Requirement to deposit balance consideration
1. Supreme Court in its judgment titled “Hamood Mehmood Versus Mst. Shabana Ishaque and others” reported as 2017 SCMR 2022 (“Hamood Case”) held that “It is mandatory for the person whether plaintiff or defendant who seeks enforcement of the agreement under the Specific Relief Act, 1877, that on first appearance before the Court or on the date of institution of the suit, it shall apply to the Court getting permission to deposit the balance amount and any contumacious/omission in this regard would entail in dismissal of the suit or decretal of the suit, if it is filed by the other side.” (for reference purposes, the foregoing principle will be referred to as “Balance Consideration Principle”). The Balance Consideration Principle spiraled a course which has, effectively, undone age-old principles underlying “specific relief” and “equity”.
Before moving on to discuss the Balance Consideration Principle, its background and development that has led the courts to enunciate the Balance Consideration Principle has been discussed.
2. There is no provision in the Specific Relief Act, 1877 (“SRA”) or any other law, which, in letter or spirit, provides that a plaintiff, in a specific performance suit, is required to deposit the balance consideration to maintain its suit and that his failure to do so will necessarily (and, to an extent, unexceptionally now) lead to dismissal of the suit.
3. Statutory provision (or the closest) which has been interpreted by the superior courts to enunciate/set out the Balance Consideration Principle is Section 24(b) of the SRA, which reads as under:
“24. Personal bars to the relief. Specific performance of a contract cannot be enforced in favour of a person-
(a) who could not recover compensation for its breach;
(b) who has become incapable of performing or violates, any essential term of the contract that on his part remains to be performed;
(c) who has already chosen his remedy and obtained satisfaction for the alleged breach of contract; or
(d) who, previously to the contract, had notice that a settlement of the subject-matter thereof (though not founded an any valuable consideration) had been made and was then in force.”
Ironically, Section 24(b) has been interpreted (as discussed below) by the superior courts to impose a burden/condition on the plaintiff to deposit the balance consideration in court or face dismissal of its suit or, at the very least, rejection of its injunction application. On the other hand, same provision of SRA (i.e., Section 24(b)) has been read and construed by the superior courts as not imposing any such burden/condition on the plaintiff to deposit the balance consideration to maintain its suit[1]. Before discussing these opinions, an attempt has been made hereinbelow to read, analyse and interpret the plain text of Section 24(b)[2] (note: this is based on the principle that courts are required to implement the letter of the law lest it results into absurdity, i.e., the “textualist approach”).
4. Section 24(b) of the SRA, in its plain and apparent reading, provides that a person who (i) has become incapable of performing, or (ii) violates, any essential term of the contract that remains to be performed on his part, cannot seek specific performance of a contract. The foregoing words/expressions have not been defined/explained in the SRA. Based on the “textualist” / “literal” approach, in their ordinary meanings, the words “incapable” means when a person is unable to do or achieve something on account of something extrinsic or beyond one’s control; “violates” means breaking or failing to comply with or an action taken deliberately and actively (as compared to unconsciously). A common aspect in both these words is that they necessarily denote “state of mind”, and, by virtue whereof, requires “proof/evidence”.
5. The second portion of Section 24(b), that is common denominator in both of the foregoing scenarios, connects the plaintiff’s “inability” or “violation of contract” with “…essential term of the contract that on his part remains to be performed”. The afore quoted words imposes two additional items: (i) the “incapability” or “violation” of/by the plaintiff must be with respect to an “essential term” of the agreement-in-question, and (ii) such “essential term” should “remain to be performed” on part of or by the plaintiff (note: the notion of “remain to be performed” is to be read with the principle of “reciprocal promises” provided by Section 51 of Contract Act, 1872). On the face of it, the “incapability” and “violation” of/by plaintiff of an essential term of a contract will come into question only when there is a provision in the contract which “remains to be performed” on plaintiff’s part. From bare reading and applying the textualist approach on Section 24(b) of SRA, the trial court will first be required to determine “essential terms” of the contract; second, whether or not such “essential term” “remained outstanding” on the plaintiff’s part. A plaintiff cannot be said to be “incapable” or that “he violated” an essential term of the contract if such essential term has not matured to be performed by the plaintiff yet. The principle of reciprocal obligations / promises may be referred to here, which are set out in Sections 50 to 54 of the Contract Act, 1872 (“Contract Act”).
