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: Rachana Subedi

B.A.LL.B. 5th semester

Section „B‟

TU Registration No: 8-2-1012-56-2020

Roll no.: B955

Symbol No: 77357

 RECOMMENDATION LETTER
This is to certify that Ms. Rachana Subedi, the student of B.A.LL.B. 5th Semester, National
Law College, T.U, Lalitpur, has prepared the clinical report on Alternative Dispute Resolution:
Arbitration, under my supervision. She has thoroughly analyzed and discussed the subject matter
as per the requirement in the partial fulfillment of the B.A.LL.B. degree. I wish her success in her
further endeavors.

I hereby recommend the report for its acceptance and further evaluation to the concerned
authority.

………………………….

Mr. Krishna Bhandari

Lecturer

National law College, T.U.

2
 Preface
To address the growing need of multiple methods of dispute resolutions, alternative methods are
in place in the legal arena today. However, such approaches cannot be perceived as either black
or white because the traditional and the modern ways are leading resolution process in an
intermixed way. Any legal professional today, can't be rehearsed in just one of such ways. Skills,
knowledge and application of both the methodologies are required.

In order to fulfill such requirement, we have been given this opportunity to familiarize with the
practical facet of legal profession which is very much an embodiment of the proverb "a stitch in
time, saves nine." In this process of covering our syllabus, I have learnt a great deal about the
different mechanisms to stay professionally true to the essence of clinical law.

I have chosen to present on Arbitration as an alternative dispute resolution mechanism. Although

it has been categorized as such, it does not seem much different from the regular litigation process.
There is no consensus on this issue. In terms of rigidity of proceedings and decisions, it lies
between the litigation and the process of mediation. Arbitration seemed comparatively less
explored area of ADR in Nepal but a preferred mode in a global observation. So I decided to go
for it.

In the presentation of this paper, you will find the understanding gathered from all the teachings
and opportunities of experiences collected by me as a student during the Clinical Law classes and
from my own research as facilitated by the classes again.

Rachana Subedi

3
 Acknowledgement
I owe my foremost gratitude to our Clinical Law lecturer, Mr. Krishna Bhandari, who is
excellent in every aspect of his profession. I am grateful for all the insightful sessions he
provided. I would mostly like to thank him for providing necessary supervision to complete
this report.

Next in line have to come the authors of all the books and articles I have referred to in the course
of writing this paper. They, in their time, were active enough to learn and elaborate on different
subjects which made my work a lot easier.

My seniors should not be left behind because the report may not have lived up to a mark I
imagined had it not been their incessant support and guidance.

I do not want to miss out on thanking my classmates because the report would not have been
possible without their mutual help and support.

My college, faculty and university deserve all the appreciation for managing to include this course
in one of our semesters in bachelor's degree. I have no doubt their thoughtfulness and positive
action will bear sweet fruits in the professional lives of their students.

I cannot end the list without mentioning my family who has been a firm support system in
providing me a fulfilling, intellect-inducing, healthy environment suited for a student so that I
could fulfill my academic obligation.

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 LIST OF ABBREVIATION

Abbreviation Full-form
ADR Alternative Dispute Resolution
UNCITRAL United Nations Commission on Trade Law
ICSID International Centre for Settlement of Investment Disputes
ICC International Criminal Court
SIAC Singapore International Arbitration Centre
LCIA The London Court of International Arbitration
AAA American arbitration Association
UNCTAD United Nations Conference on Trade and Development
UN United Nations
WTO World Trade Organization
PCIJ Permanent Court of International Justice
NKP Nepal Kanoon Patrika
BAFIA Bank and Financial Institution Act
FITTA Foreign Investment and Transfer of Technology Act
NEPCA Nepal Council of Arbitration
Gon. Government of Nepal
SC Supreme Court
Pvt. Ltd. Private Limited
Hon‟ble Honorable
B.A.L.L.B Bachelor of Arts Bachelor of Law
TU Tribhuvan University
BC Before Christ
BS Bikram Sambat
AD Anno Domini
Ed. Edition

5
Vol. Volume
Et. al. And others
Ibid. In the same place
§ Section
v. Versus
No. Number

6
 LIST OF CASES
DOMESTIC CASES

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

2. Naresh Vikram Subedi v. Chief District Officer Rolpa and Others NKP 2044, Writ No 1568.

3. Rakesh Kumar v Ram Krishna Rawal, NKP 2066 Decision No 8078.

4. Rajendra Man Sherchan v Appellate Court Patan, NKP 2064 Decision No 7823.

5. Krishi Samagri Company v Appellate Court Patan, NKP 2064 Decision No 7905.

6. Raju K.C. on behalf of Nepal Airlines Corporation v. Appellate Court Patan, et.al. NKP 2067
Decision No 8523.

7. Department of Roads, Babarmahal v. Arbitral Tribunal comprising of Mr. Sureshman Shrestha,

Ms. Kamala Upreti and Mr. Narendra Kumar Shrestha & ors., 2077 Decision No 10586.

8. Anil Goyal on behalf of Varun Beverage Pvt. Ltd. V. National Marketing and Sales Pvt. Ltd.
et al., 2066 Decision No 8097.

9. Bakhtawar Singh Dhan on behalf of B.S.Dhan And Company V. HMG Kankai Development
Board, 2048 Decision No 4926.
10. Faruk Solan on behalf of National Project Construction Corporation V. Secretary of the Water
Resource Ministry et al., 2052 Decision No 5088.

11. Rajendraman Sherchan on behalf of Vijay Construction Pvt. Ltd. V. Appellate Court, Patan,
2064 Decision No 7823.

12. Krishna Chandra Jha V. Dinesh Bhakta Shrestha on behalf of Sumit Prakash Asia Pvt. Ltd.,
2066 Decision No 8128.

13. Umakant Jha V. Appellate Court, Patan, 2066 Decision No 8156.

14. Yadav Prasad Pokhrel on behalf of The Bridgeline Corporation V. Appellate Court, Patan,
2062 Decision No 7508.

7
15. Suman Prasad Sharma on behalf of Melamchi Khane Pani Bikash Samiti V. Lasunaula
Khimti Construction, 2063 Decision No 7699.

16. Agriculture material Sansthan v East India Transport, 18 Supreme Court Bulletin 9 (02-03-
2066 BS).

17. Government of Nepal, Ministry of

water resources v. District court, Kathmandu, NKP, 460 (2064).

18. Department of Road et. al. v. Waiba Construction Co. Pvt. Ltd., Samakhushi, Kathmandu et.
al., NKP 2067 Decision No 8479.

19. Bikram Pandey on Bhehalf of kalika, Kanchanjangha JV. v. Ministry of Physical Planning
and Construction, Department of Road et. al., NKP 2067 Decision No 8437.

INTERNATIONAL CASES

1. Mavrommatis Palestine Concessions (Greece v. U.K.), 1924 P.C.I.J. (ser. B) No. 3 (Aug. 30).

2. Hilmond Investments v CIBC, 471 DLR 135 (1996).

8
 TABLE OF CONTENT

CHAPTER: ONE .................................................................................. 11

Introduction ........................................................................................................ 11
1.1 Background of the study ................................................................................................. 11
1.2 Statement of problem...................................................................................................... 13
1.3 Objective of the study ..................................................................................................... 14
1.4 Significance of the study ................................................................................................ 14
1.5 Scope of the study........................................................................................................... 15
1.6 Research Methodology ................................................................................................... 15
1.7 Literature Review ........................................................................................................... 15
1.8 Organization of Study..................................................................................................... 17

CHAPTER: TWO ................................................................................. 18

Conceptual Framework ..................................................................................... 18
2.1 Concept of Alternative Dispute Resolution ................................................................................. 18
2.2 History of Alternative Dispute Resolution ................................................................................... 20
2.3 Types of ADR .............................................................................................................................. 22
2.4 Characteristics of Alternative Dispute Resolution ....................................................................... 27
2.5 Importance of Alternative Dispute Resolution ............................................................................ 28

CHAPTER: THREE ............................................................................. 29

An Introduction to Arbitration ........................................................................ 29
3.1 Concept of Arbitration ................................................................................................................. 29
3.2 Characteristics of Arbitration ....................................................................................................... 31
3.3 History of Arbitration................................................................................................................... 32
3.4 Types of Arbitration ..................................................................................................................... 34

CHAPTER: FOUR ................................................................................ 35

Legal Framework on Arbitration in Nepal ..................................................... 35
4.1 Development of Arbitration law in Nepal .................................................................................... 35
4.2 Existing Nepalese Legislations on Arbitration............................................................................. 37
4.3 Significant Case laws related to Arbitration in Nepal .................................................................. 39

CHAPTER: FIVE.................................................................................. 44

9
 Arbitration and its process................................................................................ 44
5.1 Process and Proceedings of Arbitration ....................................................................................... 44
5.2 Stages of Arbitration ................................................................................................................... 48
5.3 Arbitral Award and its recognition and Enforcement .................................................................. 50

CHAPTER: SIX .................................................................................... 54

Findings, Recommendations and Conclusions ................................................ 54
6.1 Findings........................................................................................................................................ 54
6.2 Recommendations ........................................................................................................................ 55
6.3 Conclusion ................................................................................................................................... 56
BIBLIOGRAPHY ................................................................................................. 57
LAWS....................................................................................................................................... 57
BOOKS .................................................................................................................................... 57
ARTICLES ............................................................................................................................... 59
ONLINE SOURCES ................................................................................................................ 59

10
 CHAPTER: ONE
Introduction
1.1 Background of the study

Introduction of Dispute/Conflict

Dispute is difference of opinion. It is important to first discuss the concept of „dispute‟ prior to
the discussion of Alternative Dispute Resolution Mechanism. Dispute is an argument carried out
between two or more parties. To involve in a dispute means to argue or disagree strongly with
someone about something.1 Dispute, according to Black‟s Law Dictionary, is a conflict or
controversy especially one that has given rise to a particular lawsuit.2 Dispute is indispensable
part of societal interaction since the inception of human civilization. Dispute seems to be present
in all human relationships and in all societies.

Dispute according to the PCIJ in the Mavrommatis Palestine Concession is, “a disagreement over
a point of law or fact, a conflict of legal views or interests between two persons”.3

According to John Burton, a dispute is a short-term disagreement that can result in the disputants
reaching some sort of resolution; it involves issues that are negotiable.4Conflict, in contrast, long-
term with deeply rooted issues that are seen as “non-negotiable.” Conflict is a state and
disagreement, opposition, contention, competition or tension between individuals or groups of
people.5 „Conflict‟ is used to signify a general state of hostility between the parties and the term
„dispute‟ is used to signify a specific disagreement relating to a question of rights or interests in
which the parties proceed by way of claims, counter-claims, denials and so on.

