Arbitration, Mediation and Conciliation · Conceptual Framework of International Commercial Arbitration

Section 28: Rules Applicable to Substance of Dispute

Updated 11 October 2026 · Fact-checked

Section 28 tells the arbitral tribunal which rules decide the merits of the dispute when the place of arbitration is in India. In domestic arbitration it applies Indian substantive law. In international commercial arbitration it applies the law the parties choose, or else the law it considers appropriate. It must always consider the contract terms and trade usages.

Understand Rules Applicable to Substance of Dispute (Section 28)

Every dispute has two layers. One is procedure: how the hearing runs. The other is substance: who is right on the merits, under which law. Section 28 deals only with the second layer, the substantive law that decides the claim.

Section 28(1) applies where the place of arbitration is in India. It then splits into two cases. In an arbitration that is not an international commercial arbitration, the tribunal must decide the dispute in accordance with the substantive law for the time being in force in India. The parties cannot pick a foreign law for it under this clause.

In an international commercial arbitration (defined in section 2(1)(f): a commercial dispute where at least one party is a foreign national or resident, a foreign body corporate, an association whose central management and control is abroad, or a foreign government), party autonomy is wider. The tribunal decides in accordance with the rules of law designated by the parties. If the parties name the law of a country, that is read as the country's substantive law and not its conflict of laws rules, unless they say otherwise. This avoids the dispute being sent round in circles to another country's law. 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 may decide ex aequo et bono (according to what is fair and good) or as amiable compositeur (a friendly mediator-like decision-maker, not bound by 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.

Remember the link to section 2(6): where Part I leaves parties free to decide an issue, they may authorise a person or institution to decide it, but that freedom does not extend to section 28. Do not confuse the law of the substance with the law of the arbitration agreement or the seat. Section 28 is about the merits only.

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 tribunal decides in accordance with the substantive law for the time being in force in India.
International commercial arbitration, law designated: Place in India + ICA + parties designate → tribunal applies the designated rules of law; Section 28(1)(b)(i). Parties may designate rules of law, not only a national law.
Designation of a country's law: Designated country's law = its substantive law, not its conflict of laws rules; Section 28(1)(b)(ii). Applies unless the parties have expressed otherwise.
No designation: No designation → rules of law the tribunal considers appropriate given all circumstances; Section 28(1)(b)(iii). The tribunal chooses; it need not apply a conflict rule.
Equity decisions: Ex aequo et bono / amiable compositeur only if parties expressly authorise; Section 28(2). Silence or implied consent is not enough.
Contract and usages: In all cases: take into account contract terms + trade usages; Section 28(3), as substituted by Act 3 of 2016 (from 23-10-2015). It applies to domestic and international cases.

How to solve Rules Applicable to Substance of Dispute (Section 28) questions

Use this order for any problem or case question on Section 28. It keeps the provision, facts and conclusion separate, which is how the paper is marked.

1Identify the place of arbitration from the facts. Section 28(1) applies where the place is in India.
2Classify the arbitration: domestic or international commercial. Test the parties against section 2(1)(f): foreign individual, foreign body corporate, foreign-controlled association or foreign government, and a commercial relationship.
3If domestic, state that the tribunal applies the substantive law in force in India under section 28(1)(a), whatever the contract says.
4If international, check whether the parties designated a law or rules of law. If yes, apply it as substantive law and ignore that country's conflict rules unless the parties expressly said otherwise.
5If nothing was designated, say the tribunal applies the rules of law it considers appropriate given all the circumstances.
6Check whether the parties expressly authorised ex aequo et bono or amiable compositeur. Without express authority, the tribunal must decide on law.
7Apply section 28(3): the tribunal must take into account the contract terms and trade usages in all cases.
8Write a short conclusion that names the governing rule and the section.

Quickest way: Four-question check for Section 28

When to use it: Use it for short-answer or case questions when time is limited and the facts are brief.

Q1: Is the place in India and is it international? That decides which limb applies.
Q2: Did the parties choose a law? If yes, substantive law only. If no, tribunal's appropriate rules (international) or Indian law (domestic).
Q3: Is there express authority for equity? If not, no ex aequo et bono.
Q4: Always add contract terms and trade usages, with section 28(3) cited.

