Alternative Dispute Resolution: Arbitration

(A Clinical Report)

Submitted to
National Law College
B.A.LL.B Programme
Faculty of Law
Tribhuwan University

Submitted by
Anjali Pariyar
B.A.LL.B 5th Semester
Roll. No - B904
T.U. Registration No.:8-2-1012-10-2020
Acknowledgement

On the very outset of this report, I would like to extend my sincere

gratitude towards all the personages who have helped me in this
endeavour. I would like to express my gratitude to all the authors and
learned personalities whose writings have been used for this study.

First and foremost, I express my sincerest gratitude to our subject

teacher, Mr Krishna Bhandari sir under whose supervision and valuable
guidance this study completed. I am greatly indebted as he constantly
spent a whole semester training us to understand the theoretical aspect of
arbitration. Without his active guidance, help, cooperation
&encouragement, I would not have made headway in the project.

My thanks and appreciations also go to my colleague in preparing the

project and people who have willingly helped me out with their abilities.

Anjali Pariyar
Letter of Recommendation

It is to notify that Miss Anjali Pariyar has prepared this Clinical Report
on ADR: Arbitration under my supervision for the partial fulfillment of
the requirement of fifth Semester of B.A.LL.B
Program of Tribhuvan University. She has fulfilled all the requirements
and the formalities. I wish her a success in her further endeavors.

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

Date : 2080/11/13 Mr. Krishna Bhandari

Lecturer
National Law College
Preface:
This report on Arbitration is prepared after learning about the clinical
law subject in the Fifth Semester of the BA.LL.B program.

This report briefly deals with Alternative Dispute Resolution (ADR) and
it's types and then completely focuses on Arbitration . In context of
Arbitration in Nepal and deal with community, court-annexed
Arbitration. In Fifth Semester, we learnt a lot about arbitration from our
respected sir Mr Krishna Bhandari . The content in this reports are from
the handouts and books provided to us by our teacher as well as the
writings of the author.

The report has been made as per the instruction given to us by our
teacher and B.ALL.B program administration.
Table of Content
Unit : 1 Introduction and Background
1.1 Background of study
1.2 Statement of problem
1.3 Research question
1.4 Objective of study
1.5 Scope of study
1.6 Research methodology
1.7 Review of literature
1.8 Organization of study

Unit :2 Conceptual Framework

2.1 Concept of ADR
2.2 History of ADR
2.3 Types of ADR
2.3.1 Negotiation
2.3.2 Arbitration
2.3.3 Mediation
2.3.4 Conciliation
2.4 Importance of ADR

Unit : 3 Concept of Arbitration

3.1 Concept of Arbitration
3.2 Characteristics of Arbitration
3.3 History of Arbitration
3.4 Types of Arbitration
3.5 Advantages and Disadvantages of Arbitration

Unit : 4 Legal Framework on Arbitration in Nepal

4.1 Development Arbitration law in Nepal
4.2 Existing Nepalese Legislation on Arbitration

Unit : 5 Arbitration Practice in Nepal

5.1 Proceeding of Arbitration
5.2 Stages of Arbitration
5.3 Challenges of Arbitration

Unit : 6 Findings , Recommendation and Conclusion

6.1 Findings
6.2 Recommendation / suggestions
6.3 Conclusion
 Unit-1 Introduction and Background

1.1 Background of study:

Before talking about Alternative Dispute Resolution Mechanism first we need to be able to
comprehend the concept of Dispute Resolution. Dispute generally means disagreement or
argument. According to Black’s Law Dictionary, dispute is a conflict or controversy especially
one that has given rise to a particular lawsuit. 1 Dispute resolution process tries to resolve and
check conflicts, which enables persons and group to maintain co-operation. It can thus be
alleged that it is the sine qua non of social life and security of the social order, without which it
may be difficult for the individuals to carry on the life together.

Dispute is indispensable part of societal interaction since the inception of human settlement. It
is evident that the inception of any relationship between two or more people is the base for a
dispute, as the gradual miscommunication or the lack of communication is certain. If the
disputes are not nipped in the bud, it takes a bigger form.

There are five main reasons behind dispute ; information conflicts, values conflicts, interest
conflicts, relationship conflicts, and structural conflicts.

a. Information dispute

It arise when people have different or insufficient information, or disagree over what
data is relevant

b. Values conflicts

They are created when people have perceived or actual incompatible belief systems.
Where a person or group tries to impose its values on others or claims exclusive right to a set of
values, disputes arise.

c. Interest conflicts

They are caused by competition over perceived or actual incompatible needs. Such
conflicts may occur over issues of money, resources, or time. Parties often mistakenly believe
that in order to satisfy their own needs, those of their opponent must be sacrificed.
1
BRYAN A. GARNER, BLACK'S LAW DICTIONARY, 505 (8th ed., Thomson 2004).
 d. Relationship conflicts

It occur when there are misperceptions, strong negative emotions, or poor

communication. One person may distrust the other and believe that the other person’s actions are
motivated by malice or an intent to harm the other.

e. Structural conflicts

They are caused by oppressive behaviors exerted on others. Limited resources or

opportunity as well as organization structures often promote conflict behavior. Opportunity

ADR is the means of settling disputes outside of the courtroom. 2 It is mostly a non-judicial
means or procedure for the settlement of disputes. 3 There are different means of dispute
settlement under ADR namely mediation, arbitration, conciliation, inquiry and negotiation.
Alternative Dispute Resolution, as the name suggests, is an alternative to the traditional process
of dispute resolution through courts. In simple vein, settling the dispute beyond the formal
process of litigation is called ADR. It includes techniques and processes that act as a means for
the disagreeing parties to come to an agreement with or without the help of third party. In its
wider sense, the term refers to everything from facilitated settlement negotiations in which
parties are encouraged to negotiate directly with each other prior to some legal process, to
arbitration systems mini trials that look and feel very much like a court room process.

1.2 Statement of the problem

ADR is social legal procedure, which is different from the judicial process. It is a non-
adversarial, non-litigation, informal process that serves as the umbrella term for all conflict
resolution used outside of the courtrooms. Even though the researcher, as a student of law has
acknowledged the basic understanding regarding what ADR is, there ultimately lie various
shortcomings in the research’s knowledge on the field of ADR and several of its forms.

The field of ADR has, today and since a long time in the history, been overshadowed by the
conventional court procedures. There has been a serious of lack of knowledge and accessibility

2
Prof. Saha, Tushar Kanti. Legal Methods, Legal Systems & Research. New Delhi: Universal
Law Publishing, 2010.
3
Prof. Agrawal, Nomita. Jurisprudence (Legal Theory).Allahabad: Central Law Publications,
2010.
of normal citizens regarding the existence of ADR methods. It could be either lack of knowledge
or genuine lack of understanding among the public that has led them to be more driven towards
the tedious, exhausting court procedures. It is necessary to address and find a discreet solution to
the recurring problems, which arise when dealing with the above-mentioned issue .

1.3 Research question

1. Are the Nepalese laws and legal provisions regarding community
arbitration dealing with community disputes are sufficient ?

