Mr. G. Balasubramaniam Vs. Indian Overseas Bank - A Section 7 Petition, under the I & B Code, 2016, is to be considered on its own merits, going by the available materials on `Record’. Even though, the `Debt’, is controverted, if the `Sum’, is more than Rs.1 Lakh (before the Amendment), and after the Amendment (Rs. 1 Crore and above), to the I & B Code, 2016, then, the `Application’, is `maintainable in Law’.

 NCLAT (25.04.2023) In Mr. G. Balasubramaniam Vs. Indian Overseas Bank .[Company Appeal (AT) (CH) (INS.) No. 139 of 2022] held that;

• # 39. Unlike, the Companies Act, which provides `inability to pay Debt’, as a ground for `Winding up of a Company’, the I & B Code, 2016, provides that an action for an `Insolvency’, may be initiated, if `Default’, is really / actually committed by a `Person’ or the `Corporate Debtor’.

• # 41. In reality, it is not the property, which is at the root of the `I & B Code, 2016’. Further, a just `Dispute’, about the quantum of payment, does not affect the `Right of a Financial Creditor’.

• # 43. It cannot be gainsaid that, any `Debt’, which is payable upon a `contingency’, is not a `Debt’, until the said `contingency’, had taken place, as per decision `People v. Arguello’ (1869) 37 Calif 521.

• # 44. A Section 7 Petition, under the I & B Code, 2016, is to be considered on its own merits, going by the available materials on `Record’. Even though, the `Debt’, is controverted, if the `Sum’, is more than Rs.1 Lakh (before the Amendment), and after the Amendment (Rs. 1 Crore and above), to the I & B Code, 2016, then, the `Application’, is `maintainable in Law’.

• # 45. A `Sum of Money’, which is certainly and in all events, payable is a `Debt’, without regard to the fact, whether, it is payable immediately or at a `future date’. The term `Receivable’, means `any Sum’, which a `Person’, is entitled to receive or received from `another Person’.

Excerpts of the order; 

Introduction:

The `Appellant’ / `Promoter’ of the `Corporate Debtor’ (`M/s. GBJ Hotels Pvt. Ltd.’), has preferred the instant Comp. App (AT) (CH) (INS.) No. 139 of 2022, as an `Aggrieved Person’, in respect of the `impugned order’, dated 19.04.2022 in CP (IB) / 279 (CHE) / 2021, passed by the `Adjudicating Authority’ (`National Company Law Tribunal’, Division Bench – I, Chennai).

# 2. The `Adjudicating Authority’ (`National Company Law Tribunal’, Division Bench – I, Chennai), while passing the `impugned order’ dated 19.04.2022 in CP (IB) / 279 (CHE) / 2021 (Filed by the `1st Respondent / Bank / Financial Creditor / Petitioner’), under Section 7 of the I & B Code, 2016, read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, wherein, at Paragraphs 12 to 16, had observed the following:

12. “Heard the submissions made by the Learned Counsel for the parties. From the averments made in the counter, it is clearly seen  that the Corporate Debtor has admitted its liability based on the OTS 18.12.2021 and the same clearly proves the existence of a `Financial Debt’ which is due and payable to the Financial Creditor. Further, it is also seen that the `default’ which is arising in the present Application has happened much before the advent of COVID-19 and the Corporate Debtor also cannot seek shelter under Section 10A of IBC, 2016.

13. Further, on the aspect of limitation, it is seen that the Corporate Debtor has committed default in repayment of the dues owing to which the Loan Account of the Corporate Debtor was declared NPA on 01/06/2019 and if the said date is taken into consideration as the date of default, then the present Application filed under Section 7 of IBC, 2016 before this Tribunal on 27/10/2021.

14. Thus, this Tribunal places on record the OTS dated 18.12.2021 amounting to Rs.84.81 crores and the Rejection effected by the Financial Creditor dated 18.12.2021 in which the Financial Creditor had categorically requested the Corporate Debtor to increase the OTS amount. This ex facie proves the existence of a `Financial debt’ and `default’.

15. Apropos, the Hon’ble Supreme Court in the case of Innoventive Industries Limited v. ICICI Bank Limited, where it has discussed extensively the scope of the Adjudicating authority under section 7 of the IBC is limited to assessing the records provided by the  financial creditor to satisfy itself that the default has occurred.

