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India Scores Victory In Historical “Hyderabad Funds” Dispute

January 2015

The High Commissioner for Pakistan in the United Kingdom v National Westminster Bank PLC, The Union of India and The President of India, and Others (2015)


On 20 September 1948 just over £1 million was transferred without any authority at all into an account with the NatWest Bank in London in the name of the first High Commissioner of Pakistan. The money was notionally owned by the seventh Nizam of Hyderabad. The secret transfer was made by the Nizam’s finance minister, Moin Nawaz Jung, without any authorisation from the Nizam or India at a time that Hyderabad had formally joined and had become a state of India.

On 27 September 1948, around a week later after the secret transfer, India and the Nizam sought to reverse the unauthorised transfer of money. Whilst the bank was willing to reverse the transfer, the High Commissioner for Pakistan objected, oddly suggesting that the money was now the property of Pakistan’s High Commission and Pakistan.

Proceedings in 1954

Attempts by the bank, India and the Nizam to negotiate a solution for the release of the money remained unresolved with the government of Pakistan taking an intransigent approach. The bank even suggested interpleader legal proceedings, however the government of Pakistan refused to agree, likely concerned that doing so would waive its sovereign immunity leading to the eventual return of the money to India.

Eventually, in an effort to break the deadlock, the Nizam and the State of Hyderabad, India, issued legal proceedings in England in July 1954 against the bank and the Nizam’s former finance minister, Moin Nawaz Jung, who had made the secret and unauthorised transfer. Concurrent proceedings were also issued against the High Commissioner for Pakistan at the time of the transfer (who was now Pakistan’s ambassador to France).

The then former High Commissioner for Pakistan applied to set aside the proceedings against him and to stay the proceedings against the bank on the ground of Pakistan’s sovereign immunity.

This contention succeeded in the High Court, though reversed by the Court of Appeal, but upheld by the House of Lords (now, the Supreme Court).

In the High Court at first instance the Judge noted that the government of Pakistan had adduced no evidence at all as to why the transfer had been made and, moreover, it had declined to file evidence on the issue. The Judge stated, “in so far as the equitable title of the Government of Pakistan to the [money] is relevant, in my judgment, for the purposes of this motion, they do not establish a scintilla of such title”.

In the House of Lords, Lord Denning noted that a stay “would not seem to be right. It creates a stalemate”, though was forced to uphold Pakistan’s plea of sovereign immunity.

For over half a century, this stalemate has ensued.   The funds, however, have grown steadily and now stand at around £35 million.

The Current Position

On 11 June 2013 the High Commissioner for Pakistan began a claim against the bank for the release of the funds. However, whilst merely asserting legal and beneficial entitlement to the funds, no particulars have been provided as to how beneficial entitlement arises and none has been provided in evidence filed on behalf of Pakistan.   The High Commissioner for Pakistan could not adduce any evidence in the proceedings in 1954 following the unauthorised transfer in 1948, and it begs the question why the then High Commissioner in 2013 thought he could do so albeit he is unconnected to the events in 1948 by well over half a century.

On or shortly before 11 June 2013, Pakistan sought to issue an application in the proceedings against the bank that were stayed in 1954, asking for the stay to be lifted. The proposed application was on notice to the bank, but Pakistan did not give notice of the application to either India — which as the successor state to Hyderabad and pursuant to a deed of assignment — owns the funds, nor to beneficiaries of a trust established by the Nizam in 1963 and other descendants of the Nizam who all claim to be entitled to the funds.

It would appear that Pakistan hoped that it might obtain the funds by engaging in the litigation — though which it had desperately fought to avoid in 1954 by claiming sovereign immunity — and avoid giving proper notice of its attempts to the obvious interested parties in the proceedings, notably India. The application was referred to Mr. Justice Henderson by the Court staff, who stated, “I did not understand how Pakistan could hope to lift the stay without waiving its sovereign immunity, and that the obvious way to resolve the dispute (as Lord Denning and others had pointed out) would be for the High Commissioner to waive immunity and sue the Bank”.

Common-sense prevailed and the advocate acting for Pakistan did not dissuade the Judge from taking this view, and the bizarre application was never issued.

Later that day, on 11 June 2013, the High Commissioner for Pakistan issued a claim form against the bank. It claimed full legal title to the account and monies. It also claimed an unparticularised assertion that Pakistan was beneficially entitled to the funds and, in addition, maintained a claim for conversion despite the absence of any credible evidence and contrary to well established law.

The bank wrote to the interested parties in the funds, India and descendants of the Nizam, informing them of Pakistan’s claim and the bank’s intention to interplead. The bank also asked the interested parties to confirm their positions as regards the funds.

Subsequently, the bank applied to strike out Pakistan’s claims, save for the claim for payment of the money in relation to which the bank sought interpleader relief, asking the Court to determine how and to whom the funds should be paid.

The interpleader application was listed for 27 November 2013. However, Pakistan discontinued the whole of its claim by a notice of discontinuance dated 21 November 2013.

Subsequently, various applications were made to the Court by the bank and the interested parties, including applications to set aside the notice of discontinuance and for the interested parties to join the proceedings.

Incidental to these applications, after detailed evidence had been exchanged between the parties, India applied for an order that Pakistan’s principal witness, the then High Commissioner of Pakistan, Mr. Wajid Shamsul Hasan, should be cross-examined before the Judge when the applications to set aside the notice of discontinuance were heard. The subject-matter of the proposed cross-examination was matters of fact relevant to the question whether the notice of discontinuance was an abuse of process of the Court. It was alleged that statements were made to the Court by the former High Commissioner of Pakistan in his evidence which were not correct. This application was initiated before the Court, however it was not pursued in the light of Pakistan and its former High Commissioner stating that they would claim diplomatic privilege.

Court’s Decision

The Court determined that the notice of discontinuance served without permission of the Court did not automatically terminate the proceedings in such a way as to deprive the Court of its jurisdiction to add new parties. The Court held that, in the light of the history of the issue, there were very strong reasons to join India and the Nizam’s descendants to the proceedings.

In relation to the applications to set aside the notice of discontinuance, Pakistan oddly claimed that –notwithstanding that it itself had initiated proceedings — it now wished to claim sovereign immunity and should not be required on this basis to participate in proceedings (that it had initiated). It was clear from explanations from Pakistan that the main objective in serving the notice of discontinuance was to preserve the sovereign immunity which it had waived by initiating the present action.

The Court readily rejected the circular arguments presented by Pakistan. The Judge held that, having submitted to the Court’s jurisdiction by instituting the present action, it was not open for Pakistan to subsequently choose not to participate on the ground of sovereign immunity.

The Court commented that by serving the notice of discontinuance Pakistan was attempting to frustrate the conduct and completion of a process of adjudication by the Court to which it had irrevocably submitted. The Court stated that, in serving the notice of discontinuance, Pakistan was abusing the process of the Court.

The Judge stated that further directions for the future conduct of the proceedings will be ordered. Consequently, somewhat belatedly, the funds secretly transferred by the seventh Nizam’s finance minister may soon be returned to their rightful owner.

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Note: This is a general briefing and not an exhaustive treatment of the subject.