India, Pakistan and £35 million

Source: By Nirupama Subramanian: The Indian Express

The ruling on a dispute over a sum of £35 million in a NatWest Bank account in London, known as the Hyderabad Funds Case, removes one contentious issue from the long list of India-Pakistan problems, but one that was only a minor headache in a bilateral relationship with painful migraines.

On 2 October 2019, the British High Court ruled in favour of India and the heirs of the seventh Nizam of Hyderabad in the dispute over the sum, belonging to the Nizam at the time of Partition.

How the funds reached bank

The story is well known: on the orders of the Finance Minister of Nizam Osman Ali Khan, a sum of £1,007,490 and nine shillings was transferred to the account of Pakistan’s High Commissioner Habib Ibrahim Rahimtoola on September 20, 1948, a day after the Nizam’s forces surrendered to Indian troops. The troops had been sent in to bring to an end the long standoff over the princely state’s accession to India. In 1954, India sued for the return of the money (and the Nizam himself wanted the money back) but the case went up to the House of Lords, which stayed the case against the bank and granted Pakistan sovereign immunity, which meant that legal proceedings could not be brought against it. The bank said it would keep the funds until an agreement was reached among all three parties — the Nizam, the government of India and the government of Pakistan — on who the money belonged to.

There the matter lay for more than six decades. It was Pakistan that decided to go back to the court in 2013 leading to 2 October 2019 judgment, but it was really not about the money, which even after its 35-times increase due to accumulation of interest is not a meaningful amount for either country, as about the state of ties between them at the time.

Attempts at settlement

In fact, through the years, there were several efforts to arrive at an out-of-court settlement, but “Pakistan always backed off when it came to biting the bullet”, said a former Indian diplomat. Indeed, five years earlier, in April 2008, soon after the first democratically elected government took office after 10 years of military rule — it was a Pakistan People’s Party-Pakistan Muslim League (Nawaz) coalition — the government of India announced that it would negotiate an out-of-court settlement with Pakistan on the matter.

An April 11, 2008 press release from the Press Information Bureau said the Union cabinet had given its approval for the government to pursue an out-of-court settlement with Pakistan and the heirs of the Nizam. “The Cabinet also gave its approval to the negotiating strategy. This would release funds lying locked up with a British Bank for the last 60 years and also resolution of one long standing item on the India-Pakistan agenda. The negotiations would be conducted over a period of 18 months,” the release said. The negotiations were to decide a three-way division of the money.

But it never took off. Bilateral ties were in crisis management mode by July that year, when the Indian Embassy bombing in Kabul took place. The plan sank along with the rest of the relationship after the 26/11 attacks in Mumbai that year. Since then India-Pakistan relations have gone from bad to worse.

Revival and closure

It was against this bilateral background that, just before the elections of 2013, the then Pakistan High Commissioner to the United Kingdom,Wajid Shamsul Hassan, a PPP loyalist and confidant of then President Asif Ali Zardari, revived the Hyderabad Funds Case, waiving Pakistan’s sovereign immunity to sue for the ownership of the money.

“I as Pakistan High Commissioner filed a case in 2013 seeking English High Court ruling as to the rightful ownership of the money as it was lying in the account of Pakistan High Commissioner since 1948. Before filing the case much correspondence was exchanged between me as PHC and the MoFA. Red tape in the MoFA was responsible for delayed action,” Hassan told Pakistan Today in June 2016.

Pakistan applied to withdraw the suit months later, but the court dismissed the plea. Hassan said the new Nawaz Sharif-led PML (N) government had “put pressure” on him to withdraw the case.

“Soon after the transfer of power to the new government of Prime Minister Sharif, I was directed to withdraw the case as MoFA (Pakistan’s Ministry of Foreign Affairs) at that time claimed that it was a ‘bilateral issue’ between India and Pakistan,” said Hassan.

As the case continued, India tried to get Pakistan’s “beneficial claim” dismissed as “hopeless”. The court ruled against India in June 2016, raising hopes in Pakistan about a victory. After this, Pakistan argued in court that there were documents to prove that the Nizam had asked Pakistan’s founder Muhammad Ali Jinnah to procure weapons from and send them to him for defending Hyderabad against India, and that a British pilot, Frederick Sidney Cotton, had made 35 trips from Karachi to Hyderabad to drop off the armaments. The money, Pakistan argued, was payment for these arms.

In 2018, the government of India and the Nizam’s grandsons arrived at a settlement to fight the case jointly. 2 October 2019 ruling that pronounced that “the Nizam VIIwas beneficially entitled to the Fund and those claiming right of Nizam VII — the Princes and India —are entitled to have the sum paid out to their order” closed a 70-year-long chapter in the complex India-Pakistan saga.

Why it took so long

Writing about the case in his 2017 book The People Next Door, T C A Raghavan, who was posted in the High Commission at Islamabad twice, first as Deputy High Commissioner and later as High Commissioner, noted that the reason the stalemate could not be broken over decades despite efforts “by prime ministers downward at different levels of government” was certainly not because of the money, but perhaps because both sides saw much more at stake.

“For Pakistan, the issue is of Hyderabad’s forced accession following a military intervention when its ruling Muslim prince wanted independence and a closer relationship with Pakistan. The fund thus represents that symbolic relationship… For India, equally, the issue is of principle — what possible claim can Pakistan have to the funds of the erstwhile Hyderabad state?”