6. Section 51 of the Contract Act provides that promises are to be performed in the order set out in the contract. In order to see whether or not the plaintiff is suffering from inability or has violated an essential term of the contract, it is important to first ascertain whether or not the plaintiff’s obligation to perform his part has triggered/matured. In case the plaintiff’s obligation is subject to defendant first performing his part of the contract, then the question of plaintiff’s inability or violation of essential term of the contract do not arise.
For instance, if X (as buyer) contracts with Y (as seller) in respect of ABC land against sale consideration of Rs. 100/-. As per the terms of the contract X pays Rs. 10/- as part consideration / token money. The contract stipulates that X’s obligation to pay the balance consideration of Rs. 90/- does not arise until Y (seller) has procured original documents of the property ABC, cleared all the utility bills and land conversion dues (if applicable), and provided evidence thereof to X. Under such circumstances, X’s obligation to pay the balance consideration will not arise until and unless Y has performed his aforementioned obligations vis-à-vis the ABC land. Hence, in the foregoing instance the second part of Section 24(b), i.e., essential term that remained outstanding on the plaintiff’s part, will not be (and should not be seen to have been) triggered leading to rejection of his specific performance suit.
7. A person is “incapable” of performing a contract if he lacks sufficient ability, power or means. For instance, after execution of a contract, the person becomes mentally incapacitated or goes bankrupt.
8. Plain text of Section 24(b) (or any other provision of SRA) does not indicate towards the Balance Consideration Principle rather the said provision, in its plain text, suggests otherwise. In other words, Section 24(b) cannot (and should not) be said, with conclusiveness, that a plaintiff who has failed to deposit the balance consideration at the time of institution of the specific performance suit or during the trial has “become incapable of performing” or has “violated” an “essential term” of the contract so as to render his suit defective / not maintainable. “Incapability” and “violation” are matters of evidence, which may only be “proved” after providing a fair opportunity to the plaintiff to prove that he is neither incapable nor has he violated any essential term of the contract that remained outstanding on his part.
9. Other than the foregoing provision, there is no provision in any law or in the SRA or even otherwise that provides (directly or indirectly) that the plaintiff is required, in every run-of-the-mill specific performance suit, to deposit the balance consideration to maintain the suit.
10. The next question then arises as to how and why the Balance Consideration principle has been enunciated? Given that the whole premise of the SRA is founded upon the principles of equity, the courts in Pakistan, in an attempt to purportedly further equity, enunciated the Balance Consideration Principle. In the author’s view, this is a misperception / misinterpretation / misapplication of equity (which has been discussed below) that has led to serious miscarriage/denial of justice for plaintiffs in a good number of cases.
11. Equity, in its simplest form, means “…justice administered according to fairness as contrasted with the strictly formulated rules of common law…”[3]. Equity has been described as “a portion of natural justice which, though of such a nature as properly to admit of being judicially enforced, was omitted to be enforced by the Common Law Courts – an omission which was supplied by the Court of Chancery”. The distinction between equity and law is not so much a matter of substance or principle as of form and history. Equity can only supplement the law when there is a gap (or ambiguity) in it, but it cannot supplant the law.
“Law, without equity, though hard and disagreeable, is much more desirable for the public good, than equity without law: which would make every judge a legislator, and introduce most infinite confusion”[4]
12. Courts in Pakistan are established by and under Article 175(1) of the Constitution of the Islamic Republic of Pakistan, 1973 (“Constitution”). There is a limit/control on the jurisdiction of and exercise of powers by the courts (a creature of the Constitution[5]) in Pakistan. Article 175(2) of the Constitution provides that “No court shall have any jurisdiction save as is or may be conferred on it by the Constitution or by or under any law”. Article 175(2) of the Constitution has been construed/interpreted by the superior courts to mean that there is a limit/fetter on the court’s jurisdiction and/or that the courts cannot go beyond what has been written in the statute. Based on the principle that equity can only supplant the law and not replace/overrule it, Pakistani Courts do not have the power to supply equity as per their discretion. Rather the Courts are required to first see if the relevant law has any gaps, ambiguity or that literal interpretation whereof provides absurd results, then they may consider taking recourse to equity or purposive approach. Other than this, the Courts should not supply equity. Doing so may have the effect of doing away with the “textualist” approach of interpretation thereby leading to encroachment by the judiciary on the legislature’s domain of law-making.