• 28. When it comes to a financial creditor triggering the process, Section 7 becomes relevant. Under the explanation to Section 7(1), a default is in respect of a financial debt owed to any financial creditor of the corporate debtor – it need not be a debt owed to the applicant financial creditor. Under Section 7(2), an application is to be made under sub-section (1) in such form and manner as is prescribed, which takes us to the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. Under Rule 4, the application is made by a financial creditor in Form 1 accompanied by documents and records required therein. Form 1 is a detailed form in 5 parts, which requires particulars of the applicant in Part I, particulars of the corporate debtor in Part II, particulars of the proposed interim resolution professional in part III, particulars of the financial debt in part IV and documents, records and evidence of default in part V. Under Rule 4(3), the applicant is to dispatch a copy of the application filed with the adjudicating authority by registered post or speed post to the registered office of the corporate debtor. The speed, within which the adjudicating authority is to ascertain the existence of a default from the records of the information utility or on the basis of evidence furnished by the financial creditor, is important. This it must do within 14 days of the receipt of the application. It is at the stage of Section 7(5), where the adjudicating authority is to be satisfied that a default has occurred, that the corporate debtor is entitled to point out that a default has not occurred in the sense that the “debt”, which may also include a disputed claim, is not due. A debt may not be due if it is not payable in law or in fact. The moment the adjudicating authority is satisfied that a default has occurred, the application must be admitted unless it is incomplete, in which case it may give notice to the applicant to rectify the defect within 7 days of receipt of a notice from the adjudicating authority. Under sub-section (7), the adjudicating authority shall then communicate the order passed to the financial creditor and corporate debtor within 7 days of admission or rejection of such application, as the case may be.

• 30. On the other hand, as we have seen, in the case of a corporate debtor who commits a default of a financial debt, the adjudicating authority has merely to see the records of the information utility or other evidence produced by the financial creditor to satisfy itself that a default has occurred. It is of no matter that the debt is disputed so long as the debt is “due” i.e. payable unless interdicted by some law or has not yet become due in the sense that it is payable at some future date. It is only when this is proved to the satisfaction of the adjudicating authority that the adjudicating authority may reject an application and not otherwise.

16. In view of the facts as stated supra and also in view of the `financial debt’ which is proved by the Financial Creditor and the `default’ being committed on the part of the Corporate Debtor, this Tribunal is left with no other option than to proceed with the present case and initiate the Corporate Insolvency Resolution Process in relation to the Corporate Debtor.’’ 

and ultimately `admitted’, the `Application’, appointed the 2nd Respondent, as an `Interim Resolution Professional’, and declared `Moratorium’, etc.

Appellant’s Citations:

# 22. The Learned PCS for the Appellant, refers to the decision of the Hon’ble Supreme Court in Vidarbha Industries Power Limited case, reported in 2022 8 SCC 352 at spl page 375, wherein, at Paragraph 77, it is observed as under:

• 77. “On the other hand, in the case of an application by a Financial Creditor who might even initiate proceedings in a representative capacity on behalf of all financial creditors, the Adjudicating Authority might examine the expedience of initiation of CIRP, taking into account all relevant facts and circumstances, including the overall financial health and viability of the Corporate Debtor. The Adjudicating Authority may in its discretion not admit the application of a Financial Creditor.’’

# 23. The Learned PCS for the Appellant, adverts to the Judgment of this `Tribunal’ (Three Member Bench) dated 11.10.2022, in Comp App (AT) INS No. 1085 of 2019, between Deepak Vegpro Pvt. Ltd. v. Shree Hari Agro Industries Ltd., 2022 SCC OnLine NCLAT 401, wherein, at Paragraph 39, it is observed as under:

• 39. “Thus the Hon’ble Supreme Court rejected the view of NCLT and NCLAT that once it is found that a debt existed, and a corporate debtor is in default in payment of the debt there would be no option to the Adjudicating Authority (NCLT) but to admit the petition under Section 7 of the IBC. Going by the scheme of IBC and the legislative intent, the Hon’ble Supreme Court has observed that the Adjudicating Authority would have to exercise its discretion to admit an application under Section 7 of the IBC of the IBC and initiate CIRP, unless there are good reasons not to admit the petition. The Hon’ble Apex Court has observed that if the facts and circumstances warrant exercise of discretion in a particular manner, such discretion would have to be exercised with the condition that such discretionary power cannot be exercised arbitrarily or without any proper reason.’’