2. What steps has taken by the government of Nepal to focus more on ADR rather than the
judicial procedure ?

3. Do the arbitration procedure contributes to settle disputes process?

4. How effective is ADR procedure ?

5. How ADR procedure is able to provide win win situation to both parties to the dispute ?

All of the above-mentioned questions require thoughtful insight and inquiry into them. Hence,
the researcher finds it important to base their researcher on the topic of ADR and arbitration in
order to discover some essential data and solutions regarding the problems.

1.4 Objective of study

Following are the objective of report:

● To sheds light on Arbitration as a mechanism of ADR.

● To gain skill on the Arbitration mechanism of ADR and its practices in Nepal.

● To gather the information on the ADR process.

 ● To know about the arbitration mechanism of Alternative dispute resolution and its

importance in solving disputes.

● To have idea of various types of arbitration of Nepal.

● To have overall knowledge about arbitration system practiced in Nepal.

1.5 Scope of study

This research report includes the overall idea about the Alternative Dispute Resolutions. It deals
about it's importance, stages, principle, advantages, and history . Under the ADR, the report
mainly focuses the Arbitration mechanism. Under arbitration the report deals about its
advantages, disadvantages, characteristics, process and stages and the overall system of
arbitration practice in Nepal. This report includes the international history of Arbitration shortly
and talks about history of Arbitration in Nepal broadly. It also sheds some suggestion on
arbitration practice of Nepal.

1.6 Research Methodology

The research methodology of this report includes:

Descriptive research: The methodology of the research is highly descriptive as it only describes
the concept of Alternative dispute resolution and arbitration mechanism and its practice in Nepal.

Doctrinal research: Doctrinal research approach is also called fundamental research approach or
traditional research approach. The research paper is purely based on various primary and
secondary sources that are available. The research is done through theoretical aspect ascertaining
a legal rule for identifying the concept of alternative dispute resolution and focuses on arbitration
.

1.7 Review of literature

During the preparation of report various national and international books and articles were
viewed which includes:
 ● Lewis, Richard, "Clinical Legal Education Revisited" article was taken as a reference. It

gives overall idea about clinical legal education.

● Harold Crowter, " Introduction to Arbitration " Pdf book was taken as reference , which

gives the idea about arbitration , it's process , and overall ideas about arbitration .

● " Arbitration & Conciliation with Alternative Dispute Resolution" by Madhusudan

Saharay was also taken into consideration while preparing because it also provides the
guidance on arbitration .
● STEPHEN GOLDBERG ET AL., DISPUTE RESOLUTION: NEGOTIATION,

MEDIATION,AND OTHER PROCESS: provides overviews, critical examinations and

analyses of the application of ADRs three main processes for settling legal disputes
without litigation- negotiation, mediation, and arbitration-as well as the issues raised as
these processes are combined, modified and applied. Using classic and contemporary
simulations and questions, it allows evaluating critique and practicing the various dispute
resolution techniques in use today.

Furthermore, various online sites, article journals and books were referred. The materials
provided by subject teacher were also taken into consideration.

1.8 Organization of study

This report is organized on the following chapters .
The first chapter deals about introduction and background Alternative Dispute Resolution where
it has mentioned about background , statement of problem , research questions , objective of
study , scope of study , research methodology and review of literature of ADR .
The second chapter deals about conceptual framework of ADR where it has mentioned about
concept , history , types and importance of Alternative Dispute Resolution .

The third chapter includes an Introduction to Arbitration. It deals about concept of Arbitration,
characteristics, history, types, advantages and, disadvantages of Arbitration .
The fourth chapter contains about the Legal framework of arbitration in Nepal where it deals
about the development of arbitration in Nepal and existing Nepalese legislation on Arbitration .
The fifth chapter includes the: Arbitration practice in Nepal where it deals about the proceeding ,
stages and challenges of arbitration in Nepalese context.
The sixth chapter deals about the findings, recommendation and conclusion of the report.
 Unit:2 Conceptual Framework

2.1 Concept of ADR

Alternative dispute resolution doesn‘t refer a single kind of mechanism, but it is a generic name

to refer dispute settlement mechanisms other than court and administrative tribunals. Alternative
dispute resolution (ADR) refers to a set of practices and techniques aimed at permitting the
resolution of legal disputes outside the courts. It is based on them “Talk it Out, Not Fight it Out”
and for this reason it is also called as effective dispute resolution.

“Alternative” Dispute Resolution mechanism includes the methods of resolving dispute without
going to the courts of law or without litigation. Alternative dispute resolution (ADR) usually
incorporates a large variety of dispute resolution mechanisms that are “alternative” to or methods
which are short of full scale court process. It includes independent processes like negotiation,
mediation, arbitration, case evaluation techniques and private judging. The Alternative Dispute
Resolution (ADR) mechanisms are largely out of court settlements aimed at settling disputes in
an amicable manner, which are free from strict procedural formalities and are cost effective.
ADR had been used by human society since ancient times though it gets wide acceptance and
recognition in countries' laws recently. In some jurisdictions ADR is now so popular that it is no
longer an alternative form of dispute resolution but a primary form of dispute resolution. ADR
offer a solution to the problem of access to justice faced by citizens in many countries due to
three factors: the volume of disputes brought before courts is increasing, the proceedings are
becoming lengthier and the costs incurred by such proceedings are increasing.

The rising popularity of ADR can be explained by the increasing caseload of traditional courts,
the perception that ADR imposes fewer costs than litigation, a preference for confidentiality, and
the desire of some parties to have greater control over the selection of the individual or
individuals who will decide their dispute.4ADR is fast on its proceeding with fewer expenses plus
flexible for the disputing parties. Dispute remains under the control of the parties themselves in
ADR process. There is active involvement of the disputing parties and they themselves try to
solve their disputes. The parties can choose the mediator or arbitrator freely so that this can lead
to the appointment of persons who are familiar with the business or have other relevant expertise
and can play a role in the effective resolution of the dispute. The processes are confidential and
the judges are impartial.

Black's Law Dictionary, "ADR is a procedure for settling dispute by means other than
litigation, such as arbitration and mediation." ADR is an umbrella term, which refers generally to
alternative to court adjudication of disputes, such as negotiation, arbitration, mini-trial and
summary jury trial.5ADR traditions vary somewhat by country and culture.

It has been accepted and practiced as a legitimate and accessible mechanism of dispute resolution
in Nepal. It is backed by the Nepalese legislations, for example Arbitration Act 2055, Mediation
Act 2068, District Court Rule 2075, High Court Rule 2073 and Supreme Court Rule 2074, etc.
ADR is thus an amicable procedure based on the good will of the parties with designed to
resolve or reduce the tensions between various parts of communities and promote cooperation
and collective interests in the society.

