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CS Professional · Arbitration, Mediation and Conciliation

Commercial Transactions in Arbitration: CS Professional Chapter Guide

This chapter covers what makes a dispute commercial, how domestic and international commercial arbitration differ, and how a tribunal decides the substance of a dispute under section 28. You solve case questions by classifying the arbitration first, then applying the correct law rule, then the contract terms and trade usage.

What this chapter covers

This chapter sets the base for Elective 7.1. It starts with what a commercial transaction is, then moves to the line the Act draws between domestic arbitration and international commercial arbitration (ICA). That line is in section 2(1)(f). It decides which law the tribunal applies, which court has power, and whether some grounds of challenge are available.

The core of the chapter is section 28, which sets the rules applicable to the substance of the dispute. Where the place of arbitration is in India, a non-international arbitration is decided under the substantive law in force in India. In an ICA, the tribunal applies the rules of law the parties designate. If they designate none, it applies the rules of law it considers appropriate given all the circumstances. Section 28 also deals with deciding on equity, and with the duty to take the contract terms and trade usage into account.

The chapter links to the rest of the paper. The domestic/ICA split returns in section 2(1)(e) on the meaning of Court, in section 34 (patent illegality is available only for awards other than ICA awards), and in the later chapters on awards, challenge and enforcement. Learn it well here and those chapters become easier.

Questions from this chapter are written and case-based, and they reward precise classification. A single fact, such as the nationality of one party or where the central management of a body of individuals sits, can change the answer. Section 28 is short, so you can learn it word for word and quote it in your answer. That gives you a clear edge in the provision, analysis and conclusion format. The chapter also feeds your answers in the challenge and enforcement chapters, so the effort pays off several times in the paper.

Commercial Transactions: topics in the order to study them

  1. 1Meaning and Nature of Commercial TransactionsStart here because the word commercial is the entry point to the whole definition of ICA and to the rest of the chapter.
  2. 2Domestic and International Commercial ArbitrationNext, learn the section 2(1)(f) test, since every later rule in the chapter depends on which type of arbitration you have.
  3. 3Rules Applicable to Substance of DisputeWith the classification clear, you can now learn how section 28(1) assigns the governing law for each type.
  4. 4Conflict of Laws and Designation of Law in Commercial ContractsThis builds on section 28(1)(b), especially the rule that a designated country's law means its substantive law and not its conflict of laws rules.
  5. 5Decision by Tribunal: Equity, Contract Terms and Trade UsageFinish with section 28(2) and (3), which apply on top of the governing law and are easy to revise once the rest is firm.

How to prepare Commercial Transactions

This is a short, rule-heavy chapter. Aim to know the sections almost word for word and practise applying them to facts.

  1. Read section 2(1)(f) slowly and list the four kinds of foreign connection: an individual, a body corporate, an association or body of individuals, and a foreign government.
  2. Draw a two-column table for yourself, domestic versus ICA, covering governing law under section 28, the meaning of Court under section 2(1)(e), and the patent illegality ground under section 34(2A).
  3. Learn section 28(1) in three parts: the domestic rule, the party-designated law rule for ICA, and the fallback where the tribunal chooses appropriate rules of law.
  4. Memorise section 28(2) and (3) as a pair: equity only with express authority, but contract terms and trade usage always to be considered.
  5. Write two or three practice answers on fact patterns, using the format of provision, analysis of facts, conclusion. Always begin by stating the place of arbitration and the type of arbitration.
  6. Revise by reciting each section from memory, then check it against the bare Act and fix gaps.

Common mistakes in Commercial Transactions

  • Calling an arbitration international because the contract has a foreign element, even though no party meets the section 2(1)(f) test.

    Fix: Check the party test first. At least one party must be a foreign national or habitual resident, a foreign body corporate, a body with central management abroad, or a foreign government.

  • Applying the party-designated law rule to a domestic arbitration.

    Fix: Apply section 28(1)(a) first for non-international arbitration: the substantive law in force in India.

  • Treating a choice of a country's law as including its conflict of laws rules.

    Fix: State that, unless otherwise expressed, the designation refers directly to the substantive law of that country.

  • Saying the tribunal can decide on fairness or equity whenever it thinks fit.

    Fix: Write that the tribunal may act as amiable compositeur or ex aequo et bono only if the parties have expressly authorised it.

  • Ignoring contract terms and trade usage once the governing law is fixed.

    Fix: Add a final step citing section 28(3): in all cases the tribunal takes into account the terms of the contract and applicable trade usages.

  • Writing section 28 rules for an arbitration seated outside India.

    Fix: State the condition that the place of arbitration is in India before applying section 28(1).

Last-day revision: Commercial Transactions

  • 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.

Commercial Transactions practice questions

Commercial Transactions in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Commercial Transactions: frequently asked questions

What makes an arbitration an international commercial arbitration?

The dispute must arise from a legal relationship considered commercial under Indian law. At least one party must be a foreign national or habitual resident, a foreign body corporate, an association or body of individuals managed and controlled from abroad, or a foreign government. All of this is in section 2(1)(f).

Which law does the tribunal apply in a domestic arbitration?

Where the place of arbitration is in India and the arbitration is not international, the tribunal decides in accordance with the substantive law for the time being in force in India. The parties cannot choose a foreign law for this under section 28(1)(a).

Can a tribunal decide a dispute on fairness instead of law?

Only if the parties have expressly authorised it to decide ex aequo et bono or as amiable compositeur. Without that express authority, it must decide under the applicable law.

Does the tribunal have to follow the contract and trade usage?

Yes. Under section 28(3), in all cases the tribunal must take into account the terms of the contract and the trade usages applicable to the transaction while deciding and making an award.

Why does the domestic versus international distinction matter beyond section 28?

It affects the meaning of Court in section 2(1)(e) and the grounds for setting aside under section 34. Patent illegality appearing on the face of the award is available only for awards other than ICA awards.