# 24. The Learned PCS for the Appellant, cites the Judgment of this `Tribunal’ dated 09.09.2022 in Comp. App (AT) (INS.) 993 of 2020 in Air Travel Enterprises India Limited, Kerala v. Union Bank of India, Kerala and three Ors., wherein, at Paragraph 20, it is observed as under:

• 20. “Be that as it may, for all the aforenoted reasons and having regard to the Written Submissions that efforts would be made to settle the matter, in the interest of justice and taking into consideration the fact that in this pandemic, the travel dependent sector, which is the core business of the ‘Corporate Debtor’, has more than suffered the negative impact of the crisis, this opportunity is being given to settle which could help mitigate the blow. We are also conscious of the fact that the ‘Corporate Debtor’ has settled the matter with Dhanlaxmi Bank, the Applicant of Section 7 Application in IA/06/KOB/2020 & IBA/41/KOB/2019 which was disposed of as withdrawn based on the settlement terms on 06.01.2020, during which period of pendency, this Section 7 Application was filed on 27.12.2019 against the same ‘Corporate Debtor’. We reiterate, that the scope and objective of the Code is Insolvency & not recovery. The Admission of Section 7 Application is set aside. Keeping in view the peculiar facts of the attendant case, we dispose of this Appeal with a direction that if the ‘Corporate Debtor’ fails to settle in 6 months time from the date of this Order, the Respondent Bank is at liberty to take appropriate steps. Any observations made in this Appeal shall not stand in the way of any further proceedings, if initiated. Needless to add, the period spent in pursuing this Appeal shall be excluded for the purpose of limitation.’’

# 25. The Learned PCS for the Appellant, seeks in aid of the Judgment of this `Tribunal’, dated 24.08.2020, in Comp. App (AT) (INS.) No. 270 of 2020, between Park Energy Pvt. Ltd., through its Authorised Representative, Hari Chaudhary v. Syndicate Bank and Anr., reported in 2020 SCC OnLine NCLAT 637, wherein, at Paragraph 29, it is observed as under:

• 29. “In the face of ample and weighty evidence on record, it cannot be said that the Corporate Debtor is under no obligation to discharge its liability in respect of the ‘Financial Debt’ payable to the ‘Financial Creditor’ but the mere fact of debt being due and payable in law is not enough to justify initiation of Corporate Insolvency Resolution Process at the instance of Financial Creditor unless it establishes default on the part of the Corporate Debtor in regard to the debt. The onus of proof of default on the part of Corporate Debtor lies on the Financial Creditor and it has to demonstrate that default has occurred on account of failure on the part of Corporate Debtor to discharge its liability.’’

Status Report of the 2nd Respondent / RP :

# 36. The Learned Counsel for the 2nd Respondent / Resolution Professional of the `Corporate Debtor’, in his email dated 04.06.2022, addressed to the `Corporate Debtor’ / `GBJ Hotels Pvt. Ltd.’, had stated that `no effective support is being received, from the Corporate Debtor’s side’, and further that, the updated books of accounts, were not received and inspite of repeated reminders, no attempts were made to furnish the same by the `Corporate Debtor’, and also that, an `Application’ (under Section 19 (2) of the I & B Code, 2016), was filed by the `Resolution Professional’.

# 37. Furthermore, the 2nd Respondent / Resolution Professional, addressed to the `Corporate Debtor’ / `GBJ Hotels Pvt. Ltd.’, had mentioned in the aforesaid email dated 04.06.2022 that `many of the Licenses are not renewed’, and the Hotel was operated without appropriate renewals, during the past periods and that the lack of Key Department Heads in the Organisation, is one of the `key reason’ for such non-compliances. We are now taking steps to renew all such `Licenses and Registrations’, and assured that care of the Company as a `Going Concern’, will be taken care, in the best possible way, during this `Corporate Insolvency Resolution Process’ period.

I & B Code, 2016:

# 38. A `Financial Creditor’, under the `Code’, is an `individual’, who has a right to `Financial Debt’.

# 39. Unlike, the Companies Act, which provides `inability to pay Debt’, as a ground for `Winding up of a Company’, the I & B Code, 2016, provides that an action for an `Insolvency’, may be initiated, if `Default’, is really / actually committed by a `Person’ or the `Corporate Debtor’.

