Commercial Transactions: formula sheet

Key formulas

Section 28(3), Arbitration and Conciliation Act, 1996

In all cases, the tribunal must take into account the terms of the contract and trade usages applicable to the transaction

Applies in all cases when the tribunal decides and makes an award. Section 28(3) has no limit based on the place of arbitration. Only section 28(1), which sets the substantive law to apply, is limited to arbitrations where the place of arbitration is in India.

Section 8(1) reference rule

Application not later than the date of first statement on the substance of the dispute → judicial authority refers parties to arbitration, unless prima facie no valid arbitration agreement exists

Section 8(2) needs the original agreement or a certified copy with the application.

Section 12A(1), Commercial Courts Act, 2015

Suit with no urgent interim relief → pre-institution mediation must be exhausted before filing

Applies to commercial suits under that Act.

Section 12A(3) time limit

Mediation period = 3 months from application, extendable by 2 months with consent of the parties

The time spent in mediation is excluded for limitation.

Section 12A(5) effect of settlement

Settlement = status of an arbitral award on agreed terms under section 30(4)

It must be in writing and signed by the parties and the mediator.

Test for international commercial arbitration (Section 2(1)(f))

Commercial legal relationship under Indian law AND at least one party is: foreign national or habitual resident, foreign body corporate, foreign-controlled association or body of individuals, or foreign Government

Both limbs are needed. Look at the nature of the parties, not the seat.

Court in domestic arbitration (Section 2(1)(e)(i))

Principal Civil Court of original jurisdiction in a district, or High Court exercising ordinary original civil jurisdiction

Excludes civil courts of inferior grade and Courts of Small Causes.

Court in international commercial arbitration (Section 2(1)(e)(ii))

High Court exercising ordinary original civil jurisdiction; in other cases, a High Court with appellate jurisdiction over subordinate courts

The District Court is not the Court here.

Applicable law in India-seated arbitration (Section 28(1))

Domestic: substantive law in force in India. International: rules of law designated by parties, else rules the tribunal considers appropriate

In both cases the tribunal must take into account the contract terms and trade usages (Section 28(3)).

Part I application (Section 2(2))

Part I applies where the place of arbitration is in India. Sections 9, 27 and 37(1)(a), 37(3) also apply to international commercial arbitration seated abroad, unless the parties agree otherwise

The extension applies only if the award is enforceable and recognised under Part II.

Award under Part I (Section 2(7))

An award made under Part I is a domestic award

This holds even if the arbitration is an international commercial arbitration seated in India.

Domestic arbitration seated in India

Place in India + not international commercial → Indian substantive law in force

Section 28(1)(a). The parties cannot choose a foreign law for the merits here.

International commercial arbitration seated in India

Law designated by parties → else rules of law the tribunal considers appropriate

Section 28(1)(b)(i) and (iii). Party choice is the first step.

Designation of a country's law

Designated law = that country's substantive law, not its conflict of laws rules

Section 28(1)(b)(ii). Applies unless the parties have expressed otherwise.

Equity decision

Ex aequo et bono / amiable compositeur only if parties expressly authorise

Section 28(2). Silence or implied consent is not enough.

Contract and trade usage

In all cases: take into account contract terms + trade usages applicable to the transaction

Section 28(3), as substituted in 2016 (effective 23 October 2015). The word is 'shall', so it is mandatory.

Equity decision (section 28(2))

Ex aequo et bono / amiable compositeur allowed ⇔ parties have EXPRESSLY authorised the tribunal

No express authority means the tribunal decides by law. Authority cannot be implied.

Contract terms and trade usages (section 28(3))

In ALL cases: tribunal shall take into account (a) terms of the contract and (b) trade usages applicable to the transaction

Applies when deciding and making an award. It covers domestic and international cases and equity-based decisions.

Domestic arbitration (section 28(1)(a))

Place in India, not international commercial: decide per substantive law in force in India

This is the default yardstick that section 28(2) displaces only by express authority.

International commercial arbitration (section 28(1)(b))

Place in India, international commercial: rules of law designated by parties; else rules the tribunal considers appropriate

A designated country's law means its substantive law, not its conflict of laws rules, unless expressed otherwise.

Domestic arbitration, place in India

Section 28(1)(a): tribunal decides under the substantive law for the time being in force in India

Applies to arbitrations other than international commercial arbitration.

