Arbitration Law in Nepal

In April, 1999, Nepal enacted the Arbitration Act, 1999, which came into force at once. The principal object of the Act is to up-date 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. A look at some of its important provisions would be useful. 

Arbitration agreement

Arbitration agreement is the foundation of arbitration under the Nepal Act. It must be an agreement for the settlement (through arbitration) of any dispute concerning any specific legal issue, arising under a contract or otherwise. The Act avoids the vague words defined legal relationship occurring in the UNCITRAL Model Law (and in the Indian Act of 1996). It is clarified that letters, telex, telegrams or telefax messages, or any other similar messages whose records can be maintained in a written form can form an arbitration agreement. Not raising an objection to the other party’s claim for reference to arbitration also amounts to arbitration agreement [section 2(a)]. 

Counter-claim is expressly recognised, and so is a Rejoinder to a counter-claim [section 2(f) and (g)]. Once there is an arbitration agreement in respect of a dispute, then resort to arbitration is mandatory [section 3(I)]. Arbitration in a pending suit is permitted by agreement [sections 3(2) and 4].

Arbitrators and chief arbitrator

The number of arbitrators can be determined by agreement, failing which, it should ordinarily be three [section 5(1)].

If an even number is provided for, then the arbitrators must choose an additional arbitrator [section 5(2)]. Subject to agreement, the process of appointing arbitrators must be started within 30 days from the date when the reason for the settlement of a dispute through arbitration arises [section 6(1)].

The method of appointment is left to the agreement. Failing agreement, each party shall appoint one arbitrator and the arbitrators so appointed shall appoint a third arbitrator, who shall work as chief arbitrator [section 6(2) to (4)].

The concept of chief arbitrator is not to be found in the Indian Act of 1996. The presiding arbitrator mentioned in the Indian Act does not have that status. 

Under the Nepal Act, where the agreement is silent about the appointment of arbitrators or where no arbitrator can be appointed according to the agreement, then a party may apply to the Appellate Court for appointing three arbitrators (section 7).

Appropriate provision is made for filling up of vacancies in the post of arbitrators [section 8(1)]. Here also, the Appellate Court has a role to play, if the parties fail to act [section 8(2)].

Oath to be taken by arbitrators

The Nepal Act contains an interesting provision (not usually found in Arbitration Acts) requiring the arbitrator to take a written oath of impartiality and honesty, for which a Form is provided in the Schedule. A copy is to be sent to the Appellate Court. Any matters raising a reasonable doubt about impartiality or independence of an arbitrator must be cleared by the arbitrator before signing the oath (section 9). 

Qualifications

A very interesting provision, found in the Nepal Act, relates to the qualifications of arbitrators. The following persons shall not be qualified for appointment as arbitrators:

(a) Those who are disqualified for entering into contracts under current law a phrase which pithily expresses the concept of any law for the time being in force.

(b)  Those who have been punished by a court on criminal charges involving a moral turpitude. This is a very interesting provision, not found in most Arbitration Acts.

(c)  Those who have become insolvent or who have been declared bankrupt. 

(d)  Those who have any personal interest in the dispute that is to be settled through arbitration.

(e)  Those who do not possess the specific qualifications laid down in the arbitration agreement (section 10). 

Removal of arbitrators

The Nepal Arbitration Act contains a rather drastic provision, for the removal of arbitrators. The matter can, of course, be dealt with by agreement. But, failing that, the Act provides that a party may apply to the arbitrator, requesting for permission to remove the arbitrator. 

[The wording is a quaint but polite form of language. The gist seems to be, that the arbitrator can be called upon to resign].

This procedure can be resorted to, in the following circumstances:

(a) Where the arbitrator clearly shows bias instead of working in an impartial manner.

(b) Where the arbitrator engages in improper actions or commits fraud in the course of arbitration.

(c) In case any arbitrator frequently commits mistakes or irregularities in the  arbitration proceedings. [This is rather an extreme provision, as mistake is a very wide word]. 

(d) 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. 

(e) If the arbitrator takes any action opposed to the principle or rules of natural justice. 

