2023 (5) TMI 715 - SC - Indian Laws

Interpretation of statute - meaning of principles of obiter dicta and ratio decidendi - HELD THAT - The judgment in VIDYA DROLIA AND OTHERS VERSUS DURGA TRADING CORPORATION 2020 (12) TMI 1227 - SUPREME COURT did not examine and decide the issue of effect of unstamped or under-stamped underlying contract on the arbitration agreement. As this issue and question has not been decided in Vidya Drolia, the decision is not a precedent on this question. Vidya Drolia did refer to the judgment in the case of GARWARE WALL ROPES LTD. VERSUS COASTAL MARINE CONSTRUCTIONS ENGINEERING LTD. 2019 (4) TMI 716 - SUPREME COURT , but in a different context - reference to the decision in Garware Wall Ropes Limited (supra) was made to interpret the word existence , and whether an invalid arbitration agreement, can be said to exist? This examination was to decide who decides existence of an arbitration agreement in the context of Sections 8 and 11 of the Arbitration and Conciliation Act, 1996. The distinction between obiter dicta and ratio decidendi in a judgment, as a proposition of law, has been examined by several judgments of this Court, but we would like to refer to two, namely, State of Gujarat Ors. vs. Utility Users Welfare Association Ors. 2018 (4) TMI 1945 - SUPREME COURT and JAYANT VERMA AND ORS. VERSUS UNION OF INDIA AND ORS. 2018 (2) TMI 1326 - SUPREME COURT . The first judgment in State of Gujarat applies, what is called, the inversion test to identify what is ratio decidendi in a judgment. To test whether a particular proposition of law is to be treated as the ratio decidendi of the case, the proposition is to be inversed, i.e. to remove from the text of the judgment as if it did not exist. If the conclusion of the case would still have been the same even without examining the proposition, then it cannot be regarded as the ratio decidendi of the case. In Jayant Verma, this Court has referred to an earlier decision of this Court in DALBIR SINGH VERSUS STATE OF PUNJAB 1979 (5) TMI 148 - SUPREME COURT to state that it is not the findings of material facts, direct and inferential, but the statements of the principles of law applicable to the legal problems disclosed by the facts, which is the vital element in the decision and operates as a precedent. Even the conclusion does not operate as a precedent, albeit operates as res judicata. Thus, it is not everything said by a Judge when giving judgment that constitutes a precedent. The only thing in a Judge's decision binding as a legal precedent 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 obiter dicta. SLP dismissed.

Summary

Issues Involved:
The judgment addresses the issue of the effect of unstamped or under-stamped underlying contract on the arbitration agreement. It also discusses the interpretation of the word 'existence' in the context of arbitration agreements and the distinction between obiter dicta and ratio decidendi in a judgment.

Effect of Unstamped or Under-stamped Contract on Arbitration Agreement:
The judgment highlights that the decision in Vidya Drolia case did not examine the impact of unstamped or under-stamped underlying contracts on arbitration agreements. It clarifies that the existence and validity of an arbitration agreement are intertwined, emphasizing that an arbitration agreement does not exist if it is illegal or does not meet mandatory legal requirements. The judgment refers to the Garware Wall Ropes case to interpret the word 'existence' and determine whether an 'invalid' arbitration agreement can be considered to exist. This analysis aims to resolve the question of 'who decides the existence of an arbitration agreement' under Sections 8 and 11 of the Arbitration and Conciliation Act, 1996.

Distinction between Obiter Dicta and Ratio Decidendi:
The judgment delves into the distinction between obiter dicta and ratio decidendi in legal judgments. It references the State of Gujarat case, which applies the 'inversion test' to identify the ratio decidendi in a judgment. The inversion test involves removing a proposition of law from the judgment and assessing if the case's conclusion would remain the same without it. Additionally, the judgment cites the Jayant Verma case, which emphasizes that the principle upon which a case is decided constitutes the binding legal precedent. It underscores the importance of isolating the obiter dicta from a judge's decision to determine the precedent-setting principle.

Conclusion:
Based on the principles discussed regarding the impact of unstamped or under-stamped contracts on arbitration agreements and the distinction between obiter dicta and ratio decidendi, the Supreme Court dismissed the special leave petitions. The judgment concludes that only the principle upon which a case is decided serves as a legal precedent, highlighting the significance of analyzing decisions to extract the binding legal principles. Any pending applications are directed to be disposed of in light of this judgment.