Peaceful resolution of disputes between persons is our universally recognized norm, as it is an

ingredient of civilization.6 Hence, the process of resolving such disputes by meeting at least some

1
Dispute, Oxford Learner’s Dictionaries (10th ed. 2022).
2
BRYAN A. GARNER, BLACK'S LAW DICTIONARY 505 (Thomson 2004).
3
Mavrommatis Palestine Concessions (Greece v. U.K.), 1924 P.C.I.J. (ser. B) No. 3 (Aug. 30).
4
JOHN BURTON, CONFLICT: RESOLUTION AND PREVENTION, 25 (New York: St Martin's Press 1990).
5
MARK D. BENNETT et al; THE ART OF MEDIATION, 108 (NITA 1996).
6
Prof. D. Bharat B. Karki, Practice of Conciliation in the settlement of commercial Disputes in Nepal, Annual
survey of Nepalese Law 2001, 1 NEPAL BAR COUNCIL, 12 (2002).

11
of each side needs and addressing their interest through various processes is called dispute
resolution.

Reasons behind conflict

Although, there are an infinite reason why conflict may occur, the most common factors that
cause conflict are:7

 Competition
 Personality differences
 Inconsistent expectations
 Incompatible Goals
 Communication problems

Dispute Settlement Mechanism

Disputes resolved promptly results less complications, either in family or in commercial contracts.
Hence disputes arising between parties can be well solved through different methods and means.

Here, the Means of dispute resolution are divided into following categories:

 By Use of Force: It is traditional and unilateral means of dispute resolution. It includes

fight, force or coercion. These responses have resulted in win-lose perspective of conflict
resolution.
 By Peaceful means: It is bilateral means of dispute resolution. It is modern and an
ingredient of civilization. All peaceful means of dispute resolution process broadly can
be classified into two categories,
 Court Adjudication: Court adjudication is a litigation process. Litigation is the process
of carrying on a lawsuit. Litigation is the government financed and administered court
system based on formal rules and procedures.
 Alternative Dispute Resolution (ADR) processes: The non-formal, less expensive and
expedition‟s method of dispute resolution have been developed as an alternative of court
adjudication, which are called „alternative dispute resolution processes.

7
Causes of Group Conflict in the Workplace. (2017, July 25) Causes of Group Conflict in the Workplace - Video &
Lesson Transcript | Study.com (visited on 6 January 2024).

12
Although attention tends to be focused on the courts as the forum for resolving conflicts when
they arise, the court system is not necessarily the most effective way of dealing disputes,
especially those which arise between people or indeed business, which have enjoyed a close
relationship. The problem with the court system is that it is essentially antagonistic process,
designed ultimately to determine a winner and a loser in any particular dispute. As a consequence,
the court procedure tends to emphasize and heighten the degree of conflict between the parties,
rather than seek to produce a compromise solution. For various reasons, it is not always in the
best long term interests of the parties to enter into such hostile relations as are involved in court
procedure. In recognition of this fact, the number of alternative procedures to court action have
been developed for dealing with such disputes.8

Alternative Dispute Resolution (ADR) is a legal system as well as an innovative modern institution
of society which provides a scope for non-formal legal and judicial dispute settlements with the
consent of the parties.9 Contemporary alternative dispute resolution (ADR) methods are intended
to assist parties in resolving conflicts effectively, outside of formal litigation, and with the least
amount of judicial intervention.10"Any process or procedure, other than adjudication by a
presiding judge, in which a neutral third party participates to assist in the resolution of issues in
controversy, through processes such as early neutral evaluation, mediation, mini trial, and
arbitration, is considered an alternative dispute resolution process."11It consists of methods and
procedures that help disputing parties reach a consensus, either with or without outside assistance.
With alternative dispute resolution (ADR), disputing parties might devise more inventive
solutions that a court might not be able to impose legally. ADR procedures are not intended to
replace the courts but is in addition to the traditional court system.

1.2 Statement of problem

"Alternative dispute resolution: Arbitration" is the topic of this paper. The conceptual framework
of ADR, which includes an introduction, arbitration procedure, and application, serves as the

8
DAVID KELLY et al., BUSINESS LAW, 69 (London: Cavendish publishing Limited 2002).
9
Janet Monisola Oluwaleye, Local Government And Effective Service Delivery: Case Study Of Ikole Local
Government Area Of Ekiti State, Nigeria (1999-2013), Vol. 1, No. 2, JOURNAL OF ASIAN AND AFRICAN SOCIAL
SCIENCE AND HUMANITIES, 98-114 (2015).
10
Hilmond Investments v CIBC, 471 DLR 135 (1996).
11
Alternative Dispute Resolution Act, 1998§ 65, No. 28, U.S.C, 1998 (USA).

13
foundation for this study. Arbitration is a simple, cost-effective, and time-efficient substitute for
litigation. Even though ADR has simplified and expedited the protracted process of delivering
justice, Nepal has not yet fully implemented the concept of ADR. As a result, the research
highlights the issues listed below:

 What are the challenges ADR face in Nepal?

 What are Nepal's current arbitration-related legal provisions?
 Does the arbitration process always assist and enhance judicial reforms?

1.3 Objective of the study

The main objective of this report is to explore the effectiveness of arbitration as an alternative
dispute resolution mechanism, examine and compare its concept with other methods.
Additionally, examine how arbitration is perceived as an alternative dispute resolution method in
Nepal and to examine the legal provisions relating to Arbitration in Nepal.

The main objective of this study is to partially fulfill the criteria for the BA.LLB degree, along
with the objectives listed below;

 To examine the concept and evolution of ADR and arbitration.

 To assess the legal framework governing arbitration.
 To understand the impact of arbitration proceedings on the mainstream court system.
 To suggest reforms in arbitration laws if necessary.

1.4 Significance of the study

The significance of arbitration as an ADR (Alternative Dispute Resolution) method resides in its
capacity to provider a quicker, confidential and often more cost-effective means to settle conflicts
than traditional litigation. Short-term dispute resolution is made possible by arbitration. By
offering parties flexibility in selecting arbitrators and procedures, arbitration promotes efficient
resolution, contributing to reduced caseloads in the legal system and fostering a more adaptable

14
and accessible avenue for dispute resolution. It also promotes win-win situation between the
disputing parties and can increase everyone‟s access to justice.

1.5 Scope of the study

This report aims to analyze and critically evaluate important facets of arbitration, a popular
alternative conflict resolution process. The purpose of this study is to shed light on the concept,
advantages and disadvantages of arbitration procedures and to make suggestions for improving
conflict resolution techniques. This study aims to enhance arbitration practices by providing a
thorough analysis of the legal framework, practical application, comparative advantages and
potential obstacles related to arbitration. The main objective of this report also consists
suggestions for reformation of arbitration laws in Nepal.

1.6 Research Methodology

The scientific technique of doctrinal research serves as the foundation for this study. Therefore,
the primary empirical data collection and field survey research methods are not used. It is textually
oriented, with the primary sources of study being published books, journals, newspapers, expert
views, and court rulings. As a result, the majority of research materials come from published
publications found in the Central Law Library, the National Law College Library, and other online
resources. In order to present an alternative viewpoint and perspective on arbitration
administration and development, the results of numerous actions as well as the conclusions of
civil society and impacted community organizations are also highlighted here. It primarily gathers
information from secondary sources. It adheres to The Bluebook Citation, 21st Edition.

1.7 Literature Review

 International Arbitration: Law and Practice by Gary B. Born

The author of this book offers thorough and scholarly explanations of the fundamental ideas, legal
theories, and procedures pertaining to international arbitration. All facets of the arbitral process,
including international arbitration agreements, international arbitral procedures, and international
arbitral awards, are covered in detail yet in a methodical and succinct manner in this book. A
thorough update has been made to the Third Edition to incorporate recent changes to legislation,

15
court rulings, and arbitral awards. The book offers a thorough analysis of the ICSID Convention
and its arbitration rules, the New York Convention, the UNCITRAL Model Law on International
Commercial Arbitration, all prominent institutional arbitration rules (ICC, SIAC, LCIA, AAA,
and others), and court rulings from top jurisdictions.

 A Practical Guide to International Commercial Arbitration: Assessment, Planning

and Strategy by Steven P. Finizio and Duncan Speller

Steven P. Finizio and Duncan Speller's "A Practical Guide to International Commercial
Arbitration: Assessment, Planning, and Strategy" is an extensive resource that provides insightful
information about the subject of international commercial arbitration. The book is commended
for taking a practical approach and offering advice on important topics including strategy,
assessment, and strategic considerations when it comes to arbitration. Readers value its lucid and
approachable writing style, which makes difficult ideas simple to comprehend. The authors
address issues that practitioners may face by providing useful solutions and tactical guidance,
drawing on their wealth of experience in international arbitration. The handbook is a great
resource for anyone attempting to understand the complexities of international commercial
arbitration because it is frequently praised for being applicable to both inexperienced and
seasoned professionals.

 Bed Prasad Uprety‟s article, “Evolution of Commercial Arbitration in Nepal: Issues

and Challenges” in the National Judicial Academy Law Journal of 2008.

Bed Prasad Uprety in his paper claims that arbitration in Nepal can be traced back to the system
of Panchayat. He further writes that before the enactment of general legislation on commercial
arbitration in 1981, statutory provision related to arbitration were scattered. Despite having an act
and rules that are framed in line with UNCITRAL model law, he opines that there still remain
challenges.

 Om Subedi‟s article „Nepali Experience and Experiment with Arbitration on

Commercial Disputes‟ in the National Judicial Academy of 2007.

The author in his paper explores the development of arbitration in Nepal, how it tried to model
its law after the UNCITRAL Model Law. He has also made a survey of the cases pending in the
court and also examines problems in the execution of arbitral award. The survey shows that much

16
is yet to be done to address the current challenges and speed up disposal of cases and petitions in
the court. Capacity building and improvement of law are his other suggestions for
institutionalizing arbitration in Nepal.

 Mowatt, J.G‟s journal, "Alternative Dispute Resolution: Some Points to Ponder,"

The Comparative and International Law Journal of Southern Africa, 1992.

This journal explores a broad spectrum of mechanisms designed to resolve conflicts outside
traditional court proceedings. ADR encompasses negotiation, conciliation, mediation, and
arbitration, each offering unique approaches to dispute resolution. The journal provides a succinct
overview of the historical trajectory of Alternative Dispute Resolution (ADR). The article also
delves into the characteristics, pros and cons, limitations of ADR in addition to number of case
studies making it researcher‟s favorite.