International commercial arbitration, place in India: party choice

Section 28(1)(b)(i): tribunal applies the rules of law designated by the parties

Parties may designate rules of law, not only a country's law.

Designation of a country's law

Section 28(1)(b)(ii): designation of a country's law or legal system = its substantive law, not its conflict of laws rules, unless otherwise expressed

This is the core rule of the topic. It excludes renvoi by default.

No designation by parties

Section 28(1)(b)(iii): tribunal applies the rules of law it considers appropriate given all circumstances

Applies only where the parties made no designation.

Equity decisions

Section 28(2): ex aequo et bono or amiable compositeur only if expressly authorised by the parties

Express authority is required.

Contract and usages

Section 28(3): in all cases take into account contract terms and applicable trade usages

Applies in domestic and international cases.

Quick revision

• Section 28(1) applies where the place of arbitration is in India.
• Non-international arbitration: the tribunal applies the substantive law for the time being in force in India.
• ICA: the tribunal decides under the rules of law the parties designate.
• A designation of a country's law means its substantive law, not its conflict of laws rules, unless otherwise expressed.
• If the parties designate no law in an ICA, the tribunal applies the rules of law it considers appropriate given all the circumstances.
• Ex aequo et bono or amiable compositeur only if the parties have expressly authorised it.
• Section 28(3) applies in all cases: the tribunal must take into account the contract terms and applicable trade usages.
• Section 28(3) was substituted by the 2016 amendment, effective 23-10-2015.
• ICA needs a commercial relationship and at least one party that is a foreign national or habitual resident, a foreign body corporate, a body whose central management and control is abroad, or a foreign government.
• Section 2(1)(f) no longer includes a company as a separate head; the words were omitted in 2015.
• Patent illegality under section 34(2A) is not a ground against an ICA award.
• Where Part I leaves parties free, they may authorise any person, including an institution, to decide that issue, except under section 28.

Common mistakes

• Treating every dispute between businesses as arbitrable without an agreement. Fix: Check for an arbitration agreement first. Section 8 refers parties only where one exists.
• Saying a section 8 application can be made at any stage. Fix: State that it must be made not later than the date of submitting the first statement on the substance of the dispute.
• Treating an arbitration seated abroad between two Indian parties as international commercial arbitration. Fix: Section 2(1)(f) looks only at the parties and the commercial nature. Two Indian parties means it is not international under the definition.
• Saying an Indian company controlled from abroad falls under clause (iii). Fix: Clause (iii) covers only an association or body of individuals. A foreign-incorporated company is caught by clause (ii).
• Applying party choice of foreign law in a purely domestic arbitration. Fix: Remember that section 28(1)(a) fixes Indian substantive law for non-international arbitrations seated in India. Party choice features only in section 28(1)(b).
• Confusing substantive law with procedural law. Fix: Section 28 covers the merits only. Procedure is for the parties and the tribunal under other provisions. Define both terms at the start of your answer.
• Saying a tribunal may decide ex aequo et bono whenever it thinks the result is fair. Fix: State that section 28(2) requires express authorisation by the parties. Without it, the tribunal decides by law.
• Treating an implied or inferred consent as enough for amiable compositeur. Fix: Quote the word "expressly". Conduct and silence do not meet it.
• Saying the tribunal applies the conflict of laws rules of the chosen country. Fix: State that, unless the parties expressly say otherwise, the reference is to substantive law only (Section 28(1)(b)(ii)).
• Treating the governing law and the seat as the same thing. Fix: Say that governing law decides the merits, while the place of arbitration decides whether Part I applies (Section 2(2)). They can differ.

Exam tips

• Begin every answer by naming the transaction and why the dispute is commercial.
• Learn section 8, section 28(3) and section 12A as short rule statements with their conditions.
• Close case answers with a practical point, such as advising a clearer arbitration clause.
• Do not state a monetary threshold for Specified Value; say only that it must be a commercial dispute of a Specified Value.
• Start every answer with the Section 2(1)(f) test, then apply it to the named parties. Examiners reward the provision, analysis, conclusion order.
• Quote the four clauses accurately, especially the central management and control wording in clause (iii).
• Show a consequence table in sentences: Court under Section 2(1)(e), law under Section 28, and forum under Section 10 of the Commercial Courts Act, 2015.
• Do not mix Part I and Part II. Section 44 defines a foreign award, while Section 2(7) makes an award under Part I a domestic award.