Common mistakes in Rules Applicable to Substance of Dispute (Section 28)

Saying parties can choose a foreign law in every arbitration seated in India.
Students remember party autonomy and apply it to all cases.
Fix: Party choice of law is in section 28(1)(b), which covers only international commercial arbitration. A domestic arbitration follows Indian substantive law.
Applying the conflict of laws rules of the designated country.
Students assume a chosen country's whole legal system applies, including its rules on which law to apply.
Fix: Under section 28(1)(b)(ii), the designation is a reference to substantive law, unless the parties expressed otherwise.
Allowing ex aequo et bono because the tribunal thinks it is fair.
Equity sounds like the natural goal of arbitration.
Fix: Section 28(2) needs express authorisation by the parties. The tribunal cannot assume it.
Treating contract terms and trade usages as relevant only in international cases.
Section 28(3) sits after the international limb and is misread as part of it.
Fix: It says 'in all cases'. It applies to domestic and international arbitration.
Mixing up Section 28 with section 16 on jurisdiction or with the choice of seat.
All deal with the tribunal's powers and law, and the headings look alike.
Fix: Section 28 is about the law for the merits. Section 16 is about the tribunal ruling on its own jurisdiction. The seat is a separate question.
Forgetting the fallback when parties designate no law.
Students stop at party choice.
Fix: Add section 28(1)(b)(iii): the tribunal applies the rules of law it considers appropriate given all the circumstances.

Worked examples

Example 1

Bharat Textiles Ltd, Surat, and Alpine Fabrics GmbH, Germany, agree to arbitrate disputes about a supply contract at Mumbai. The contract says the dispute is governed by German law. The contract is silent on conflict of laws. A dispute arises. Which law will the tribunal apply to the merits?

Show the solution

The place of arbitration is Mumbai, in India, so section 28(1) applies.
Alpine Fabrics GmbH is a body corporate incorporated outside India and the supply contract is commercial. So it is an international commercial arbitration under section 2(1)(f)(ii).
The parties have designated German law. Under section 28(1)(b)(i), the tribunal must decide in accordance with the rules of law designated by the parties.
Under section 28(1)(b)(ii), designation of a country's law is read as its substantive law and not its conflict of laws rules, as the parties expressed nothing otherwise.
Section 28(3) also requires the tribunal to take into account the contract terms and applicable trade usages.

Answer: The tribunal applies the substantive law of Germany, not German conflict of laws rules, and takes into account the contract terms and trade usages.

Example 2

Two Indian companies, Kaveri Foods Pvt Ltd and Sahyadri Traders Pvt Ltd, have an arbitration seated in Pune. Their contract says the arbitrator may decide 'in fairness' if the strict law is harsh. Kaveri argues that the tribunal must apply English law because the contract was drafted by an English law firm. Advise.

Show the solution

The place of arbitration is Pune, so section 28(1) applies.
Both parties are Indian companies. No party falls within section 2(1)(f), so this is not an international commercial arbitration.
Under section 28(1)(a), the tribunal must decide in accordance with the substantive law in force in India. The drafting by an English law firm does not change this.
On fairness: section 28(2) allows ex aequo et bono or amiable compositeur only if the parties expressly authorise it. The wording 'may decide in fairness if strict law is harsh' is conditional and unclear. The safer view is that express authorisation requires clear words, so a clear authority should be shown. Without it, the tribunal decides on law.
In all cases, section 28(3) requires the tribunal to consider the contract terms and trade usages.

Answer: Kaveri's argument fails. The tribunal applies Indian substantive law. It may decide in equity only if the clause amounts to express authorisation by the parties; otherwise it decides on law, taking into account the contract terms and trade usages.

Exam tips

Lead with the classification: domestic or international commercial. Most marks follow from it.
Quote the key phrases: 'substantive law and not its conflict of laws rules', 'expressly authorised', 'in all cases'.
Cite section 28 with the sub-section number, and section 2(1)(f) when you classify the arbitration.
In a case question, write provision, analysis of the facts, then conclusion in separate short paragraphs.
Mention that section 28(3) was substituted by Act 3 of 2016, effective 23-10-2015, if the question asks about amendments.

Practice questions from Conceptual Framework of International Commercial Arbitration

Rules Applicable to Substance of Dispute (Section 28): frequently asked questions

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

It deals with the rules applicable to the substance of the dispute where the place of arbitration is in India. It says which law the tribunal applies to decide the merits, when it may decide in equity, and that it must consider the contract terms and trade usages.

What is the meaning of ex aequo et bono and amiable compositeur?

Both mean the tribunal decides on what is fair and just rather than on strict legal rules. Under section 28(2), the tribunal can do this only if the parties have expressly authorised it.

Can parties choose a foreign law in a domestic arbitration?

Section 28(1)(a) requires the tribunal in a domestic arbitration seated in India to apply the substantive law for the time being in force in India. Party choice of governing law is provided for in the international commercial limb, section 28(1)(b).

What happens if the parties in an international commercial arbitration do not choose a law?

Under section 28(1)(b)(iii), the tribunal applies the rules of law it considers appropriate given all the circumstances surrounding the dispute. It still must take into account the contract terms and trade usages.