 Department of Road et al. V. Waiba Construction Co. Pvt. Ltd., Samakhusi,

Kathmandu et al., NKP 2067.
The Hon‟ble Supreme Court in this case, held that where the dispute is to be resolved through
arbitration, the court cannot enter into factual questions, consider evidence and provide a decision
in a manner similar to a normal case. Further, the Hon‟ble Supreme Court also held that where
there has not been any grave error in law, the court cannot invalidate an arbitral award.

1.8 Organization of Study

Chapter 1 of this report deals with the introductory part and includes the background and
objectives, significance and scope of this report including the statement of the problem,
methodology applied and literature review.

Chapter 2 includes the concept, history, types, characteristics and importance of Alternative
Dispute Resolution.

Chapter 3 talks about „arbitration‟, its characteristics, historical development types and
importance of Arbitration in Commercial Dispute Resolution.

Chapter 4 includes the Legal Framework on Arbitration in Nepal with significant case laws.

Chapter 5 talks about arbitration and its process, stages of arbitration and arbitral awards, its
types and enforcement.

17
Chapter 6 deals with about the findings, recommendation and conclusion of this research paper.

CHAPTER: 2

CONCEPTUAL FRAMEWORK
2.1 Concept of Alternative Dispute Resolution

The term "alternative dispute resolution" or "ADR" is often used to describe a wide variety of
dispute resolution mechanisms that are short of, or alternative to, full-scale court processes.12
Alternative Dispute Resolution or ADR refers to “a procedure for settling disputes by means other
than litigation, such as arbitration or mediation.”13 ADR is an all-encompassing term which refers
to multiple non-judicial methods of handling conflict between parties.14 It can also be defined as
encompassing all the legally permitted processes of dispute resolution other than litigation.

The concept of ADR is well set out by the Ontario Court of Appeal as - Modern systems of
alternative dispute resolution, commonly referred to as ADR, are designed to help parties solve
disputes efficiently without resort to formal litigation and with a minimum of judicial
interference.15

Brown and Marriot describe ADR as - a range of procedures that serve as alternatives to
litigation through courts for resolution of disputes, generally involving the intercession and
assistance of a neutral and impartial third party.16

ADR is an umbrella term, which generally refers to the alternative of the court adjudication of the
disputes, such as negotiation, mediation, conciliation, arbitration, etc.17.The term can refer to

12
Mowatt, J.G. March 1992. “Alternative Dispute Resolution: Some Points to Ponder,” The Comparative and
International Law Journal of Southern Africa, vol. 25, no. 1, pp.44-58.
13
Alternative dispute resolution: Getting started - Oklahoma City University,
https://libguides.okcu.edu/c.php?g=224465&p=1487914 (Last visited Jan 4, 2024).
14
Alternative Dispute Resolution, LEGAL INFO. INST.,
https://www.law.cornell.edu/wex/category/alternative_dispute_resolution (Last visited Jan 4, 2024).
15 th
Hillmond Investments v. CIBC, (1996) 135DLR (4 ) 471.
16
H. BROWN & A. MARRIOTT., ADR PRINCIPLES AND PRACTICE, VOL.II, 457 ( Sweet & Maxwell. 1993). H.D.S
Magaji., The Role of the Traditional Rulers in Alternative Dispute Resolution: A Case Study of Borno Amicable
Settlement Corridor, in AHMAD I.A., Supra Note 6, at 407.
17
J.M. NOLAN-HALEY,ALTERNATIVE DISPUTE RESOLUTION-2, (St. Paul MN: West Publishing Co;1992).

18
everything from facilitated settlement negotiations in which disputants are encouraged to
negotiate directly with each other prior to some other legal process, to arbitration systems or
minitrials that look and feel very much like a courtroom process. Processes designed to manage
community tension or facilitate community development issues can also be included within the
rubric of ADR. ADR systems may be generally categorized as negotiation,
conciliation/mediation, or arbitration systems.18

ADR is frequently thought of as a quicker, and less expensive alternative to going to court to settle
disputes. Certain procedures can provide the parties more say over how the issue will be resolved
and more involvement in the process of finding a resolution. Additionally, unlike the trial court,
dispute settlement procedures are less formal and have more lenient guidelines. ADR techniques
might entail the parties working directly together to obtain a mutually agreeable resolution or
using an impartial third party, such as a mediator or arbiter, to assist in communication and
discussion between the parties. The broad inclusiveness of ADR as dispute resolution can further
be explained by the preference for confidentiality, and desire of parties to have greater control
over the selection of the individual or individuals who will decide their dispute.19 ADR is a useful
tool for resolving a wide range of conflicts, such as those involving businesses, jobs, families, and
other relationships.20

In simplest sense, ADR refers to resolving disputes in ways other than going to court. Alternative
Dispute Resolution (“ADR”) allows interested parties to explore options, beyond traditional
judicial intervention, to handle disputes. It has brought about radical changes in the way justice is
administered. In comparison to traditional litigation, it can resolve a conflict more quickly, and
for less money. Thus, ADR has been emerging as an independent and important method for
resolving conflicts in both national and international scenario.

18
Mowatt, J.G. March 1992. “Alternative Dispute Resolution: Some Points to Ponder,” The Comparative and
International Law Journal of Southern Africa, vol. 25, no. 1, pp.44-58.
19
Totaro Gianna, “Avoid court at all costs” THE AUSTRALIAN FINANCIAL REVIEW, (Nov 14, 2008).
20
Alternative dispute resolution (no date) Legal Information Institute.:
https://www.law.cornell.edu/wex/alternative_dispute_resolution (last visited January 4, 2024).

19
2.2 History of Alternative Dispute Resolution

World History
The concept of ADR is not new phenomenon. For centuries, societies have been developing
informal and non-adversarial processes for resolving disputes. In fact, archaeologists have
discovered evidence of use of the ADR processes in ancient civilization of Egypt, Mesopotamia,
and Assyria21. Dispute resolution outside of courts is not new; societies world-over have long
used non-judicial, indigenous methods to resolve conflicts. What is new is the extensive
promotion and proliferation of ADR models, wider use of court-connected ADR, and the
increasing use of ADR as a tool to realize goals broader than the settlement of specific disputes.

ADR groups like the "International Court of Arbitration" (1923) and the "American Arbitration
Association" (1926) were founded at the start of the 20th century. As soon as the United Nations
Organization was founded on October 24th, 1945 A.D., states began to adopt the custom of
initially seeking remedies through ADR. According to the UN Charter, many nations have
incorporated the various peaceful methods of dispute resolution, such as negotiation, mediation,
conciliation, good offices, inquiry, and ultimately judicial resolution through the International
Court of Justice, into their national laws or international practice or arbitration with the help of
tribunals. While these organizations undoubtedly had a part in making ADR more widely known,
the actual ADR movement really took off in the 1970s.
The American ADR movement got its start in the 1970s as a legal effort to address high litigation
costs and delays brought on by an overburdened court system, as well as a social movement to
resolve civil rights conflicts on a community-wide mediation basis. Since then, the legal
alternative dispute resolution (ADR) movement in the US has expanded quickly, moving from
experimentation to institutionalization with the help of the American Bar Association, state and
federal governments, academia, courts, and the US Congress.

As time went on, the necessity of ADR was reiterated in the Woolf Reports of Wales and England
in 1996 A.D.2122, the European Commission's recommendations, the Council of Europe's, etc. As
a result, the majority of States now use alternative dispute resolution (ADR) to create solutions to
complicated issues that better serve the interests of disputants and their communities, lessen

21
Consultation Paper Alternative Dispute Resolution 2, (Law Reform Commission 2008).
22
LORD WOOLF, ACCESS TO JUSTICE (HMSO, 1996).

20
dependency on the legal system, bolster local civic institutions, maintain the relationships between
disputants, and educate people about alternatives to violence and litigation.

Nonetheless, mediation was the first form of alternative conflict resolution to emerge in China.
Confucian ethics is where it all started. According to Confucius, confrontational processes are the
opposite of harmony and should not be allowed to disturb the natural balance. Internationally,
both industrialized and developing nations are seeing a surge in the ADR movement. ADR models
can be simple American imports of procedures or hybrid experiments that combine aspects of
traditional dispute resolution with ADR models. ADR procedures are being used to achieve a
variety of social, legal, business, and political objectives.

Nepali History
In Nepal, alternative dispute resolution (ADR) has long been used as a non-formal means of
resolving minor social, familial, and other local conflicts. In many Nepalese villages, the village
chief and members of the Panchayat, the local committee, have long been in charge of mediating
disputes.23Whether alone or in conjunction with the parties in dispute, the Panchayats conducted
their business in the open, ideally while seated beneath a tree. Through the intervention of these
wise men, marriages have been rescued, family honors have been restored, and family property
has been protected.

The application of ADR in traditional Nepalese culture is also depicted by the Tumyang system
of the Kirat period, the Panchali, Birtawala, and Aaryasangh practice in the Lichhavi period, and
the Praman and Daware in the Malla period. Similarly, the Similar to this, some regions of Nepal
also employed the Badghar or Mukhiya system to settle conflicts.24 This proves that the practice
of having wise individuals settle disputes in the sake of fairness and decency has long been
ingrained in Nepalese society. Many of these traditional methods, most notably the settlement of
disputes by the Mukhiya, Badghar, or Mahoto and by the local notables, known as Bhaladmi or
Pancha Phaladmi, are still in use today. Consequently, in today's Nepalese culture, arbitration and
mediation have been established as procedures for resolving disputes.

These days, it is common for Nepali courts to refer parties involved in certain disputes to
alternative dispute resolution (ADR) processes like mediation. In Nepal, it is recognized and used

23
Ishwor Prasad Khatiwoda, Mediation Practice in Nepal: Some Experiences, 1 NEPAL MEDIATION J. 1, 9 (2018).
24
Ibid.

21
as an acceptable and easily accessible method of resolving disputes. Its practices have been
evident for a while in Nepal's rural communities as well as in the country's judiciary and local
government systems. Due in part to the support of Nepalese laws, such as the District Court Act,
the Arbitration Act of 2055, and the Mediation Act of 2068, ADR has been operating well in
Nepal.

ADR is hence an umbrella word that broadly refers to methods other than courtroom arbitration
of conflicts.25 The idea that different types of disagreements may call for different types of
processes is also expressed by the term "appropriate dispute resolution"; no single legal or dispute
resolution procedure is suitable for all types of human disagreeing.26

2.3 Types of ADR

ADR is an umbrella term that is comprised of several methods. Just like the diversity in causes of
disputes, the settlement methods are also varied. The methods employed for the resolution of
disputes is as per the preference of the parties as said earlier that ADR is a consensual process.

