision
for the appointment of arbitrators, arbitrators shall be appointed accordingly. 70
Notwithstanding otherwise contained in the agreement, each party shall appoint one
arbitrator each and the arbitrators shall appoint the third arbitrator who shall work as
the chief arbitrator.

5. Appointment by Court: In case no arbitrator can be appointed upon following the

procedure contained in the agreement or in case the agreement does not mention
anything about the appointment of arbitrators, any party may submit an application to
the Appellate Court for the appointment of arbitrators.71

6. Disqualification: The following persons shall be disqualified for appointment as

arbitrators: 72

(a) Disqualified for entering into contracts as per prevailing laws.

(b) Punished by a court on criminal charges involving moral turpitude.

(c) Become insolvent or been declared bankrupt.

(d) Any personal interest in the dispute which has to be settled through arbitration.

66
Ibid. S. 5(1)
67
Ibid. S. 5(2)
68
Ibid. S. 6(1)
69
Ibid. S. 6(2)
70
Ibid. S. 6(3)
71
Ibid. S. 7
72
Ibid. S. 10

38
(e) Not having any specific qualification specified in the agreement for becoming
eligible for appointment as an arbitrator.

7. Removal of arbitrator: The condition and procedure for removal of an arbitrator

shall be as mentioned in the agreement or within 15 days from the date of his/her
appointment or from the date when the party has knowledge of improper conduct,
biasness, error, irregularities, etc.73

D) Submission of Claims, Counter-Claims, Objections or Rejoinders:

1. Statement of Claim: The claimant shall submit its claim to the arbitrator in writing
explicitly mentioning the details of the subject-matter of the dispute and the remedy
sought, along with evidence within the time limit mentioned in the agreement, if any,
and within three months from the date when a dispute requiring arbitration has arisen
in case only the name of the arbitration has been mentioned in the agreement without
mentioning any time limit, and from the date of appointment of the arbitrator in case
the arbitrator has been appointed after the dispute has arisen.74

2. Statement of Defense and Counter-Claims: The respondent shall submit its

objection with counter-claims to arbitrator it within 30 days from the date of receipt of
the claim, unless otherwise provided for in the agreement.75

3. Reply to Counter-Claim: the arbitrator shall provide a time limit of 15 days to

claimant to submit its rejoinder over counter-claim of respondent.76

E) Laws, Principles and Procedures:

1. Procedural laws: The procedure to be adopted by the arbitrator while taking a

decision on a dispute shall be as mentioned in the agreement, and in case no such
procedure has been mentioned in the agreement, it shall be as laid down in this Act.77

2. Substantive Law: The Nepal Law shall be the substantive law to be followed by
the arbitrator, except when otherwise provided for in the agreement.78

73
Ibid. S. 11
74
Ibid. S. 14(1)
75
Ibid. S. 14(2)(3)
76
Ibid. S. 14(3)
77
Ibid. S. 17(1)
78
Ibid. S. 18(1)

39
3. Other principles: The arbitrator may settle the dispute according to the principle
of justice and conscience (Ex aqua et bono) or natural justice (amiable compositor)
only when explicitly authorized by the parties to do so.79 The arbitrator shall settle the
dispute according to the conditions stipulated in the concerned contract. While doing
so, arbitrator shall also pay attention to the commercial usages applicable to the
concerned transaction.80

4. Confidentiality: Except when otherwise desired by the parties, arbitration

proceedings shall be held in-camera.81

5. Other Proceedings: Arbitral tribunal can exercise similar right as that of court on
examination of evidences, witness, experts, issuance of stay order, etc.82

F) Award and Enforcement of Award:

Chapter- 5 of the Act provides for the decision of the arbitrator (i.e. award) and the
implementation/enforcement of the award.

1. Period Within Which Decision Must Be Taken: Except when otherwise provided
for in the agreement, the arbitrator shall pronounce the decision ordinarily within 120
days from the date of submission of documents.83

2. Decision: The majority decision prevails in case of three arbitrators and in the
absence of majority decision, the decision of the Chief arbitrator prevails.84

3. Matters to be mentioned in decision: Section- 27 of the Act provides for the

matters to be mentioned in an award such as the details of dispute, the jurisdiction
used, grounds of decision, date and place of decision, etc.85

4. Decision to be Read Out: The arbitrator shall read out the decision in the presence
of the concerned parties, hand over a copy of that decision to each party, and keep
evidence thereof in the case file.86

