Arbitration law in Nepal: Everything you need to know about

Arbitration, as a means to resolve the dispute between parties, is gradually gaining popularity. Nepal enacted the Arbitration Act,1999, with an aim to update the laws relating to arbitration as mentioned in the preamble of the act. Arbitration is regarded as a form of alternative dispute resolution, which is a legal technique of settlement of disputes outside the court, in which the disputing parties refer the case to an impartial or neutral third party regarded as an arbitrator.

Here is everything you need to know about arbitration law in Nepal.

Appointment of arbitrators

Section 5 of the Arbitration Act states that the number of arbitrators shall be determined as mentioned in an agreement. In case of failing to mention in the agreement, it should ordinarily be three in number. If an agreement has mentioned the number of arbitrators in even number, one member shall be added to it.

Further, section 6 of the Arbitration Act states that the process of appointment of arbitrators must be started within three months from the date when the reason for the settlement of disputes arises. The arbitrator is appointed in accordance to the clauses mentioned in the agreement. However, if no clauses are mentioned in regards to appointment, each party shall appoint one arbitrator and the arbitrators so appointed shall appoint a third arbitrator, who shall work as the chief arbitrator.

Disqualifications of arbitrators

Section 10 of the Arbitration Act provides the list of criteria of disqualification from getting appointed as arbitrators.

1. Those who have no capacity to enter into a contract
2. Those who have been punished by a court for criminal charges involving a moral turpitude
3. Those who have become insolvent or who have been declared bankrupt
4. Those who have any personal interest in the dispute that is to be settled through arbitration
5. Those who do not possess the specific qualifications as mentioned in the arbitration agreement

Removal of arbitrators

As per Section 11 of Arbitration Act 2055, the parties can remove the arbitrators if the conditions mentioned in the agreement are not followed. If an agreement is silent about the conditions, the arbitrators can be removed from their responsibility in the following conditions:

1. In case any arbitrator is clearly seen as biased or discriminating against any party instead of working in an impartial manner
2. Where the arbitrator engages in improper actions or commits fraud in the course of the arbitration
3. Frequently commits mistakes or irregularities in the course of the arbitration
4. If the arbitrator does not attend meetings for more than three months, without furnishing satisfactory reasons, in order to delay the proceedings in an improper manner.
5. Takes any action which is opposed to the principles or rules of natural justice
6. The arbitrator is found to be lacking the necessary qualifications or to have ceased to be qualified

Places for arbitration

Section 12 states that arbitration shall be conducted where it is specified by an agreement. If an agreement is silent about the place, it shall be done at:

1. A place determined by the disputing parties
2. If the parties fail to agree, the place shall be specified by the arbitrators in the light of all the circumstances. However, the arbitrator may record the statements of witnesses, obtain opinions of experts and inspect any document, object or place at any other appropriate place.

Procedure of arbitration

The procedure of settlement of dispute through arbitration includes the following steps:

Step 1: Submission of claims

The plaintiff should submit its claim before the arbitrator in writing along with all evidence.

Step 2: Counterclaims

If the time is mentioned in the agreement, the opponent party shall submit its objection within the time limitation provided by the agreement. If the time limit has not been mentioned, counterclaims shall be submitted within 30 days from the date of the receipt of the claim.

Step 3: Rejoinders

The rejoinders should be submitted within 15 days from the date of submission of the counterclaim. A copy of the rejoinder should also be provided to the opponent party.

Step 4: Extension of submission time

In case any party fails to submit its counterclaim or rejoinder within the time limit due to circumstances beyond the control of the party, the party can submit an application to the arbitrator for an extension of the time limit within 15 days from the date of expiry of the time limit. If the reason for the extension seems satisfactory, the arbitrator may extend the time limit as requested.