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and dealing with them and who is placed under an obligation to use it for the benefit of him to whom they in truth belong. One of the classes of persons on whose behalf the protection of the trusteeship is called is in respect of the property of those persons who are absent in the country, such as a person who has migrated to a country which is described as an enemy country by the Government of India as defined under the provisions of the Act under consideration. 14.12 Thus, under the Act, the Custodian acts as a trustee. A trust is more than an obligation to use the property for the benefit of another; it is an obligation to use it for the benefit of another in whom it is already concurrently vested. Since the beneficiary is himself the owner of the enemy property, in the instant case, the Custodian who is the trustee appointed under the Act is therefore a statutory authority constituted for the administration of the enemy property, who is only a nominal owner of the property so administered by him vis-à-vis third parties. As already noted, the nominal ownership in the trustee is only for the purpose of using the rights and powers vesting with the trustee i.e., Custodian under the Act to be used by him or on behalf of the real owner of the property is absent, since he has left the country for an enemy country. 14.13 The trustee or Custodian under the Act may, in pursuance of the powers vested in him under the Act which actually creates a trust by operation of law, can lease or mortgage the property without the concurrence of the beneficiary under the provisions of the Act just as the beneficiary could have dealt in the same way with his ownership of the property independently of the trustee as there is no bar in law to do so other than the provisions of the Act. Thus, a relationship of trusteeship exists between the trustee and all persons beneficially interested in the property, either as owners or encumbrancers. Possession: 14.14 There is another jurisprudential angle to the matter. Under the Act the Custodian takes possession of the enemy property, in as much as, the enemy property vests with the Custodian under the provisions of the Act. What does this entail?

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14.15 While discussing on the jurisprudential aspects of vesting or taking possession in the instant case as per the provisions of the Act, it is necessary to reiterate and bear in mind the following aspects: (i) That there are three possible situations: first, the possession usually exists both in law and in fact; secondly, the possession may exist in fact but not in law; thirdly, the possession may exist in law but not in fact. This is also called ‘constructive possession’. In the case of the Custodian for Enemy Property, possession exists in law under the provisions of the Act but may be in fact in the hands of a third party such as a tenant or a mortgagee of the owner of such property who is declared an enemy under the Act. (ii) Further, whatever may be owned may be possessed but whatever may be possessed may not be owned. This statement is however subject to important qualifications. For example, there can be possession of an interested person without ownership of any kind. Conversely, there are many rights, which can be owned in relation to a property but which are not capable of being possessed. There are those which may be termed ‘transitory’. For example, a creditor does not possess the debt that is due to him as it is a transitory right, which in its very nature cannot survive in exercise, but a man may possess an easement over the land because it has exercise in continued existence or consistent with each other. (iii) Moving further, while discussing the concept of possession, it is necessary to understand two elements: first is animus possidendi. The intent necessary to constitute possession is the intent to appropriate to oneself the exclusive use of the thing possessed. It is an exclusive claim to a material object for the purpose of using the thing oneself by excluding interference of other persons. The claim of the possessor must be exclusive, which however need not be absolute. But animus possidendi need not amount to a claim or intent to use

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the thing as owner. The tenant or a pledgee may have possession no less real than that of the owner himself, just as a Custodian under the provisions of the Act in the instant case. Thus, the animus possidendi need not be a claim on one’s own behalf. A trustee or Custodian under the Act may have possession of enemy property, though he claims an exclusive right of the thing on behalf of another than himself. This is vis-à-vis third parties. He definitely does not have a right of ownership over the enemy property possessed by him as the ownership of the said property continues in the enemy. (iv) The second concept is that to constitute possession, the animus domini is not in itself sufficient but must be embodied in a corpus. There are two aspects with regard to corpus of possession: first is the relationship of the possessor to other persons and the second, is the relation of the possessor to the thing possessed. The necessary relation between the possessor and the thing possessed is such as to admit of his making such use of it as accords with the nature of the thing and of his claim to it. There must be a correlation between him and the thing possessed, which is not inconsistent with the nature of the claim he makes to it. (v) Thus, possession is acquired whenever the two elements of corpus and animus come into co-existence and it is lost as soon as either of them disappears. (vi) The modes of acquisition of possession are two in number, namely, taking and delivery. Taking is the acquisition of possession without the consent of the previous possessor such as in the case of the Custodian vis-à-vis enemy property. Delivery, on the other hand is the acquisition of possession with the consent and co- operation of the previous possessor. Relation between Possession and Ownership: 14.16 According to Rudolf von Ihering, a jurist “Possession is the objective realisation of ownership”. It is in fact what ownership is in right. Ownership is the guarantee of the law, while the

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possession is the guarantee of the fact. Normally, ownership and possession co-exist but not always. This aspect of the case is crucial for answering the contentions raised by the respective parties. Analysis: Let us apply the aforesaid jurisprudential principles to the provisions of the Act under consideration.