(f)  If the arbitrator lacks the requisite qualifications or ceases to be qualified.

The arbitrator must take a decision (on the application to remove him) within 30 days. Against his decision, an appeal may be filed with the Appellate Court, whose decision shall be final (section 11).

Venue

The office of the arbitrator under the Nepal Act is to be located at the place chosen by the parties. If the parties fail to agree, then the office shall be at the place, specified by the arbitrator in the light of all the circumstances. However, (unless the parties have made other arrangement), the arbitrator may record the statements of witnesses, obtain opinion of experts and inspect any document, object or place at any other appropriate place (section 12). 

Language

Language of the arbitration proceedings shall be that chosen by the parties. Failing such choice, it will be the language used in the agreement. (section13). Claim, objection, counter-claim and rejoinder

A noteworthy feature of the Nepal Arbitration Act is the detailed provisions, which it makes, regarding the claim, and subsequent pleadings of the parties, and annexures thereto. The rather long provision in the Act (section 14) can be summarised for the present purpose as under:

(a) The claim must be made in writing, explicitly mentioning the details of the subject matter of the dispute and the remedy sought, along with the evidence. Copy is to be given to the other party. 

(b)  To the claim so filed, the other party shall submit its objection (defence).

(c)  The other party can, along with the objection, submit a counter-claim.

(d)  To the counter-claim, the claimant can file a rejoinder (with copy to the opposite party) (section 14).

Time limits for various pleadings and claims

The Nepal Act also lays down time limits for filing the various categories of claims mentioned above. Subject to an agreement between the parties laying down a different time limit, these time limits are as under: 

� to be filed within three months from the date when the dispute arose  or when the arbitrator is appointed (whichever is later] ; 

� to be filed within thirty days from the date of receipt of the claim ;

� same time limit as is mentioned in (b) above ; 

� to counter, claim to be filed within 15 days from date on which counter claim is filed ;

The arbitrator is empowered to extend the time limit for not more than seven days (section 14). 

Material to accompany the pleadings

The Nepal Act has a provision of considerable practical use, regarding the material that should accompany the pleadings (i.e., claim, objection, counter-claim or rejoinder). The following must be submitted along with the pleadings:�

(a) documents intended to be relied upon,

(b) evidence substantiating the documents, 

(c) list of witnesses proposed to be produced. [section 1(5)].

Failure to submit claims

If there is failure to submit the claim within the prescribed time limit, the arbitration proceedings shall terminate unless the agreement provides to the contrary. If there is failure to submit the objection (i.e., the defence) within the specified time limits, then the arbitrator must still proceed to determine the claim on the merits (section 15).

Challenge to jurisdiction

The Nepal Act contains a fairly elaborate provision as to the procedure to be followed, where a party raises an objection:

(i) that the arbitrator has no jurisdiction over the dispute referred to him, or

(ii) that the contract because of which the dispute has emerged is itself illegal or null and void. Such objection must be raised before expiry of the time limit laid down for filing the defence to the main case. 

Any party not satisfied with the arbitrator’s decision on such an objection may appeal to the Appellate Court within thirty days. The decision of the Appellate Court is final. But the filing of the appeal shall not be deemed to have prejudiced the power of the arbitrator to continue his proceedings and to pronounce his decision before the petition is finally disposed of by the court  (section 16).

One may be permitted to add here, that, generally, the question of the procedure to be followed in respect of objections to jurisdiction is a vexing one. The Indian Act of 1996 does not permit an interim appeal against the decision of the arbitrator, rejecting the objection to jurisdiction. The proceedings must go on, but the aggrieved party can raise the point again, when he challenges the award before the competent court. [section 34, Arbitration and Conciliation Act, 1996 (India)].

The position under the Nepal Act is somewhat different. An interim appeal can be taken to the Appellate Court, as stated above. But the Nepal Act also takes care to expressly provide that the proceedings must go on, in the meantime. This is a good compromise; and whoever thought of it, deserves the grateful compliments of the business community. Of course, lovers of legalism are likely to argue that if the objection to jurisdiction is ultimately allowed by the Appellate Court, then the arbitration proceedings (which are allowed to be held in the meantime) would become infructuous. This is theoretically true. But, in practice, it is found that more often than not, the objections to jurisdiction or to arbitrability are ill-founded (if not totally frivolous).