79
Ibid. S. 18(2)
80
Ibid. S. 18(3)
81
Ibid. S. 19
82
Ibid. S. 21
83
Ibid. S. 24
84
Ibid. S. 26
85
Ibid. S. 27
86
Ibid. S. 28

40
5. Implementation of Award: The concerned parties shall be under obligation to
implement the award of the arbitrator within 45 days from the date when they receive
a copy thereof.87

6. Implementation of Award by Court: In case an award cannot be implemented

within the time limit prescribed in Section 31 of this Act, the concerned party may file
a petition to the District Court within 30 days from the date of expiry of the time limit
prescribed for that purpose to implement the award In case such a petition is filed, the
District Court shall implement the award ordinarily within 30 days as if it was its own
judgment.88

7. Implementation of Foreign Awards: The conditions for implementation of

foreign awards are:89

a) The seat of arbitration should be in foreign country.

b) Such foreign country should be a party to the New York Convention

c) The relevant laws of such foreign country do not preclude enforcement of arbitral
award rendered in Nepal.

d) The appointment of the arbitrator is consistent with the arbitration agreement.

e) The award has been made according to the laws and procedure mentioned in the
agreement.

f) The parties have been notified about the arbitration proceedings in time.

g) The decision has been taken according to the conditions mentioned in the
agreement or upon confining only to the subject matters referred to the arbitrator.

h) The decision has become final and binding on the parties according to the laws of
the country where the decision has been taken.

i) The application has been filed for the implementation of the award within 90 days
from the date of award

G) Challenge to award in court of appeal:

87
Ibid. S. 31
88
Ibid. S. 32
89
Ibid. S. 34

41
Any party dissatisfied with the decision taken by the arbitrator may, if one wishes to
invalidate the decision file a petition to the Appellate Court along with the related
documents and a copy of the decision within 35 days from the date the decision heard
or notice received thereof under this Act.90

5.3 Case laws on Arbitration

A) Naresh Vikram Subedi v. Chief District Officer Rolpa and Others NKP
204491:
The first notable decision was made by the Supreme Court regarding court's
nonintervention aspect of arbitration law. The case was based on non-
intervention by the court through extraordinary jurisdiction until and unless
the conditions stipulated in the concerned contract documents provided for.
According to the Supreme Court, the ordinary jurisdiction of a lower court
was the right place to go for getting redress of the grievance.

B) Rakesh Kumar v Ram Krishna Rawal, NKP 206692:

The Supreme Court clearly established the principle that no court will have
primary jurisdiction over a dispute arising out of a contract in which parties
have agreed upon arbitration as the form of dispute resolution.

C) Rajendra Man Sherchan v Appellate Court Patan, NKP 206493:

The Supreme Court interpreted that under Arbitration Act 1999 the process of
appointing an arbitrator must commence within three months from the date on
which the dispute arose.

D) Krishi Samagri Company v Appellate Court Patan, NKP 206494:

The Supreme Court required the interpretation of contracts as per the agreed
conditions and, in its absence, arbitrator may refer to the background of the

90
Ibid. S. 30.
91
NKP 2044, 2
92
NKP 2066, pg. no 272
93
NKP 2064, pg. no 326
94
NKP 2064, pg. no 1558

42
 contract, earlier correspondences, the generally accepted principles of the
contract, international practices, Court precedents etc.

E) Raju K.C. on behalf of Nepal Airlines Corporation v. Appellate Court

Patan, et.al. NKP 206795:
If the party has not been informed about the process of arbitration or has not
been able to get the said information, he can apply to the appellate court to
overturn the decision of the arbitrator as per Section 30(1) of the Act.
However, in the event that there is sufficient and credible evidence that the
respondent has received or such information have been ritually made available
to them, he/she cannot apply for the repeal of arbitral awards in appellate
courts as provided by Section 30(1) of the Act.

95
NKP 2067, no 12

43
 Chapter-6: Findings, Recommendation, Suggestion and
Conclusion
6.1 Findings
This report has been made mainly with the employment of secondary method of
research or Doctrinal Research methodology. From the doctrinal research conducted
and analysis thus made upon ADR mechanism (with main focus on 'arbitration') as a
method of dispute settlement, following observations and findings were made:

1) The concept and practice of ADR mechanism as an alternative to traditional court

proceedings is really important and beneficial over adjudication in many aspects.

2) However, there are still limitations to the methods of ADR; whether in procedural
aspect or substantially not just applicable in certain areas.

