Once Hugo Grotius said in his book that there are two types of an arbitrator, one who is acting in the capacity of a judge and allowing every rule of law with the procedure. The other kind of arbitrator is who follows the concept of equity principle and the same can be linked to the law of merchant which can be further connected to the arbitration by using the rules of custom as well as trade. The main reason to undergird the use of arbitration in the commercial transaction was to eradicate the absurdity of court rules, and there was no uniformity concerning the applicability of laws. Earlier, the hoary concept of law of merchant was also prevalent, which gave rise to formation and enforcement of its rules in arbitration. The idea of Lex Mercatorian gave rise to the use of usage and customs which merchants followed and were earlier prevalent in Europe.