2.2 History of ADR

Worldwide, ADR has become institutionalized as part of many court systems and system for
justice. As burgeoning court queues, escalating costs of litigation, delays continue to plague
litigants; more countries have begun experimenting with the diversion routs to ADR
programs.6The inclusiveness of ADR as dispute resolution can further be explained by the

4
Totaro, Gianna., "Avoid court at all costs" The Australian Financial Review 14 November
2008. (19 April 2010)

J.M. Nolan-Haley, Alternative Dispute Resolution, 1-2 (2002)

5

6
PROF. SAHA, TUSHAR KANTI., LEGAL METHODS, LEGAL SYSTEMS & RESEARCH., New Delhi: Universal Law Publishing, 2010.
preference for confidentiality, and desire of parties to have greater control over the selection of
the individual or individuals who will decide their dispute.7

The ADR movement in the United States was launched in the 1970s, beginning as a social
movement to resolve community-wide civil rights disputes through mediation, and as a legal
movement to address increased delay and expense in litigation arising from an over-crowded
court system. Ever since, the legal ADR movement in the United States has grown rapidly. In
response to the 1990 Civil Justice Reform Act requiring all U.S. federal district courts to develop
a plan to reduce cost and delay in civil litigation, most district courts have authorized or
established some form of ADR.
In the 1980s, demand for ADR in the commercial sector began to grow as part of an effort to find
more efficient and effective alternatives to litigation. Since this time, the use of private
arbitration, mediation and other forms of ADR in the business setting has risen dramatically,
accompanied by an explosion in the number of private firms offering ADR services. ADR
processes are being implemented to meet a wide range of social, legal, commercial, and political
goals. In the developing world, a number of countries are engaging in the ADR experiment,
including Argentina, Bangladesh, Bolivia, Colombia, Ecuador, the Philippines, South Africa, Sri
Lanka, Ukraine, and Uruguay.

Nepal has remarkable history regarding dispute settlement mechanism outside the courts. A large
number of disputes have been settled through alternative methods with the involvements of
person renowned in the society. In the era of Kirat Dynasty, a dispute settlement mechanism
named Pantung was in existence. In the time of Lichhavi, a dispute settlement body named
Panchali, was the independent and capable body to settle dispute through mediation. During
Malla period, there was a dispute settlement body named Panchasamuchhya.

The roots of Nepalese legal system rests on Panchayat system where Pancha refers to group of
seniors, elder and experienced people, who rendered decision by consulting the disputing parties
and other people. In Mustang district, it has long history and tradition in the settlement of local
disputes. There is also the practice of Guthi system for the settlement of disputes. The followed

7
Totaro Gianna, “Avoid court at all costs” THE AUSTRALIAN FINANCIAL REVIEW, (Nov 14, 2008).
negotiation or co- operative steps with community played a great role in the development of

institutionalized ADR system in Nepal. Some Acts implementing the concept of ADR in Nepal

are:

a. Country Civil Code 2074

b. Development Board Act, 2013 B.S.

c. Nepal Petroleum Act, 2040 B.S.

d. Foreign Investment and Technology Transfer Act 2049 B.S.

e. Arbitration Act, 2055 B.S

2.3 Types of ADR

There are various types of ADR that may or may not involve third party’s help and may or may not be
binding, such as:

1.Negotiation

2.Arbitration
3.Conciliation
4.Mediation

In context of Nepalese jurisdiction, it has recognized arbitration and mediation through

implementation of statutes namely Arbitration Act 2055 and Mediation Act 2068, respectively.

2.3.1 Negotiation

Negotiation is the most common form of dispute resolution. Negotiation is the process of
bargaining, where two parties, trying to reach an agreement on mutually accepted terms to
acquire each others want.
Example: - Customer trying to negotiate with buyer over a price of a product.
- Negotiation for salary between employee & employer.
Ury and Fisher note that ―Negotiation is a basic means of getting what you want from others. It
is a back and forth communication designed to reach an agreement when you and the other side
have some interest that are shared and others that are opposed. 8 BATNAs are important to
negotiation because a party cannot make an informed decision about whether to accept a
negotiated agreement unless they know what their alternatives are. ‘Fisher and Ury’ outline a
simple process for determining a party‘s BATNA:

1. Develops a list of actions you might conceivably take if no agreement is reached;

2. Improve some of the more promising ideas and convert them into practical options; and

3. Select, tentatively, the one option that seems best.9

Negotiation has been defined as any form of direct or indirect communication whereby parties
who have opposing interests discuss the form of any joint action which they might take to
manage and ultimately resolve the dispute between them.Negotiation is one of the instruments
used in Nepal.

2.3.2 Arbitration

It is a method of dispute resolution involving neutral third party chosen by the disputants who
hears arguments by each side and delivers a verdict that is arbitral award which is enforceable.
The Black's Law Dictionary defines arbitration as a method of dispute resolution involving one
or more neutral third parties, who are agreed to by the disputing parties and whose decision is
binding.
Arbitration Act of Nepal 2055 provides that any dispute or civil suit of commercial nature may
be settled through arbitration according to prevailing laws. 10 Furthermore, if an agreement

8
Fisher &Ury Getting to Yes: Negotiating Agreement without Giving In (2 nded Penguin Books 1991) at
xvii.
9
Fisher &Ury Getting to Yes: Negotiating Agreement Without Giving in (2nded Penguin Books 1991) 108

10
Arbitration Act 1999, Act no.1 (Parliament of Nepal, 1999), § 3(2)
provides for the settlement of disputes through arbitration, such dispute has to be settled through
Arbitration.11
The definition of "arbitration agreement" has been provided by the Section 2(a) of the
Arbitration Act 2055 BS:
"Agreement means a written agreement reached between the parties for settlement by arbitration
of any dispute which has arisen or which may arise in the future in respect of a defined legal
relationship whether contractual or not."
Supreme Court of Nepal, in a case Krishna Chandra Jha v. Dinesh Bhakta Shrestha and
others, mentioned that ‘The formal procedure of the court is realized as time consuming by the
clients of the trade and commerce which has negative impact in the transactions. They felt that
the court procedures are burdensome and that will impact upon the goodwill of the trade and
traders, that is why arbitration has made its space as an alternative. 12 There are many arbitral
institutions across the world, some of them being London Court of International Arbitration
(LCIA), International Chamber of Commerce (ICC), International Court of Arbitration (ICA),
etc

2.3.3 Mediation

It is one of the systems of ADR which is getting popular these days. It is a confidential procedure
in which a third party acts as a facilitator to assist the parties in reaching the mutually agreed
solution to solve a dispute. Mediation in simple words is negotiation with the assistance of a
neutral third party who does not have authority to issue a binding decision, but helps the parties
to mutually come to a solution in their issue of dispute. There are various organizations in Nepal
like the Nepal Mediators Society, Community Mediators Society Nepal and many more that has
been actively training mediators and providing mediation services to a great number of people.
Even the District court has quite often started to refer family disputes to mediation thus carrying
on the roots of mediation, to the modern legal system. Mediation thus helps achieve the ultimate
ends of a dispute settlement process, that is restore the order in the society in such a way that it

11
Ibid at § 3 (1).

12
Krishna Chandra Jha Vs.. Dinesh Bhakta Shrestha and others, Supreme Court Bulletin, 2059,
Asoj 1, p.1.
not just resolves disputes but mends the conflicting relationships and create a win-win
situation13.In Nepal we have mediation act 2068 and mediation regulations

2.3.4 Conciliation

It is a process in which a neutral person meets with the parties to a disputes and explores how the
disputes might be resolved, especially through a relatively unstructured method of disputes
resolution in which a third party facilitates communication between parties in an attempt to help
them settle their difference.14 In conciliation, conciliator figures out the best solution for the
parties as authoritative figure. Non- partisanship is essential for conciliation i.e. conciliator must
be remote from contrasting interests of the parties but must appropriate equally to protect the
interests of the parties concerned.15Both mediation and conciliation have been available in
relation to industrial dispute.16In Philippines mediation and conciliation are viewed as same.
Though the term ‘conciliator’ is interchangeable with the term ‘mediator’, yet there are
differences between these two positions. A mediator is usually taken to be a person accepted by
the disputants themselves and his role is to help them reach a negotiated settlement of their
disputes. He/she may see each party privately and listen to its view point and impress upon each
party to understand the view point of each party. Their principal task is to bring the parties
together so that they can arrive at an agreed solution to the dispute. On the other hand, a
conciliator himself draws up the terms of an agreement for settlement after having detailed
discussion with parties to the dispute.