# 41. In reality, it is not the property, which is at the root of the `I & B Code, 2016’. Further, a just `Dispute’, about the quantum of payment, does not affect the `Right of a Financial Creditor’.

# 43. It cannot be gainsaid that, any `Debt’, which is payable upon a `contingency’, is not a `Debt’, until the said `contingency’, had taken place, as per decision `People v. Arguello’ (1869) 37 Calif 521.

# 44. A Section 7 Petition, under the I & B Code, 2016, is to be considered on its own merits, going by the available materials on `Record’. Even though, the `Debt’, is controverted, if the `Sum’, is more than Rs.1 Lakh (before the Amendment), and after the Amendment (Rs. 1 Crore and above), to the I & B Code, 2016, then, the `Application’, is `maintainable in Law’.

# 45. A `Sum of Money’, which is certainly and in all events, payable is a `Debt’, without regard to the fact, whether, it is payable immediately or at a `future date’. The term `Receivable’, means `any Sum’, which a `Person’, is entitled to receive or received from `another Person’.

Discussions:

# 46. In the instant case on hand, it transpires, that the `Corporate Debtor’ / `Company’, had approached the `1st Respondent / Bank’ (`Financial Creditor’), for its business operations and that the `Bank’, had extended the following `Credit Facilities’, which are depicted, are as follows:

Date	Nature of Facility	Limit
30/12/2011	Term Loan with sublimit of LC	Rs.108 Crores
04/10/2017	Renewal of Term Loan	Rs.100.64 Crores
04/10/2017	LG	Rs.2.77 Crore
04/10/2017	Miscellaneous Cash Credit	Rs.5 Crore

# 47. On behalf of the 1st Respondent / Bank, a reference is made to the Letter dated 12.08.2022 of Pressana Flour Mills (P) Ltd., addressed to the CEO and CMD of the Indian Overseas Bank, Chennai – 2, wherein, it is averred by the Managing Director of the Flour Mills that, `we commit ourselves to settle OTS Compromise Amount due by GBJ Hotels Pvt. Ltd., within the time permitted by your goodselves’, etc.

# 48. The Learned Counsel for the 1st Respondent / Bank / Financial Creditor, adverts to the Letter dated 09.09.2022 of `Pressana Flour Mills Private Limited’, addressed to the `CEO and CMD of the Indian Overseas Bank’, Chennai – 2, wherein, it is mentioned by the Director that `…. We can offer an amount of Rs.102.50 Crores (Rupees One Hundred and Two Crores and Fifty Lakhs only) as settlement amount, inclusive of all dues of GBJ Hotels Pvt. Ltd’. Also, a favourable letter was requested by the Director of the Pressana Flour Mills Pvt. Ltd., in the Letter dated 09.09.2022, addressed to the `CEO and CMD of the Indian Overseas Bank, Chennai – 2, to settle the amount, within a period of 45 days from the date of Bank’s Approval Letter’.

# 49. On behalf of the 1st Respondent / Bank / Financial Creditor, the Letter dated 12.09.2022 of the `Corporate Debtor / GBJ Hotels Pvt. Ltd.’, duly signed by its Managing Director, addressed to the CEO and CMD of Indian Overseas Bank, Chennai – 2, on the subject of `Settlement of our Dues’, to your `Bank’, is referred to, wherein, it was among other things, averred that `they had made all arrangements to execute the `Terms’, swiftly.

# 50. The Learned Counsel for the 1st Respondent / Bank / Financial Creditor, refers to the Sanction of `OTS’ / `OCS’ Proposal dated 11.10.2022, issued by the `Indian Overseas Bank, Specialised Asset Recovery Management Branch’, Coimbatore, addressed to the GBJ Hotels Private Limited, Managing Director Mr. G. Balasubramaniam, Coimbatore (Appellant in Appeal), wherein, it was mentioned that the `Competent Authority’ of the Bank, had accorded Sanction for accepting the `Compromise Settlement Offer of Rs.105.00 Crores’, in Full and Final Settlement of the Account, under Section 12A of the IBC Process, as per terms and conditions, mentioned therein. Also, in the said `Letter of the Bank dated 11.10.2022’, it was indicated categorically, that `Automatic Cancellation of Compromise Settlement’, sanctioned in the event of non fulfilment of stipulated terms and conditions, and further, it was mentioned that the entire amount, as per `Procedure for Compromise Settlement’, under Section 12A of IBC, should be deposited in `No Lien Account’, before filing `Withdrawal Application’, under Section 12A with the `NCLT’. It was also made crystalline clear that the `Sanction of Compromise Settlement’, is subject to the `Approval of National Company Law Tribunal’.

