Arbitration, Mediation and Conciliation · Commercial Transactions

Rules Applicable to Substance of Dispute under Section 28

Updated 11 October 2026 · Fact-checked

Section 28 tells the arbitral tribunal which law to apply to the merits of the dispute. Where the place of arbitration is India and the case is domestic, it applies Indian substantive law. In an international commercial arbitration, it applies the law the parties designate, or else the rules it considers appropriate.

Understand Rules Applicable to Substance of Dispute

Every dispute has two layers of law. Substantive law decides the rights and duties of the parties, such as whether a contract was breached and what damages follow. Procedural law decides how the case is run, such as notice, hearings and evidence. Section 28 deals only with the first layer: the law applied to the substance of the dispute.

Section 28(1) applies where the place of arbitration is in India. It then splits into two cases. In an arbitration other than an international commercial arbitration, the tribunal must decide in accordance with the substantive law for the time being in force in India. Parties have no choice here.

In an international commercial arbitration (section 2(1)(f)), party choice comes first. The tribunal decides in accordance with the rules of law the parties designate. If the parties name the law of a country, that is read as the substantive law of that country and not its conflict of laws rules, unless they say otherwise. If the parties designate nothing, the tribunal applies the rules of law it considers appropriate given all the circumstances surrounding the dispute.

Two further rules apply. Under section 28(2), the tribunal can decide ex aequo et bono or as amiable compositeur (by fairness and good conscience, not strict law) only if the parties have expressly authorised it. 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.

Key rules to remember

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.

How to solve Rules Applicable to Substance of Dispute questions

Use this order for any case question on section 28. It keeps your answer in the provision, analysis, conclusion format.

1Check where the place of arbitration is. Section 28(1) applies only where the place is in India.
2Classify the arbitration using section 2(1)(f): is at least one party a foreign national or resident, a foreign-incorporated body corporate, an association whose central management and control is abroad, or a foreign government?
3If it is not international, state that the tribunal applies Indian substantive law under section 28(1)(a). Note that party choice of a foreign law does not displace it.
4If it is international, look for a designation of law by the parties. Apply it as the country's substantive law, not its conflict rules, unless the parties expressed otherwise.
5If there is no designation, state that the tribunal applies the rules of law it considers appropriate given all the circumstances.
6Check for express authority to decide ex aequo et bono or as amiable compositeur. Without it, the tribunal must decide by law.
7Add section 28(3): the tribunal must take the contract terms and trade usages into account. Then write a one-line conclusion.

Quickest way: Three-question check

When to use it: Use when a short case question gives a few facts and asks which law the tribunal applies.

Is the place of arbitration in India? If not, section 28(1) does not govern.
Is it international (a foreign party as in section 2(1)(f))? If no, Indian substantive law applies. If yes, go to the next question.
Did the parties designate a law? Yes: apply it as substantive law. No: the tribunal chooses appropriate rules.
Close with section 28(2) and 28(3) in one line each.

Common mistakes in Rules Applicable to Substance of Dispute

Applying party choice of foreign law in a purely domestic arbitration.
Students assume party autonomy works the same way in all arbitrations.
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.
Both are 'applicable law' in everyday talk.
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.
Reading a designated country's law as including its conflict of laws rules.
Students forget the rule in section 28(1)(b)(ii).
Fix: Say that the designation points directly to that country's substantive law, unless the parties expressed otherwise.
Allowing the tribunal to decide by equity without express authority.
Students treat fairness as an inherent power of the tribunal.
Fix: State that section 28(2) requires express authorisation by the parties. Without it, the tribunal decides by law.
Treating section 28(3) as applying only to international cases.
It sits after the sub-section dealing with both cases, and students mix up the structure.
Fix: The sub-section says 'in all cases'. Contract terms and trade usages must be taken into account in domestic and international arbitration alike.
Applying section 28(1) when the seat is outside India.
Students skip the opening condition.
Fix: Begin every answer by stating that section 28(1) applies where the place of arbitration is in India.