Some of the main types of ADR are briefly discussed below:

2.3.1 Negotiation:
Goldberg, Sander, and Rogers define negotiation as “communication for the purpose of
persuasion27. Negotiation is a process by which parties resolve their disputes. The term negotiation
refers to a strategic discussion that resolves an issue in a way that both parties find acceptable.
They agree upon course of action and bargain for advantage. Sometimes they try to adopt such a
creative option that serves their mutual interests. Because of its mutual advantages, people
negotiate in almost all walks of life from home to courtroom. It is the most common form of
resolving a dispute.

Negotiation is a process in which both the parties cooperate and seek a solution that is mutually
beneficial (a win-win situation or cooperative bargaining)28. Negotiation is a dialogue between

25
J.M NOLAN-HALEY, ALTERNATIVE DISPUTE RESOLUTION, 1-2 (St. Paul MN: West Publishing Co 1992).
26
KERMIT L. HALL, THE OXFORD COMPANION TO AMERICAN LAW, 17 (Oxford university Press 2002).
27
GOLDBERG, STEPHEN B, et al. DISPUTE RESOLUTION: NEGOTIATION, MEDIATION AND OTHER
PROCESSES (2014).
28
Ibid, pg. no. 6.

22
two or more people or parties intended to reach an understanding, resolve points of difference, to
gain advantage for an individual or collective, or to craft outcomes to satisfy various interests.
Negotiations involve some give and take, which means one party will always come out on top of
the negotiation. The other, though, must concede even if that concession is nominal.29Negotiation
occurs in business, non-profit organizations, and government branches, legal proceedings, among
nations and in personal situations such as marriage, divorce, parenting, and everyday life. Legal
practitioners use their negotiating skills more frequently than their other lawyering talents.30

2.3.2 Mediation:
Mediation is a process wherein the parties meet with a mutually selected impartial and neutral
person who assists them in the negotiation of their differences. The Black‟s Law Dictionary
defines, mediation as a method of non-binding dispute resolution involving a neutral third party
(mediator) who tries to help the disputing parties to reach a mutually agreeable solution.
Mediation is the acceptable intervention into a dispute of a third party who has no authority to
make a decision. Mediation encompasses a variety of techniques, but its defining feature is the
use of a third party neutral that, rather than imposing a solution on the parties, helps them reach
their own agreement. It is a process in which the parties to the dispute select a mutually acceptable
independent third party, the mediator, who will assist them in arriving at an acceptable solution
to their conflict or dispute.31

In a mediation procedure, a neutral intermediary, the mediator, helps the parties to reach a
mutually satisfactory settlement of their dispute. Mediation is an efficient and cost-effective way
of achieving that result while preserving, and at Post even enhancing, the relationship of the
parties. A party to a mediation cannot be forced to accept an outcome that it does not like. Unlike
an arbitrator or a judge, the mediator is not a decision-maker. The mediator's role is, rather, to
assist the parties in reaching a settlement of the dispute.32 The mediation process is voluntary and

29
Rajeev Dhir, Investopedia, February 22, 2021 https://www.investopedia.com/terms/n/negotiation.asp (visited
on 4 January.2024).
30
EDWARD BRUNET, CHARLES B. CRAVER, ELLEN E. DEASON, ALTERNATIVE DISPUTE
RESOLUTION: ADVOCATE‟S PERSPECTIVE (5th ed), Carolina Academic Press, LLC (2016).
31
Barriers to conflict resolution 10(Amos Tversky et al. eds, 1995).
32
WIPO https://www.wipo.int/amc/en/mediation/what-mediation.html (visited on 5 January. 2024).

23
does not eliminate other dispute resolution options. It is confidential whether or not it results in
the settlement and resolution of the dispute.33

In Nepal, Mediation is practiced as per Mediation Act, 2068 and Mediation Rules, 2070 at
present. „Mediation‟ according to Mediation Act, 2068 is “a process to be followed to settle a
dispute or case with the assistance of a mediator”34 and „Mediator‟ means “a mediator appointed
pursuant to this Act who facilitates for negotiation between the mediation parties and motivates
them in arriving at a voluntary agreement.”35

2.3.3 Conciliation:
Conciliation is a process in which a third party assists the parties to resolve their dispute by
agreement. A conciliator may do this by expressing an opinion about the merits of the dispute to
help the parties to reach a settlement. Conciliation is a compromise settlement with the assistance
of a conciliator. Conciliation is a voluntary and non-binding process in comparison to arbitration
and litigation. Any party may terminate conciliation proceedings at any time even without giving
any reason.36The conciliator does not decide for the parties but strives to support them in
generating options in order to find a solution that is compatible to both parties. It is sometimes
referred as „Early Neutral Evaluation‟.

UNCITRAL adopted a set of Conciliation Rules in 1980.UN General Assembly has recommend
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 and FITTA.

Many times, conciliation and mediation are used interchangeably and they are together with
referred to as Mediation. A Mediator assists the parties to reach an agreement for resolving the
dispute and he does not express his opinion on merits of the dispute, whereas a conciliator may
express an opinion about the merits of the disputes.37

33
ASHWINIE KUMAR BANSAL, ARBITRATION AND ADR (2nd ed), Universal Law Publishing 4 (2009).
34
Mediation Act, 2068, § 2(h).
35
Mediation Act, 2068, § 2(i).
36
ASHWINIE KUMAR BANSAL, ARBITRATION AND ADR (2nd ed), Universal Law Publishing 2 (2009)
37
Ibid, pg. no. 5.

24
2.3.4 Arbitration:
Where two or more persons agree that a dispute or a potential dispute between them shall be
decided in a legally binding way by one or more impartial persons in a judicial manner that is
upon evidence put before him or them the agreement is called an Arbitration Agreement or a
submission to Arbitration. When after a dispute has arisen, it is put before person or persons for
decision, the procedure is called as Arbitration and the decision when made is called award. All
civil disputes can be referred to arbitration unless prohibited by any law. Virtually, all disputes
can be settled by arbitration including contract disputes involving businesses and consumers
employment claims, real estate, and construction issues. Put in a general way, it may be said that
the disputes arising out of rights in personam may be settled by Arbitration and the disputes arising
out of right in rem cannot be settled by Arbitration38. Arbitration Act, 2055 and Arbitration (Court
Procedure) Rules, 2059 are substantive and procedural laws respectively enacted for undertaking
dispute resolution by Arbitration in Nepal.

The main types of ADR are mentioned below:

 Voluntary Arbitration;
 Compulsory Arbitration.

Other Types of Arbitration:

 Ad-hoc Arbitration;
 Institutional Arbitration;
 Statutory Arbitration;
 Domestic or International Arbitration.

2.3.5 Med-Arb
It is a dispute resolution process that combines some of the features of both Mediation and
Arbitration. Most of the proceedings call for a third-party neutral to first mediate or help the
parties agree to as many issues as possible and then, by agreement of the parties to arbitrate or
make a decision on those that remain. The same neutral person may perform both roles. When an
Arbitration proceeding is pending in an Arbitral Tribunal, the Arbitral Tribunal may encourage

38
ASHWINIE KUMAR BANSAL, ARBITRATION AND ADR (2nd ed), Universal Law Publishing 2 AND 4
(2009).

25
settlement of dispute by Mediation with the consent of the concerned parties.39 As its name
suggests, Med-Arb is a mixture of Meditation and Arbitration that combines the benefits of these
two methods or two-step dispute resolution process.

In addition to these, there exist other forms of Alternative Dispute Mechanisms which are:

 Expert Determination:

A nonbinding and flexible ADR process in which the parties agree to appoint an
independent third party, who is expert in a particular field, to adjudicate on a dispute
within the field of his expertise. The decision of the expert is not binding but it opens
the doors for amicable settlement40.

 Mini trial:

It is a confidential non-binding (binding if the parties agree) settlement process. The

mini trial has not fixed form, flexibility being one of its chief advantages. The process
consists of a semi-formal hearing (abbreviated case presentations), by senior decision-
making executives of both parties who hear each side's arguments presented either by
lawyers for each side, or by lower ranking managers of each side.41 The case
presentations enable the executives to gain a clearer view of the strengths and
weaknesses of each side's key positions. After the presentations, the executives meet
to negotiate settlement. The neutral advisor, if requested, gives an advisory opinion on
the likely litigated outcome of the dispute, or helps the principals reach agreement.42

 Early Neutral Evaluation:

An ADR process which is preventive in nature, the object of which is to settle the
dispute amicably at the earliest stage43. The person appointed by the parties is called
„Evaluator.‟

39
Ibid, pg. no. 4.
40
Ibid, pg. no. 6.
41
LETER EDELMAN, THE MINI TRIAL, ALTERNATIVE DISPUTE RESOLUTION SERIES 1 (April 1989).
42
S. FINE, supra note, at 10.
43
Ibid, pg. no. 7.

26
  Fact-Finding:

A process by which a third-party render binding or advisory opinions regarding the

facts relevant to disputes. The third party neutral, may be an expert on technical facts
or legal questions, may be representatives designated by the parties to work together,
or may be appointed by the court.

2.4 Characteristics of Alternative Dispute Resolution

The presence of various elements in ADR such as negotiation, settlement, conciliation, mediation,
and arbitration make the main characteristics of ADR as follows:

 Informality: In general, ADR processes are less formal than court processes. The
rules of procedure are generally lenient because there are rarely formal pleadings,
extensive written records, or rules of evidence. For those who are intimidated by
or unwilling to participate in more formal setting systems, this informality is
crucial for increasing access to dispute resolution. It also appeals to a wide range
of people. Additionally, it's essential for reducing the cost and duration of conflict
resolution. The vast majority of systems function without formal representation.
 Doctrine of equity: No doubt doctrine of equity is applicable in the method of
alternative dispute resolution. Importantly ADR programmers are pivotal for
application of doctrine of equity. In ADR, each case decided is rather settled by a
third party or negotiated between parties themselves based on the principles that
are seen equitable in the particular case than on applied legal standard of proof44.
 Direct Participation: ADR system makes a good scope for direct participation of
disputants. There is more direct dialogue and opportunity for conciliation between
disputing parties. A higher level of confidentiality is also maintained45.
 Operates without representation: Fundamentally, ADR system is less formal in
comparison with the judicial process. In this approach, the rules of procedures are

44
DR. S.C. TRIPATHI, ALTERNATIVE DISPUTE RESOLUTION, Central law Publications, 3.
45
Ibid.

27 | P a g e
 flexible without formal pleadings, written statements, or rule of evidence. This
informality is basically most important and appealing for purpose of ADR46.
 Supports court reforms: ADR system can support court reforms in several ways.
Even ADR can be used by judiciary to test and demonstrate new procedure that
might later be extended or integrated with existing court procedures. In fact it is
an option within the judicial system. It can be used as a mechanism to reduce
workload of the courts and can be managed and practiced as an effective tool
specifically the field which is not well served by the courts.
 Neutrality: The dispute settlement in ADR system is done before neutral parties.
While the neutrality of the judiciary is presumed, cultural and legal biases are
harder to control. ADR can be neutral to the law, language, and institutional culture
of the parties.

