Legal Notes by Arvind Datar: Effect of an interim stay

When a judgment of the High Court is stayed by the Supreme Court, will the ratio of its decision continue to be binding?

Recently, the Supreme Court stayed the Delhi High Court judgment in Blackstone Capital Partners v. ACIT. While the interim stay was surprising because the Delhi High Court had only followed the earlier decisions of the Supreme Court, the question that requires to be considered is what is the effect of the interim stay order?

In Shree Chamundi Mopeds Ltd v. Church of South India Trust, it was held that an order of interim stay does not result in quashing of the impugned order. It only means that the order will not be operative from the date of the order of the stay. It is only when the appeal is finally heard and the order is set aside, that the judgment will no longer be operative.

The question that remains is whether a judgment which is stayed can still be binding on the coordinate benches and subordinate courts or tribunals. This question came for consideration before the Andhra Pradesh High Court in Government of AP v. N Rami Reddy. A Bench consisting of SB Sinha and Subhashan Reddy, JJ held that the ratio of a judgment represents the reasons assigned in support of its conclusion. An order of interim stay stays the operative portion of the decision, but does not wipe out its ratio. The same can be the case where its operation is suspended. The Court went on to hold, following an earlier decision, that the dicta which is decided in the impugned judgment remains operative and is binding on single judges and the division bench, until the judgment is set aside by the Supreme Court. While an earlier decision of the Andhra Pradesh High Court in the K Yella  Reddy v. Registrar of APAT had expressed reservation on such a broad proposition, the division bench in Rami Reddy preferred to adopt this view.

A similar view was taken by the Calcutta High Court in Niranjan Chatterjee v. State of West Bengal. In this case, one of the questions that arose was whether a particular provision of the West Bengal Land Reforms Act, which was declared ultra vires by a division bench but stayed by the Supreme Court, should continue to be followed. The Calcutta High Court considered the question whether another citizen who was not a party to the previous litigation could be deprived of the benefit of the earlier decision on the basis of the doctrine or precedents. 

In view of the specific stay order granted by the Supreme Court in that case for maintenance of the status quo and for certain further directions, the Calcutta High Court went on to hold that mere passing of an interim order staying the portion of the interim order does not wipe out its existence and its authority or precedential value is not undermined. Unless the decision is actually set aside, it remains effective as a precedent though not binding upon the parties to the proceedings before the Supreme Court. Further, if a statutory provision has been declared ultra vires by the Constitution of India, the State cannot invoke such an invalid provision merely because an interim order of stay was granted. The High Court judgment continues to be binding. The decision of the Calcutta High Court must be confined to its peculiar facts. 

Similarly, the more recent decision of the Andhra Pradesh High Court Palaniswamy v. State of AP also held that an interim order will not take away the binding nature of a judgment even if there is an interim stay by the higher court.

It is submitted that it would be too wide a statement to state that an order of interim stay only stops the operation but does not take away its effect as a binding precedent. It is one thing to state that the judgment continues to exist, but it is quite another to state that it continues to be binding and must be followed by subordinate courts and even by coordinate benches. There must be a distinction between a judgment which decides a dispute between private parties and one where a statutory provision is held to be ultra vires. In that case, an interim stay by a higher court may stay the operation, but not the binding precedent. However, if the High Court has declared a statutory provision to be unconstitutional, the question arises as to what will be the effect of an interim stay. This is a larger question which will have to be a subject matter of a separate article. 

The question of whether the ratio decidendi laid down by a division bench will continue to be operative as a binding precedent in other cases will depend on the nature of the interim stay; does such an order contain conditions subject to which the stay is to be operative? If the Supreme Court merely grants an order of interim stay and says nothing more, it is only the operation which is stayed. It is submitted that even if the judgment of a division bench stayed, it is advisable that another coordinate bench does not take a contrary view, but awaits the decision of the Supreme Court.

The effect of an order of interim stay does not admit an easy answer. It is not a binary – either black or white. There are many shades of grey that require consideration of the myriad permutations and combinations that would depend upon the nature of the dispute, the judgment delivered and the text of the order of interim stay.

Arvind P Datar is a Senior Advocate of the Supreme Court.