There are many others forms of ADR like: Med-Arb, mini Trial however the above mentioned
types are most commonly practiced.

13
ERIC M. RUNESSON AND MARIE-LAURENCE GUY, MEDIATING CORPORATE GOVERNANCE
CONFLICTS, AND DISPUTES

14
Black’s Law Dictionary, 1003 (8th ed. 2004)

15
CHATTERJEECHARLES, LEFCOVITCHANNA, ALTERNATIVE DISPUTE RESOLUTION, A PRACTICAL GUIDE , 110
(2008).

16
David Kelly, BUSINESS LAW, 101 (2002)
2.4 Importance of ADR

Settling private disputes through the courts can be a cumbersome, lengthy and expensive process
for litigants. For these reasons, various forms of ADR have assumed increasing importance in
recent years. Proponents of ADR cite many considerations in it's favours for example.17

● Quicker resolution of disputes

● Lower costs in time, money and aggravation for the parties

● Reduced strain on an overloaded court system

● Ability to use decision makers with specialized expertise

● Flexible compromise decisions that promote and reflect consensus between parties

● Both parties have autonomy to select the neutral third party except negotiation and court

annexed arbitration18 or

● Hidden interests are explored and conflicts are settled permanently.

● Save a lot of time by allowing resolution in weeks or months, compared to court, which

can take years.

● Save a lot of money, including fees for lawyers and experts, and work time lost.

Jane P. Mallor, BUSINESS LAW AND THE REGULATORY ENVIRONMENT, 32 (2001)

17

Uday Nepali Shrestha, “Alternative Dispute Resolution”, Good Governance, Fair

18

Administration of Justice and Capacity Development Programme Report, Judicial Council 127-
129 (2003)
● Put the parties in control (instead of their lawyers or the court) by giving them an

opportunity to tell their side of the story and have a say in the final decision.

● focus on the issues that are important to the people in dispute instead of just their legal

rights and obligations

● Help the people involved come up with flexible and creative options by exploring what

each of them wants to achieve and why.

● Preserve relationships by helping people co-operate instead of creating one winner and

one loser.

● Produce good results, for example settlement rates of up to 85 per cent.

● Reduce stress from court appearances, time and cost.

● Keep private disputes private - only people who are invited can attend an ADR session,

unlike court, where the proceedings are usually on the public record and others, including
the media, can attend.

● Give more people access to justice, because people who cannot afford court or legal fees

can still access a dispute resolution mechanism.

 Unit :3 Concept of Arbitration
3.1 Concept of Arbitration

Arbitration refers to an alternative dispute resolution method where the parties in dispute
agree to have their case heard out of court 19. Generally , it is a procedure in which a dispute is
submitted, by agreement of the parties, to one or more arbitrators who make a binding
decision on the dispute. The binding decision given by the arbitrators is called as " award". In
choosing arbitration, the parties opt for a private dispute resolution procedure instead of going

to court. Arbitration is used because it is often much less expensive than litigation due to its less
stringent procedural requirements. Of the potential alternative dispute resolution methods
available, arbitration is the most similar to taking your case to court. For example, while
arbitrators are not subject to the rule of evidence , they nonetheless allow the parties in
19
https://www.law.cornell.edu/wex/alternative_dispute_resolution
dispute to enter evidence when they deem it fair. Furthermore, parties undergoing arbitration
typically agree to conduct some limited form of discovery .

Arbitration is a non judicial legal technique for resolving disputes by referring them to a
neutral party for a binding decision, or “award.” An arbitrator may consist of a single person or
an arbitration board, usually of three members. Arbitration is a contract-based form of binding
dispute resolution there may be steps set out in the contract which have to be followed before
you can start arbitration.20 A party’s right to refer a dispute to arbitration depends on the
existence of an agreement (arbitration agreement) between them and the other parties to the
dispute , that the dispute may be referred to arbitration . Arbitration is most commonly used in
the resolution of commercial disputes. Commercial contracts will commonly include provision
for how disputes relating to that contract are to be resolved. If the parties choose arbitration,
the arbitration agreement will generally be part of the document recording the terms of the
commercial transaction. Parties can also enter into an arbitration agreement after a dispute has
arisen. In entering into an arbitration agreement, the parties agree to refer their dispute to a
neutral tribunal to decide their rights and obligations. Although sometimes described as a form
of alternative dispute resolution, arbitration is not the same as mediation or conciliation. A
mediator or conciliator can only recommend outcomes and the parties can choose whether or
not to accept those recommendations. By contrast, an arbitration tribunal has the power to
make decisions that bind the parties.
Arbitration is a consensual dispute resolution process based on the parties, agreement to
submit their disputes for resolution to an arbitral tribunal usually composed, of one or
three independent arbitrators appointed by or on behalf of the parties.21 An arbitration is
conducted in accordance with the terms of the parties' arbitration agreement which are
often found in the provisions of a commercial contract or applicable investment treaty.
Arbitration is known for its procedural flexibility, which allows parties to engage in an efficient,
confidential and fair process leading to a final, binding and enforceable award .One of the
attractions of arbitration is that it is typically easier to enforce an award in another country than
it is to enforce a court judgment.

3.2 Characteristics of Arbitration

The principal characteristics of arbitration are:

1. Arbitrator

20
https://www.stewartslaw.com/expertise/international-arbitration/arbitration-process

21
https://www.hkiac.org/arbitration/what-is-arbitration
An arbitrator has a position equal to a court judge who is chosen by the parties themselves.
He /She is the one who is unbiased and takes final and binding decision on the dispute after
hearing both the parties and considering all the facts.

2. Arbitration Agreement:

Arbitration is not possible without the free consent of the parties concerned. Hence there must
be an agreement in writing between the parties which is to be contained in a document called
as an arbitration agreement. The document states that the parties want to resolve their
dispute, through the arbitration process.

