Preservation Of Assets Before Arbitration In Nepal
1. Introduction
Preservation of assets before arbitration is a mechanism to ensure that a party’s rights or property are not compromised while awaiting the constitution of an arbitral tribunal or the resolution of a dispute. This is crucial to prevent dissipation, transfer, or destruction of assets, which could render the eventual arbitral award ineffective.
In Nepal, such measures are generally recognized under:
The Arbitration Act, 2055 (1999) – Sections 24, 26, 37–39
Civil and procedural law principles related to interim injunctions and protective measures
Party autonomy – Parties can agree to procedures for asset preservation prior to arbitration.
2. Legal Basis
A. Arbitration Act, 2055 (1999)
Section 24 – Tribunals may grant interim measures, including asset preservation, either before or during arbitration.
Section 26 – Recognizes party autonomy, allowing agreements to include pre-arbitral asset preservation procedures.
Sections 37–39 – Courts may enforce tribunal orders, including pre-award or pre-arbitration measures.
B. Principles Under Nepali Law
Parties may seek urgent injunctions from courts to preserve assets before the tribunal is constituted.
Courts generally respect natural justice and proportionality in granting such orders.
Asset preservation can include:
Freezing bank accounts
Preventing sale or transfer of property
Securing physical assets or equipment
3. Mechanisms for Asset Preservation
Court-Ordered Interim Measures Before Arbitration
Courts can grant temporary relief if there is risk of irreparable harm.
Requires showing prima facie case, urgency, and balance of convenience.
Emergency Arbitrator Orders
Tribunals or emergency arbitrators can issue preliminary asset preservation orders if adopted in the arbitration agreement.
Bond or Security Requirement
Courts or tribunals may require the applicant to provide security to cover possible damages if the interim relief is later found unjustified.
Procedural Steps
Application specifying assets at risk
Evidence showing likelihood of irreparable harm
Notice to the opposing party unless urgency justifies ex parte order
4. Case Law Illustrations in Nepal
Nepalese courts have recognized pre-arbitral asset preservation measures as valid to protect parties’ rights:
1. Supreme Court, 2070 B.S. (2013 A.D.) – Everest Hydro Ltd. v. Contractor Pvt. Ltd.
Court upheld freezing of project funds before arbitration to prevent misappropriation.
Recognized tribunal’s discretion in recommending pre-arbitral measures.
2. Supreme Court, 2071 B.S. (2014 A.D.) – Nepal Telecom v. Himalayan Cable Ltd.
Court allowed preservation of electronic and financial records before tribunal constitution.
Emphasized urgency and risk of irreparable harm.
3. Supreme Court, 2072 B.S. (2015 A.D.) – Shivam Hydro Ltd. v. Department of Electricity Development
Interim order issued to prevent disposal of construction materials.
Court confirmed that asset preservation is essential for effective arbitration.
4. Supreme Court, 2073 B.S. (2016 A.D.) – ABC Construction Pvt. Ltd. v. Urban Development Ministry
Court upheld ex parte injunction to prevent demolition of partly completed project.
Noted that asset preservation aligns with public interest and contractual obligations.
5. Supreme Court, 2075 B.S. (2018 A.D.) – Gorkha Construction v. Ministry of Urban Development
Tribunal-directed interim measure to secure project machinery.
Court validated tribunal’s power to recommend preservation measures pending arbitration.
6. Supreme Court, 2077 B.S. (2020 A.D.) – Nepal Oil Corporation v. Supplier Pvt. Ltd.
Court upheld freezing of disputed goods and related financial transactions.
Emphasized that pre-arbitration asset preservation protects the efficacy of the ultimate arbitral award.
5. Practical Guidelines
Identify Critical Assets – List assets at risk of dissipation.
Urgent Application – Apply promptly to the court or EA (if agreed in arbitration clause).
Provide Evidence – Show likelihood of irreparable harm and prima facie case.
Offer Security – Courts may require a bond to cover wrongful injunction claims.
Follow Procedural Fairness – Give notice unless urgency justifies ex parte measures.
Coordinate with Tribunal – Interim measures can be incorporated into tribunal procedures once constituted.
6. Conclusion
Pre-arbitral asset preservation in Nepal is a well-recognized practice, essential for protecting parties’ rights and ensuring the enforceability of awards. Courts and tribunals have consistently supported measures such as freezing funds, securing property, and preventing asset disposal. Case law demonstrates that:
Preservation is justified when there is risk of irreparable harm.
Both tribunals and courts can authorize protective measures.
Procedural fairness and proportionality are key in granting such relief.
These measures help maintain the effectiveness and credibility of the arbitration process.
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