SUPREME COURT OF PAKISTAN

(Appellate Jurisdiction)

PRESENT:
Mr. Justice Munib Akhtar
Mr. Justice Shahid Waheed
Ms. Justice Musarrat Hilali

Civil Appeal No.1877 of 2016

(On appeal against the judgment
dated 27.05.2016 passed by the
Islamabad High Court, Islamabad in
Civil Revision No.65 of 2016)

Matloob Ellahi Paracha … Appellant

VERSUS

Raja Arshad Mahmood & … Respondents

another

For the Appellant : Ms. Hifza Ibrar Bokhari, ASC

Ch. Akhtar Ali, AOR

For Respondent No.1 : Mr. Zulfiqar Ali Abbasi, ASC

Syed Rifaqat Hussain Shah, AOR

For Respondent No.2 : Nemo

Date of Hearing : 14.11.2023

JUDGMENT

Shahid Waheed, J. This direct appeal is by the unsuccessful plaintiff

and excites two legal questions. The first is whether the plaintiff, after

withdrawing his suit for specific performance of the agreement to sell,

could file a fresh suit to recover the earnest money paid to the

defendants under the said agreement. The second is what the

limitation period would be if the second suit is found to be

competent.

2. The above questions arise from a suit brought by the

plaintiff for recovery of earnest money, which was a sequel to his suit

for specific performance. The pivot of both the suits was an

agreement to sell dated 20th of July, 2005. The need, therefore, is to

Civil Appeal No.1877 of 2016
2

state the cause which led the plaintiff to institute both suits so as to

find a clear answer to the moot questions. The unvarnished facts

constituting the cause in brevity are that defendant No.2, Raja

Arshad Mehmood, was the owner of 1200 kanals of land located in

Mouza Sihala and Mouza Gagir, Tehsil and District Islamabad. Malik

Ghulam Murtaza, now represented by his legal heirs, was his

attorney. He was arrayed as defendant No.1 in the suit. On 20th of

July, 2005, the plaintiff entered into an agreement with defendant

No.1 to purchase the land of defendant No.2 for Rs.785,000 per kanal

and paid Rs.5,000,000 as earnest money. After that, certain disputes

arose between the parties, the details of which need not be mentioned

here, which led to the cancellation of the sale agreement. According

to the plaintiff, the cancellation of the agreement was the result of

coercion and force exerted on him by the defendants, which became

the cause of bringing a suit (the first suit) for declaration, possession

and specific performance of agreement dated 20th of July, 2005. This

suit was instituted in the original jurisdiction of the Islamabad High

Court. There is no denying that on the 6th of May, 2009, defendant

No.1 appeared before the Deputy Registrar (Judicial) of the Islamabad

High Court and recorded his following statement:

“Statement of Malik Ghulam Murtaza s/o Malik Sher

Muhammad defendant No.1 on oath:-
The plaintiff had entered into an agreement with me for
purchase of suit land. The suit land was owned by Raja
Arshad Mehmood, defendant No.2 and I was attorney of
defendant No.2. Thereafter, some settlement was made
between the plaintiff and defendant No.2 in which it was
decided that the agreement executed between me and
plaintiff be cancelled, and Arshad Mehmood had promised
to refund the earnest money of Rs.50,00,000/- to the
plaintiff. I have got no concern with this suit. The Hon’ble
Court may decide the suit on merits.
Deputy Registrar, Judicial”
Civil Appeal No.1877 of 2016
3

As the other defendants in the case were not present on the date

when the above statement was recorded, notices were issued to them.

It is also on record that based on the above statement, the plaintiff

subsequently applied for withdrawal of the suit with permission to

file a fresh one. Notice was issued to the defendants on this

application (i.e. C.M No.249 of 2013) vide order dated 3rd of July,

2013, and finally, on 18th of November, 2013, the suit was dismissed

as withdrawn; and permission was not given to institute a fresh suit.

Here end the facts of the first suit.

