Arbitration, Mediation and Conciliation · Commercial Transactions

Ex Aequo et Bono, Contract Terms and Trade Usage under Section 28

Updated 11 October 2026 · Fact-checked

Under section 28(2), a tribunal may decide ex aequo et bono or as amiable compositeur only if the parties have expressly authorised it. Under section 28(3), in all cases the tribunal must take into account the contract terms and the trade usages applicable to the transaction when deciding and making an award.

Understand Decision by Tribunal: Equity, Contract Terms and Trade Usage

Section 28 tells a tribunal what yardstick to use when it decides the dispute. Sub-sections (1)(a) and (1)(b) deal with the law applied. Sub-sections (2) and (3) deal with two further questions: can the tribunal decide on fairness instead of law, and what must it always consider?

Ex aequo et bono means "according to what is equitable and good". Amiable compositeur means a friendly mediator-like decision-maker who settles the matter on fairness. In both, the tribunal may depart from strict legal rules and decide on what it finds just. This is a big power, because the parties lose the predictability of the law. So the Act does not let a tribunal assume it.

Section 28(2) says the tribunal shall decide ex aequo et bono or as amiable compositeur only if the parties have expressly authorised it. Silence is not enough. An implied or inferred authority is not enough. If the arbitration clause only says "disputes shall be referred to arbitration", the tribunal must decide by law.

Section 28(3) works differently. It applies in all cases: while deciding and making an award, the tribunal shall take into account the terms of the contract and the trade usages applicable to the transaction. It applies to domestic and international commercial arbitrations, and also where the tribunal is authorised to decide on equity. This sub-section was substituted by the 2015 Amendment with effect from 23 October 2015.

Think of it this way: the parties' own bargain and the practice of their trade form the base of every award. A tribunal cannot rewrite the contract or ignore the way the trade works. Even an amiable compositeur must keep these in view.

Key rules to remember

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.

How to solve Decision by Tribunal: Equity, Contract Terms and Trade Usage questions

Use this order for any case-based question on how a tribunal must decide a dispute.

1Identify the place of arbitration and whether the arbitration is international commercial or not. This fixes the section 28(1) yardstick.
2Read the arbitration clause and any later agreement for words that authorise the tribunal to decide on fairness, such as "ex aequo et bono", "amiable compositeur" or "in equity".
3Apply section 28(2): if there is no express authority, the tribunal must decide by law. If there is express authority, equity decision is permitted.
4Pick out the contract terms and the trade usages relevant to the facts, such as payment terms, delivery terms, quality tolerance or customary practice in that trade.
5Apply section 28(3): whichever route applies, the tribunal must take these terms and usages into account in the award.
6Test the tribunal's approach against the facts. Did it ignore a clear term? Did it apply equity without express authority?
7Conclude in one clear line, and note the consequence, for example that the award may be open to challenge under section 34 if the tribunal acted contrary to the Act.

Quickest way: Two-question test

When to use it: Use when time is short and the question asks whether the tribunal could decide on fairness or ignore a term.

Question 1: Did the parties expressly authorise equity? If no, law applies. If yes, equity is allowed.
Question 2: Did the tribunal take into account the contract terms and trade usages? This is required in every case.
Write the answer as: provision, facts, conclusion, citing section 28(2) and 28(3).

Common mistakes in Decision by Tribunal: Equity, Contract Terms and Trade Usage

Saying a tribunal may decide ex aequo et bono whenever it thinks the result is fair.
Students link arbitration with flexibility and informality.
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.
Students assume conduct or silence shows agreement.
Fix: Quote the word "expressly". Conduct and silence do not meet it.
Saying section 28(3) applies only to international commercial arbitration.
Section 28(1)(b) is about international cases, and students carry that over.
Fix: Section 28(3) says "in all cases". It covers domestic, international and equity-based decisions.
Leaving out trade usages and mentioning only the contract terms.
Students remember the contract and forget the second limb.
Fix: Write both limbs: terms of the contract and trade usages applicable to the transaction.
Confusing the two Latin terms with conciliation or with the tribunal's power to encourage settlement.
Both involve fairness and compromise.
Fix: Equity decisions are still binding awards by the tribunal. Settlement efforts are separate, under section 30, and need the parties' agreement.