2.5 Importance of Alternative Dispute Resolution

The growing importance of ADR can be highlighted in the following points.

 Cost saving: One of the largest reasons parties choose to resolve their disputes
outside of the court is cost. Judicial process for resolving any disputes involves
court fees, documentation fees, advocates fees and many other extra costs. ADR
does not involve expert fees or court costs.
 Speed: Adjudicative process for resolving conflicts are very lengthy since they
record decisions upon which the hearing is dependent. Litigation can take over a
year to resolve disputes because of different timing and dates involved. Matters
that are being solved using the ADR may take months or even just weeks to be
resolved.
 Control: The parties have control over some of the processes in ADR. Usually
selecting the method of ADR, selecting the panel list for the dispute resolution,
the length of the process and in the mediation case even the outcome are controlled

46
Ibid.

28 | P a g e
 and maintained by the parties. In case of lawsuit process the control is totally
possessed by the court and supreme authority.
 Confidentiality: Privacy is fully securitized when it comes to alternative dispute
resolution. ADR is conducted in private therefore avoiding publicity from the
media. On the other hand, disputes resolved in court are public and judgment
given are also in public.
 Flexibility: Legal and non-legal disputes can be addressed during this process
proving it to be more flexible. Some may think this is a suitable package in the
sense that it takes into account fundamental concerns of the parties and offers
remedy not available at court.
 Simple Modus Operandi: The procedures employed in ADR are flexible and
informal in contrast to the formal and rigid procedures followed in the ordinary
process of dispute resolution in courts of law. These processes thus facilitate
access to justice.
 Parties in good terms: The aim of ADR is to find a compromise solution which
is satisfactory to both parties. Court proceedings create a winner and a loser. Using
ADR means businesses can remain on good terms and parties continue to trade
with each other once the dispute is resolved.

CHAPTER: THREE
An Introduction to Arbitration
3.1 Concept of Arbitration

Arbitration is a process in which a neutral third party or odd numbered panel of neutral parties
renders a decision based on the merits of the case47. Arbitration has increasingly become popular
across the world as a more effective mechanism for resolving commercial disputes instead of
litigation. With its proven benefits particularly in terms of cost, time, and confidentiality it is no
surprise that arbitration is today or widely preferred tool for settling commercial disputes over the
conventional courts. Arbitration is one of the most widely known forms of ADR. It is semi judicial

47
ALBERT FIADJOE, ALTERNATIVE DISPUTE RESOLUTION: A DEVELOPING WORLD PERSPECTIVE, Cavendish
Publishing Limited 27 (2004).

29 | P a g e
and more formal dispute resolution process whereby parties are heard before the neutral decision
maker known as the arbitrator48.

According to Black„s Law Dictionary, ―arbitration is a method of dispute resolution

involving one or more neutral third parties who are usually agreed to by disputing parties and
whose decision is binding49.

Arbitrations are typically conducted by either one or three arbitrator(s) referred to in

each case as the tribunal. The tribunal is the equivalent of a judge (or panel of judges) in a court
action. However, the arbitrators are generally selected by the parties (either directly or indirectly
through a third party or institution) and as a result the parties maintain some control over who is
to determine their disputes. Arbitrators in international cases are usually very experienced
lawyers or experts in the field in which the dispute has arisen50. The tribunal's powers and duties
are fixed by the terms of the parties‟ agreements (including, in particular, any arbitration rules
that have been adopted) and the national laws which apply in each case. The tribunal is obliged
to follow due process and ensure that each party has a proper opportunity to present its case and
defend itself against that of its opponent. However, in other respects, the procedure can be very
flexible51.

Arbitration is a dispute settlement procedure that, like litigation in the State courts, leads to a
final and binding result that will be given execution by the courts.52 The primary difference
between arbitration and litigation is that arbitration is consensual and the final award may treat
only those matters that were referred to arbitration by the parties.53 The basic difference between
arbitration and litigation was recognized by the Supreme Court by indicating that it is a special
means of dispute settlement rather than litigation to provide a legal remedy to the suffering
party54.

48
WINNIE MWENDA, PARADIGMS OF ALTERNATIVE DISPUTE RESOLUTION AND JUSTICE
DELIVERY IN ZAMBIA, 42 (2006).
49
Black‟s Law, supra-2.
50
LATHAM AND WATKINS, GUIDE TO INTERNATIONAL ARBITRATION, 2.
51
Ibid
52
Eric E. Bergsten, Course on Dispute Settlement in International Trade, Investment and Intellectual Property,
Chapter 5: International Commercial Arbitration,17, (UNCTAD Module, 2005).
53
Ibid.
54
Kailash and Company v. HMG Ministry of Education, 7 NEPCA Bulletin 24 (2057).

30 | P a g e
 Arbitration is used internationally and domestically to settle disputes in commerce,
business, and trades. Commercial arbitration is a private form of binding dispute resolution,
conducted before an impartial tribunal, which emanates from the agreement of the parties, but
which is regulated and enforced by the State.55 Most ADR processes are inherently non-
adjudicatory, whereas arbitration is primarily an adjudicatory process and, in that respect, is
comparable to litigation.

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:

 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.
 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.
 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.
 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.

55
LATHAM AND WATKINS, GUIDE TO INTERNATIONAL ARBITRATION.

31 | P a g 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.
 Expertise: Expertise of arbitrator ranks as one of the essential characteristics of
arbitration. Arbitrators can be selected for their expertise in technical areas such
as engineering, economics, science, the customs of the sea or commercial law.
 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 History of Arbitration

Biblical theory holds that when he decided who the real mother of a young boy was, King
Solomon served as the first arbitrator. In the tale, one baby was the target of allegations from two
mothers. Boys had been delivered by two of them. One of the babies passed away during the
night, and the mother of the deceased kid is now seeking custody of the living child. King
Solomon proposed that since neither was willing to relinquish their claim it would be best to cut
the baby into two and hand half to each of them. The true mother immediately protested and said
that she would rather give up the baby to the other woman than to see her baby killed. Solomon
declared that the woman who had shown the compassion was the true mother and returned her
baby to her.

Philip II the father of Alexander the Great used arbitration as a means to settle territorial disputes
arriving from a peace treaty he had negotiated with the Southern state of Greece as far back as
337 BC56. In later times, arbitration owed its beginning to commercial disputes as it started with
trade dispute being resolved by peers as early as Babylonian days. The Sumerian code of
Hammurabi (2100 BC) was promulgated in Babylon, and under the code, it was the duty of the
sovereign to administer justice through arbitration57. The Greeks were subsequently influenced

56
Supranote 1
57
DOUGLAS M. JOHNSTON, THE HISTORICAL FOUNDATIONS OF WORLD ORDER: THE TOWER AND
THE ARENA, The Netherlands: Martinus Nijohff Publications, 195 (2008).

32 | P a g e
by their Egyptian ancestry and continued the use of arbitration. This then moved along with the
times into Roman civilization and was slowly influenced by Roman laws. Such was the move not
just within the Roman Empire but also over the countries with whom the Rome traded58.

In England, Arbitration began even before the King‟s court were established59. According to
Massey, England used arbitration as a common means of commercial dispute resolution as far
back as 1224. It developed as a means of merchant and traders to avoid the courts. The earliest
recorded evidence relating to a written law of arbitration in England dates back to 169860. The
Arbitration Act of 1698 was amended by Procedure Act 1854. The main purpose of this Act was
to make arbitration submission more binding on the parties; to make decision of arbitrators more
easily enforceable; and to remedy other defects, which were brought into light as the importance
of arbitration increased.

The United States and Great Britain were pioneers in the use of arbitration to resolve their
differences. It was first used in Jay Treaty of 1795 negotiated by John Jay and played a major role
in Alabama Claims case of 1872 whereby major tensions regarding British support for the
Confederacy during the American Civil War were resolved. The Hague Peace Conference of 1899
saw the major world powers agreed to a system of arbitration and the creation of a Permanent
Court of Arbitration. Arbitration was widely discussed among diplomats and elites in the 1890–
1914 era. The 1895 dispute between Britain and Venezuela was peacefully resolved through
arbitration.

In the Twentieth century (excluding the times of World War I and II), arbitration gained
worldwide recognition as an effective way of solving commercial and investment disputes.
National and international chambers of commerce having their own set of arbitration rules and
providing the possibility to select their jurisdiction to govern international commercial disputes
were of key importance. Even though notable chambers of commerce already existed before the
twentieth century, this was the time period when their role matured greatly61.

58
Ibid.
59
WILLIAM HERBERT PAGE, THE LAW OF CONTRACT, vol. 4, The W.H. Anderson Company, 75 ( 1919).
60
JULIAN D. M. LEW, LOUKAS A. MISTELIS & STEFAN KROLL, COMPARATIVE INTERNATIONAL
COMMERCIAL ARBITRATION, Kluwer Law International, 19 (2003).
61
BENNETT, R.J., LOCAL BUSINESS VOICE, THE HISTORY OF CHAMBERS OF COMMERCE IN
BRITAIN, IRELAND, AND REVOLUTIONARY AMERICA 1760-2011, Oxford University Press (2011).

33 | P a g e
3.4 Types of Arbitration

 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 t 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.
 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‟.
 Ad hoc Arbitration: Arbitration conducted without the assistance of an administering
institution is Ad hoc Arbitration. The parties have the flexibility of creating their own rules
and procedures. In other words, arbitration which is not institutional is considered as Ad
hoc Arbitration.
 Contractual in-built arbitration: Due to an increase in corporate transactions involving
complicated phenomena, this type of arbitration became useful. While business relation
increases, presumably clashes between parties in the transaction are natural. Therefore, an
arbitration clause is inserted for resolving any disputes by arbitration.
 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 disputes62. 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.
 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

62
ASHWINIE KUMAR BANSAL, ARBITRATION AND ADR (2nd ed), Universal Law Publishing 16 (2009)

34 | P a g e
 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 arbitration63.

Chapter: FOUR
Legal Framework on Arbitration in Nepal
4.1 Development of Arbitration law in Nepal

When Nepal had trade relations with Tibet in early days, it was seen that disputes arising in trade
relations and commerce were often settled by arbitration. During the time of King Vim Malla in
1645-1650, a dispute between Nepal and Tibet businessman was solved through arbitration64.

