Arbitration, Mediation and Conciliation · International Law of Arbitration

Section 28: Rules Applicable to Substance of Dispute

Updated 11 October 2026 · Fact-checked

Section 28 tells the tribunal which law to apply to the merits when the seat is in India. In domestic arbitration it applies Indian substantive law. In international commercial arbitration it applies the rules of law the parties chose, or else those it considers appropriate. It must always consider contract terms and trade usages.

Understand Rules Applicable to Substance of Dispute (Section 28)

Every arbitration has two sets of rules. Procedural law governs how the case runs: notices, hearings, evidence. Substantive law decides who is right on the merits: was the contract breached, what damages follow. Section 28 deals only with the second. It applies where the place of arbitration is in India.

The section 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 (defined in section 2(1)(f): at least one party is a foreign national or resident, a foreign body corporate, a foreign-controlled association or body of individuals, or a foreign government), party autonomy rules. The tribunal decides in accordance with the rules of law the parties designated. If the parties named the law of a country, that means its substantive law, not its conflict of laws rules, unless they expressly say otherwise. This stops the tribunal being sent round in a circle to another country's law. If the parties designated nothing, the tribunal applies the rules of law it considers appropriate given all the circumstances of the dispute.

Two rules apply across the board. First, the tribunal can decide ex aequo et bono (in fairness and good conscience) or as amiable compositeur only if the parties have expressly authorised it. Second, in all cases it must take into account the terms of the contract and the trade usages applicable to the transaction. Sub-section (3) was substituted by the 2015 amendment, effective 23 October 2015.

Note the wording: 'rules of law', not 'law of a country'. Parties may therefore choose non-national rules, and the tribunal may do the same when choosing for them.

Key rules to remember

Domestic arbitration seated in India: Section 28(1)(a): tribunal applies the substantive law for the time being in force in India; No party choice of foreign law for the merits. Applies where the place of arbitration is in India and the arbitration is not international commercial.
International commercial arbitration: party choice: Section 28(1)(b)(i): tribunal decides in accordance with the rules of law designated by the parties; Parties may designate rules of law, not only a national law.
Designation of a country's law: Section 28(1)(b)(ii): designation = substantive law of that country, NOT its conflict of laws rules, unless otherwise expressed; No renvoi by default. Parties can override by saying so expressly.
No designation: Section 28(1)(b)(iii): tribunal applies the rules of law it considers appropriate given all the circumstances; This is the tribunal's own choice, based on the facts of the dispute.
Ex aequo et bono: Section 28(2): only if the parties have expressly authorised it; Applies to both amiable compositeur and ex aequo et bono. Silence or implication is not enough.
Contract terms and trade usages: Section 28(3): in all cases, take into account the terms of the contract and trade usages applicable to the transaction; Applies to domestic and international cases alike.

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 your answer in the provision, analysis, conclusion format.

1Check the place of arbitration. Section 28(1) applies where it is in India. If it is outside India, say Part I section 28 does not apply as such, and then answer on the facts given.
2Classify the arbitration using section 2(1)(f). Is at least one party a foreign national or resident, a foreign company, a foreign-controlled association or a foreign government? If yes, it is international commercial. If not, it is domestic.
3If domestic, state that the tribunal applies Indian substantive law under section 28(1)(a). Party choice of foreign law does not change this.
4If international, look for a designation by the parties. If there is one, apply it under section 28(1)(b)(i), reading a country's law as its substantive law under (b)(ii).
5If there is no designation, state that the tribunal applies the rules of law it considers appropriate in all the circumstances, under (b)(iii).
6Check for any authorisation to decide ex aequo et bono or as amiable compositeur. Without express authority, the tribunal must decide by law.
7Add section 28(3): the tribunal takes into account the contract terms and trade usages.
8Conclude clearly in one or two lines, naming the law that applies.

Quickest way: Three-question check

When to use it: Use when you have little time or the question is a short MCQ-style fact pattern inside a written paper.

Q1: Seat in India and international commercial? If it is domestic, answer: Indian substantive law.
Q2: Did the parties designate a law or rules of law? If yes, apply it as substantive law only. If no, the tribunal chooses what it considers appropriate.
Q3: Is there express authority for fairness-based decision? If no, decide by law. Then add the line on contract terms and trade usages in every answer.