3. Arbitral Award:

The decision taken by the arbitrator or arbitral tribunal on the dispute is known as an arbitral
award22

4. Arbitration is consensual

Arbitration can only take place if both parties have agreed to it. In the case of future disputes
arising under a contract, the parties insert an arbitration clause in the relevant contract. An
existing dispute can be referred to arbitration by means of a submission agreement between
the parties. In contrast to mediation, a party cannot unilaterally withdraw from arbitration.
5. The parties choose the arbitrators

In the arbitration procedure , the parties can select a sole arbitrator together. If they choose to
have a three-member arbitral tribunal, each party appoints one of the arbitrators; those two
persons then agree on the presiding arbitrator.
6. Arbitration is neutral

In addition to their selection of neutrals of appropriate nationality, parties are able to choose
such important elements as the applicable law, language and venue of the arbitration. This
allows them to ensure that no party enjoys a home court advantage.
7. Arbitration is a confidential procedure

The confidentiality of the existence of the arbitration, any disclosures made during that
procedure, and the award are protected and hearings are conducted in private and awards are
not published, unless parties have expressly agreed to its publication.
8. The decision of the arbitral tribunal is final and easy to enforce

22
https://businessjargons.com/arbitration.html
After the award is given the parties agree to carry out the decision of the arbitral tribunal
without delay.

3.3 History
A number of authors have argued that the first arbitrator, King Solomon, had used a procedure
similar to the modern-day procedure while resolving a dispute that emerged when two women
protested that they were the mother of a baby boy.

Another influential figure, Philip the Second, had used arbitration to amicably resolve a
territorial dispute that took place way back in 337 BC. In Roman law, ‘compromissum’ was used
to indicate a process of dispute resolution which would draw out a compromise between the
parties. Therefore, we can see that there have been a number of examples of arbitration that
actually took place in the ancient era and can be seen as a trailblazer for the laws we have today.

The history of laws and experiences of arbitration has not so long in context of Nepal. In this modern
business age, arbitration is becoming famous. The formal legal history of arbitration law in Nepal dates
back to the year 1957 AD. When the amendment made in the Act inserted a provision of arbitration in
the case where the development board is involved with. After introducing arbitration by giving room in
the Act, a trend has been established to recognize arbitration as a means of settling disputes in other
Acts subsequently. Such Acts binding the system the system for settling disputes via arbitration are
Nepal Airlines Act, 1962 AD, Commercial Act, 1974 AD and so on. Before promulgating the special law
relating to arbitration, Nepal has been stated the scattered legal provisions in relation to the settlement
of disputes through method of ADR, i.e.; arbitration and mediation in several Acts.
The Nepalese Arbitration Law acquired the precise and formal recognition of lawmakers in 1981 AD
through the enactment of the Arbitration Act, 1981 AD. It was the Act which was wholly concentrated
with the arbitration. After being existed for approximately 18 years, now the Act has been replaced by
Arbitration Act, 1999 AD., which is the prevailing law of Nepal to this effect. The Act, which has been
brought in practice since 15th April 1999 AD .

3.4 Types of Arbitration

1. Domestic Arbitration

In domestic arbitration, both the parties must be Nepali and the proceedings take place in Nepal
itself. The proceedings must be held in the domestic territory and must be in lieu of the
procedural and substantive law in Nepal .
 2. International Arbitration

As the name suggests, international arbitration occurs outside the domestic territory because of
either a clause inserted in the agreement between the parties or the cause of action that arises
from a foreign element relating to the dispute or to the parties. To fulfill the criteria of an
international dispute, it is sufficient

• If any of the parties is domiciled abroad , or

• If the subject matter of the dispute is foreign in nature

3. Compulsory Arbitration

Arbitration is required by law or forced by law on the parties.14 This is also termed statutory
arbitration. Government contracts are held on the basis of a statutory arbitration clause which
can be classified in this category. Section 13 of Privatization Act, 1994 and Section 7 of the
Foreign Investment and Technology Transfer Act (FITTA), 1992 are some examples of laws that
require disputes in certain matters to be compulsorily referred to arbitration and to be decided
under arbitration law.

4. Judicial Arbitration

Judicial arbitration is court-referred arbitration that is final unless a party objects to the
award.15 Section 3(2) of Arbitration Act, 1999 provides for this kind of court-referred
arbitration.

5. Voluntary Arbitration

Voluntary arbitration is arbitration by the agreement of the parties.23 Section 3(1) of Arbitration
Act, 1999 has provided this kind of arbitration which is very useful for commercial dispute
settlement.

23
Garner, supra note 2.
 6. Arb-Med

Arb-Med occurs when arbitration is under process and at the same time when parties are ready
for an amicable settlement, a mediation process is initiated. Here the arbitrator has no decisive
power and he/she needs to follow and facilitate mediation. Section 40 of Arbitration Act, 1999
also mentions this notion.

7. International commercial arbitration

International commercial arbitration can be understood as arbitration that takes place because of
a dispute arising from a commercial contract where either one of the parties resides in a foreign
country or is a foreign national; or the core management committee of an association, company
or a body of individuals is controlled by foreign individuals.

8. Institutional Arbitration

In the arbitral agreement, the parties have the choice of specifying a selected arbitral institution
whose rules will be referred to in the event of disputes. An institution that has the relevant
experience will ordinarily have a list of arbitrators having expertise in that field; from which one
can potentially appoint one or more arbitrators especially in a case when parties don’t appoint
them on their own. Some arbitral institutions do not allow the parties to designate an arbitrator
or co-arbitrator. in Nepal’s context, the NEPCA, is permanent arbitration tribunals.

It is mainly used by business organizations worldwide owing to a specific procedure being

deployed as well as an efficient dispute resolution procedure provided by the institutions. A few
prominent arbitration centers are the Chartered Institute of Arbitrators UK, the London Court of
International Arbitration, the National Arbitration Forum USA, Singapore International
Arbitration Centre, and the International Court of Paris.

9. Ad-hoc Arbitration

It means that the arbitration is being conducted without adherence to the rules of an arbitral
institution. Since parties do not have an obligation to submit their arbitration to the rules of an
arbitral institution, they are free to establish their rules of procedure. The geographical
jurisdiction of Arbitration is pertinent since most of the issues concerning arbitration will be
resolved in accordance with the law applicable to the seat of arbitration.

3.5 Advantages and Disadvantages of Arbitration

The main advantages of arbitration can be summarized as follows:
1. Neutrality
Parties are free to choose a neutral arbitral venue when drafting their arbitration clause. Also,
once a dispute has arisen, parties have the ability to appoint independent arbitrators of their
choice to form a neutral tribunal.

2. Flexibility
Arbitration permits the parties to agree on the procedures they wish to apply to their arbitration.

3. Time efficiency
Due to the flexibility and finality of arbitration proceedings, resolving disputes through
arbitration may often be quicker than resolution through court litigation or other means of
dispute resolution.

4. Confidentiality
Arbitration hearings are conducted in private and awards are, under normal circumstances, not
published. Therefore, disputes will not be revealed to the public and where possible business
relationships can be maintained.

5. Enforceability
The final arbitral award given by the arbitrators are immediately enforced to both of the
disputing parties .

6. Mutual consent of both parties

Arbitration can only take place when both the parties have given their consent and the
contract includes an arbitration clause.

7. Unbiased procedure

No party enjoys an undue advantage because of the fact that the parties are free to decide the
relevant venue, language, and the applicable law.

8. Cost-effective procedure
No exorbitant cost is charged from the parties making it common for parties to prefer
arbitration over the traditional form of litigation.

