Contract law in Nepal now lives in Part 5 of the National Civil Code 2074, which absorbed the old Contract Act 2056. The Code keeps the familiar elements of offer, acceptance, consideration and capacity, and it is relaxed about form: an oral agreement is valid for most purposes. In practice, though, the business that wins a dispute is almost always the one holding a signed document. This guide explains what to put in that document and why.
What makes a contract valid
A contract needs an offer, acceptance of that offer, something of value exchanged, and parties who have legal capacity, meaning adults of sound mind acting for themselves or with authority for a company. Consent obtained by coercion, undue influence, fraud or mistake makes the contract voidable at the option of the injured party. Contracts to do something illegal, or that restrain a person from carrying on a lawful trade, are void from the outset, which is why overly broad non-compete clauses in Nepal are rarely enforced.
Clauses every small business contract should have
- Parties: full legal names, registration numbers and addresses, and who signs with what authority
- Scope: exactly what is being delivered, by when, and what is excluded
- Price and payment: amount, currency, VAT treatment, invoice timing and late payment interest
- Term and termination: how long the contract runs and how either side can exit
- Liability cap: a ceiling on damages, often the contract value
- Confidentiality and ownership of any work product or data
- Governing law and dispute resolution: Nepal law, and either the District Court or arbitration
Signing for a company
A company binds itself through directors or officers authorised by its Articles or a board resolution. Ask for a copy of the board resolution or the Articles when the other side is a company, and stamp the company seal beside the signature; Nepali courts and banks still expect it. When you sign on behalf of your own company, always add your designation below your name so that it is clear you are not signing personally.
When things go wrong
A breach of contract claim is filed in the District Court where the defendant resides or where the contract was to be performed, and must be brought within two years of the breach under the Civil Code's limitation rules. The court can order specific performance, damages, or both, and it will look closely at whether the claimant tried to mitigate its loss. Many businesses prefer arbitration under the Arbitration Act 2055 because the hearing is private and an award is enforceable through the court with limited grounds for challenge, but arbitration is only available if the contract contains an arbitration clause.
| Route | Typical duration | Public? | Appeal |
|---|---|---|---|
| District Court litigation | 1 to 3 years | Yes | High Court, then Supreme Court |
| Arbitration (NEPCA or ad hoc) | 6 to 12 months | No | Limited: court may set aside on narrow grounds |
| Negotiated settlement / mediation | Weeks | No | Not applicable |
A good contract is one that both parties can read in ten minutes and neither party ever has to take to court.