3) Arbitration is one of the important and popular ADR methods which is mainly used
in settlement of disputes occurring in areas of commerce, trade, business trans-
nationally, internationally as well as domestically within a state.

4) One of the important findings made was that arbitration is subject to the attitude of
a state towards the awards. Although the international instruments expect the states
for enforcement of arbitral awards, however in practicality, these are actually
subjective to states.

5) In Nepal, the practice of dispute settlement through arbitration is not that old but it
has followed the pattern prescribed by international instruments and which is actually
remarkable is settling disputes especially the one involving foreigners as a party in the
dispute.

6) Several legislations themselves have provided for provisions preferring arbitration

to settle disputes instead of court proceedings which is actually contributory in
diversifying the means to approach arbitration as a dispute settlement mechanism.

7) From the study of case laws established by the judiciary of Nepal, however, some
cases did not seem to reach a final decision as quickly as expected out of any tribunal
proceeding. They actually took the final bench of the Supreme Court to ultimately
decide the case.

44
8) This kind of procedural complexity has diminishing impact upon the interests of
the foreign investors to lodge more investment in Nepal.

9) Section 26 of Arbitration Act mentions that in case a tribunal of three arbitrators

cannot reach a majority decision, the decision of the Chief arbitrator shall be the
decision of the tribunal in case any prior agreement on this behalf does not exist and
the opinion of dissenting arbitrators are placed and signed in the final decision of the
tribunal. This provision particularly does not follow the democratic notion of majority
and vests the authority of the tribunal upon a single person. Sometimes, this might not
be the proper solution sought out from a tribunal.

10) The courts of Nepal also give priority to arbitration in settlement of commercial
disputes as indicated in the contractual terms between parties as ruled by the Supreme
Court in case of B.S. Dhan v. HMG Kankai Development Board NKP 2048.96

11) Although arbitration exists in Nepal as a binding alternative means to dispute

settlement, the common people and even among the lawyers of Nepal, they seem to
have a court-oriented psychology in treatment of any kind of dispute which only
contributes to adversarial atmosphere among the disputants and a division in the
society.

6.2 Recommendations
From the findings made from the research conducted in the making of this report, it is
recommendable to say that the Nepalese observation of arbitration as an Alternative
Dispute Resolution method still has many lacunas and this can actually make
substantial impact upon the foreign investments Nepal is gaining each year as well as
upon the volumetrically increasing enthusiastic Nepali entrepreneurs and investors.

The provision incorporated by the Arbitration Act, 2055 according to which the
decision of majority will be the final decision of the tribunal; such practice should be
made with extra caution because sometimes the majority decision might just not be
the right one and not actually helping to settle the dispute reasonably and on moral
grounds. The arbitrators, in this kind of situation should exhibit high morality and the
intent of high readiness to settle the dispute as reasonably and rationally as possible.
Also, a good amount of legal discourse is suggestive upon the issue raised in No. 9 of

96
Section 4.3(B), Case Laws on Arbitration.

45
the “Findings” section. 97 Also, while using the principle of justice and conscience
such as Ex aqua et bono, it is in the hands of the arbitrators and they are expected to
make use of their discretionary power with high caution and concern. Also, the
concerned stakeholders ought to work on building much reliability and faith on
Arbitration and ADR mechanism for settlement of disputes. Mainly, the lawyers
themselves and the people and the judiciary should be concerned on reducing the
court-trial dependency or actually realize and reduce the litigation-oriented
psychology which only institutionalizes controversy and divides the society
ultimately.

6.3 Conclusion
Alternative dispute resolution (ADR) is a means of addressing and settling parties‟
disputes outside of court‟s traditional adversarial setting. Alternative dispute
resolution is gaining much importance in the commercial sector as well as in other
areas. The time and cost saving nature of the arbitration has led the parties to dispute
to settle through this process.

Arbitration as a statutorily recognized process of dispute resolution, can

definitely help to address the issues of dispute resolution in a pragmatic manner,
however, the law and practice relating to arbitration and even other forms of ADR
must be frequently undated and adapted to meet the technical requirements and
emerging challenges that arise in the society. Although there are some shortcomings
in the practice and legal structure of Arbitration in Nepal, the concerned bodies
should acknowledge them as quickly as possible and reform them as per necessity in
order to smoothen the administration of justice through arbitration.

97
Sec. 5.1(9), Findings.

46
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