How Long Is Too Long? Supreme Court of Nepal Confronts Chronic Delay of Enforcement of Arb

The Nepalese Arbitration Act, 1999 (“Arbitration Act”)1 envisions enforcement of arbitral awards as a process requiring prompt execution. However, in practice, award creditors routinely face protracted legal proceedings that spiral across multiple forums before they can convert a favourable award into concrete relief. Typically, an award debtor, including a state entity, files a writ petition before the Supreme Court of Nepal against a High Court order as a means to evade enforcement until the "final conclusion" of the matter.

This divergence between precept and practice has even gained institutionalised acceptance, with the Ministry of Finance (“Ministry”) issuing a circular to all ministries, commissions, secretariats, and offices, directing that budget requests for compensation arising from arbitral awards be made only after the legal process has been completed up to the court of final instance. The circular aims to avoid state liability arising from the growing number of arbitration proceedings. In effect, arbitral awards are limited to a victory on paper, with creditors unable to realise what they are owed for years while having to defend them through successive rounds of proceedings.

The Supreme Court of Nepal, in Lama Construction and Others v. Ministry of Finance and Others (Writ No. 081-WO-0879)2(“Lama Construction”), recently considered this matter for the first time and cracked down on the institutionalised acceptance of prolonged delays, propounding an unequivocal pro-enforcement approach. This post examines the ruling's impact within Nepal's broader arbitration landscape, situates it alongside the 2025 legislative amendment that had already moved the law in the same direction, and considers the gaps it leaves unfilled.

Enforcement Provisions - The Statutory Gap Behind the Delay

For arbitrations seated in Nepal, once an award is rendered, Sections 31 and 32 of the Arbitration Act impose a clear enforcement timeline. Parties must enforce the award within forty-five days of receiving it, failing which the award creditor may apply to the District Court, which is obliged to execute the award as though it were its own judgment.

The Arbitration Act also governs the recognition and enforcement of foreign-seated awards under Section 34, which is modeled on Article V of the New York Convention. Under this framework, the High Court, upon satisfaction of specific factors, must first issue an order recognizing the award before forwarding it to the District Court for enforcement. This process aligns with Article III of the New York Convention, 1958.

On its face, the statutory scheme of the Arbitration Act appears to provide an efficient and expeditious enforcement mechanism for both domestic and foreign arbitrations. However, a critical gap has existed in the Arbitration Act since its inception: it provides no guidance on whether enforcement proceedings would be suspended once the dissatisfied party files a setting-aside application under Section 30(1). Over more than two decades, this ambiguity allowed the practice of automatically suspending enforcement to take hold, triggered by (i) an award debtor filing a set-aside application; (ii) a writ petition against a High Court's confirmation of a domestic award; or (iii) a writ petition against a High Court's recognition of a foreign award.

This structural gap was addressed only by a 2025 amendment to Section 32(2) of the Arbitration Act, which stated that even a Section 30(1) set-aside filing does not automatically bar enforcement, unless the award debtor separately applies for, and the High Court grants, a stay in exercise of its supervisory jurisdiction. However, by this time, the practice had already hardened into institutional practice, as reflected in the Ministry’s circular, thereby continuing to impede prompt enforcement.

The Ruling

The petitioners, six construction companies, challenged the circular by way of a writ of certiorari and mandamus, seeking to quash the withholding of budget release contingent on the outcome of writ petitions pending before the Supreme Court. The central legal premise being challenged was the violation of the statutory entitlement to enforcement under Sections 30, 31, and 32 of the Arbitration Act, which created a new rule requiring exhaustion of all remedies, statutory and extraordinary, before enforcement could proceed.

The Ministry defended its position as a matter of budget management falling within executive policy discretion. It relied on Section 231 of the Civil Procedure Code, 2017 (“CPC”), which stays execution of a judgment pending appeal, to argue that awards should be paid only after final court proceedings have concluded. However, the Supreme Court ruled in favour of the petitioners, quashing the circular and issuing a writ of mandamus directing the government to undertake the necessary policy, legal, or structural measures to expedite and improve the arbitration process.