15Copy pinpoint15. Section 2 (c) of the Act defines enemy property to mean any property for the time being belonging to or held or managed on behalf of an enemy, an enemy subject or an enemy firm: That even when an enemy subject dies in the territories to which the Act extends, or dies in any territory outside India, any property which immediately before his death, belonged to or was held by him or was managed on his behalf, may, notwithstanding his death, continue to be regarded as enemy property for the purposes of the Act. The Act when enacted extended to the whole of India except the State of Jammu and Kashmir and it applies also to all citizens of India outside India and to branches and agencies outside India of companies or bodies corporate registered or incorporated in India. On a combined reading of the above, it is clear that the Act applies to any property belonging to or held or managed on behalf of an enemy, an enemy subject or an enemy firm, even if, the enemy or enemy subject or enemy firm is outside India and to branches and agencies outside India of companies or bodies corporate registered or incorporated in India. That as per Explanation (1), the definition of enemy property in clause (c) of Section 2, it is clarified that “enemy property” shall, notwithstanding that the enemy or the enemy subject or the enemy firm has ceased to be an enemy due to death, extinction, winding up of business or change of nationality or that the legal heir and successor is a citizen of India or the citizen of a country which is not an enemy, continue and always be deemed to be continued as an enemy property. Explanation (2) states that for the purposes of this clause, the expression enemy property shall mean and include and shall be deemed to have always meant and included all rights, titles and interest in, or any benefit arising out of, enemy property in the context of such property for the time being belonging to or held or managed on behalf of an enemy, an enemy subject or an enemy firm. The Explanation to sub-section (3) of Section 5 of the Act also

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states that for the purposes of this sub-section, “enemy property vested in the Custodian” shall include and shall always be deemed to have been included all rights, titles, and interest in, or any benefit arising out of, such property vested in him under the Act. 15.1 Therefore, the moot question is, what is the nature and extent of rights, titles, and interest in or any benefit arising out of, such property which is vested in the Custodian? Does it mean vesting of the ownership of the rights, titles, and interest in, or any benefit arising out of such enemy property owned by the enemy which becomes vested in the Custodian in the sense that the Custodian becomes the owner of the property; thereby there is a divesting of the ownership or a transfer of ownership of such property from the ownership of the enemy to the Custodian. 15.2 We do not think that such an interpretation can be given for the simple reason that clause (c) of Section 2 clearly states that enemy property means any property for the time being belonging to or held or managed on behalf of an enemy, an enemy subject or an enemy firm being vested in the Custodian. Therefore, the provision of the Act recognises the ownership of the enemy vis-à-vis the enemy property and the enemy property belonging to or held or managed on behalf of an enemy, an enemy subject or an enemy firm being vested in the Custodian. What exactly is vested in the Custodian? The Explanations i.e. Explanation (2) of clause (c) of Section 2 as well as Explanation (2) to sub-section (3) of Section 5 of the Act, being identical state that all rights, titles, and interest in, or any benefit arising out of such enemy property vest in the Custodian. This means that only the rights etc. vis-à-vis enemy property vest in the Custodian. By that, the Custodian does not acquire ownership rights in the property. It continues to vest with the enemy. This is because ownership of immovable property can be transferred from one person to another i.e. transfer inter vivos can only transferred in accordance with the provisions of the Transfer of Property Act. 15.3 On a conspectus reading of the aforesaid provisions, what emerges is that under Section 3 of the Act, the Custodian of Enemy Property for India is appointed by the Central