9. Simple and informal procedure

The parties do not have to separately hire an attorney to represent them and the outcome of
the case can be adapted in compliance with the needs of both parties. The environment is
comfortable and no formal mannerisms are used, making it easier for the parties to reach a
suitable outcome.

10. Freedom to choose arbitrator

The parties can select an arbitrator or agree to get an arbitrator with relevant exercise in the
particular domain by the institution.

11. Stipulated time period for giving an award

The tribunal will give the award within a fixed period of time from the last day of the pleadings
in case of domestic arbitration.

12. Position of control

The parties have a position to control the outcome as they can directly participate in the
decision-making procedure. In this way, the dispute is amicably resolved.
13. Final and Binding
Arbitration awards are usually final and not subject to review on the merits, meaning prolonged
court appeal procedures can generally be avoided .

The main disadvantages of arbitration can be summarized as follows :

1. Finality

This may be a positive if you find the arbitration decision favorable, but if one party feels the
decision is erroneous, there is very limited opportunity to correct it.

2. Can be more expensive

Sometimes arbitration can become more expensive than court proceedings. Quality arbitrators
can demand substantial fees that would not apply in court.

3. Unpredictability

Arbitration does not necessarily follow the formal rules of procedure and evidence that are
involved in a courtroom trial. So , an arbitrator’s decision may be based on evidence that a judge
or jury would not consider at trial, which could be damaging to your case.

4. No cross – examination

If certain information from a witness is presented , there is still no opportunity to cross examine
the testimony of that witness .

5. Limited discovery

Discovery may be more limited with arbitration . This lack of comprehensive discovery can
hinder a party’s ability to obtain key evidence or information necessary to present a strong case.
In litigation , discovery is the process of requiring the opposing party to provide certain
information .

6. Unclear standard

The standards used by an arbitrator are not clear because at times , arbitrators may consider the
"apparent fairness" of the respective parties' positions instead of strictly following the law . This
would result in a less favorable outcome for the party who is favored by a strict reading of the
law .

7. Limited decision-making power

In arbitration, the decision-making power rests solely with the arbitrator(s). While this can be
seen as a benefit in terms of reducing the complexity and cost of proceedings, it also means
that parties are constrained by the arbitrator’s expertise, judgment, and potential biases. Unlike
in a courtroom setting, where a judge or jury decides a case, arbitration limits the input and
perspective of multiple decision-makers, potentially impacting the fairness of the outcome.
8. No formal precedent

Arbitration rulings typically do not establish any formal precedent. The decisions made in
arbitration are often confidential, not binding on future cases, and do not create a legal
precedent that other parties can rely upon. This limitation can make it difficult for parties to
predict the outcome of a dispute based on prior arbitration decisions.
 9. Transparency

Arbitration is a confidential process that does not result in a public record for other people to
use . While this can be beneficial in some cases , it can result in lack of accountability and
transparency .

Unit :4 Legal framework on Arbitration in Nepal

4.1 Development of Arbitration law in Nepal

Generally, the practice of arbitration in Nepal could be traced back much before the institutional
judicial system developed, in the system of “Panchayat”. “Panchayat” was an informal and
private tribunal of five gentlemen chosen from among the villagers to render an impartial arbitral
decision in the settlement of petty disputes (of all socio-economic nature) between the members
of the villages. Since early times the decisions of Panchayats were acceptable and binding to the
parties.24

The modern concept of arbitration in Nepal is not very old. The statutory arbitration provision
first appeared in the Development Board Act, 1956, applied to the resolution of the dispute under
the contract to which the board is a party is seen in the context of the need for foreign capital and
technology to attain the economic development plans and the policy of intensive and extensive
industrialization process.25 The development of international relations, the involvement of
foreign construction companies in development activities in Nepal, the expansion in trade,
commerce, and investment cumulatively ushered the evolution of new legal regimes on the
subject finally leading to the enactment of the Arbitration Act, 1981.26

24
Id. at 1.
25
Mnookin, supra note 3, at 104.

26
Om Suvedi, Nepali Experience and Experiment with Arbitration on Commercial Disputes, 1 NJA L.J.91, 92 (2007).
Arbitration Act, 1981 was the country’s first comprehensive general legislation on commercial
arbitration, which aimed at governing modern arbitrations in Nepal. Arbitration Act, 1981 was
not based on UNCITRAL Model Law of 1985, as no attempt was made to amend it in the line of
the Model Law, rather preference was given to introduce a new Act. Finally, the government
introduced a new Arbitration Act, 1999, based on the Model Law by repealing the previous
Arbitration Act, 1981.27 In April 1999, the Arbitration Act, 1999 came into force. The principal
object of the Act is to update the current legal provisions relating to arbitration. The Act borrows
some provisions incorporated in the UNCITRAL Model Law on the subject.28

4.2 Existing Nepalese legislation on Arbitration

1. Arbitration as an alternative dispute resolution (ADR) mechanism is gaining prominence

in Nepal. Nepalese citizens faces both weak and inaccessible, inadequate means of justice
system for resolving disputes. Arbitration is able to fill this void in judicial assistance by
providing immediate, affordable, and locally accessible dispute resolution services.
Arbitration in Nepal offers a space to resolve interpersonal and collective disputes, which
transforms adversarial tensions into cordial relationships based on mutual respect. The
Arbitration procedure helps in providing a win win situation to both parties . Some of
instances of Arbitration in Nepal are:

Arbitration Act 2055 : Arbitration Act 2055 is the arbitration law in Nepal.

Chapter -2 of the act provisions about Disputes to be Settled through Arbitration: As per sec 3
(1) In case any agreement provides for the settlement of disputes through arbitration, the
disputes connected with that agreement or with issues coming under that agreement shall be
settled through arbitration according to the procedure prescribed in that agreement, if any, and
if not, according to this Act.

27
P CMarkanda, LAW RELATING TO ARBITRATION AND CONCILIATION59 (Wadhwa and Company,
New Delhi, 2nd ed., 1997).
28
G.K. Kuwarta, ARBITRATION AND CONTRACT LAW IN SAARC COUNTRIES WITH CASE LAW
ON UNCITRAL MODEL LAW 71 (Indian Council of Arbitration, New Delhi, 2004).
Notwithstanding anything contained in Sub-section (1), in case of concerned parties to a civil
suit of a commercial nature which has been filed in a court and which may be settled through
arbitration according to prevailing laws, file an application for its settlement through
arbitration, such dispute shall also be settled through arbitration.29

Arbitration is used these days to deal with numerous problems of various subject matters. The
Arbitration Act,2055 has helped in broadening the scope and advancement of arbitration in
Nepal.