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 gentlemen chosen from
among the villagers to render in impartial decision in the settlement of disputes between the
parties. Since early times the decisions of Panchayats were acceptable and binding on the parties.
Panchayat as a private tribunal was a different system of arbitration and was subordinate to a
regular court of law65. In Lichhavi era, the Panchali, which was also known as Pancha Sava, was
empowered to decide disputes at the local level. In early days, the disputes between the villagers
were often settled by experienced and honorable men in Nepalese society.

This form of dispute settlement mechanism that was practiced for a long period should be
considered as the foundation of concept of arbitration in our context, but not the same as the
modern notion of arbitration. The history of modern commercial arbitration in Nepal is not old.
In Nepal, the concept of arbitration in its modern sense was first found in government contracts66.
The provision of arbitration first appeared in section 9 of the Development Board Act 1957. which
provided for the resolution of dispute under contract to which the board is a party. A general
legislation on commercial arbitration was enacted in 1981 which was active for 18 years. It was
later superseded by Arbitration Act, 1999.

63
Ibid. pg. no. 17.
64
G.B. SHRESTHA, OUTLINE OF PROCEDURAL LAW IN NEPAL, Pairavi Prakashan 134 (2015).
65
DR. BHARAT BAHADUR KARKI, UNCITRAL Model Law on International Commercial Arbitration (1985).
and Nepalese Arbitration Law, 15 NEPCA HALF YEARLY BULLETIN 8 ,(2061).
66
Ibid.

35 | P a g e
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. Oath by arbitrators
3. Appointment of arbitrators under the agreement
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
10. Emphasis on expedient and inexpensive arbitral hearing

A new dimension in Nepal's commercial and industrial sectors was opened with an
increased potential for and interest in foreign investment following the publication of the country's
new constitution in 1991 (which cleared the way for a democratically elected government).
Hydropower development, infrastructure improvement, and mineral prospecting all saw
advancements as well. Conflicts arose as a result of these economic operations and Nepal's
exposure to Western nations. The necessity for international arbitration slowly began to arise as
a result of the rising interest from foreign financial agencies in development projects and the
growth of commercial activities outside national boundaries. On 26 September 1997, the House
of Representatives declared having acceded the 1958 Convention on the Recognition and
Enforcement of Foreign Arbitral Awards (the New York Convention 1958) and published this
declaration in the Nepal Gazette on 27th of September 1997.

Institutional Arbitration in Nepal:

NEPCA, a nonprofit organization was founded in 1991 which is the only institution that provides
arbitration facilities in Nepal. It has been established to administer arbitration and other methods
of alternative methods of dispute resolution in expeditious and less expensive manner as ensured
so by the Preamble. It also seems committed towards developing acts and proceedings related to

36 | P a g e
settlement of national and international disputes of industry, commerce, construction,
development, and similar nature of disputes67. It works for the better resolution of disputes in and
hence advancement of the sectors like development, construction, industry, trade and others.68
Statute of the Nepal Council of Arbitration, 1991 and Arbitral Procedures Regulations of Nepal
Council of Arbitration 2015 are the arbitration laws of NEPCA. There has however been no
permanent arbitral tribunal in Nepal as of this date.

4.2 Existing Nepalese Legislations on Arbitration

Some of the most important legislations/ statutes providing for arbitration in Nepal‟s context are
briefly discussed below.

Arbitration Act 1999:

In April, 1999, Nepal enacted the Arbitration Act, 1999, which came into force at once. The
principal object of the Act is to update the current legal provisions relating to arbitration (as
stated in the Preamble). The Act borrows some propositions incorporated in the UNCITRAL
Model Law on the subject. But it does not blindly copy them. Besides this, it tries to put, in
simple language, the governing principles, without a slavish imitation of the conservative style
of drafting.

Arbitration (Court Procedures) Rules, 2002:

The rules deal with procedural matters relating to the Arbitration Act, 1999. The Supreme Court
of Nepal prepared these rules after having such rule making power delegated. The rules clarify
and prescribe the provisions in respect of court fees, arbitration panels, interim orders, annulment,
and enforcement of foreign and domestic awards etc that helps to facilitate the arbitration process.

Development Board Act, 1957:

Section 9 sub-section (1) has provided that any dispute arising out of any contract with the
Board or relating to its performance, if provided in such contract is to be referred to arbitration

67
Statute of NEPCA, Preamble.
68
Nepal Council of Arbitration, www.nepca.org.np

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for settlement and shall be settled by an arbitrator appointed under such contract. The act has
further provided that no court of law shall have jurisdiction to hear or decide upon such dispute.

Nepal Airlines Corporation Act, 1963:

Section 23 of the act provides that any dispute that arises regarding the contracts between the
committee, managing director or any other official of the corporation and other parties shall be
decided by the sole arbitrator appointed by the GON.

Petroleum Act, 1983:

Section 20 of Petroleum Act, 1983 states that any dispute relating to a petroleum agreement which
cannot be amicably resolved shall be settled by arbitration.

Foreign Investment and Technology Transfer Act (FITTA), 2019:

Section 40 of this act has incorporated the new legal rules which are very flexible regarding the
prescribed foreign investment industry regulations under this act. If the transaction is above the
amount fixed by the above regulations, the disputing parties are not required to undertake
negotiations and can simply begin with arbitration.

Privatization Act, 1994:

Section 13 of the Privatization Act, 1994 also provides for the arbitration process. Parties to the
arbitration agreement may be government or individuals.

Bank and Financial Institution Act (BAFIA), 2017:

BAFIA has made the Nepal Rastra Bank as an arbitrator able to decide upon disputes arising
between licensed financial institutions. Its decision is binding and final in this regard.

Besides, Nepal is a member of the UN, WTO, ICC, among others. It has also adopted the
UNCITRAL model law of 1985 which provides for commercial regulations through international
arbitration. This denotes that Nepal is capable of submitting its cases to the international bodies
widening its scope from just that of the national jurisdiction.

38 | P a g e
Likewise, in compliance with the treaties Nepal has become a party to, arbitration provisions have
been included in Companies Act 2006, Competition Act 2007, Securities Act 2007, Labor Act
2017, FITTA 2019, Industrial Enterprises Act 2020, and such.
4.3 Significant Case laws related to Arbitration in Nepal

 Naresh Vikram Subedi v. Chief District Officer Rolpa and Others NKP 204469:
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.
 Rakesh Kumar v Ram Krishna Rawal, NKP 206670:
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.
 Rajendra Man Sherchan v Appellate Court Patan, NKP 206471:
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.
 Krishi Samagri Company v Appellate Court Patan, NKP 206472:
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 contract, earlier
correspondences, the generally accepted principles of the contract, international practices,
Court precedents etc.
 Raju K.C. on behalf of Nepal Airlines Corporation v. Appellate Court Patan, et.al.
NKP 206773:

69
NKP 2044, vol. 2 WN. 1568.
70
NKP 2066, DN. 8078.
71
NKP 2064, DN. 7823.
72
NKP 2064, DN. 7905.
73
NKP 2067, DN. 8523.

39 | P a g e
 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.
 Department of Roads, Babarmahal v. Arbitral Tribunal comprising of Mr.
Sureshman Shrestha, Ms. Kamala Upreti and Mr. Narendra Kumar Shrestha & ors.,
207774:
The Hon‟ble Supreme Court held that the Hon‟ble Appellate Court has the authority to
invalidate an arbitral award and revert the matter back to arbitration only under the
circumstances given under Section 30(2) of the Arbitration Act, 2055.
 Anil Goyal on behalf of Varun Beverage Pvt. Ltd. V. National Marketing and Sales Pvt. Ltd.
et al., 206675:

The Hon‟ble Supreme Court held that the decision of the arbitral tribunal in relation to an
agreement which is connected to and cannot exist without the main contract, does not
exceed the jurisdiction of the tribunal. Further, the Hon‟ble Supreme Court also held that
when a party has already implemented the arbitral award and the decision of the Hon‟ble
Appellate Court upholding such award, then the same cannot be challenged through writ
jurisdiction of the Hon‟ble Supreme Court.

 Bakhtawar Singh Dhan on behalf of B.S.Dhan And Company V. HMG Kankai

Development Board, 204876:
The Hon‟ble Supreme Court held that arbitration can be commenced even without written
consent between the parties to appoint arbitrators as there is no legal provision to that
effect.
 Faruk Solan on behalf of National Project Construction Corporation V. Secretary of
the Water Resource Ministry et al., 205277:

74
NKP 2077, DN. 10586.
75
NKP 2066, Vol.3 DN 8097.
76
NKP 2048, vol.8 DN. 4296.
77
NKP 2052 vol. 4 DN. 5088.

40 | P a g e
 The Hon‟ble Supreme Court held that when parties have mutually agreed to include an
arbitration clause in the contract, such parties are required to resolve any dispute arising
pursuant to the contract through arbitration.
 Yadav Prasad Pokhrel on behalf of The Bridgeline Corporation V. Appellate Court,
Patan, 206278:
Pursuant to the authority granted by Section 21 of the Arbitration Act, 2038 (B.S.), when
an arbitral award is invalidated by the Hon‟ble Appellate Court, the Hon‟ble Appellate
Court may either revert the dispute back to the same arbitral tribunal or to a different
arbitral tribunal and direct that the dispute be resolved through arbitration. Other than this,
the Hon‟ble Appellate Court may not give any final decision on the matter.
 Rajendraman Sherchan on behalf of Vijay Construction Pvt. Ltd. V. Appellate
Court, Patan, 206479:
The Hon‟ble Supreme Court held that when a party has not complied with Section 6(1) of
the Arbitration Act, 2055, which requires the parties to initiate appointment of arbitrators
within three months of reason to commence arbitration arising, unless otherwise provided
by the contract, the procedure for appointment of arbitrators through the court pursuant to
Section 7(1) of the Arbitration Act, 2055 cannot be initiated.
 Krishna Chandra Jha V. Dinesh Bhakta Shrestha on behalf of Sumit Prakash Asia
Pvt. Ltd., 206680:
The Hon‟ble Supreme Court held that the arbitral tribunal cannot decide on matters outside
the conditions and provisions of the contract and that the tribunal does not have any
discretionary powers.
 Umakant Jha V. Appellate Court, Patan, 206681:

The Hon‟ble Supreme Court held that the Hon‟ble Appellate Court only has a correctional
jurisdiction pursuant to Section 30 of the Arbitration Act, 2055. The Hon‟ble Supreme
Court also held that the question of limitation period is purely a legal question and can
arise at any stage.

