Nizam funds: Why High Court of England and Wales rejected Pak 'sovereign' claim

By Sanjeev Sirohi*
In a major legal setback to Pakistan, the High Court of England and Wales has given a landmark judgment on October 2, 2019 after a long-drawn-out legal battle that dates back to 1948, rejecting rightly Pakistan’s claims, ruling that the Seventh Nizam of Hyderabad’s descendants and India can collect 35 million pounds from London’s National Westminster Bank. Thus, the decades old legal battle has now finally culminated in India’s favour.
The verdict has left Pakistan red faced and has left India with a big smile on its face. Justice Marcus Smith of the High Court of England and Wales, who authored the judgment, ruled that the 35 million pounds, that is about Rs 306 crore, deposited in the London Bank belonged to the Nizam’s family and India, rejecting claims made by Pakistan through its High Commissioner in London.
It also made it clear that funds worth one million pounds (now 35 million pounds) were sent by the erstwhile Nizam Asaf Jah to Pakistan for “trust for safekeeping” and that their ownership vested in the Nizam himself.
At the time of partition in 1947, the then Nizam Asaf Jah had sent these funds to the then Pakistan High Commissioner in London for safekeeping of independent princely state of Hyderabad, in case of "invasion" from India. Subsequently, the Nizam claimed that he had not authorized the transfer and sought the return of the amount.
Nevertheless, the request was denied by the NatWest Bank at UK, where the funds were kept, which said that the fund could be released only on an express agreement of Pakistan, which held the legal title to the funds.
The Nizam, whose claims were fully backed by the Indian government, took legal recourse and issued proceedings against the bank, which initially failed due to Pakistan’s sovereign immunity.
However, what went in India’s and Nizam’s favour was when this obstacle was removed in 2013 and Pakistan claimed ownership of the fund and submitted a claim, thereby waiving its sovereign immunity. The matter was placed before the High Court of Justice Business and Property Courts of England and Wales, which finally culminated in this landmark judgment.
Justice Marcus Smith in his judgment held:
“Nizam VII was beneficially entitled to the Fund and those claiming in right of Nizam VII – the Princes and India – are entitled to have the sum paid out to their order. I will leave it to the parties to frame an appropriate form of order for my approval.”
The Ministry of External Affairs (MEA) has hailed the verdict saying, “The Court has issued a wide-ranging judgment today after analyzing documentation going back more than 70 years and embracing the law of constructive and resulting trusts, unjust enrichment, foreign act of state, illegality and limitation of actions.”
It added, the court “rejected arguments advanced by Pakistan that the dispute was non-justiciable, either in whole or in part; that the doctrine of illegality somehow barred recovery; or that the claims of other parties were time barred.”
The historic case pertains to the transfer of 1,007,940 pounds (now worth 35 pound million) and nine shillings by the Nizam’s envoy and Foreign Minister in London, Moin Nawaz Jung, on September 16, 1948, to Pakistan, when the Indian Army’s tanks were closing in on Hyderabad from all directions.
Moin Nawaz Jung transferred the money to the account of Habib Ibrahim Rahimtoola, the High Commissioner of Pakistan in London, which the bank processed on September 1948. However, Hyderabad’s armed forces had already surrendered to General JN Chowdhury on September 17, 1948 after a military operation known as Operation Polo.
Within days of the surrender, the Nizam sent a message to the National Westminster Bank demanding the money to be transferred back to his account. Pakistan also claimed the money with its tall claims. The case has seen many twists and turns over the years before it finally ended in India’s favour.
In 1965, the Nizam assigned to the President of India, his claim to the fund and joined forces with India to fight for his claim on the money. It is unclear however as to how the fund will be divided.
Pakistan said that the judgment has not taken into account the “historical context” that led to the Nizam transferring the money to Pakistan’s high commissioner in London in order to protect his state from “Indian invasion”. Pakistan’s Ministry of Foreign Affairs said, “Pakistan is closely examining all aspects of the detailed judgment and will take further action in light of legal advice received.”
Pakistan’s claim rested squarely on the premise that the money was transferred for the weapons supplied by the country to the Nizam. The court relied on the testimony of Prince Muffakam Jah, brother of the Seventh Nizam, documentary evidence as well as public documents produced by India and Pakistan.