3. A perusal of the record indicates that on the 13th of

February, 2014, the plaintiff brought his second suit for recovery of

Rs.5,000,000. This suit was instituted in the Civil Court, Islamabad

(West). It is evident from the contents of the plaint of this suit that it

stated the facts up to the withdrawal of the first suit. The cause for

instituting this suit was stated to be premised on the statement

recorded by defendant No.1 before the Deputy Registrar (Judicial) of

the Islamabad High Court, as a result of which a compromise was

reached between the parties, and the first suit was withdrawn.

Defendant No.1 filed cognovit, while defendant No.2 invoked Order

VII, Rule 11 CPC, seeking rejection of the plaint on four grounds:

firstly, the first suit was to include the whole of the claim, but the

plaintiff omitted to sue for the relief of recovery of the amount and

only sued for specific performance of the agreement, and as such, the

second suit was barred under Order II, Rule 2 CPC; secondly, simple

withdrawal of the first suit under Order XXIII, Rule 1 CPC renders

the second suit incompetent; thirdly, per Section 19 of the Specific

Relief Act, 1877, the plaintiff ought to have claimed compensation in

his first suit; and lastly, the second suit was barred by time. The

plaintiff, by his reply, contested each of the grounds stated above.

Civil Appeal No.1877 of 2016
4

4. Taking stock of the material placed on record and

appraising the rival contentions of the parties, the Trial Court came

to hold that recording of evidence is necessary to answer the question

whether the statement of defendant No.1, recorded before the Deputy

Registrar (Judicial), was binding on defendant No.2, and as such, it

was premature to say about the question of limitation and

applicability of Order II, Rule 2 CPC, and Section 19 of the Specific

Relief Act, 1877. The application seeking rejection of the plaint was,

thus, dismissed by order dated 24th of November, 2015, and

defendant No.2 was directed to file a written statement.

5. Defendant No.2 was not satisfied with the findings

returned by the Trial Court and, therefore, sought revision. The High

Court found merit in the stance of defendant No.2 and proceeded to

observe that the relief claimed by the plaintiff was available when

filing the first suit, even so, he deliberately chose to file a suit for

specific performance of the agreement, and thus, the bar of Order II,

Rule 2 CPC was attracted. The suit was found to be out of time, and

also incompetent under Order XXIII, Rule 1 CPC. However, the High

Court did not say anything about Section 19 of the Specific Relief Act,

1877. By judgment dated 27th of May, 2016, the revision was

granted.1

6. Having now noted the facts which gave rise to the cause

of action of each of the two suits, we have to determine which of the

Courts below has correctly dealt with the objections to the

maintainability of the second suit. In furtherance of this objective, in

the first place, it is to be looked into whether the second suit for

recovery of earnest money was barred by the provisions of Order II,

1 This judgment is now reported as Raja Arshad Mahmood v. Matloob Ellahi

Paracha [2016 YLR 2063]
Civil Appeal No.1877 of 2016
5

Rule 2 CPC. It is now old-line that this Rule is intended to deal with

the vice of splitting a cause of action. It provides that a suit must

include the whole of any claim that the plaintiff is entitled to make in

respect of the cause of action on which he sues and that if he omits

(except with the leave of the Court) to sue for any relief to which his

cause of action would entitle him, he cannot claim it in a subsequent

suit. The object of this salutary rule is doubtlessly to prevent a

multiplicity of suits. It is to be noted that alongside the above, this

rule does not require that when several causes of action arise from

one transaction, the plaintiff should sue for all of them in one suit.

