“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 an ultra vires statute “provided that the benefit or state of affairs in question is not a past and closed transaction. For instance, the case of an employee who had enjoyed an out of turn promotion pursuant to a law found to be ultra vires the Fundamental Rights, who now stands retired and or died, it would constitute a past and closed transaction inasmuch as it would be a futile exercise to re-open the case of such an employee. On the other hand, employees who were so promoted under such a statute and who continue to remain in service, would be liable to be restored to the position that existed prior to the benefit conferred under the statute found inconsistent with Fundamental Rights.”
Although the Supreme Court attempted to encapsulate the doctrine of past and closed transactions when it comes to its usage in service matters, it may have overlooked some pertinent lacunae. For example, by deeming the decision to re-open cases of retired or deceased employees as a “futile exercise,” the Supreme Court was not perhaps fully cognizant of the fact that, such employees or their families, as the case maybe, could still be reaping benefits of the decisions which were fundamentally premised upon an illegality e.g., in the form of pensionary benefits. Moreover, it is especially difficult to countenance such a flimsy distinction in light of the Supreme Court’s own assertion that benefits flowing in favour of the beneficiaries of an unconstitutional Act would have to be reversed if the statute is declared ultra vires.[5]
Adverting back to the varying interpretations of the doctrine, the courts have additionally considered the “period of limitation” as the touchstone for determining whether a transaction has become past and closed. In Muhammad Afzal and others vs. Secretary Establishment Division, Islamabad and others,[6] the Supreme Court pronounced that failure of the sacked employees to avail the remedy available under the law, during the limitation period, had essentially made the transaction a past and closed one.
A similar exposition of the principles undergirding past and closed transactions was provided in the case of The Taxation Officer/Deputy Commissioner of Income Tax, Lahore vs. Messrs Rupafil Ltd. and others,[7] wherein it was held that…where right to commence a proceeding has already become time barred then a subsequent enlargement of time through an amendment can be of no avail, as with the lapse of time prescribed, the transaction becomes a past and closed transaction, vesting a party with a right thus accrued which cannot be taken away by a subsequent amendment.”
This emphasis upon the aspect of the prescribed period of limitation discussed in the cases of Muhammad Afzal and Rupafil seems to be in stark contrast to the principles outlined in the judgments discussed hereinabove,[8] wherein it was observed that the legislature is empowered to promulgate or amend a law and give it retrospective effect so as to bind even past transactions, provided there is clear intendment.
Conversely, in The matter of Contempt proceedings against Chief Secretary Sindh and others,[9] it was asserted that “it is not a principle of law that order once passed becomes irrevocable and past and closed transaction. If the order is illegal then perpetual rights cannot be gained on the basis of an illegal order.” This explanation further adds to the confusion as it appears to categorically refute the corollary of the reasoning in the Rupafil case that, with the lapse of time prescribed, even a transaction predicated upon a blatant error becomes past and closed.
Yet another view reiterated in several judgments which adds to the dynamic nature of the jurisprudence developed on the doctrine is that mere efflux of the prescribed period of limitation is not conclusive as to the nature of a transaction. Whilst examining the ground of lachesvis-à-vis past and closed transactions, the Supreme Court highlighted that “the blind application of the principle of past and closed transactions may also lead to defeat the very intent of legislature, in addition to causing hardship cases…Finally, upholding a prima facie unconstitutional provision merely on the grounds of past and closed transaction would subjugate the rules of judicious construction to a mindless adherence to temporal considerations, whereas the very concepts of retrospectivity and prospectivity of laws are rooted in the golden tenets of equity and fairness, not in the mechanical passage of time.”[10] Thus, the Supreme Court underscored that citizens should not lose their legitimate rights to usurpers merely by the lapse of time and under the garb of past and closed transactions.