The sixth Nizam

Paul Hewitt who was partner in Withers LLP, who has acted for the Eighth Nizam since Pakistan issued proceedings in 2013 was quoted as saying that, “Our client was still a child when the dispute first arose and is now in his 80s. It is a great relief to see this dispute finally resolved in his lifetime.”
The judgment held:
“I conclude that Pakistan’s illegality arguments fails for the following reasons:
"1. First, India is indeed correct in her assertion that the question of illegality is “analytically irrelevant” to the claim to the Fund advanced by India.
"2. Secondly, even if the question of illegality were relevant to India’s claims, the Settlement between the Princes and India has rendered the issue irrelevant because the rival claims to the Fund of the Princes and India have validly been compromised, such that the question of illegality is no longer before the Court.
3. Thirdly, there is no illegality alleged that is sufficient to cause this Court to prevent the Princes and India – specifically India – from asserting her claim to the Fund.”
Justice Marcus Smith in his conclusion sums up saying:
“I conclude that:
"(1) The Fund was held by Pakistan through her High Commissioner in the United Kingdom on trust for Nizam VII and his successors in title. The Fund was not held by Rahimtoola personally, nor did either Pakistan or Rahimtoola have any beneficial interest in the Fund.
"(2) The trust was either a constructive trust in favour of Nizam VII or a resulting trust in favour of Nizam VII. It was not, as I have found, an express trust because I find that Nizam VII did not communicate to Moin any authority to effect the Transfer and create a trust. However, Moin’s conduct was consistent with the unexpressed wishes of Nizam VII. Both Moin and Rahimtoola intended that an express trust should arise and – had there been a communication of authority by Nizam VII to Moin – an express trust would have arisen.
"(3) There is nothing in the involvement of Pakistan, India, Hyderabad or Nizam VII as sovereign states or rulers of sovereign states to prevent a trust (whether express, constructive or resulting) from arising.
"(4) It is unnecessary, given the Settlement reached as between the Princes and India, for me to determine whether it is the Princes or India that is Nizam VII’s successor in title, whether by virtue of the 1963 Settlement and 1965 Appointment (in the case of the Princes) or the 1965 Assignment (in the case of India). However, it is appropriate to record that the Nizam’s successor in title can be no-one other than the Princes or India. The administrator of Nizam VII’s estate (Mr Lintott) was a party to these proceedings and was given every opportunity to bring a rival claim to those of the Princes and India; he did not do and is bound by the outcome of these proceedings. It is also appropriate to record that during the course of these proceedings, I have seen no hint of the possibility of any further claimant to the Fund beyond the Princes and India.
"(5) The Princes’ and India’s alternative claims in restitution succeed against (i) Pakistan and (ii) in the alternative, the Bank. I find that Pakistan’s assertion of a defence of limitation is an abuse of the process of the court and order that the paragraphs in Pakistan’s statements of case asserting this defence be struck out. The Bank never pleaded a defence of limitation, and I find that a claim in restitution is properly maintainable against the Bank.
"(6) Pakistan’s contention of non-justiciability by reason of the foreign act of state doctrine and non-enforceability on grounds of illegality both fail.”
Para 341 of the judgment said:
“In these circumstances, Nizam VII was beneficially entitled to the Fund and those claiming in right of Nizam VII – the Princes and India – are entitled to have the sum paid out to their order. I will leave it to the parties to frame an appropriate form of order for my approval.”
The 140-page judgment rightly rules in favour of the Nizam VII and India and rejects all the claims made by Pakistan! Pakistan should be gracious enough to accept this historic verdict by the High Court of England and Wales.
Knowing fully well that its tall claims hold no legal basis, Pakistan chose to knock the door of the High Court of England and Wales. Pakistan has every reason on earth to sulk as its tall claims of ‘arms-for-money’ argument and ‘safeguarding-the-money’ argument got rejected as it did not cut much ice with the judge, and India and Nizam of Hyderabad have every reason to celebrate.
India had earlier tried to settle the lingering dispute amicably but Pakistan never cooperated, and so no mutually agreed solution could be arrived.
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*Advocate based in Meerut, Uttar Pradesh