This proposition gets strength from Saminathan Chetty v. Planaiappa

Chetty,2 in which the Privy Council observed that Rule 2 of Order II

CPC is directed to securing the exhaustion of the relief in respect of a

cause of action and not to inclusion in one and the same action of

different causes of action, even though they arise from the same

transactions. In light of the anatomy of this rule, it is clear that the

cause of action in the second suit was not the same as in the first

suit. The first suit was brought alleging that the defendants illegally

got cancelled an agreement to sell dated 20th of July, 2005, and as

such, the plaintiff claimed a decree for possession of the property by

specific performance of the said agreement. Whereas the second suit

of the plaintiff was based upon the allegations that the agreement to

sell dated 20th of July, 2005, was cancelled by mutual consent of the

parties, and it was agreed that the defendants would return the

earnest money of Rs.5,000,000 to the plaintiff. In support of these

allegations, the plaintiff relied on the statement of defendant No.1,

which he recorded before the Deputy Registrar (Judicial) of the

Islamabad High Court, and the prayer of the plaint was for recovery

of earnest money. This relief could not have been claimed by the

2 Saminathan Chetty and another v. Planaiappa Chetty [(1915) 26 IC 228]

Civil Appeal No.1877 of 2016
6

plaintiff in his first suit for possession of the property by specific

performance of the agreement to sell dated 20th of July, 2005,

because the right to possession accrues only when specific

performance is decreed, similarly, the right to refund of earnest

money accrues only when specific performance is denied. As such,

the facts relating to the denial of specific performance resulting from

the cancellation of the agreement to sell dated 20th of July, 2005, and

the settlement agreement in the case constituted a fresh cause of

action, and therefore, the second suit for recovery of money based

thereon could not be held to be barred under Order II, Rule 2 CPC.

7. Apropos of the objection based on the bar contained in

the provisions of Order XXIII, Rule 1 CPC, it would be enough to say

that the subject-matter or claim of the second suit, as stated above,

was different from the first suit and, as such, the plaintiff could not

be held to be precluded from instituting the second suit.

8. The next objection of the defendants was that the

plaintiff could not have instituted a separate suit for specific

performance and recovery of earnest money by virtue of the

provisions of Sections 19 and 29 of the Specific Relief Act, 1877.

Again, this objection was unfounded. Section 19 enables a person

claiming specific performance to seek compensation in addition.

Section 29 prohibits a suit for compensation after the dismissal of a

suit for specific relief. None of these sections have anything to do with

the plaintiff's second suit, where the claim is for recovery of earnest

money.

9. The last plea raised was that of limitation. The High

Court was of the view that Article 181 of the Limitation Act, 1908,

was the Article applicable to the facts of the second suit which
Civil Appeal No.1877 of 2016
7

provided for a period of limitation of three years and was, therefore,

barred by time. The High Court concluded that if the cause of action

available to the plaintiff was based on 20th of July, 2005, the date of

the agreement to sell or 5th of August, 2005, when the said agreement

was allegedly cancelled, the period of limitation computing from

either of the stated dates had expired. We disagree with this. The law

of limitation being a disabling provision, its various Articles is to be

construed by its plain language. The suitor approaching the courts

for adjudication of his claim is entitled to a trial on the merits unless

his claim is time-barred. The provision of Article 181, being a

residuary Article, applies to any or all applications for which,

specifically, no limitation period is provided elsewhere. It does not

apply to any suit.

10. In our view, the only Article which could have been

applied, in the given circumstances, was Article 97. This Article deals

with a suit “for money paid upon an existing consideration which

afterwards fails”. We say so because a plain reading of it dictates

three ingredients for its applicability: firstly, the suit must be for

money; secondly, such money must have been paid upon a

consideration which was in existence at the time of the payment; and

lastly, the said consideration must have afterwards failed. Be it noted

that if all these ingredients are established, the application of Article

97 cannot be resisted, and the starting point of limitation of three

years under it would be not the date when the money was paid but

when the consideration fails. Now, let us see if these ingredients are

fulfilled in this case or not. As to the first ingredient, we would like to

point out that payment of earnest money under the agreement to sell

dated 20th of July, 2005, would fall within the meaning of the phrase

“for money paid”. The next factor which must be satisfied is that such
Civil Appeal No.1877 of 2016
8

