BACKGROUND OF THE CASE
In Khandachakra Municipality v. High Court Surkhet (Jumla Bench) and others, Writ No. 082-WO-1070, decided on 16 June 2026, the Supreme Court of Nepal reaffirmed that proceedings under Section 30 of the Arbitration Act, 1999 (Arbitration Act)) do not permit courts to reconsider the merits, evidence or technical findings underlying an arbitral award. The Court also held that an ongoing investigation by the Commission for the Investigation of Abuse of Authority (CIAA), without more, does not establish a violation of public policy sufficient to invalidate an award.
The decision reinforces the finality of arbitral awards arising from public procurement contracts while also highlighting a distinction between the legal finality of an award and its practical enforcement against public entities. Khandachakra Municipality (the Municipality) entered into a public procurement contract on 15 July 2019 with Siruwa/Bhugdeu/Mahankal JV (the Contractor) for construction of the Dhadar Drinking Water Supply Project in Wards 5 and 6 of Khandachakra Municipality, Kalikot. The contract was valued at NPR 40,419,938.40 including VAT. Following extensions of time until the end of Ashad 2080 B.S., the Contractor submitted its running and final bills for payment. The Municipality withheld payment, alleging deficiencies in the works, including inadequate pipe-trench depth, insufficient water yield and omission of Break Pressure Tanks and Distribution Chambers. The Municipality also relied on an ongoing CIAA inquiry concerning the project.
Under the contractual dispute-resolution mechanism and the NEPCA Arbitration Rules, 2015, an Arbitral Tribunal was constituted.On 18 June 2025, the Arbitral Tribunal directed the Municipality to pay the Contractor NPR 20,763,597.72, exclusive of VAT.The Municipality subsequently applied to the High Court Surkhet (Jumla Bench) under Section 30 of the Arbitration Act seeking annulment of the award. The High Court dismissed the application on 26 November 2025, finding that the Municipality had not established any statutory ground for setting aside the award.The Municipality then approached the Supreme Court under Articles 46 and 133(2) of the Constitution of Nepal, seeking a writ of certiorari.
The Supreme Court’s Decision on Arbitral Finality and Section 30
A Division Bench comprising Justice Sunil Kumar Pokharel and Justice Shreekant Paudel unanimously dismissed the writ petition and vacated the interim order. The Court upheld both the arbitral award and the High Court’s decision.
Courts Cannot Re-Hear the Merits of an Arbitral Award
The Supreme Court emphasized the role of arbitration as a specialized dispute-resolution mechanism and treated the Arbitral Tribunal as the final adjudicator of factual and legal issues falling within its terms of reference.
The Court rejected an approach under which a party dissatisfied with an award could invite the courts to reconsider evidence, measurements, technical findings or the Tribunal’s assessment of the parties’ contractual performance. The Court’s reasoning reinforces the principle that judicial review of an arbitral award is not equivalent to an appeal on the merits. A court exercising jurisdiction under the Arbitration Act cannot conduct a de novo assessment of the evidence simply because it might have reached a different conclusion from the Tribunal.
This is particularly significant in construction and public procurement disputes, where the underlying controversy may involve technical measurements, quantities of work completed, contractual specifications and payment calculations. The Court’s approach limits the scope for those matters to be reopened through setting-aside proceedings. This approach is consistent with broader jurisprudence concerning arbitration proceedings and challenges to arbitral awards in Nepal, where the supervisory role of courts is distinguished from appellate review.
Section 30 Does Not Permit Re-Evaluation of Factual Findings
The Court relied on Section 30(4) of the Arbitration Act, which restricts the court’s consideration when determining an application to set aside an award. The Court held that the statutory framework does not permit a court to reconsider the evidence on which the Tribunal based its decision, including measurements, quantities of work, technical assessments and compensation calculations. Accordingly, an application to set aside an award cannot be converted into an appeal against the Tribunal’s factual or technical conclusions.
The distinction is important. Section 30 provides limited grounds for judicial intervention, but it does not confer general appellate jurisdiction over an arbitral tribunal.The Court therefore treated the Municipality’s attempt to reopen the underlying factual and technical issues as inconsistent with the statutory scheme governing arbitral awards.
Public Policy Is Not a General Merits-Review Ground
The Court also considered the Municipality’s reliance on public policy under Section 30(3)(b) of the Arbitration Act.The Supreme Court adopted a narrow approach to the public-policy ground. An allegation that a public project is under investigation, or that an audit or other authority has raised concerns, does not by itself establish that an arbitral award violates public policy.