# 51. As far as the present case, is concerned, the very fact that the `Corporate Debtor’, had admitted its `Liability’, cementing on the `One Time Settlement’ dated 18.12.2021, the same unequivocally, points out the `factum’, of `Financial Debt’, (as per ingredients of `Section 5 (8) of the I & B Code, 2016’), which is due and liable to be paid by it, to the `1st Respondent / Bank / Financial Creditor’, (as per `Section 5 (7) of the Code’).

# 52. The very fact that the Loan Account of the Corporate Debtor / Company, slipped into the category of `Non Performing Asset’, on 01.06.2019, in accordance with the guidelines of the Reserve Bank of India, the contra plea taken on behalf of the Appellant that the `Default’, took place before the Covid-19 Pandemic, is turned down, by this `Tribunal’.

# 53. Admittedly, the main CP (IB) / 279 (CHE) / 2021, preferred by the `1st Respondent / Bank / Financial Creditor’, under Section 7 of the Code on 27.10.2021, before the `Adjudicating Authority’ / `Tribunal’. The `Corporate Debtor’s Loan Account’, was declared as `NPA’, on 01.06.2019’. As such, the main CP (IB) / 279 (CHE) / 2021, was filed well within the `Limitation Period’, by the 1st Respondent / Bank / Financial Creditor / Petitioner, and the point, is so answered.

# 54. In the present case, it cannot be lost sight of that the `One Time Settlement’, dated 18.12.2021, amounting to Rs.84.81 Crores was rejected, by the 1st Respondent / Bank on 18.12.2021 itself, whereby and whereunder the `Corporate Debtor / Company’, was requested to raise the `OTS Sum’, which is a clear cut pointer, about the `Existence of Financial Debt and Default’.

# 55. Be that as it may, in the instant case, the `Corporate Debtor’s Financial Debt’, with the `1st Respondent / Bank / Financial Creditor’, is established by means of a `Default’, committed by the `Corporate Debtor’. The available material records projected on the side of the 1st Respondent / Bank, supports the case of the Bank that the Corporate Debtor, had committed `Default’, in respect of the `Debt’, due and payable.

# 56. Suffice it, for this `Tribunal’, to pertinently make a mention that as the `Debt’, due and payable by the `Corporate Debtor’, is not interdicted by any `Law’, and this `Tribunal’, on being subjectively satisfied as to the `Default’, committed by the `Corporate Debtor’, in respect of the `Financial Debt’, due and payable, then, the view arrived at, by the `Adjudicating Authority’ / `Tribunal’, in holding that the `Financial Debt’ of the `Corporate Debtor’, was proved by the `1st Respondent / Bank / Financial Creditor’, is free from any `Legal Flaws’. Looking at from that angle, the `admission’ of the main CP (IB) / 279 (CHE) / 2021, passed by the `Adjudicating Authority’, `National Company Law Tribunal’, Division Bench – I, Chennai, is in `Order’. Viewed in that perspective, the instant `Appeal’ fails.

Conclusion :

In fine, for the foregoing qualitative and quantitative discussions and reasons, the instant Comp. App (AT) (CH) (INS.) No. 139 of 2022, is `dismissed’, by this `Tribunal’. No costs. The connected `IA Nos. 324 and 325 of 2022’, are closed.

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Career Institute Educational Society Vs Om Shree Thakurji Educational Society . - 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.

SCI (24.04.2023) In Career Institute Educational Society Vs Om Shree Thakurji Educational Society .[Petition for Special Leave to Appeal (C) Nos. 7455-7456/2023] held 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.

• 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.

Head Notes;

What is meant by ratio decidendi?

Latin, "rationale for the decision." The term refers to a key factual point or chain of reasoning in a case that drives the final judgment.

What is obiter dicta in law?

obiter dictum, Latin phrase meaning “that which is said in passing,” an incidental statement. Specifically, in law, it refers to a passage in a judicial opinion which is not necessary for the decision of the case before the court. Such statements lack the force of precedent but may nevertheless be significant.

