The Supreme Court on Friday suggested that its judges should explicitly clarify in their rulings whether a decision resolves a specific dispute or establishes a binding legal precedent, as it highlighted the distinction between its twin roles as the apex appellate authority and as a precedent-setting body.
Underlining the necessity for clarity in its judgments to avoid dilemmas for subordinate courts, a bench of justices PS Narasimha and Pankaj Mithal emphasised that while the top court often decides individual cases under its appellate jurisdiction, not every ruling constitutes a binding precedent under Article 141 of the Constitution.
“As an institution, our Supreme Court performs the twin functions of decision-making and precedent-making...It is therefore necessary to be cautious in our dispensation and state whether a particular decision is to resolve the dispute between the parties and provide finality or whether the judgment is intended to and in fact declares the law under Article 141,” held the judgment, penned by justice Narasimha.
The judgment came as the bench referred a legal conundrum concerning Section 18 of the Micro, Small and Medium Enterprises (MSME) Act, 2006, to a larger three-judge bench for authoritative determination.
The judgment acknowledged the challenges faced by lower courts in distinguishing between decisions that resolve disputes and those intended to serve as binding legal precedents. “Every judgment or order made by this Court in disposing of these appeals is not intended to be a binding precedent under Article 141... It is necessary to state whether the decision is to resolve the dispute or declares the law,” the court held.
{{/usCountry}}The judgment acknowledged the challenges faced by lower courts in distinguishing between decisions that resolve disputes and those intended to serve as binding legal precedents. “Every judgment or order made by this Court in disposing of these appeals is not intended to be a binding precedent under Article 141... It is necessary to state whether the decision is to resolve the dispute or declares the law,” the court held.
{{/usCountry}}Citing previous rulings, the judgment reiterated that decisions rendered without argument, consideration, or reasoning -- often referred to as sub silentio -- cannot be deemed binding precedents. This clarity, the bench held, is essential to maintain judicial coherence across various fora in the country.
The case before the court involved an interpretation of Section 18 of the MSME Act, which provides for dispute resolution through arbitration facilitated by the Micro and Small Enterprises Facilitation Council. The question was whether the term “any party to a dispute” in Section 18 includes only a supplier registered under Section 8 of the Act or extends to others.
The buyer in the dispute contended that only a registered supplier could invoke the arbitration process. However, the bench did not find favour with this narrow interpretation, noting the need to balance statutory rights with effective judicial remedies.
The judgment also highlighted the pivotal role of MSMEs in India’s economy, citing their contribution of 30% to the GDP, 62% to employment, and 45% to exports. Acknowledging challenges faced by the sector, the court called for a nuanced understanding of the MSME Act to foster inclusive growth and economic resilience.
“MSMEs are said to be the backbone of many economies, including India. This resonates with the statement of the father of our nation, Mahatma Gandhi, declaring that the ‘salvation of India lies in cottage and small-scale industries’...” it noted.
Justice Narasimha’s opinion also emphasised the judiciary’s role in narrowing the gap between statutory rights and remedies. “A meaningful interpretation that furthers effective judicial access is a constitutional imperative,” said the court, urging statutory remedies to be accessible, affordable, expeditious and cohesive.
In the present case, the bench identified ambiguities in prior Supreme Court judgments on the MSME Act, including Silpi Industries Vs Kerala State Road Transport Corporation (2021) and Gujarat State Civil Supplies Corporation Limited Vs Mahakali Foods Pvt Ltd (2023), coupled with subsequent orders by the top court in 2022, which it held were not binding precedents on the present issue. To ensure clarity and legal certainty, the court referred the matter to the Chief Justice of India for constituting a three-judge bench to resolve the issue definitively.