UK court dismisses Pakistan's claim over Hyderabad Nizam's funds, rules in favour of India

The ruling marks an important conclusion to the over 70-year-long legal dispute which also witnessed the Indian government, the descendants of the 7th Nizam and the administrator of his estate burying their differences and entering into a confidential settlement agreement last year, which meant the case was effectively an India-Pakistan clash in the British courts.

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

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.

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 noted, in a setback to Pakistan The dispute revolves around 1,007,940 pounds 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. That amount has since grown into 35 million pounds as the Nizam's descendants, supported by India, claimed it belongs to them and Pakistan counter-claimed that it is rightfully theirs.

"We are delighted that today's judgment recognises His Exalted Highness the VIII Nizam's rights to funds which have been in dispute since 1948. 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 in 2013.

"Justice Smith's judgment covers a complex historical and legal set of issues, interpreting facts and events that occurred 70 years ago to establish that the funds, which now amount to 35 million, were always held in trust for our client's grandfather, the VII Nizam. The judgment also makes important findings on justiciability… and whether a nation state can be a trustee,” he noted.

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 bases.

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”.

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 dilemma 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.

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.

On the Safeguarding Argument, the judge accepted that the fund was to safeguard it by making it less accessible to India following the annexation of Hyderabad but he did not accept that this meant the transfer was absolutely for Pakistan rather than on trust.

In a judgment which will go on to set precedent on non-justiciability, the court also rejected Pakistan's claims of illegality as it concluded that India's submission was well-founded, and that even if there were illegality of the nature alleged by Pakistan in the annexation of Hyderabad, any such alleged illegality would in any case be irrelevant to the claim.

Commenting on the ruling, the Pakistan Foreign Office in Islamabad said it would take further action after examining the detailed judgment.

"Pakistan is closely examining all aspects of the detailed judgment and will take further action in light of legal advice received," the FO said.

It also said that the ruling failed to take into account the historical context of the transfer when "India illegally annexed Hyderabad..."

However, the FO did not specify the actions Pakistan was contemplating against the decisions.