It is settled law, only the ratio decidendi is binding as a precedent. Thus, in B. Shama Rao v. Union Territory, Pondicherry, (1967) 2 SCR 650 the Majority Judgment of Shelat J, speaking for himself and other Two Learned Judges held: “It is trite to say that a decision is binding not because of its conclusion but in regard to its ratio and the principle laid down therein.” In State of Orissa v. Sudhanshu Sekhar Misra, (1968) 2 SCR 154 this Court held: “A decision is only an authority for what it actually decides. What is of the essence in a decision is its ratio and not every observation found therein nor what logically follows from the various observations made in it .” An illuminating discussion is to be found in the Dissenting Judgment of Justice A.P. Sen in Dalbir Singh v. State of Punjab, (1979) 3 SCR 1059. Since, it refers to a principle of general application, not refuted by the Majority, it is worth setting out: “For the purpose of Doctrine of Precedents, ‘statements of the principles of law applicable to the legal problems disclosed by the facts’ is the vital element in the decision. This indeed is the ratio decidendi. It is not everything said by a Judge when giving 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 analyze a decision and isolate from it the ratio decidendi.” The ratio decidendi in Citizen Cooperative Society Ltd., (2017) 9 SCC 364 would not depend upon the conclusion arrived at on facts in that case, the case being an authority for what it actually decides in law and not for what may seem to logically follow from it.
– Hon’ble Justice R.F. Nariman, The Mavilayi Service Cooperative Bank Ltd. v. Commissioner of Income Tax, Calicut, [Civil Appeal Nos. 7343-7350 of 2019].