Constitution of Nepal, Schedule-8 includes about list of Local Level Power which deals with
management of Village Assembly, Municipal Assembly, District Assembly, local courts,
arbitration and mediation .30

Constitution of Nepal (2072): Article 20(9), every person shall have the right to a fair trial by
an independent, impartial and competent court or judicial body. 31 Article 51(k) Policies relating
to justice and penal system has included in (2) about to pursue alternative means such as
mediation and arbitration for the settlement of disputes of general nature.32

Article 127 (2) has stated that in addition to the courts, judicial bodies may be formed at the
Local level to try cases under law or other bodies as required may be formed to pursue
alternative dispute settlement methods.33

Local self government Act enacted in 2055 had envisaged provision relating to dispute
resolution through recourse to mediation-arbitration (med-arb).However this provision had not

29
Arbitration Act, 2055 - 1999

30
CONSTITUTION OF NEPAL 2072

31
CONSTITUTION OF NEPAL 2072 ,20(9)

32
CONSTITUTION OF NEPAL 2072 ,51(k)

33
CONSTITUTION OF NEPAL 2072 ,127(2)
been implemented as the notifications to bring it into effect was not published in the Nepal
Gazette as required by law.34

Arbitration (Court Procedure) Rules, 2059 is the main law governing arbitration in Nepal . The
Arbitration Act was introduced repealing the Arbitration Act, 1981 (2038). The Arbitration
Act incorporates the detailed procedure for settlement of the dispute through arbitration in
Nepal.35

NEPCA RULES ,2060 has mentioned in it's preamble Whereas, Nepal Council of Arbitration
(NEPCA), established as an autonomous and non-profitable organization for facilitating the
settlement of disputes of commercial nature through the development and institutionalization
of a process of arbitration or other alternative means of dispute settlement, its Executive
Committee, in exercise of the power conferred by Section 26 of the Statute of NEPCA, 2048
(1991) has framed these Rules in order to manage the arbitral proceeding . 36

Status of NEPCA, 2048 has mentioned about overall information about the council of Nepal
Council of Arbitration which is an and non – profitable organization , established to administer
arbitration and other alternative method of dispute resolution in an expeditious and less
expensive manner by arranging co operation from the concerned sector .37

34
Local self government Act, 2055

35
Arbitration (Court Procedure) Rules, 2059

36
NEPCA RULES ,2060

37
Status of NEPCA, 2048
 Unit :5 Arbitration Practice in Nepal

5.1 Proceeding of Arbitration

The arbitration agreement will determine key elements of the arbitration process. For example:
● Will the tribunal comprise one person or three?

● How will the arbitrators be selected?

● Where will the arbitration take place and (possibly different) where will the legal ‘seat’
or place of the arbitration be?
● Will the arbitration be conducted in accordance with the rules of a particular arbitration
institution or will it be ‘ad hoc’?
All these factors can have a significant effect on the time and cost of the arbitration.

As arbitration is a contract-based dispute resolution mechanism, there may be steps set out in the
contract which have to be followed before starting arbitration. These can include holding
meetings between senior people in the two organizations to attempt to resolve the dispute or
mediation.
A claimant will typically start arbitration by sending a document known as a “request for
arbitration” or a “notice to arbitrate” to its opponent.
If the arbitration is to be conducted in accordance with the rules of a particular arbitration
institution, that institution’s rules will typically prescribe what should be in the notice to
arbitrate. Usually, the notice includes at least a description of the issue in dispute. Also, if the
arbitration agreement stipulates that a disputing party should nominate an arbitrator, the notice
should include the identity of the individual the claimant wishes to select. The other party will
then have the opportunity to respond briefly within a set period of time and, where appropriate,
also select an arbitrator. Then :
 1. The tribunal must be formally constituted
If there are to be three arbitrators in a two party dispute, each party will typically select one
arbitrator. The nominees or the arbitral institution will select a third arbitrator to act as chair.
Where there is to be one arbitrator and/or more than two parties, the agreement or the
arbitral institution’s rules will usually set out the appropriate approach to selecting the tribunal.

2. The issues for determination must be identified

These can be issues of fact, law or quantum. It is not unusual for one party to contest the
tribunal’s jurisdiction to decide part or all of a particular issue.

3. The process and timetable must be decided

These will be worked out between the parties and the tribunal. Both should be designed to fit
the requirements of the particular dispute.

The arbitration will then proceed in accordance with the procedure that has been adopted. It is
likely to include each party producing written submissions. Typically, these will be supported by
written witness statements and reports of technical experts, where appropriate. It often includes
the parties providing documents to the other parties and the tribunal. These will include
documents they rely upon and documents the other parties have requested them to produce. This
is often a point of contention between the parties. It is important to take legal advice early on the
probable extent of the obligations to ensure that (a) you comply with them and (b) you can
manage the arbitration process as efficiently as possible.

Arbitrations usually involve one or more hearings before the tribunal, where the parties’ lawyers
put forward arguments and question the other party’s witnesses and experts. Hearings can last
from half a day to many weeks or even months depending on the issues at stake. After the
hearing, the tribunal will produce its award. 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. The grounds on which an award can be challenged or appealed vary
depending on factors such as the terms of the arbitration agreement, the arbitral ‘seat’ and the
institutional rules. A tribunal’s findings of fact can rarely be challenged. However, if the tribunal
has not conducted itself properly, has answered questions it should not have answered or, in
some cases, made an error of law, a party can go to court to ask for the award to be set aside or
sent back to the tribunal to make its decision properly.

Procedure to be Adopted by Arbitrators in Arbitration proceeding as per Arbitration Act ,

2055(sec-17):
 (1) The procedure to be adopted by the arbitrator while taking a decision on a dispute shall be as
mentioned in the agreement, and in case no such procedure has been mentioned in the
agreement, it shall be as laid down in this Act.

Provided that the procedure not laid down in the Act shall be as prescribed by the arbitrator with
the consent of the parties, and in case the parties fail to reach an agreement in that connection, it
shall be as prescribed by the arbitrator him/herself.

(2) The arbitrator shall start arbitration proceedings immediately after receiving all such claims,
objections, counter-claims or rejoinders as need to be received by him/her.

(3) The arbitrator must inform the parties about the type of proceedings to be held, and the day
and time fixed for the purpose and also keep records thereof in the concerned case file.

(4) In respect to a dispute which has been referred to three or more arbitrators, the arbitrators
who are present may conduct all arbitration proceedings other than taking the final decision or
issuing the final order.

(5) The arbitrator may continue arbitration proceedings and pronounce his/her decision on the
basis of the available evidence even if any party does not present itself on the day and at the time
of arbitration proceedings after receiving a notice pursuant to Sub-section (3).

(6) After the completion of the process of hearing, the arbitrator shall issue an order with the
effect that the hearing has concluded and keep a record thereof in the case file. No evidence may
be examined or the parties heard thereafter.

(7) Notwithstanding otherwise claimant in the agreement, the arbitrator must read out his/her
written decision within 30 days from the date of issue of an order pursuant to Sub-section (6).38

5.2 Stages of Arbitration

1. Claim and counter claim(Sec-14)

● Claimant shall submit a claim to the arbitrator within 3 months from the
dispute or from the time of appointment of arbitrators.
● Other party shall submit the objection or counter-claim within 30 days after
receiving notice of claim.

38
Arbitration Act 2055 ,17
 ● Within another 15 days claimant shall submit it’s rejoinder over the counter-
claim.
● All supporting evidences and witness details must be provided along with
claim, objection or rejoinder.

2. Procedure (Sec-17,18)
● Procedure to be adopted by Arbitrators shall be as provided in the contract.

● Shall start immediately after receiving claims, objections and rejoinders.