Worked examples

Example 1

Ravi Traders Pvt. Ltd., Pune and Sharma Foods Ltd., Delhi, both Indian companies, have a supply contract with an arbitration clause seated in Mumbai. The contract says the dispute is to be governed by the law of England. Which law will the tribunal apply to the merits? Can it decide by fairness alone?

Show the solution

Provision: section 28(1)(a) applies where the place of arbitration is in India and the arbitration is not an international commercial arbitration. The tribunal applies the substantive law in force in India.
Analysis: the place is Mumbai, so section 28(1) applies. Both parties are Indian companies, so none of the foreign-party tests in section 2(1)(f) is met. The arbitration is domestic.
The choice of English law does not displace section 28(1)(a), because party choice of law appears only in the rules for international commercial arbitration.
On fairness: under section 28(2) the tribunal may decide ex aequo et bono only if the parties have expressly authorised it. The facts show no such authority.
The tribunal must in any case take into account the contract terms and applicable trade usages under section 28(3).

Answer: The tribunal applies Indian substantive law. It cannot decide by fairness alone, since there is no express authorisation. It must still take the contract terms and trade usages into account.

Example 2

Kaveri Engineering Ltd., an Indian company, and Nordic Machines AS, a company incorporated in Norway, are in arbitration seated in Chennai. Their contract designates the law of Singapore for the substance of the dispute. Which law applies, and what would change if the contract named no law?

Show the solution

Provision: section 28(1)(b) governs an international commercial arbitration where the place of arbitration is in India.
Analysis: Nordic Machines AS is a body corporate incorporated outside India, so section 2(1)(f)(ii) is met. The arbitration is international commercial, assuming the relationship is commercial under Indian law. The place is Chennai, so section 28(1) applies.
The tribunal decides in accordance with the rules of law the parties designated under section 28(1)(b)(i).
Designating the law of Singapore is read as referring directly to Singapore's substantive law and not its conflict of laws rules, unless the parties expressed otherwise (section 28(1)(b)(ii)).
If no law were designated, section 28(1)(b)(iii) lets the tribunal apply the rules of law it considers appropriate given all the circumstances surrounding the dispute.
Under section 28(3), the tribunal also takes the contract terms and trade usages into account.

Answer: Singapore's substantive law applies. If the contract named no law, the tribunal would apply the rules of law it considers appropriate in the circumstances. In both cases, contract terms and trade usages must be taken into account.

Exam tips

Open every answer by stating the place of arbitration and the type of arbitration. Marks usually turn on this classification.
Quote the key phrases: 'substantive law for the time being in force in India' and 'rules of law it considers to be appropriate'.
Write a two-line contrast between domestic and international cases, since examiners often test the difference.
Do not cite section numbers you are unsure of. Sections 28, 2(1)(f) and 28(1)(b)(ii) are safe to use.
In case questions, always finish with section 28(3), because it applies in all cases and is easy to forget.

Practice questions from Commercial Transactions

Rules Applicable to Substance of Dispute: frequently asked questions

What does section 28 of the Arbitration and Conciliation Act, 1996 deal with?

It sets out the rules applicable to the substance of the dispute. It tells the tribunal which law to apply to the merits where the place of arbitration is in India. It also covers decisions ex aequo et bono and the role of contract terms and trade usages.

What is the difference between substantive law and procedural law in arbitration?

Substantive law decides the rights and obligations of the parties, such as breach and remedies. Procedural law governs how the arbitration is conducted. Section 28 deals with substantive law only.

How does a tribunal decide the applicable law in international commercial arbitration?

It first applies the rules of law the parties designated. A designation of a country's law means that country's substantive law, not its conflict rules, unless the parties said otherwise. If nothing is designated, the tribunal applies the rules of law it considers appropriate given all the circumstances.

Can an arbitral 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 according to the applicable law.