What Law the Tribunal Applies, and How a Panel Decides

In one line

A tribunal sitting in India must decide a domestic dispute by Indian substantive law, must respect the contract and trade usages, and where there are three arbitrators the majority decides.

In exam wording: section 28 of the Arbitration and Conciliation Act 1996 prescribes the rules applicable to the substance of the dispute, and section 29 provides that in proceedings with more than one arbitrator any decision shall be made by a majority of all its members.

Why an arbitrator is not free to do what he thinks is fair

Students often assume that arbitration means deciding by broad justice rather than by law. In India it does not, and section 28 is why.

The tribunal is not a court, but it is applying law, and an award that ignores the law can be attacked. Section 28 sets out which law, and it splits at the same fork as section 2(1)(f): domestic arbitration on one side, international commercial arbitration on the other.

Section 28(1)(a): domestic arbitration

Where the place of arbitration is in India, in an arbitration other than an international commercial arbitration, the arbitral tribunal shall decide the dispute submitted to arbitration in accordance with the substantive law for the time being in force in India.

Note the word shall. In a purely domestic arbitration the parties cannot choose a foreign law to govern the substance. Two Indian companies cannot agree that their contract is governed by Singapore law and have that applied by a tribunal sitting in India under this section.

And note what "substantive" excludes. Section 19(1) frees the tribunal from the procedural law, the Code of Civil Procedure, and from the Evidence Act. Section 28(1)(a) binds it to the substantive law: the Contract Act, the Sale of Goods Act, the law of limitation and the rest.

Section 28(1)(b): international commercial arbitration

Where the place of arbitration is in India and the arbitration is an international commercial arbitration:

• (i) the tribunal shall decide the dispute in accordance with the rules of law designated by the parties as applicable to the substance of the dispute;
• (ii) any designation by the parties of the law or legal system of a given country shall be construed, unless otherwise expressed, as directly referring to the substantive law of that country and not to its conflict of laws rules; and
• (iii) failing any designation by the parties, the tribunal shall apply the rules of law it considers to be appropriate given all the circumstances surrounding the dispute.

Clause (ii) is a small provision that saves a great deal of trouble. Conflict of laws rules, sometimes called private international law, are the rules a legal system uses to decide which country's law applies. If a choice of "French law" were read as including France's conflict rules, those rules might point back to some third country, and so on. Clause (ii) cuts that off: choosing a country's law means its substantive law.