Similarly, in the case of Shahid Aziz vs. Chairman, Punjab Labour Appellate Tribunal, Multan and others,[11] the Lahore High Court dilated upon the precise ambit of a past and closed transaction and underlined that an order which is illegal, unlawful, without jurisdiction or lawful authority will not be deemed as “irrevocable and past and closed transaction.” More recently, this view has also been affirmed by the Supreme Court.[12]
This suggests that the plea of past and closed transaction will inevitably need to have some statutory backing. For instance, in the case of National Bank of Pakistan and others vs. Muhammad Ismail Malik,[13] the Lahore High Court held that “a past and closed transaction occurs as a consequence of a legal bar to further proceedings like limitation of res-judicata and is not itself a self-standing ground of non-maintainability of a suit.”
The upshot of the above discussion is that conflicting principles have been laid down with respect to the application of the doctrine of past and closed transactions. In summation, one view espoused by the courts is that vested rights ought to be protected unless there is clear intendment in the statute to the contrary. In such circumstances, the statute must be given effect and such vested rights may be taken away, notwithstanding whether it was a past and closed transaction. Another view adopted by the courts is that, when it comes to the period of limitation, then the computation thereof must be strictly adhered to for the purpose of deeming a transaction as past and closed, notwithstanding anything to the contrary expressly mentioned in a statute. A further interpretation has also emerged which suggests that mere efflux of time cannot be made the basis for treating a transaction as past and closed if the said transaction was premised upon an irregularity or illegality, which effectively negates the previous view on the same point.
After delving into the above-mentioned judgments, it would be remiss not to acknowledge that the vague and selective deployment of this doctrine has created unnecessary obfuscation and uncertainty. This may impel some to contend that doctrines, the parameters whereof have not been unambiguously laid down by the courts, should not be equated with law on the basis that clarity is a distinct feature of law. Thus, whilst relying on ever-shifting doctrines to construe the meaning of statutes, there is a possible pitfall that the law would move further away from concreteness and comprehensibility.
This could also reinforce the trite contention that the law itself is indeterminate. The American legal realist, Jerome Frank, identified the indeterminacy of legal rules as the source of much of the actual uncertainty in the law.[14] In the same vein, H.L.A. Hart contended that legal rules are indeterminate because “there is a limit, inherent in the nature of language, to the guidance which general language can provide.”[15] In his view, language is “open-textured” i.e., while words have “core” instances, cases which clearly fall within the extension of the word’s meaning, they also have “penumbras,” cases where it is unclear whether the extension includes the aspect at issue. In cases where it is not clear whether the facts fall within the penumbra of the key words in the applicable legal rule, a court “must exercise a discretion, [since] there is no possibility of treating the question raised… as if there were one uniquely correct answer to be found, as distinct from an answer which is a reasonable compromise between many conflicting interests.”[16]
The exercise of this judicial discretion itself raises some critical issues. In Aman Ullah Khan and others vs. Federal Government of Pakistan,[17] the Supreme Court held that “Wherever wide‑worded powers conferring discretion exist, there remains always the need to structure the discretion and…that the structuring of discretion only means regularising it, organizing it, producing order in it so that decision will achieve the high quality of justice. The seven instruments that are most useful in the structuring of discretionary power are open plans, open policy statements, open rules, open findings, open reasons, open precedents and fair informal procedure.” Furthermore, in the case ofMuhammad Imtiaz vs. Muhammad Naeem and others,[18] it was affirmed that the aforementioned requirements for the structuring of discretion are “equally applicable to the Supreme Court.” Therefore, given the intrinsic indeterminacy of certain legal principles, there is some scepticism regarding their significance in the jurisprudential discourse as their application necessitates a greater degree of circumspection whilst exercising judicial discretion.
Despite this uncertainty regarding their precise normative consequences, the important role of juristic doctrines or principles in adjudication cannot be blithely disregarded. This is especially true in “hard cases” where no established rule can be found to resolve an issue.[19] Ronald Dworkin defines “principle” as “a standard that is to be observed, not because it will advance or secure an economic, political, or social situation deemed desirable, but because it is a requirement of justice or fairness or some other dimension of morality.”[20] Hence, in the absence of established legal rules, principles guide judicial decision-making with respect to creating legal rights or imposing legal obligations.
