India achieves a diplomatic win with the Nizam of Hyderabad funds

by India Inc. Staff

A landmark High Court ruling in England over the Nizam of Hyderabad’s funds in a London bank account marked an important win for India over Pakistan in a decades-long legal battle.
A long-drawn legal dispute between India and Pakistan over funds belonging to the Nizam of Hyderabad at the time of Partition in 1947 and deposited in a London bank account recently reached its climax in the High Court in England.

The Nizam’s descendants, Prince Mukarram Jah – the titular eighth Nizam of Hyderabad – and his younger brother Muffakham Jah, had joined hands with the Indian government in the legal battle against the Pakistan government over around £35 million lying with NatWest Bank plc in London.

In his judgment handed down at the Royal Courts of Justice in London, Justice Marcus Smith ruled that the “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”.

Pakistan’s contentions of non-justiciability by reason of the foreign act of state doctrine and non-enforceability on grounds of illegality both fail,” the verdict notes.

Harish Salve, a key member of the legal team on behalf of India, hailed the verdict as an important endorsement of India’s long-held stance against Pakistan in the UK court in early October.

“It was a wrongful claim by Pakistan which had to be fought. We fought that claim and won it,” he declared.

The dispute revolved around £1,007,940 and nine shillings transferred in 1948 from the then Nizam of Hyderabad to the high commissioner in Britain of the newly-formed state of Pakistan after Britain’s colonial rule had come to an end. That amount has since grown into £35 million as the Nizam’s descendants, supported by India, claimed it belongs to them and Pakistan counter-claimed that it is rightfully theirs.

“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,” said Paul Hewitt, partner in Withers LLP, who have acted for the VIII Nizam since Pakistan issued proceedings six years ago.

In 2013, Pakistan had waived sovereign immunity by issuing a claim for the fund that opened the way for the current case to proceed. The Pakistan government’s legal team had claimed the fund on two alternative basis. One, referred to as the “Arms for Money Argument”, claimed that funds were transferred to compensate/reimburse/indemnify Pakistan for assistance provided in procuring/facilitating the supply and/or transportation of weapons. The second ground was that the funds were transferred in order to keep them out of the hands of India, referred to by the judge as the “Safeguarding Argument”.

“Historians will be interested in seeing Pakistan’s open acceptance that they were supplying arms. It is an interesting dimension which has publicly been acknowledged,” noted Salve, in reference to the arms for money argument.

Pakistan had made two further arguments – that the facts of this case were such as to render it non-justiciable because the original transfer was governmental in nature and that India’s annexation of Hyderabad in 1948 was an unlawful act, which tainted India and Nizam VIII’s claim.

The UK High Court, during a trial earlier this year, had been asked to determine the “central question” of who exactly is the “beneficial” owner of the funds belonging to the late Nizam, Osman Ali Khan. While the Nizam, who faced the quandary of joining Pakistan or staying with India at the time of the funds transfer back in 1948, had later reportedly sought the return of the funds. NatWest Bank held on to the funds deposited into the London bank account of then Pakistan High Commissioner Habib Ibrahim Rahimtoola in safekeeping until its rightful legal owner is established.

While acknowledging that there was evidence of the supply of arms by Pakistan to Hyderabad around this period, the judge said he had not been persuaded by Pakistan’s Arms for Money argument. He notes there was no evidence linking the funds in the NatWest bank account to the supply of arms.

The ruling marks an important conclusion to an extremely long-drawn legal battle, which also witnessed the Indian government, the princes and the administrator of the estate of Nizam VII compromising their differences and entering into a confidential settlement agreement last year, which meant the case was effectively an India-Pakistan clash in the UK courts.

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