78
NKP 2062, vol.3 DN. 7508.
79
NKP 2064, vol.3 DN 7823.
80
NKP 2066, DN. 8128.
81
NKP 2066, DN. 8156.

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  Suman Prasad Sharma on behalf of Melamchi Khane Pani Bikash Samiti V.
Lasunaula Khimti Construction, 206382:
The Hon‟ble Supreme Court held that when the Petitioner is within the limitation period
prescribed by law, the Petitioner cannot be denied justice based on the fact that an incorrect
law was cited by the petitioner.
 Department of Road et al. V. Waiba Construction Co. Pvt. Ltd., Samakhusi,
Kathmandu et al., 206783:
The Hon‟ble Supreme Court held that where the dispute is to be resolved through
arbitration, the court cannot enter into factual questions, consider evidence and provide a
decision in a manner similar to a normal case. Further, the Hon‟ble Supreme Court also
held that where there has not been any grave error in law, the court cannot invalidate an
arbitral award.
 Bikram Pandey on behalf of Kalika, Kanchanjangha JV. V. Ministry of Physical
Planning and Construction, Department of Road et al., 206784:
The Hon‟ble Supreme Court held the following:
 The UNCITRAL Rules become applicable in a manner similar to provisions of a
contract when parties have opted to resolve disputes through arbitration in
accordance with the UNCITRAL Rules, and these Rules are only applicable to the
arbitration proceeding.
 The UNCITRAL Rules do not apply in a manner similar to laws and the scope of
the same can be restricted by the parties through mutual consent.
 The provision of the UNCITRAL Rules whereby a party may request the secretary
general of the Permanent Court of Arbitration to designate the appointing authority
is not a restrictive provision.
 The parties are free to approach the national Hon‟ble Appellate Court pursuant to
the national law for appointment of arbitrators.
 Bhanu Prasad Acharya on behalf of Nepal Government, Ministry of Finance V.
Damodar Ropeways and Construction Company et al., 206785:

82
NKP 2063, DN. 7699.
83
NKP 2067, DN. 8479.
84
NKP 2067, DN. 8437.
85
NKP 2067, DN. 8368.

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The Hon‟ble Supreme Court, inter alia, held the following:
 Validity of an arbitral award cannot be determined in the same manner as other
cases. In terms of factual interpretation, the arbitral tribunal is to be considered
well informed and knowledgeable.
 The Hon‟ble Supreme Court needs to conduct judicial examination of the arbitral
award and decision of the Hon‟ble Appellate Court to ascertain if the conditions
under Section 21(2) of the Arbitration Act, 2038 have been met.
 When both parties have clearly established and agreed on certain aspects, the
decision maker should not create a dispute out of such matters.
 The process of dispute resolution through arbitration is an informal and alternate
process within the larger judicial process. An arbitral award must be supported by
established facts, corroborating evidence and the written language of the contract.
Interpretation based on prevalent laws and established principles should only be
done when the contract is unclear or silent.

43 | P a g e
 CHAPTER: FIVE
Arbitration and its process
5.1 Process and Proceedings of Arbitration

Typical Procedure
We have mentioned many times already that not all arbitrations may look the same or adopt the
same details. "Arbitral procedures and the powers of the arbitrator can differ between cases,
sometimes substantially so. The nature, format, terminology and sequence of an award depend
upon the interaction of many separate permutations. They can include, but are certainly not limited
to, the type of relationship between the parties, the nature of the dispute, any incorporated provision
for arbitration, conditions of appointment, the type of remedy or remedies sought, the legal or other
basis to be used for determining the issues, and then the overlaid effect of that party autonomy on
the arbitrator‟s powers and the procedures to be adopted."86 Such differences exist primarily with
the internal organization and do-how's within the steps more than with the stages themselves. The
general steps followed in every arbitration process are quite identical.

They include:

 Submission to Arbitration: In this step the aggrieved party initiates arbitration process.
The wish for organizing an arbitral tribunal may be effected by the arbitrational clause
incorporated in a contract or by the mutual agreement of the parties later when the dispute
needs resolving.
 Initial Pleading: After the discontentment over any issue has been submitted, there is
initial pleading between the parties. The role of arbiters doesn't come yet. The parties
present and exchange the facts and evidences supporting their claims among themselves.
 Panel Selection: The arbitral panel needs to be selected from a category of professionals
specialized in the subject matter of the arbitration. Generally, each of the parties selects
one arbiter of their choice. The selected arbiters then choose a common arbiter on
consensus who acts as the head of such arbitral panel. So, the arbitral panel in most cases
consists of three adjudicators among whom the head will be the final deciding authority.

44
  Scheduling: It refers to the duty undertaken by the arbiters in summoning the parties with
the relevant or required documents. There will be cohesion among the panel and the parties
for a date convenient to all. Then the actual process starts.
 Discovery: It is the most important step for the parties holding stakes at the case. It refers
to the fact-finding process where the arbiters judge the accuracy and reliability of the
evidences submitted by the parties by comparing one's against another's. Since there is no
provision of witness examination in arbitration, the main subject of scrutiny becomes the
contracts between the parties and supporting documentary evidences.
 Final Hearing: It is what it sounds like. After sufficient discovery of facts behind the cases,
the parties are called for the final hearing. The last chances to parties are given to disprove
any statements or conclusions. After that, the overall hearing process is concluded.
 Arbitral Award: The final hearing is followed by the last step that is providing the arbitral
award. The arbitral panel decides on a common award relying on its best judgment. This
step is of utmost importance because of the closure it offers to the disputant parties and the
dispute itself.

Procedure in Nepal
Arbitration Act of 1999 replaced the Arbitration Act of 1981. It is the prevailing law mostly
influenced by UNICITRAL Model law. The procedures administered by the act are as described
below:

 Arbitration Agreement: “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 otherwise87.
This is the definition of arbitration agreement given by the act according to which such
agreement has to be in 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. Implied agreement is said to exist if one party refers the dispute to the arbitrator
and the other party replies without opposing the arbitration proceedings.

45
  Appointment of Arbitrator: The number of arbitrators shall be three if not provided in
the agreement88. However, if provided it shall be as per the agreement. Arbitrators shall be
appointed within 30 days89.
 Deemed Arbitrator: If the agreement mentions the name of arbitrators, the named
arbitrators shall be appointed90.
 Appointment by Court: The court can appoint arbitrators if no arbitrator can be
appointed upon the procedure contained in the agreement and if the agreement does not
mention anything about the appointment of arbitrators91.
 Qualifications of Arbitrator: Person disqualified for entering into contract as per
prevailing laws, person punished by the court on criminal charges involving moral
turpitude, person who has become insolvent or has been declared bankrupt, person who
has any personal interest in the dispute that has to be settled through arbitration, person not
having any specific qualification as specified in the agreement for become eligible for
appointment as an arbitrator shall not be qualified as an arbitrator92 .
 Claims, Counter- claims and Reply to Counterclaims: 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.93The 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.94 The arbitrator shall provide a time limit of 15 days to claimant to
submit its rejoinder over counter-claim of respondent.95
 In- camera hearing: Arbitration shall be conducted in camera except as otherwise desired
by the parties96.

88
Arbitration Act, 1999, § 5(1), Act of Parliament, 1999 (Nepal).
89
Arbitration Act, 1999, § 6(1), Act of Parliament, 1999 (Nepal).
90
Arbitration Act, 1999, § 6(2), Act of Parliament, 1999 (Nepal).
91
Arbitration Act, 1999, § 7, Act of Parliament, 1999 (Nepal).
92
Arbitration Act, 1999, § 10, Act of Parliament, 1999 (Nepal).
93
Arbitration Act, 1999, § 14(1), Act of Parliament, 1999 (Nepal).
94
Arbitration Act, 1999, § 14(2) (3), Act of Parliament, 1999 (Nepal).
95
Arbitration Act, 1999, § 13(3), Act of Parliament, 1999 (Nepal).
46 | P a g e
  Enforcement of Award: The arbitrator shall pronounce the decision ordinarily within 120
days from the date of submission of documents97. 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. 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.98
 Implementation of Decision 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.99

 Implementation of Foreign Awards: The conditions for implementation of foreign

awards are100:

 The seat of arbitration should be in foreign country.

 Such foreign countries should be a party to the New York Convention.
 The relevant laws of such foreign country do not preclude enforcement of arbitral award
rendered in Nepal.
 The appointment of the arbitrator is consistent with the arbitration agreement.
 The award has been made according to the laws and processes mentioned in the agreement.
 The parties have been notified about the arbitration proceedings in time.
 The decision has been taken according to the conditions mentioned in the agreement or
upon confining only to the subject matter referred to the arbitrator.
 The decision has become final and binding on the parties according to the laws of the
country where the decision has been taken.

97
Arbitration Act, 1999, § 24, Act of Parliament, 1999 (Nepal).
98
Arbitration Act, 1999, § 31, Act of Parliament, 1999 (Nepal).
99
Arbitration Act, 1999, § 32, Act of Parliament, 1999 (Nepal).
47 | P a g e
  Application has been filed for the implementation of the award within 90 days from the
date of award.
 Place and Language:

The place of arbitration shall be as agreed in the agreement or in the absence of which any place
where the parties choose or the arbitrators may, except when any other arrangement has been made
by the concerned parties, designate through mutual consultations the location of their office at any
other appropriate place which is convenient for them to record the statements of witnesses, obtain
the opinion of experts, and inspect any document, object or place.101

The language to be used by the arbitrators in the proceedings shall be as specified in the agreement,
if any. In case the agreement does not specify any such language, they shall use the language
determined by them through mutual consultations. In case the arbitrators fail to determine the
language 9 to be used by them, the language used in the agreement shall be the language to be used
by the arbitrators.102

5.2 Stages of Arbitration

The arbitration process undergoes various stages and this process varies according to the cases.

The following are the main list of the major stages of Arbitration:

i) Preliminary meeting:

There is a meeting between the arbitrator and the parties along with their legal counsel to look
over the dispute in question and discuss an appropriate process and time table.

ii) Statement of Claim:

The claimant sets out a summary of the matters in dispute and the remedy sought in a statement
of claim. The one who wants the dispute to be referred to arbitration or who desires to choose
arbitrators is the claimant (victim). Claimant can submit its claim to the arbitrator in writing
explicitly mentioning the details of the subject-matter of the dispute and the remedy sought by
the party. While doing so Arbitration Act has mentioned time limitation of three month from the

101
Arbitration Act, 1999, § 12, Act of Parliament, 1999 (Nepal).
48 | P a g e
date when a dispute requiring arbitration has arisen.103 Along with claim party must submit other
requirement such as evidences and copy of agreement. If any party wish to present witness
detailed of that witness should be mentioned.

iii) Counterclaim:

The statement of response from the respondent is to admit or deny the claims. There may also
be counterclaim by the respondent, which in turn requires a reply from the claimant. These
statements are called the „pleadings.‟ Their purpose is to identify the issues and avoid surprises.
While submitting the objection in response to the claim, that party can submit its counterclaims
in that connection. Some Arbitral Institution rules have provision to provide time to amend the
claim, counter claim and rejoinder in the discretion of arbitrators.