Working procedure

The Nepal Act deals with the procedure to be followed by the arbitrator, as under:

(a) The parties may, in the arbitration agreement, lay down the procedure. Failing agreement, the procedure laid down in the Act shall be followed.

(b) If, on a particular matter, the Act is silent, the arbitrator can seek the consent of the parties consent on that matter.

If the parties fail to reach an agreement on any procedural matter, the procedure (in that respect) �shall be as prescribed by the arbitrator himself� [Section 17(1)].

The arbitrator must start the arbitration proceedings �immediately� after receiving the pleadings [section 17(2)]. 

He has to keep records of the proceedings in the case file. [section 17(3)].
Absence of one arbitrator

A very useful provision in the Nepal Act deals with the absence of one of the arbitrators at a particular hearing. It is provided that where the dispute is 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 [section 17(4)].

Ex parte proceedings

It is further provided in the Nepal Act that if any party does not present itself at the arbitration proceedings after due notice, the arbitrator may nevertheless continue the arbitration proceedings and pronounce his decision on the basis of the available material [section 17(5)].

Conclusion of the proceedings

On completion of the hearing, the arbitrator has to issue an order that the hearing has concluded. The Act lays down that �evidence may not be examined or the parties heard thereafter [section 17(6)].

Award

Unless the agreement provides otherwise, the arbitrator must read out his written decision, within 30 days of the order closing the hearing. [section 17(7)]. This provision in the Nepal Act (as to reading out the award) does not occur in the Indian Act of 1996. [See also �Award: time limit, infra].

Hearing in camera

The Nepal Act expressly provides that the arbitration proceedings shall be held in camera, unless the parties otherwise decide (Section 19). 

Applicable law

The Nepal Act provides that the Nepal law shall be the substantive law applicable, unless the agreement provides otherwise. But the arbitrator must settle the dispute according to the �conditions stipulated in the concerned contract� He has also to take into account the applicable commercial usages (Section 18).

Bank guarantee from foreigners

An interesting provision found in the Nepal Act relates to foreigners. If any of the parties is a foreigner, so that the decision pronounced by the arbitrator is not likely to be implemented, then the arbitrator has power to obtain a bank guarantee or other appropriate guarantee, as prescribed by the arbitrator [Section 21(1)(d)]. 

Interim orders

The Nepal Act also confers on the arbitrator power to issue (on the request of a party) preliminary orders or interim or provisional orders, in respect of any matter connected with the dispute or to take a �conditional decision� [Section 21(1)(g)]. The Act does not, however, elaborate this provision. Case law on the subject has to be awaited.

Certified copies

The Nepal Act also confers on the arbitrator power to issue certified copies [Section 21(1)(h)]. This is a very useful provision, as many documents tend to be locked up before the arbitrator. 

Appeal

Against the various, interim orders issued by the arbitrator under section 21(1), of the Nepal Act an appeal lies to the Appellate Court [Section 21(2)]. 

Equal opportunity

The Nepal Act provides that each party shall be provided with an equal and adequate opportunity to present its case, �subject to this Act�. [section 22(1)]. With this, one may compare section 18 of the Indian Act of 1996, which reads as under:

�18. The parties shall be treated with equality and each party shall be given a full opportunity to present his case.�

Two points of difference may be noted:

(a) The Indian Act contemplates �full opportunity�, while the Nepal Act provides for �equal and adequate� opportunity. The Nepal wording is preferable.

(b) The Nepal Act makes the provision subject to the Act, which also is more precise than the Indian provision.

Appearance by the parties

Under the Nepal Act, any party may attend the arbitration proceedings:�

(a) either personally, or

(b) by proxy, or

(c) through legal practitioner, [Section 22(2)].

Court assistance

Court assistance may be requested by the arbitrator, to examine any evidence concerning the dispute, (section 23).