Excerpts of the order; 

We do not find any merit in the present special leave petitions and hence, the same are dismissed. 

However, we would like to record some reasons for dismissal of the present special leave petitions.

The judgment in Vidya Drolia & Ors. vs. Durga Trading Corporation [(2021) 2 SCC 1] 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 (supra), the decision is not a precedent on this question. 

Vidya Drolia (supra) did refer to the judgment in the case of Garware Wall Ropes Limited vs. Coastal Marine Constructions and Engineering Limited [(2019) 9 SCC 209], but in a different context, as is evident from paragraphs 146 and 147.1 of the judgment in Vidya Drolia (supra), which are reproduced below:

• “146. We now proceed to examine the question, whether the word "existence" in Section 11 merely refers to contract formation (whether there is an arbitration agreement) and excludes the question of enforcement (validity) and therefore the latter falls outside the jurisdiction of the court at the referral stage. On jurisprudentially and textualism it is possible to differentiate between existence of an arbitration agreement and validity of an arbitration agreement. Such interpretation can draw support from the plain meaning of the word "existence". However, it is equally possible, jurisprudentially and on contextualism, to hold that an agreement has no existence if it is not enforceable and not binding. Existence of an arbitration agreement presupposes a valid agreement which would be enforced by the court by relegating the parties to arbitration. Legalistic and plain meaning interpretation would be contrary to the contextual background including the definition clause and would result in unpalatable consequences. A reasonable and just interpretation of "existence" requires understanding the context, the purpose and the relevant legal norms applicable for a binding and enforceable arbitration agreement. An agreement evidenced in writing has no meaning unless the parties can be compelled to adhere and abide by the terms. A party cannot sue and claim rights based on an unenforceable document. Thus, there are good reasons to hold that an arbitration agreement exists only when it is valid and legal. A void and unenforceable understanding is no agreement to do anything. Existence of an arbitration agreement means an arbitration agreement that meets and satisfies the statutory requirements of both the Arbitration Act and the Contract Act and when it is enforceable in law.

• 147. xxx xxx xxx

• 147.1. In Garware Wall Ropes Ltd. v. Coastal Marine Constructions & Engg. Ltd., (2019) 9 SCC 209, this Court had examined the question of stamp duty in an underlying contract with an arbitration clause and in the context had drawn a distinction between the first and second part of Section 7(2) of the Arbitration Act, albeit the observations made and quoted above with reference to "existence" and "validity" of the arbitration agreement being apposite and extremely important, we would repeat the same by reproducing para 29 thereof: (SCC p. 238)

• “29. This judgment in Hyundai Engg. Case [United India Insurance Co. Ltd. v. Hyundai Engg. & Construction Co. Ltd., (2018) 17 SCC 607] is important in that what was specifically under consideration was an arbitration clause which would get activated only if an insurer admits or accepts liability. Since on facts it was found that the insurer repudiated the claim, though an arbitration clause did “exist”, so to speak, in the policy, it would not exist in law, as was held in that judgment, when one important fact is introduced, namely, that the insurer has not admitted or accepted liability. Likewise, in the facts of the present case, it is clear that the arbitration clause that is contained in the subcontract would ot “exist” as a matter of law until the sub-contract is duly stamped, as has been held by us above. The argument that Section 11(6-A) deals with “existence”, as opposed to Section 8, Section 16 and Section 45, which deal with “validity” of an arbitration agreement is answered by this Court’s understanding of the expression “existence” in Hyundai Engg. case (supra), as followed by us.”

• Existence and validity are intertwined, and arbitration agreement does not exist if it is illegal or does not satisfy mandatory legal requirements.  Invalid agreement is no agreement.

• xxx xxx xxx”

It is apparent from the aforementioned paragraphs in Vidya Drolia (supra) that 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) 6 SCC 21] and Jayant Verma & Ors. vs. Union of India & Ors. [(2018) 4 SCC 743].

The first judgment in State of Gujarat (supra) 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 (supra), this Court has referred to an earlier decision of this Court in Dalbir Singh & Ors. vs. State of Punjab [(1979) 3 SCC 745] 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.

Applying these principles, we dismissed the special leave petitions.

Pending applications, if any, shall stand disposed of.

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