Worked examples

Example 1

Arka Traders Pvt. Ltd. of Kolkata and Bhavani Textiles of Surat have a supply contract with a simple arbitration clause seated in Mumbai. The sole arbitrator, finding the buyer's late payment penalty harsh, decides the dispute purely on what he thinks is fair and ignores the penalty clause. Advise whether he acted correctly.

Show the solution

Provision: section 28(2) lets a tribunal decide ex aequo et bono or as amiable compositeur only if the parties have expressly authorised it. Section 28(3) requires it in all cases to take into account the contract terms and trade usages.
Facts: the clause is a simple reference to arbitration. There is no express authority to decide on equity. The arbitrator ignored the penalty clause because he found it harsh.
Analysis: without express authority, he had to decide in accordance with the substantive law in force in India. Even then, he had to take the penalty clause into account as a contract term. Fairness is not a ground to disregard it.
Conclusion: he did not act correctly. He decided on equity without authority and ignored a contract term.

Answer: The arbitrator acted contrary to section 28(2) and section 28(3). He should have decided by law and taken the penalty clause into account.

Example 2

Under an agreement between Kaveri Agro Ltd. and Mehta Exports, the parties expressly authorise the tribunal to decide as amiable compositeur. In the dispute over a delivery of spices, the tribunal considers a settled custom in the spice trade that a small weight variation is tolerated, though the contract is silent on it. Can the tribunal rely on the custom, and does the express authority free it from the contract terms?

Show the solution

Provision: section 28(2) permits an amiable compositeur decision on express authorisation. Section 28(3) applies in all cases and requires the tribunal to take into account contract terms and trade usages applicable to the transaction.
Facts: the parties expressly authorised amiable compositeur. The custom on weight variation is a trade usage applicable to the transaction.
Analysis: the express authority makes an equity-based decision valid. The tribunal must also take the trade usage into account, so relying on the custom is proper. The authority does not remove section 28(3), so the tribunal must still consider the contract terms.
Conclusion: the tribunal may rely on the custom, and it must still take the contract terms into account.

Answer: Yes. The tribunal may decide as amiable compositeur and rely on the trade usage. It is still bound by section 28(3) to take the contract terms into account.

Exam tips

Quote the word "expressly" from section 28(2) in every answer on equity decisions. Examiners look for it.
Write section 28(3) as two limbs: contract terms and trade usages. Add "in all cases".
In a case-based question, state the provision, apply it to the facts, then give a one-line conclusion.
Mention that section 28(3) was substituted by the 2015 Amendment, effective from 23 October 2015, only if the question asks about the amendment.
Do not mix this topic with section 30 settlement. Keep equity decisions and settlement separate.

Practice questions from Commercial Transactions

Decision by Tribunal: Equity, Contract Terms and Trade Usage: frequently asked questions

What does ex aequo et bono mean in the Arbitration Act?

It means deciding according to what is equitable and good, rather than strictly by legal rules. Under section 28(2), a tribunal can do this only if the parties have expressly authorised it.

Is amiable compositeur the same as ex aequo et bono?

Section 28(2) treats them together, and both refer to a decision based on fairness instead of strict law. In both cases, express authorisation by the parties is required.

Does section 28(3) apply to domestic arbitration?

Yes. It says the tribunal shall, in all cases, take into account the terms of the contract and the trade usages applicable to the transaction. It is not limited to international commercial arbitration.

What are trade usages in section 28(3)?

They are the customs and practices followed in the particular trade that apply to the transaction in dispute. The tribunal must consider them along with the contract terms when deciding and making the award.