For public policy to justify intervention, the award must conflict directly with fundamental statutory policy, public order or an essential principle of the legal system.The Court referred to the standards discussed in the October 2015 report of the IBA Subcommittee on Recognition and Enforcement of Arbitral Awards. The relevant threshold was described in terms requiring a violation that is clear, concrete, evident, patent, blatant, manifest, obvious, flagrant or particularly offensive to the legal order, including conduct of a severe, intolerable, unbearable or repugnant character.
The practical significance is that public policy as a ground for setting aside or resisting enforcement of an arbitral award cannot operate as a broad gateway for dissatisfied parties to reopen the merits of an arbitration. An ongoing CIAA investigation therefore does not automatically render an award contrary to public policy. There must be a demonstrated legal conflict meeting the statutory threshold.
Public Entities Remain Subject to Arbitration Agreements
The decision also carries significance for public procurement disputes because the Municipality had entered into a contract containing an arbitration mechanism.The public character of a contracting party does not, by itself, expand the jurisdiction of the courts to reconsider an arbitral award. Once a public entity agrees to resolve contractual disputes through arbitration, it remains subject to the statutory framework governing that arbitration and any resulting award, subject to the limited grounds for judicial intervention prescribed by law.
The decision therefore reinforces the contractual and statutory consequences of public entities choosing arbitration as their dispute-resolution mechanism. At the same time, the decision should not be read as establishing an absolute rule that every award against a public entity is immune from judicial intervention. The Court’s reasoning remains tied to the statutory grounds available under Section 30.
Supreme Court Directives on Arbitration Reform in Nepal
Beyond disposing of the dispute, the Supreme Court issued a series of directive orders concerning the functioning of arbitration, particularly in public procurement and construction disputes. The Court addressed these to the Federal Parliament, the Government of Nepal, Provincial Governments and Local Governments, and directed as follows:
Arbitrator qualifications. Although the Arbitration Act, 2055 addresses the selection, appointment and disqualification of arbitrators, it does not specify the qualifications a person must possess to serve as an arbitrator. The Court directed that statutory and regulatory provisions be made, and caused to be made, prescribing minimum academic qualifications, experience and legal competence for arbitrators.
Roster of arbitrators for public procurement disputes. The Court directed that the selection and appointment of arbitrators follow a competitive, transparent and impartial process. For this purpose, a roster of arbitrators should be prepared consisting of persons with expertise in the resolution of contractual disputes relating to public procurement and infrastructure development, and arbitrators should be selected only from that roster.
Code of conduct and conflict-of-interest disclosure. To ensure that arbitrators are ethical and impartial, the Court directed that rules be made, and caused to be made, on a code of conduct for arbitrators and disclosure of conflict of interest.
Competency assessment and training. The Court directed that only arbitrators with legal, statutory and financial knowledge relating to infrastructure development and contractual disputes be appointed. A competency assessment system linked to the relevant qualifications should be established, and arbitrators on the roster should be provided regular training and orientation.
Enforcement and accountability. To ensure that arbitral awards are enforced promptly, effectively and bindingly, the Court directed that enforcement procedures be established, and caused to be established, including timelines for compliance, designated responsible bodies and monitoring and evaluation mechanisms.
Integrated national policy and guidelines. The Court directed that the existing practices relating to arbitration in public bodies be reviewed, and that an integrated policy and guidelines be prepared and brought into force.
Conclusion: Our Observations on Arbitral Finality and Enforcement in Nepal
The ruling reinforces already clear position that arbitral awards against state entities are binding and cannot be reopened on the merits merely because a public body disagrees with the Tribunal’s findings. Contractors now have clearer ground to stand on.
That clarity, however, goes to the legal status of the award, not to what happens after it is rendered. On that front, the picture is less settled. Two practices continue to test the finality this decision affirms. The first is the suspension mechanism under the amended Arbitration Act, which leaves room for a dissatisfied party to delay an award by alleging corruption. Whether that route will be used often is not something this decision answers. The second is the Ministry of Finance’s practice of withholding payment on a final award until the Supreme Court disposes of a government application for leave to appeal even though awards having attained finality. Neither issue was before the Court.
The gaps do not reduce the value of the decision. The Supreme Court’s ruling and directives on arbitrator qualifications, conduct, training and institutional accountability address the structural weaknesses that let such delays persist. Implemented properly, they would move Nepal’s commercial arbitration framework closer to international standards of judicial non-interference, both in doctrine and in practice.
Full Judgment
Read the full judgment here.