money must have been paid upon an existing consideration. It is

clarified that money paid under an agreement is paid for “existing

consideration”. We are, therefore, clearly of the opinion that the

present case meets this qualification. Now, it remains to be seen,

whether it can be predicated that the consideration for which the

money had been paid had afterwards failed. We have no hesitation in

holding in the circumstances of the case that it had failed. It may be

reasoned that the earnest money is intended to serve as evidence of

the buyer’s (in this case plaintiff’s) bona fide so that the amount will

be forfeited if the transaction is terminated due to the buyer’s cause,

or if this is due to the seller (in this case the defendants) then the

money will be refunded. It may also be noted that if the transaction

proceeds, the earnest money becomes part of the purchase price. The

facts stated by the plaintiff in the second suit show that the

transaction did not fructify in a completed sale and thus the

inevitable conclusion is that the consideration for which the money

was paid was extinguished. Thus, it will be seen that all the three

requirements of Article 97 are fully met in the present case, and, that

being so, the limitation for the plaintiff’s second suit would rightly

start from the date of failure of the consideration, and the second suit

would be within time having been brought within three years of the

date of the failure of the consideration, which in this case could be

said to have failed only when the first suit was dismissed.3 So, we are

definitely of the opinion that the plea of limitation has no force and

must be repelled.

3 Mussamat Basso Kuar and others v. Lala Dhum Singh [15 Indian
Appeals 211 (PC)],
Udit Narain Misr and others v. Muhammad Minnat-Ullah [(1903) ILR 25
Allahabad 618 (PC)], &
Amna Bibi and others v. Uditnarain Misra and others [36 Indian Appeal
44 (PC)].
Civil Appeal No.1877 of 2016
9

11. Before parting, we find it necessary to observe that suits

for recovery of earnest money after failure of a suit for specific

performance is a common law development and dates back to more

than a century. To the legal mind, this procedural aspect is correct,

but what is worth noting, which this case effectively illustrates, is

that the sale agreement was executed on 20th of July, 2005. After

that, a suit for specific performance was instituted. The case

continued until it was dismissed on 18th of November, 2013, after

eight years of litigation. On 13th of February, 2014, the second round

of litigation was brought by the plaintiff to recover earnest money, to

which the cause of action arose after the dismissal of the first suit for

specific performance, and has reached us in appeal 18 years after the

agreement. In total, these two rounds of litigation, starting with the

same agreement, will complete 19 years of litigation this year. The

famous saying of Justice Oliver Wendell Holmes Jr. fits here perfectly

that “the life of law has not been logic: it has been experience”, and

therefore, based on empirical study it is advisable to suggest that

suitable amendments to the Specific Relief Act, 1877, be made so as

to do away with such litigations and reduce the burden on the courts

and on parties. The proposed amendments should provide for a

provision by which any person suing for the specific performance of a

contract for the transfer of immovable property, in appropriate cases,

may ask for (a) possession or partition and separate possession, of

the property in addition to such performance; or (b) any other relief to

which he is entitled, including the refund of any earnest money or

deposit paid or made by him, in case his claim for specific

performance is refused.

12. Given the preceding discussion, we conclude that the

opinion propounded by the Islamabad High Court suffers from

Civil Appeal No.1877 of 2016
10

misreading of facts and misapplication of law and thus cannot be

approved. This appeal, therefore, succeeds. The judgment dated 27th

of May, 2016, of the Islamabad High Court is set aside, and

resultantly, the application filed by defendant No.2 under Order VII,

Rule 11 CPC is dismissed. The trial Court is directed to decide on the

merits of the suit in accordance with the law.

13. The Registrar of this Court shall forward a copy of this

judgment to the Hon’ble Chairperson of the Law and Justice

Commission, Attorney General for Pakistan and Secretary Law to

Government of Pakistan and to Provincial Governments for their

information and necessary action.

Judge

Judge

Judge

Announced in open Court on ……….. 2024 at Islamabad.

Judge
Islamabad, the
14.11.2023
“Approved for reporting”
Sarfraz Ahmad & Agha M. Furqan. L.C/-