Court case(1990) 4 SCC 207

The ratio decidendi of a decision is the underlying principle, the general reasons or grounds on which it is based, abstracted from the specific peculiarities of the case; a decision is binding for that principle and not for every observation in it. Pension retirees and provident-fund retirees form distinct classes, so Nakara does not apply to the latter.

Railway employees who had retired under the Contributory Provident Fund scheme claimed that, following D.S. Nakara v. Union of India (1983), which had held that liberalised pension rules must apply to all pensioners irrespective of their date of retirement, they too should be allowed to switch to the pension scheme and receive its benefits. The Union resisted on the ground that Nakara dealt with pensioners only and that the two schemes were different in nature.

The Constitution Bench dismissed the petitions. It held that pension and provident fund are structurally different: pension is a continuing periodic payment while the provident fund is a lump-sum contributory scheme that closes on payment, so the two classes of retirees are not similarly situated and Article 14 is not violated. On precedent the Court explained that the ratio decidendi is the general principle on which a case is decided, to be deduced by abstracting from the particular facts; the enunciation of the reason or principle on which a question has been decided alone is binding as a precedent. Nakara's ratio was confined to the class of pensioners, and its broader observations did not bind the Court in a different situation.