Not every observation in a judgement of Supreme Court is binding as precedent. Only the ratio decidendi or the propositions of law that were necessary to decide on the issues between the parties are binding. (109) Observations by the judge, even determinative statements of law, which are not part of her reasoning on a question or issue before the court , are termed obiter dicta. Such observations do not bind the Court . More simply, a case is only an authority for what it actually decides.[1]
A Constitution Bench of Supreme Court (speaking through Chief Justice Khare) in Islamic Academy of Education v. State of Karnataka, (2003) 6 SCC 697 [2]; 2003 INSC 391. pithily observed:
“2. […] The ratio decidendi of a judgment has to be found out only on reading the entire judgment. In fact, the ratio of the judgment is what is set out in the judgment itself. The answer to the question would necessarily have to be read in the context of what is set out in the judgment and not in isolation. In case of any doubt as regards any observations, reasons and principles, the other part of the judgment has to be looked into. By reading a line here and there from the judgment, one cannot find out the entire ratio decidendi of the judgment. […]”
In Secunderabad Club v. CIT, 2023 SCC OnLine SC 1004; 2023 INSC 736. Supreme Court , speaking through Justice BV Nagarathna, had occasion to delineate how to cull out the ratio decidendi of a judgement and identify the principles which have precedential value. Supreme Court observed:
“14. […] According to the well-settled theory of precedents, every decision contains three basic ingredients :
(i) findings of material facts, direct and inferential. An inferential finding of fact is the inference which the judge draws from the direct or perceptible facts ;
(ii) statements of the principles of law applicable to the legal problems disclosed by the facts ; and
(iii) judgment based on the combined effect of (i) and (ii) above.
For the purposes of the parties themselves and their privies, ingredient (iii) is the material element in the decision, for, it determines finally their rights and liabilities in relation to the subject-matter of the action. It is the judgment that estops the parties from reopening the dispute. However, for the purpose of the doctrine of precedent, ingredient (ii) is the vital element in the decision. This is the ratio decidendi. It is not everything said by a judge when giving a judgment that constitutes a precedent. The only thing in a judge’s decision binding a party is the principle upon which the case is decided and for this reason it is important to analyse a decision and isolate from it the ratio decidendi.”
Inversion Test
Further, a simple test that has been invoked by Supreme Court to determine whether a particular proposition of law is to be treated as the ratio decidendi of a case is the “inversion test” formulated by Professor Eugene Wambaugh.[2] The test mandates that to determine whether a particular proposition of law is part of the ratio decidendi of the case, the proposition is to be inversed. This means that either that proposition is hypothetically removed from the judgement or it is assumed that the proposition was decided in reverse. After such removal or reversal, if the decision of the Court on that issue before it would remain the same then the observations cannot be regarded as the ratio decidendi of the case.
[1] Secundrabad Club v. CIT, 2023 SCC OnLine SC 1004 [13]; 2023 INSC 736.
[2] Eugene Wambaugh, The Study of Cases (Boston: Little, Brown & Co., 1892)