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

Saying parties can choose foreign law in a domestic arbitration seated in India
Students carry over the party autonomy idea from international cases.
Fix: Remember the split. Section 28(1)(a) fixes Indian substantive law for non-international cases. Party choice of rules of law appears only in clause (b).
Confusing substantive law with procedural law
Both are called 'applicable law' in everyday talk.
Fix: Section 28 governs the merits only. Procedure is handled by other provisions and by party agreement. Write one line distinguishing them.
Applying the conflict of laws rules of the chosen country
Students assume choosing a country's law brings in all of its legal rules.
Fix: Cite section 28(1)(b)(ii). The designation refers directly to substantive law, unless the parties expressly say otherwise.
Allowing the tribunal to decide in fairness because it seems just
Students treat equity as a normal tool of the tribunal.
Fix: Under section 28(2), express authorisation by the parties is required. Without it, the tribunal must decide by law.
Forgetting section 28(3) or limiting it to international cases
It is a short sub-section and is overshadowed by sub-section (1).
Fix: Say 'in all cases' and mention contract terms and trade usages in every answer.
Applying section 28(1) when the seat is outside India
The opening words 'where the place of arbitration is situate in India' are overlooked.
Fix: Read the opening condition first. Section 2(2) says Part I applies where the place of arbitration is in India.

Worked examples

Example 1

Alpha Textiles Pvt Ltd, Surat, and Bergmann GmbH, a German company incorporated in Germany, have a supply contract. Arbitration is seated in Mumbai. The contract says nothing about governing law. A dispute arises. Which law will the tribunal apply to the merits?

Show the solution

Provision: section 28(1) applies because the place of arbitration is in India.
Classification: Bergmann GmbH is a body corporate incorporated outside India, so section 2(1)(f)(ii) is met, assuming the relationship is commercial. The arbitration is international commercial.
Analysis: the parties designated no law. Section 28(1)(b)(iii) therefore lets the tribunal apply the rules of law it considers appropriate given all the circumstances surrounding the dispute.
The tribunal must also take into account the contract terms and trade usages applicable to the transaction under section 28(3).
Conclusion: the tribunal is not bound to apply Indian law automatically. It chooses appropriate rules of law in light of the circumstances, such as where the contract was performed and the trade involved.

Answer: The tribunal applies the rules of law it considers appropriate in all the circumstances under section 28(1)(b)(iii), while taking into account the contract terms and trade usages under section 28(3).

Example 2

Rao Pharma Ltd and Mehta Traders, both Indian companies, agree to arbitrate in Delhi. Their contract states that the laws of England govern the contract. They also add that the tribunal may decide as amiable compositeur. A dispute arises. Advise on the law the tribunal must apply.

Show the solution

Provision: the place of arbitration is in India, so section 28(1) applies.
Classification: both parties are Indian companies, so none of the foreign elements in section 2(1)(f) exists. The arbitration is not international commercial.
Analysis on law: section 28(1)(a) requires the tribunal to decide in accordance with the substantive law for the time being in force in India. The English law clause does not displace this, because party designation operates under clause (b) only.
Analysis on equity: section 28(2) allows decision as amiable compositeur if the parties have expressly authorised it. Here they did so expressly in the contract, so the tribunal may decide on that basis.
Section 28(3) still applies: the tribunal takes into account the contract terms and trade usages.
Conclusion: the default is Indian substantive law, but the express amiable compositeur authority permits a fairness-based decision.

Answer: The English law clause cannot govern the merits of this domestic arbitration, since section 28(1)(a) requires Indian substantive law. The tribunal may nevertheless decide as amiable compositeur because the parties expressly authorised it under section 28(2), and it must consider contract terms and trade usages under section 28(3).

Exam tips

Start every answer by stating the seat and whether the arbitration is international commercial. Marks usually depend on this classification.
Quote the sub-section numbers: 28(1)(a), 28(1)(b)(i) to (iii), 28(2), 28(3). Examiners look for them.
Write the phrase 'substantive law and not conflict of laws rules' whenever a country's law is designated.
Use the words 'expressly authorised' for ex aequo et bono. A vague reference to equity in the contract needs careful analysis on the facts.
Close with one line that names the applicable law or rules of law, so the conclusion is clear.

Practice questions from International Law of Arbitration

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

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

Substantive law decides the rights and duties of the parties on the merits, such as whether a contract was breached. Procedural law governs how the arbitration is conducted. Section 28 deals with substantive law only.

Can parties choose foreign law for an arbitration seated in India?

Only in an international commercial arbitration, under section 28(1)(b)(i). In an arbitration that is not international commercial, the tribunal applies Indian substantive law under section 28(1)(a).

What does ex aequo et bono mean under section 28?

It means deciding on what is fair and just, rather than strictly by legal rules. Amiable compositeur is treated alongside it in section 28(2). The tribunal can do this only if the parties have expressly authorised it.

Do conflict of laws rules apply when parties choose a country's law?

Not by default. Section 28(1)(b)(ii) says the designation refers directly to that country's substantive law and not to its conflict of laws rules, unless the parties have otherwise expressed.

Must the tribunal consider the contract and trade usages?

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