Arbitration Act 2055: Arbitrability, Appointment, and Setting Aside

2026-06-12

Exam Snapshot

Arbitration is an Alternative Dispute Resolution (ADR) mechanism prioritized in commercial contracts to bypass lengthy court litigation. Under the Arbitration Act, 2055, parties have autonomy to choose their forum and arbitrators, but the final arbitral award is subject to strict judicial scrutiny regarding its validity and procedural fairness.

Core Concept

• Arbitrability: Only disputes arising from a commercial or contractual relationship that can be settled by mutual agreement are eligible. Matters involving criminal liability or fundamental rights generally fall outside the scope of arbitration.
• Appointment: Parties have the right to determine the number of arbitrators and the procedure for their appointment. If the parties fail to appoint, or if the designated method fails, the court (District Court) intervenes to ensure the process does not deadlock.
• Setting Aside: An arbitral award is binding. However, it can be challenged under Section 30 on specific grounds, including the invalidity of the arbitration agreement, lack of notice, the arbitrator exceeding their authority, or if the award conflicts with the public policy of Nepal.

Nepal Law Anchors

• Section 3: Matters referable to arbitration (arbitrability).
• Section 7-11: Procedure and court intervention in the appointment of arbitrators.
• Section 30: Grounds for setting aside an arbitral award.
• Section 31: Limitation period (30 days) to apply for setting aside an award.

Confusable Terms

• Setting Aside vs. Appeal: Setting aside is not an appeal on the merits. It is a challenge to the legality of the process or the jurisdiction of the tribunal, not a re-examination of the facts of the case.

MCQ Traps

• Trap 1: Believing the court can re-hear the facts of the case during a setting-aside procedure. Correction: The court only reviews procedural validity and jurisdictional issues, not the substantive merits.
• Trap 2: Assuming courts are always involved. Correction: Court intervention is a 'last resort' only triggered if the agreed-upon appointment process fails.

Example

If two companies have a construction contract with an arbitration clause, they must appoint arbitrators as agreed. If one party refuses to appoint their arbitrator, the other party does not sue for the breach of contract directly in court; instead, they move to the District Court to have the arbitrator appointed under Section 12. Once the final award is issued, if the arbitrator exceeded their scope, the aggrieved party applies to set aside the award within 30 days under Section 30.

Memory Hook

Remember '3-7-30': 3 (Section 3: Arbitrability), 7 (Section 7: Appointment), 30 (Section 30: Setting Aside).

Quick Revision

• Arbitration agreements must be in writing.
• Default number of arbitrators is 3 if no number is specified.
• The court's role is primarily supervisory and facilitative.
• An award is enforceable as a court decree once the time limit for setting aside expires or the application is dismissed.
• Public policy violation is a major ground for setting aside an award.