Union of India cannot assume ownership of enemy property once it is vested in Custodian; Clause (1) of Article 285 of Constitution does not apply to enemy properties: SC
Justices B.V. Nagarathna & Ujjal Bhuyan [22-02-2024]

Read Order: LUCKNOW NAGAR NIGAM & OTHERS v. KOHLI BROTHERS COLOUR LAB. PVT. LTD. & OTHERS

Tulip Kanth

New Delhi, February 23, 2024: The Supreme Court has emphasized that Custodian for Enemy Property in India, in whom the enemy properties vest including the subject property, does not acquire ownership of the said properties. The enemy properties vest in the Custodian as a trustee only for the management and administration of such properties.

The subject property was an Enemy Property within the meaning of the Enemy Property Act, 1968 located on Mahatma Gandhi Marg, Lucknow, owned by the Raja of Mahmudabad, who migrated to Pakistan in the year 1947. A portion of the property has been currently occupied and utilized for profit-generating purposes by the respondent-assessee. In the fiscal year 1998-1999, it came to the Municipal Corporation’s attention that the assessee was operating a commercial establishment within the premises. Consequently, the appellant-Municipal Corporation issued a notice to the assessee regarding the assessed Annual Value.

The respondent No.2, Office of the Custodian of Enemy Property for India under the Ministry of Commerce, Government of India, issued a Certificate stating that the subject property is Enemy Property vested with the Custodian. The Certificate also explicitly stated that the Custodian was obligated to pay house tax and other local taxes on behalf of this property. The assessee, along with other tenants, contested the assessment orders. Due to outstanding dues of Rs.1,621,987.00 under the head of House Tax concerning the Enemy Property the Municipal Corporation notified of its intention to proceed with attachment and sealing of the said premises under Sections 506-509 of the UP Municipal Corporation Adhiniyam, 1959.

Raja Mohammed Amir Mohammad Khan, the son of the Raja of Mahmudabad, who remained in India as an Indian citizen, contended that these properties should no longer be vested with the Custodian after his father's demise as they were now vested in him. While the Government had agreed to release 25% of these properties, it had not yet acted upon this commitment. In response, Raja Mohammed Amir Mohammad Khan approached the Bombay High Court and the High Court ruled in his favor.

Being aggrieved with this decision, the Union of India approached the Court by way of filing SLP but the UOI was directed to get the buildings (residence or offices) vacated from such officers and handover the possession to Raja Mohammed Amir Mohammad Khan. Proceedings were initiated by various tenants, including respondent No.1. Following these events, on 28.05.2011, the appellant No.3, issued a notice to the assessee, demanding payment of Rs. 7,57,239.00.  Aggrieved by this action, the assessee approached the Allahabad High Court. By virtue of the impugned judgment, the recovery notice dated 28.05.2011 was quashed on the ground that this case pertained exclusively to taxes, namely House Tax and Water Tax, which were not applicable to the respondent No.1 since the property in question was an enemy property.  Hence, the appellants preferred this civil appeal.

Expounding on the law relating to Enemy property, the Division Bench of Justice B.V. Nagarathna & Justice Ujjal Bhuyan opined that the general aim of the administration of enemy property is to eliminate enemy influence from the national economy. Enemy property can be disposed of by various means including custodianship, liquidation, expropriation, confiscation or nationalization. The whole raison d’etre of a statutory regime that seeks to administer enemy property through a custodianship is to preserve and protect the properties until the war is over. After all, the law of settlement of enemy property is governed not only by considerations of diplomatic strategy but also by fundamental principles of fair governance.

One aspect which was made clear by the Bench was that since the year 1968, there have been lakhs of Indians who have settled overseas without giving up their Indian citizenship. They have acquired several movable and immovable properties in India. If, in an unforeseen eventuality, any of the countries in which such Indians are settled, is declared to be an enemy country then all such Indians who are settled abroad would possibly become enemy subjects, enemy firms and enemy companies within the definition of the Act. “In such an event, the Custodian will have to take possession of such properties. Vesting of such enemy properties in the Custodian is thus only for the purpose of administration and management of such properties”, it said.

“It is reiterated that the Custodian who is appointed under the provisions of the Act by the Central Government discharges his duties and carries out his functions under the provisions of the Act in terms of the directions of the Central Government. This is because the Act is a piece of Parliamentary legislation and in order to achieve a uniform policy vis-à-vis management and administration of enemy properties throughout the length and breadth of the country. It, therefore, cannot be held that the properties vest with the Union within the meaning of Article 285 of the Constitution. In our view, the said Article has no application to enemy properties”, the Bench held.

On the facts of the case, the Top Court opined that the respondent herein who was born in India and his Indian citizenship not being in question could not by any stretch of imagination be held to be enemy or enemy subject under Section 2(b). Similarly, under Section 2(c) the property belonging to enemy could not be termed as an enemy property. The Bench further held that whatever amount have already been deposited by the respondent herein, the same shall not be refunded to them. But, if no other demand has been made till date, such demand shall not be made. However, from the current fiscal year onwards (2024-2025), the appellant shall be entitled to levy and collect the property tax as well as water tax and sewerage charges and any other local taxes in accordance with law.

The Bench was of the view that that the Custodian for Enemy Property in India, in whom the enemy properties vest including the subject property, does not acquire ownership of the said properties. The enemy properties vest in the Custodian as a trustee only for the management and administration of such properties. “…the Central Government may, on a reference or complaint or on its own motion initiate a process of divestment of enemy property vested in the Custodian to the owner thereof or to such other person vide Rule 15 of the Rules. Hence, the vesting of the enemy property in the Custodian is only as a temporary measure and he acts as a trustee of the said properties”, the Bench clarified.

The Bench, thus came to the conclusion that Union of India cannot assume ownership of the enemy properties once the said property is vested in the Custodian as there is no transfer of ownership from the owner of the enemy property to the Custodian. Consequently, the Bench held that no ownership rights would be transferred to the Union of India. Therefore, the enemy properties which vest in the Custodian are not Union properties.

“As the enemy properties are not Union properties, clause (1) of Article 285 does not apply to enemy properties. Clause (2) of Article 285 is an exception to clause (1) and would apply only if the enemy properties are Union properties and not otherwise”, the Bench held while observing that the High Court was not right in holding that the respondent as occupier of the subject property, was not liable to pay any property tax or other local taxes to the appellant.

Thus, setting aside the impugned judgment of the High Court and allowing the appeal, the Bench ordered, “Consequently, any demand for payment of taxes under the Act of 1959 made and thereby paid by the respondent to the appellant-authority shall not be refunded. However, if no demand notices have been issued till date, the same shall not be issued but from the current fiscal year onwards (2024-2025), the appellant shall be entitled to levy and collect the property tax as well as water tax and sewerage charges and any other local taxes in accordance with law.”