A SWORD OR A SHIELD? THE LEGAL CONTOURS OF THE DOCTRINE OF PAST AND CLOSED TRANSACTIONS IN THE REALM OF PAKISTANI JURISPRUDENCE |
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A SWORD OR A SHIELD? THE LEGAL CONTOURS OF THE DOCTRINE OF PAST AND CLOSED TRANSACTIONS IN THE REALM OF PAKISTANI JURISPRUDENCE
A SWORD OR A SHIELD? THE LEGAL CONTOURS OF THE DOCTRINE OF PAST AND CLOSED TRANSACTIONS IN THE REALM OF PAKISTANI JURISPRUDENCE
“It is established law that the legislature has the plenary power to enact laws with retrospective and prospective effect subject to such laws not effecting past and closed transactions,” the Federal Constitutional Court (FCC) recently averred whilst declaring Section 4C of the Income Tax Ordinance, 2001 to be intra vires the Constitution of the Islamic Republic of Pakistan, 1973.[1] But the cardinal question of what would constitute a “past and closed transaction” in such a scenario was left unanswered by the new apex court.
In Pakistan, the concept of past and closed transactions and its subsequent evolution as a “doctrine” is found in a catena of cases, ranging from tax matters to employment disputes. Despite its widespread application, the legal contours of the doctrine remain largely amorphous. The primary reasons for the perplexity surrounding this doctrine stem from its relatively arcane nature and the fact that it is often applied by courts without explicitly enunciating any specific criteria for its application. Moreover, the doctrine of past and closed transactions is not embedded in any statute, and its inception as a common law doctrine is also shrouded in obfuscation, as suggested by Pakistani jurisprudence dating back to the 1960s.
This article begins by examining the common thread, i.e., preservation of vested rights, that weaves through the cases where the respective matters were treated as past and closed transactions. It further elucidates upon how judicial decisions indicate that this aspect of vested rights is not sacrosanct, as it may be affected by legislative fiat. Additionally, this article explores how the lack of coherent criteria makes the doctrine of past and closed transactions unmoored and malleable, thereby engendering uncertainty in the law. Finally, it includes certain recommendations to devise an all-encompassing set of criteria for the effective application of this oft-invoked doctrine for the purpose of providing a robust anchor to it amidst a sea of nebulous interpretations.
In the seminal judgment of Molasses Trading vs. Federation of Pakistan,[2] the Supreme Court noted that a well‑settled principle of interpretation of statutes is that vested rights cannot be shunned “save by express words or necessary intendment.” In this case, the overarching issue was whether or not Section 31-A of the Customs Act, 1969, can be given retrospective effect and whether such retrospective effect can be given so as to affect past and closed transactions. It was held that “the insertion of Section 31-A so as to operate retroactively does not have the effect of destroying or re-opening the past and closed transactions…” The Supreme Court did, however, protect the vested rights of the parties, which had discharged their liability by paying tax in accordance with the original scheme of the Customs Act, by considering all such cases as past and closed transactions and declaring that they were not “affected by the provisions of Section 31-A.” In doing so, though, the Supreme Court alluded to the possibility that if the language of the amending Act did expressly do away with the rights of such parties, then the Supreme Court would interpret it as such.
The principles articulated by the superior courts make it abundantly clear that the legislature is competent to give retrospective effect to the laws it makes even though they may impair vested rights, destroy contractual rights and obligations already accrued, create new liabilities and obligations, or disturb past and closed transactions.[3] The critical caveat is that the legislature is bound to use express and unequivocal language which indisputably establishes its clear intendment to give retrospective effect to a statute, invariably affecting past and closed transactions.
It can reasonably be inferred from the foregoing that there is sufficient clarity as to how a past and closed transaction could be affected i.e., through clear intendment and express language in the statute. Nevertheless, what actually constitutes a past and closed transaction is subject to varying interpretations by courts as illustrated hereinbelow.
In the case of Shahid Pervaiz vs. Ejaz Ahmed and others,[4] the Supreme Court emphasized that courts are mandated to examine whether benefits continue to emanate from........