The Supreme Court had ruled that the Tanakpur Agreement signed by Prime Minister Girija Prasad Koirala with India in 2048 BS was a treaty. Prime Minister Koirala had said that it was only an understanding. In the 1950s, the Tanakpur issue was a heated issue on the streets and in the parliament for a long time. Especially after the change of 2046 BS, the main opposition party, UML, raised the issue the most on the streets and in the parliament.

After the mid-term elections in 2051, the UML became the largest party in the House of Representatives. It ran the government for nine months. But no decision could be taken by the parliament regarding Tanakpur. On Bhadra 26, 2052, Sher Bahadur Deuba, leader of the Nepali Congress Parliamentary Party, became the Prime Minister. He was supported by the Rastriya Prajatantra Party and the Nepal Sadbhavana Party. At that time, Prakash Chandra Lohani of the RPP was the Minister of Foreign Affairs. The Tanakpur issue remained unresolved for four years after the court ruled that it was a treaty.

During Prime Minister Deuba's time, the agreement reached on Magh 15, 2052 between the then Foreign Minister Prakash Chandra Lohani and Indian External Affairs Minister Pranab Mukherjee provided a solution to Tanakpur. It was considered the draft of the Mahakali Treaty. At that time, the Nepal-India agreement on the ‘Treaty on Integrated Development of the Mahakali River, including the Sharda Dam, Tanakpur Dam, and Pancheshwor Project’ was signed by the foreign ministers of both countries. That is understood as the ‘Mahakali Treaty’.

Foreign Minister Mukherjee came to Nepal for the signing. The draft of the Mahakali Treaty was prepared by including the Tanakpur Treaty signed during Girija Prasad’s time.

The draft of the treaty was prepared by assimilating the concept of ‘Mahakali River as a shared water half and half’. The UML also welcomed the initial agreement between the two countries, saying that the treaty was being signed on the condition that both countries would have equal rights in the Mahakali and that Nepal would also get additional facilities. The 25th meeting of the UML Central Committee passed a welcoming resolution saying that Nepal’s rights in the Mahakali were established for the first time and that it was basically recognized as a border river.

The UML has welcomed the draft of the Mahakali Treaty in the backdrop of Prime Minister Koirala's alleged treasonous agreement and demanding that the Tanakpur Treaty be amended and passed by the parliament with a two-thirds majority. At that time, preparations were being made to finalize the treaty by including Tanakpur. UML claimed that it was signed between the foreign ministers of the two countries based on the draft prepared in consultation with India during its nine-month government.

Prime Minister Deuba was scheduled to visit India in the last week of Magh. The treaty was scheduled to be signed by the then Indian Prime Minister and Deuba. The treaty stated that Nepal would receive 1,000 quisecs of water per year from the Tanakpur Dam and 300 quisecs in winter, and 7 megawatts of electricity per year from the power plant.

The treaty stated that Nepal would provide 577 meters of land for the dam built by India. The previous treaty mentioned that Nepal would get 150 quisecs of water and 2 megawatt units of electricity. An all-party meeting was convened under the coordination of Speaker Ramchandra Poudel to end the Tanakpur dispute. The team that came to Kathmandu under the leadership of Mukherjee sought an all-party agreement to sign the treaty. For that, Speaker Poudel had repeatedly held all-party meetings and reached an agreement between the parties. The visit of the foreign minister's team from India was extended by a day in an attempt to return only after resolving the dispute. After the all-party agreement, a three-hour decisive meeting was held at Sheetal Niwas on the morning of Magh 15, 2052. The draft treaty was signed in the evening in the presence of UML and RPP leaders.

The treaty mentioned not only Tanakpur but also the integrated development of the Mahakali River. The treaty also included equal participation between Nepal and India. The treaty mentioned the sharing of additional water or electricity obtained by developing any project in the Mahakali on a half-and-half basis. The treaty included a provision for equal distribution of water benefits while implementing the Pancheshwar Multipurpose Project.

After signing the treaty, the Ministry of Water Resources issued a press release claiming that the basis for implementing water-related projects in the future had been prepared. Water Resources Minister Rana had said that the end of the Tanakpur dispute had increased the attraction of the private sector in electricity generation in the future.

During his visit, Foreign Minister Mukherjee expressed his happiness over the all-party political consensus reached among Nepali parties and expressed his commitment to complete the Pancheshwar Multipurpose Project within 8 years. He also informed that the project has the potential to generate 6,000 megawatts of electricity. At that time, India had also proposed an 'umbrella' agreement on electricity generation, investment and purchase and sale structure. However, this issue was verbally agreed to be discussed during Prime Minister Deuba's visit.