But there are also cases where countervailing principles intersect. In such cases, in order to resolve a given conflict, the court has to take into account the relative weight of each principle.[21] This “dimension of weight” essentially connotes that the courts have to undertake a balancing exercise when determining which principle ought to be given primacy in a particular case. In a broader context, the courts may have to weigh the principle of protecting the valuable rights accrued to a person against the principle of safeguarding the legitimate rights of a person which are being denied under the pretext of past and closed transactions. This can be an arduous task but it may be accomplished by the rendering of “open precedents,” whereby the courts scrupulously expatiate upon the relative weight of each principle.
This would also gainsay the inference that a principle should not be considered as part of the law merely because it did not prevail in a certain case. In this regard, Dworkin posits that “All that is meant, when we say that a particular principle is a principle of our law, is that the principle is one which officials must take into account, if it is relevant, as a consideration inclining in one direction or another.”[22]
Separation of powers is an indispensable feature of a constitutional democracy. Therefore, over-reliance upon doctrines, such as the doctrine of past and closed transactions, carries the potential risk of judicial decisions being viewed as veering into the territory of judicial imperialism or judicial overreach by unnecessarily encroaching upon the functions of the legislative branch. The Supreme Court stressed upon this aspect in the case of Mian Irfan Bashir vs. The Deputy Commissioner, Lahore and others[23] by noting that “Judges by passing orders, which are not anchored in law and do not draw their legitimacy from the Constitution, unnerve the other branches of the Government and shake the very foundations of our democracy.”
As discussed hereinabove, “open rules” and “open precedents” are crucial for the exercise of structured discretionary powers. Hence, there is a need to unequivocally define the parameters of the doctrine of past and closed transactions which has evolved to protect and safeguard the accrued and vested rights of parties and was aptly referred by the Islamabad High Court as a “jurisprudential landmark to be proud of.”[24] Perhaps, one path forward would be to subsume this doctrine under a statutory enactment, thereby bringing it on an equal legal footing as other general principles of law, such as the doctrine of res judicata codified in Section 11 of the Code of Civil Procedure, 1908, the doctrine of lis pendens embodied in Section 52 of the Transfer of Property Act, 1882, and the doctrine of stare decisis enshrined in Articles 189 and 201 of the Constitution of the Islamic Republic of Pakistan, 1973.
Alternatively, the superior courts could delineate a clear-cut criteria for the application of relatively ambiguous doctrines, such as the doctrine of past and closed transactions, in a manner which takes into consideration the diverse nature of cases where they have already been applied. However, it may not be possible to fully capture all of the given instances simply by a more extended statement of the doctrine. This also raises separation of powers concerns as the application of this criteria in subsequent cases concerning novel points of law may be deemed as judicial intrusion into the legislative sphere. Therefore, adopting the former course of action seems to be a more viable approach as it would imbue the doctrine with statutory sanction. Another approach could be to expound upon a particular doctrine, and its ensuing consequences, on a case-by-case basis. This would entail determining, in light of the material facts of each case, how important a particular doctrine is in relation to other principles and then deciding accordingly.
[1] Civil Appeal No. 1243 of 2020
[2] 1993 SCMR 1905.
[3] 2016 SCMR 646.
[4] 2017 SCMR 206.
[5] Ibid.
[6] 2021 SCMR 1569.
[7] 2018 SCMR 1131.
[8] See supra notes 1 and 2.
[9] 2013 SCMR 1752.
[10] See supra note 3.
[11] 2021 PLC Lahore 118.
[12] 2025 SCMR 104.
[13] PLJ 2007 Lahore 439.
[14] Jerome Frank, Law and the Modern Mind (New York: Brentano’s, 1930).
[15] H.L.A. Hart, The Concept of Law (Oxford: Clarendon Press, 1961).
[16] Ibid.
[17] PLD 1990 SC 1092.
[18] PLD 2023 SC 306.
[19] Ronald M. Dworkin, “The Model of Rules”, The University of Chicago Law Review, 35:1 (1967).
[20] Ibid.
[21] Ibid.
[22] Ibid.
[23] PLD 2021 SC 571.
[24] Writ Petition No. 4027 of 2022