Award: time limit

The Nepal Act does contain provisions regarding the time limit for pronouncing the award, as under:

(a) Subject to agreement between the parties, the award must be pronounced within 120 days from the date on which the process of submission of pleadings is complete, (section 24). 

(b) However, this is subject to the provision (already noted above) in section 17(7), under which the award must be pronounced within 30 days of the date on which the hearing is �closed� by a formal order, [Section 24, read with section 17(7)]. [See �Award�, supra]. 

Majority and minority decision

The Nepal Act provides that where there are three or more arbitrators, the decision of the majority prevails. But what about cases where there is no majority view on a particular matter? This situation, not dealt with specifically in the Indian Act of 1996, is specifically dealt with in the Nepal Act. It provides that in such cases, the decision of the chief arbitrator prevails. 

It may be recalled that the Nepal Act specifically contemplates the designation of an arbitrator as, �chief arbitrator� under section 6(4). [See �Arbitrator’s and chief arbitrator�, supra].

Finally, the Nepal Act requires every arbitrator to sign the award. If there is any special reason for his not signing, the other arbitrators, while signing shall explicitly mention that fact. Dissent is, of course, allowed. 

Contents of the award

Subject to a contrary provision in the agreement, the award under the Nepal Act must give brief particulars of the matter referred to arbitration, the grounds for deciding that the arbitrator had jurisdiction (where such a point had been raised) and reasons for the decision, (section 27). 

The amount awarded and interest, etc. should be mentioned, (section 27).

The decision of the arbitrator has to be read out, (section 28).

Corrections in the award

Correction of arithmetical or clerical mistakes in the award is permitted, under the Nepal Act.  If a point made in the claim has not been decided by the arbitrator, he can be requested to do so, within the prescribed period, (Section 29).

Challenge to the award

An award may be challenged on a petition filed before the Appellate Court within 35 days from receipt of a copy by the petitioner. The grounds of challenge are as under:

(a) Incompetence of a party to sign the agreement or invalidity of the agreement.

(b) Notice of arbitration proceedings not given to the petitioner.

(c) Decision has been rendered:

(i) on a matter not referred to the arbitrator; or

(ii) in a manner contrary to the prescribed conditions; or

(iii) by acting beyond the arbitrator’s jurisdiction.

(d) Procedure of designation of arbitrators or their functions and actions do   not conform to the agreement or the Act.

(e) The matter is not arbitrable under the law of Nepal.

(f) The award is likely to prove detrimental to the �public interests or    policies� (section 30). 

Interest

In a monetary award (subject to agreement to the contrary), award of interest is compulsory under the Nepal Act. The interest is to be paid at the rate prescribed by the arbitrator in the light of the nature of the business connected with the dispute, ensuring that it is not higher than the rate of interest currently charged by commercial banks in respect of similar transactions (section 33). 

Implementation of the award

The award is to be implemented by the District Court, under the Nepal Act on a petition filed within 30 days from the date of expiry of the time limit prescribed for implementing it. (The time limit is 45 days) (sections 31and 32).

Interest not award

The Nepal Act is silent as to the situation where the award itself is silent about interest. The situation does not fall within the power of �correction� conferred by section 29. In fact, section 29(1) expressly prohibits review in points of substance. 

It would have been better if the Act had contained a provision that if the award is silent on this point, then it shall be deemed to have awarded interest at the rate of, say, 12 per cent per annum.  The date from which interest is to run, is also not mentioned in the Nepal Act.

Conclusion

Notwithstanding some minor omissions, the Nepal Arbitration Act of 1999 is likely to prove an eminently workable measure. It has struck a compromise between a doctrinnaire approach and a practical one. The grounds for setting aside the award should, however, be made more narrow, by providing that substantial injustice should be proved, before setting aside an award. There should also be a provision that if the award is silent as to interest, the interest shall run at 12 per cent per annum from the date on which the cause of action arose.

Reference: http://www.supremecourt.gov.np/main.php?d=lawmaterial&f=arbitration_law_in_nepal (10-March-2013)

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