13. Whilst referring to the opinion of Lord Talbot in Dudley v. Dudley ((1705) 94 ER 118), Learned Division Bench of Lahore High Court in PLD 1978 Lahore 113 (authored by Justice Aftab Hussain) explained equity in the following terms:
“Now equity is no part of the law, but a moral virtue, which qualifies, moderates and reforms the vigour, hardness and edge of the law, and is a universal truth; it does assist the law where it is defective and weak in the Constitution and defends the law from crafty evasions. Is delusions and new subtleties, invented and contrived to evade and delude the common law, whereby such as have undoubted right are made remediless and this is the office of equity to support and protect the common law from shifts and crafty contrivances against the justice of the law. Equity therefore does not destroy the law, nor create it, but assists it”.
14. Further, Justice Aftab Hussain goes on to explain equity in the following terms:
“In the words of Maitland “Equity” had come not to destroy the law, but to fulfill it. At another place Maitland considered the relationship between law and equity analogous to relationship between Code and Supplement, between text and gloss. It cannot, however, be doubted that it has acted towards relieving the hardship of inflexibility of common law procedure. It has combated the inadequacy of remedy at common law and discovered various reliefs which have proved helpful in administering justice in matters concerning law of property, trusts and contracts. It has never encroached upon law but one of its important merits lies in supplementing the discovery of what are known equitable reliefs, or doctrines, equitable rights and equitable interests. It is to fulfill this object of supplementing the existing law in cases not otherwise specially provided for,…”
15. Section 24(b) of the SRA does not contain any legal gap which may allow for the Courts to supply equity. As per the rules of interpretation, words of a statute were to be first understood in their natural, ordinary or popular sense[6]. If this approach gives absurd results, then the courts may apply the purposive approach. Section 24(b), simpliciter, provides that “Specific performance of a contract cannot be enforced in favour of a person (b) who has become incapable of performing or violates any essential term of the contract that on his part remains to be performed”. The Courts have interpreted the said words so as to impose an unexceptionable condition on the plaintiff, in a specific performance suit, to deposit the balance consideration or first perform its part before seeking specific relief.
16. There may be instances where requiring the plaintiff to deposit the balance consideration as a necessary precondition for rendering its suit maintainable may not be justified (from equitable or legal perspective). Some of such instances include where (i) the cutoff date for payment of balance consideration has not matured and the plaintiff was compelled to file specific performance suit because the defendant has sold or is attempting to sell the same subject property to a third party, (ii) there are reciprocal contractual obligations in that the plaintiff’s obligation to perform his part of the contract is contingent upon the defendant’s first fulfilling its part of the obligation (e.g., the defendant is required to procure title documents or convert the plot from residential to commercial before the plaintiff’s obligation to pay the balance consideration arises), or (iii) where on account of defendant’s breach the plaintiff has been compelled to file the suit. For instance, after execution of the contract the defendant attempts to sell the same property to a third party and, as a result whereof, the plaintiff is compelled to file the suit.
17. The following case laws set out that a plaintiff is not required to deposit balance consideration to maintain his specific performance suit:
- PLD 1964 SC 381
- PLD 1968 Lahore 501
- PLD 1988 Lahore 216
- 2003 YLR 3005
- PLD 1987 SC 497
- 2021 PLC(CS) 1435
18. The following case laws set out that if a plaintiff fails to deposit the balance consideration then this should necessarily lead to dismissal of the suit:
- 2017 SCMR 2022
- 2020 SCMR 171
- 2021 SCMR 7
- 2021 SCMR 686
- 2021 SCMR 763
- 2021 SCMR 1108
- 2021 SCMR 1241
- 2021 SCMR 1270
19. It may be noted that none of the judgments listed in para 18 above mention let alone discuss PLD 1964 SC 381 which is the cardinal and the most important judgment on Balance Consideration Principles and/or Section 24(b) of the SRA.
20. As per principles settled with respect to Supreme Court, a bench of equal strength is bound to follow the judgment of the earlier bench[7]. In case of any non-adherence with the said principle, the judgment later in time become “per incuriam”[8].
21. In above context, the superior courts may consider the Balance Consideration Principle and, keeping in view the economic situation, may not follow it absolutely and unconditionally.
[1] PLD 1964 SC 381
[2] Verbis legis tenaciter inhaerendum – “Hold tight to the words of the law”
[3] PLD 1998 SC 388
[4] William Blackstone, Commentaries on the Laws of England 62 (4th ed. 1770)
[5] PLD 1974 SC 39
[6] PLD 2012 SC 1098
[7] 1999 SCMR 2883
[8] PLD 2013 SC 829