Three holdings underpin this outcome. First, the Supreme Court held that although budgetary policy ordinarily lies within executive expertise, a policy decision that obstructs a statutorily guaranteed right—here, the right to enforcement of an arbitral award—cannot be shielded from judicial review. Second, on the central question of enforcement, the Supreme Court held that the mere filing of a setting-aside application under Section 30 does not by itself operate as a bar to enforcement, giving judicial effect to the 2025 amendment to Section 32. Third, the Supreme Court rejected the Ministry’s reliance on Section 231 of the CPC, holding that neither a setting-aside application nor a writ petition qualifies as an “appeal” for the purposes of that provision—the former being a limited supervisory remedy and the latter an extraordinary one. The mere filing of either, the Supreme Court held, cannot automatically suspend enforcement, which is governed instead by the Arbitration Act’s own self-contained regime.

Why This Matters

Arbitration practice in Nepal remains at a comparatively nascent stage relative to international standards, yet it occupies a position of particular priority. Section 58 of the Public Procurement Act, 2007 mandates arbitration for all disputes arising out of public procurement contracts, a category that accounts for the bulk of the country’s construction and infrastructure disputes. Against this backdrop, the ease with which awards are enforced carries significance well beyond the individual case.

Lama Construction is an example of the judiciary supplementing an enforcement mechanism that legislative reform had not, on its own, achieved. While the 2025 amendment addressed the first of the three conditions identified above—the automatic suspension triggered by a pending set-aside application—the ruling has expressly closed the second, holding that a writ petition against a High Court's confirmation of a domestic award is equally incapable of automatically suspending enforcement.

By quashing the circular, the Supreme Court closed a much-needed gap, confirming that a legislative narrowing of the grounds for delay is not sufficient on its own to overcome an entrenched administrative practice, and that judicial review remains necessary to give such reforms practical effect. In doing so, the Supreme Court also brought Nepal’s enforcement practice in line with the broader international position under Article 36(2) of the UNCITRAL Model Law, which permits, but does not require, a court to adjourn enforcement pending a set-aside application.

In the broader arbitration landscape, the ruling’s practical effect is considerable. For contractors and investors assessing the Nepalese market, the principal risk in arbitration has been the prospect of prolonged non-realization even after a favorable award is upheld. This concern is now directly addressed, paving the way for awards to be enforced with corresponding urgency and lending arbitration a measure of credibility as a mechanism capable of delivering not only adjudication but also realization. Together with the 2025 amendment, the ruling reflects a shared institutional intent to make Nepal a more credible seat for arbitration.

What Remains Unresolved

Two critical gaps, however, remain that could constrain the practical effect of the judgment.

The first concerns compliance. The order of mandamus issued by the court directs the government to make “necessary policy, legal, or structural arrangements”. Although unambiguous as an instruction, its wording is broad enough to leave the government considerable latitude in how it complies, if at all. What concrete steps the administrative and legislative bodies take towards ensuring swift enforcement will determine whether the ruling’s institutional intent translates into a genuine change in practice.

The second concerns reach. Lama Construction arose in the context of domestic-seated arbitrations, and the Court’s holding on writ petitions—being an extraordinary remedy falling outside the meaning of an “appeal” and therefore not suspending enforcement by itself—was reasoned in general terms. The reasoning focused on the nature of a writ petition itself, not on anything peculiar to Section 30 proceedings under the Arbitration Act . By parity of reasoning, the holding would appear to extend with equal force to writ petitions filed against foreign awards under Section 34. While Nepal’s obligations under the New York Convention point toward prompt recognition and enforcement of foreign awards, until a future court decides accordingly, there may be room for an inverse interpretation.

For now, Lama Construction stands as an important but unfinished correction to Nepal's enforcement practice.

• 1The English version of the Arbitration Act, 1999 available online is an unofficial translation and contains some inconsistencies with the official Nepali text. Readers should refer to the Nepali version, or consult a qualified lawyer, for reliability.
• 2The English translation of the Lama Construction judgment is currently unavailable. The citation refers to the Nepali version.