The expression 'Ratio Decidendi' literally means " rule of law or Ruling or knowing the law". When the highest Court(Apex Court) of judicature in a country formulate/ makes a rule, while deciding a case basing on that rule, that case is accepted as a valid Precedent. The apex court furnishes the various reasons on which the decision was given in that particular case. Such rule or ruling is called 'ratio decidendi'.
In other words, ratio decidendi is a principal of law made by the judge to decide the problem. Obiter dicta are observations made by the Judge, which are not essential for reaching the decision. when a decision is said to have binding force in subsequent cases, it does not mean to say that the whole decision is binding. Those statements, in previous decision, which constitute the ratio decidendi are binding. While obiter dicta has no binding force.
'Ratio Decidendi' means "the reason of the decisions", which not only binds parties but also forms as law to the future generations. The Other meanings are 'the rule of law which others regard as being of binding authority. Obiter dicta, on the other hand means 'dictums' given by the way, and binding only on the parties, and do not amount to law and hence not binding on future generations. However, there are exceptions to this rule that even 'obiter dicta' of the Supreme Court are having binding force as law.
For the purpose of application of 'Ratio decidendi', the facts of two cases previous and present, must be identical, material and relevant. Otherwise, ratio decidendi is not applicable in the subsequent case. It is called distinguishing the case.