The time limitation to submit response and counterclaim is provisioned separately by the law in
which the party should, except provided in their agreement submit its response along with
counterclaim (if there is), within thirty days of submission of claim.104

In the case of Agriculture material Sansthan v East India Transport105 Supreme Court has
quashed the decision of Appellate court, when appellate court upheld the award of arbitrator
given by not accepting the evidences of party submitted along with counter claim with in time
limitation.

iv) Hearing:
The hearing is a meeting in which the arbitrator listens to any oral statements, questioning of
witnesses and can ask for clarifications of any information. Both the parties are entitled to put
forward their case and be present while the other side states their part of arguments.

Furthermore, after receiving all the claims, counter claims, objections or rejoinders the arbitrator
immediately starts the arbitration informing the parties about its proceedings, date and time.
Each party is given equal opportunity to present their case in the arbitration proceedings. If any
assistance is required for the examination of evidence the either the arbitrator or the party can
request the District Court for such assistance. The decision is given on the basis of the available

103
Arbitration Act, 1999, § 14, Act of Parliament, 1999 (Nepal).
104
Arbitration Act, 1999, § 14 No. 2, Act of Parliament, 1999 (Nepal).
105
Agriculture material Sansthan v East India Transport, 18 Supreme Court Bulletin 9 (02-03-2066 BS).

49 | P a g e
evidence. The arbitration proceeding is held in camera unless otherwise desired by the parties.
On the completion of the hearing process, the arbitrator issues an order with the effect that the
hearing has been concluded and a record of the same is maintained in the case file. However, a
hearing may be avoided if the issues can be dealt entirely from the documents.

5.3 Arbitral Award and its recognition and Enforcement

5.3.1 Concept of Award

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 final decision on particular claims or disputes106. 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 delay107.

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,

106
GARY B. BORN, INTERNATIONAL ARBITRATION: LAW AND PRACTICE (2ND ed), Wolters Kluwer
2016, 286 -287.
107 th
NIGEL BLACKABY et al., REDFERN AND HUNTER ON INTERNATIONAL ARBITRATION (6 ed), Oxford University
Press 605 (2009).

50 | P a g e
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 court108. Some rules of arbitration contain an express provision that the
arbitrator shall make every effort to make sure that the Award is enforceable at law109.

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 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.

5.3.2 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 with110.

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 them111.

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

108
Ibid 607- 608.
109
ICC Rules, Art. 26.
110
ASHWINIE KUMAR BANSAL, ARBITRATION AND ADR (2nd ed), Universal Law Publishing 19 (2009).
111
Ibid.

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dispute. A settlement or agreed award is final and binding when the parties and persons claiming
under them112.

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.

5.3.3. Enforcement of award

The court of Arbitration and the arbitrators shall make every effort to make sure that the Award
is enforceable at law. The parties undertake to carry out the award without delay. Arbitration
procedure gives an award which should be just, final and enforceable. Award is binding on the
parties and they must perform it on the good faith.
 Enforcement of Domestic Award

Arbitration Act provides that the award should be executed by the concerned parties within forty
five days of the receipt of the copy of award. It is the obligation to the parties to execute the
award as soon as final award is rendered by the government.113 In case of failure of the parties
to execute the award within the time limit, a petition may be filed in the District Court by the
concerned party within thirty days seeking execution of the award.114 The District Court
implements the award within thirty days as its own judgment.
 Enforcement of Foreign Award:

A party which is willing to implement an award made in foreign country should submit an
application to the High Court attaching required documents such as original or certified copy of
the award, original or certified copy of the agreement and official translation of the award in
Nepali language in case the award is not in Nepali language.115

112
Ibid.
113
Government of Nepal, Ministry of water resources v. District court, Kathmandu, NKP, 460 (2064).
114
Arbitration Act, 1999, § 32, Act of Parliament, 1999 (Nepal).
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  Intervention by Court
Although Section 39 clearly curtails the jurisdiction of courts in the matter of arbitration more than
prescribed under this act, courts do have an authority to intervene and set aside the awards under
the following conditions:
a. In case the dispute cannot be settled by arbitration under the laws of Nepal.

b. In case the award is likely to prove detrimental to the public interests or policies.

5.3.4. Invalidation of Award:

Award can be challenge mainly on three ground

● Lack of jurisdiction,

● The assertion that the arbitral panel has been guilty of serious irregularity affecting the
tribunal, the proceedings or the award,
● On the basis of an error of (Nepalese) law.

The party seeking to invalidate the award can file an application in the high court within thirty-
five days from the days of decision.116 High court either can order the same tribunal to correct
the decision, or order to settle the dispute by constituting another tribunal in accordance with
agreement.

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 CHAPTER: SIX
Findings, Recommendations and Conclusions
6.1 Findings

ADR has been a handy tool for people engaged in disputes who have lost the faith in the traditional
judicial system. Its name holds true for all the alternative means it provides the disputants where
they can return to amicable relationships in less cost and time. ADR keeps the parties from being
puppets to the judicial system and its lengthy procedures. ADR has saved ties by vouching for
win-win situations rather than declaring one party the winner at the cost of the smooth bond that
existed between the parties before. Restoration of such peace and cohesion is has been the main
contribution of ADR to the society.

I have found that arbitration is pretty much understood concept worldwide but remains a bit
unclear in the dearth of unanimous laws and principles binding it. Arbitration seems to be
flourishing more in the international nexus of commerce and industry. In Nepal, its practice still
feels to be insufficient to establish a body of authoritative precedence.

From this research on Alternative Dispute Resolution, I have acquired a lot of knowledge about
Arbitration, how it started, why it is important, what are the provisions relating arbitration in Nepal
and lot more. To be particular, following are the findings of this study.

1. Alternative Dispute Resolution is a simple and increasingly popular way to resolve issues and
disputes outside of court. It has become more popular than traditional litigation methods.
Arbitration is one of the most popular forms of ADR, which has seen a significant increase in
usage worldwide. It is often used in the context of commercial disputes.

2. ADR provides a cheap, simple and quick accessible justice without complex methods of judicial
settlement. This process is generally confidential, less formal, and less stressful than traditional
court proceedings. It aims to provide a win-win situation award among the disputing parties.

3. In Nepal Arbitration Act,2055, Arbitration Rules which has been playing vital role to solve the
problem outside the court. It contain provisions for the selection of the Arbitrators, qualification
of the arbitrator, Award and the provisions for the appeals and other related provisions. Also, the

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Constitution of Nepal has provided for the pursuance of alternative means such as mediation and
arbitration for the settlement of disputes of general nature.

4. Arbitration Act,2055 was expanded upon by a number of further statutes, as well as Nepal's
acceptance of the New York Convention (1958) in 1998. As a result, the Nepalese Arbitration Law
is reflective of the UNCITRAL Model Law but has certain unique elements to it.

5. The disputing parties are required to comply with the arbitration award, however, there have
been instances where some parties, particularly government entities, do not fulfill their obligations
specified in the award which is due to the lack of a centralized authority responsible for enforcing
the arbitration award.

6. When the parties choose Arbitration to settle the dispute. If follows the process of statement of
claimant, statement of defense, rejoinder along with oral hearing, analysis, and finally giving the
Award.

6.2 Recommendations

The sector of arbitration as an ADR practice, especially in the case of Nepal, could do with some
suggestions to reform it for its better impact.

1. There still is a category of population who are not familiar with the idea of justice because they
don't have the reach and means. Such groups including others must be made aware of the
availability of the practices of ADR.
2. ADR is an excellent choice to escape the evils of judicial system but it won't be as effective as
expected if the mechanisms keep resorting back to the same forms of evil. ADR practices needs to
swiftly flourish. It must be made easily accessible to all the nooks and corners of the country.
3. In Nepal, the courts till have too much say in the procedural matters of ADR, especially in the
issue pertaining to the challenge to and implementation of the awards. Courts should be kept
separated as much as possible to prevent its influence from spreading to ADR practices. Or else,
it will come down to the same thing.
4. The courts should instead play an advisory or rather facilitative role to further the ADR
processes. They could be by supplying competent professionals, suggesting on matters related to

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issues they have successfully decided on when referred to and harmoniously for the betterment of
judiciary.
5. There is much confusion in the definitions of laws and principles in the area of ADR. This can
become a hindrance in justice delivery because of the inconsistencies in decisions that it invites.
Such a problem could be solved if the national laws made an effort to go hand in hand with the
principles established on an international level.
6. The flagbearer offices, institutions and individuals should take it upon them to rethink on the
ways how ADR could be more efficient and approachable to all. They must be focused on the
realization of real objectives of ADR.
6.3 Conclusion

This doctrinal research was carried out in order to determine the current condition of arbitration
and the rules governing it in Nepal, as well as the impact of these developments on the country's
traditional conflict resolution processes through the legal system. After doing this study, I can state
with confidence that although Nepal's arbitration laws and system have up to now held their fort
strong, they do require some strengthening and repair. The reasons for this are outlined in the
“findings” section above.

The people of Nepal, especially the economically weak, socially backward and power-wise
handicapped, do not have it easy when it comes to justice. They are the ones usually on the
victimized side. The formal litigious process of Nepal demands too much in terms of literacy,
cleverness, patience and obedience. The administration of justice is lengthy and often not true to
what it stands for. There is bureaucracy everywhere. The weak remains weak. The people in power
for the most part, not subject to laws of the land. Plus, it is notoriously famous for the wreckage
caused between partners, families and people in general because of its one-sided verdicts.

ADR is the remedy to all these problems posed by the formal judicial arrangement. ADR practices
must be encouraged in Nepal. The essence of Clinical Law is to confirm that relations are mended
from the hurt caused by the lack in exchange of perceptions. ADR provides a platform to go to the
root of disputes and try to solve them on a human level, not under the direction of a rigid system.
Thus, inculcating the recommendations presented above, the ADR system of Nepal could really
move towards greater heights.

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 BIBLIOGRAPHY

LAWS
 Alternative Dispute Resolution Act, 1998 (USA)
 Mediation Act, 2068
 Arbitration Act 1981
 Arbitration Act 1999
 Arbitration (Court Procedures) Rules, 2002
 Development Board Act, 1957
 Nepal Airlines Corporation Act, 1963
 Petroleum Act, 1983
 Foreign Investment and Technology Transfer Act (FITTA), 2019
 Privatization Act, 1994
 Bank and Financial Institution Act (BAFIA), 2017
 UNCITRAL Model Law on International Commercial Arbitration, 1985
 ICSID Arbitration Rules, 1986
 LCIA Arbitration Rules, 2014

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