● Shall inform parties about proceedings, time and also keep record of the
proceedings.
● Shall follow substantive law of the country while arbitrating.

3. Serving notices and summons

● Notices can be served directly to people or their address provided in the
contract or as provided by either parties. If not it can be served to the
permanent addresses or business address of the party.

4. Evidence and witness

● Arbitrator can summon, record statement and order to present any
document.
● Can also take help of court in taking and examining evidences.

5. Decision making(Sec-24,25,26,28)

● Within 120 days of the submission of claim, objection and rejoinder.

● Decision of majority to be held.

● Decision to be read to all parties and a copy each to be provided to the

parties.
● Arbitrator can’t revise his decision except for minor errors.

6. A decision must include(Sec-27)

a. Detail of the issue
 b. Jurisdiction or any surrounding question.
c. Decision and ratio decidendi.
d. Arbitral award and remedy for failure to comply
e. Time and place of arbitration

7. Execution of Arbitration
● Shall be done within 45 days.

● Implementation through court.

• For foreign parties, arbitrator may demand securities until decision is

implemented.39

5.3 challenges of Arbitration

The challenges that we are facing or may face in the future are discussed below.
1. Delay
Delay on the finality of an arbitral award by entertaining writ jurisdiction must be curbed. Delay
on appointment of an arbitrator is also a great issue. It contradicts the concept of arbitration.
2. Cost
The cost of the arbitration process is being increased day by day which may prevent the
business sector from choosing arbitration as a form of ADR.
3. Definition
The term ‘commercial arbitration’ is not defined by law which is very uncertain.
4. Award by Fraud or Corruption
What will happen if the award is given by fraud or corruption? It is internationally recognized
that an award by fraud or corruption not only provides grounds to remove arbitrators but also
provides grounds to invalidate awards in a court of law.
5. Code of Conduct
Till this date, Nepal has no code of conduct for an arbitrator. There is a real need in Nepal for
arbitral jurisprudence.

39
Arbitration Act , 2055
 6. Judicial Review of Awards
What sort of judicial review of arbitral awards is necessary for Nepal’s legal system? The
grounds provided for judicial review in section 30 of 1999 Act may be adequate or not? The
ground to make void an award on the basis of damage to the “public interest” is absolutely
vague.
7. Recognition
Whether or not NEPCA or other institutional arbitral organizations should be recognized by the
law itself is a matter that must be dealt with.
8. Substantive Law
Which substantive law applies to arbitrators? Section 18 of the Arbitration Act, 1999 has
provided the default rules. Parties are free to make agreements on this matter. If an arbitration
agreement is silent in this regard the Nepali substantive law will prevail. But, here in this section
a rule has ignored the principle of natural justice which stated that arbitrators are not free to
follow the doctrine of ex aequo et bono and amiable compositor. Without consent, both of
these doctrines are usually followed by decision makers if there is any lacuna or gap in the
written law or contract for the sake of justice. An arbitrator must get both parties to consent to
apply these values, which is very rigid, mechanical and hard, because usually a party who wants
to make any delay (doing so he/she may be benefited) may be reluctant to give their consent.
An arbitrator must always follow the written contract.40 When making a contract, every factual
situation which may arise in the future can not be incorporated. Therefore, parties must be
aware of what they include in contracts, otherwise one party may become vulnerable.
9. Arbitral Immunity
In the USA, both state and federal courts recognize that arbitrators enjoy quasi-judicial
immunity from legal liability for actions taken in their arbitral capacity. This principle has also
been observed in the international commercial setting.41 There is a sufficient rationale to do so.
The rationale behind this immunity was observed by the court and “continues to influence the
courts today.”42The court held that:
An arbitrator is a quasi judicial officer, under Nepal’s laws, exercising judicial
functions. There is as much reason in his case for protecting and insuring his
impartiality, independence, and freedom from undue influences, as in the case of
a judge or juror. The same considerations of public policy apply, and we are of
the opinion that the same immunity extends to him.43
But Nepal’s scenario is different from the above explanation. It is found that in an ad hoc
arbitration process after the arbitrators have given an award, they are often personally
defending their position in a writ petition. Arbitrators were also made a party to litigation which
40
ARBITRATION ACT, 1999, Section 18 (2) (3).
41
Nolan-Haley, supra note 42, p. 153.
42
Nolan-Haley, supra note 42, p. 154.
43
Hoosac Tunnel Dock & Elevator Co. v. O’Brien (1884), cited in Nolan-Haley, supra note 42, p. 154.
I have already mentioned above. If it is continuously happening nobody will be ready to be an
arbitrator in a commercial dispute because of their fear of further litigation.

Unit:6 Findings, Recommendation and

Conclusion

6.1 Findings

Through the class lecture and, during the preparation of this report I came to know lot about
the alternative dispute resolution. I have been highly inspired by the lecture of our respected sir
Krishna Bhandari as he links every concept with the practical experience of his own.

I found that the general understanding and the practices of dispute resolution that are
undertaken in our society is comprised of many faults that needs to be ratified and settled
before it turns out to bring a big disaster. During my research I found the arbitration in Nepal
have some problems like:
 ● Lack of essential skilled manpower,

● Lack of proper implementation of the provisions,

● Lack of awareness among people regarding the arbitration facility in Nepal.

Although the concept of settling dispute outside of court is not new for Nepal since it is
practiced through various means like Mukhiya, Pancha Bhaladmi, systems were in practice. But
Nepal has no long history of the formal and institutionalized ADR since it is institutionalized only
after the enactment of the Arbitration Act, 2055. On the other hand the Mediation is
institutionalized only after 2063. Now it has become one of the integral parts of the Nepalese
justice system. I came to know that the arbitration process is most effective as it leads to win-
win situation .This is almost impossible in the context of case referred and adjudicated by the
court of law as the decision always is in the favour of only one party which can even turn family
into enemy.

6.2 Recommendation / Suggestions

In the light of the findings mentioned above, following recommendations are suggested.
● Government and other concerned authority should promote arbitration practices.

● People should be aware about arbitration process and its benefits.

● Arbitrators should be experienced, properly trained and punctual.

● Many cases are not referred for arbitration. So, it should be examined and evaluated.

● Arbitration must follow certain code of conducts. For breach of such conducts strict

provisions should be included.

 ● Lawyers should be encouraged in arbitration activities. It is necessary to train judges on

arbitration .

● It is necessary to provide required infrastructure like space, furniture and other logistics.

● Training, seminar, workshop programs should be organized to build up knowledge about

arbitration .

● Arbitration program and process needs to be publicized more.

6.3 Conclusion

Arbitration is a one of the methods of Alternative Dispute Resolution which is non judicial legal
technique for resolving disputes by referring them to a neutral party for a binding decision, or
“award.” The purpose of arbitration is to reduce animosity and self-importance between parties
and enable them to realize and understand their priorities and interests and then help to find a self
determined a mutually acceptable resolution.

The concept of arbitration is not to challenge the formal court proceedings but to act as a
complementary to the court. It assists court by decreasing the workload of court. Institutionalized
arbitration system ensures access to justice to all by promoting fair and quick justice at low cost
and restores people’s faith towards formal justice system.