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Government by issuance of a notification in the official gazette so also Deputy Custodians and Assistant Custodians of Enemy Property could be appointed for certain local areas as may be specified in the notification. Since the Act is in continuation of the Defence of India Rules, 1962 as well as Defence of India Rules, 1971, as the case may be, the Custodian of Enemy Property for India appointed under the aforesaid Rules shall be deemed to have been appointed under Section 3 of the Act. The expressions “enemy” or “enemy subject” or “enemy firm” are defined in clause (b) of Section 2; The use of the words “for the time being”, “belonging to” and “held” or “managed on behalf of an enemy, an enemy subject or an enemy firm” in clause (b) of Section 2 of the Act are significant. The said provision clearly recognizes ownership of the enemy property by the enemy or property held by an enemy or managed on behalf of an enemy, an enemy subject or an enemy firm. The proviso states that where an individual subject dies in the territories to which the Act extends, any property which immediately before his death belonged to or was held by him or managed on his behalf, may, notwithstanding his death, continue to be recorded as enemy property for the purposes of this Act. This proviso clearly recognizes that the death of an enemy would not result in the enemy property ceasing to be so. Explanation (1) to Section 2(c) also states that enemy property shall continue to remain as enemy property even on the death of the enemy or extinction, winding up of business or change of nationality to continue to remain an enemy property. This is even if the legal heir and successor is a citizen of India or a citizen of a country which is not an enemy country. Explanation (2) thereof states that enemy property shall mean and include and shall be deemed to have always meant and included all rights, titles and interests in, or any benefit arising out of such property. This Explanation gives meaning to the scope of the expressions belonging to, held or managed on behalf of an enemy, an enemy subject or enemy firm. 15.4 If a certificate is issued by the Custodian that the enemy property has vested in him under the Act, the same shall be evidence of the facts stated therein vide Section 5-A of the Act. Section 5-B of the Act begins with a non obstante clause

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which states that nothing contained in any law for the time being in force relating to succession or any custom or usage governing succession of property shall apply in relation to the enemy property under this Act and no person (including his legal heir and successor) shall have any right and shall be deemed not to have any right (including all rights, titles, and interests or any benefit arising out of such property) in relation to such enemy property. This provision regarding extinction of rights, titles or interests or any benefit arising out of the enemy property is deemed to have been lost is by operation of law and by a legal fiction only in so far as a heir or successor is concerned. If any property is vested in the Custodian as enemy property, then no enemy or enemy subject or enemy firm shall have any right to transfer any such property and any such transfer shall always be deemed to have been void. Therefore, by a deeming fiction and by operation of law the right, title and interest in any property vested in the Custodian under the Act shall be extinguished vis-à-vis any enemy or enemy subject or enemy firm once such property is vested in the Custodian only with regard to succession to such enemy property or transfer of such property by an enemy, enemy subject or enemy firm. This would imply that the enemy, enemy subject as well as enemy firm would continue to remain the owner of such property and would continue to vest with the Custodian on the death of the enemy. 15.5 The pertinent question which arises is, whether, vesting of any enemy property in the Custodian under the provisions of the Act which belonged or was held or managed on behalf of an enemy, an enemy subject or an enemy firm would result in “transfer of title” in the said enemy property to the Custodian and therefore to the Central Government or to the Union. In order to discern an answer to this question, it is necessary to read further the provisions of the Act from Section 7 onwards. 15.6 Section 7 states that any sum otherwise payable to an enemy, enemy subject or an enemy firm in the form of dividend, interests share profits or otherwise to or for the benefit of an enemy or an enemy subject or an enemy firm, unless otherwise ordered by the Central Government, be paid by the person by

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whom such sum would have been payable to the Custodian or such other person as may be authorised by him in this behalf and shall be held by the Custodian or such person subject to the provisions of the Act. This provision indicates that the Custodian only holds in trust the sums payable by any person to an enemy subject or an enemy firm. This is because the Custodian of Enemy Property acts as a trustee of the enemy property vested in him as well as a trustee of all monetary dues payable to an enemy, enemy subject or enemy firm. The Custodian shall, subject to the provisions of Section 8, deal with any money paid to him under the Act or under the Defence of India Rules, 1962 or 1971 as the case may be. Further, any property vested in the Custodian under the Act shall be dealt with by him as the Central Government may direct. 15.7 What are the powers of the Custodian in respect of property vested in him? This is dealt with in Section 8 of the Act. The Custodian may take or authorise the taking of such measures as he considers necessary or expedient for preserving such property till it is disposed of in accordance with the provisions of the Act. Sub-section (2) of Section 8 speaks of eleven exigencies which a Custodian or such person as may be specifically authorised by him may take. The same are extracted above. A reading of the above clearly indicates that the Custodian or his authorised person can carry on the business of the enemy; fix and collect the rent etc. in respect of enemy property; take action for recovering any money due to the enemy; make any contract and execute any document in the name and on behalf of the enemy; institute or defend any legal proceeding; secure vacant possession of the enemy property; raise on the security of the property such loans as may be necessary; incur out of the property any expenditure including payment of any taxes, duties, cesses and rates to Government, or to any local authority, pay wages, salaries, pensions, etc. to or in respect of any employee of the enemy and repayment of any debts due by the enemy to persons other than enemies; transfer or otherwise dispose of any of the enemy properties; invest any moneys held by him on behalf of the enemies for the purpose of Government securities

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etc.; make payments to the enemy at his dependants; make payments on behalf of the enemy to persons other that those enemies, of dues outstanding; make such other payments out of the funds of the enemy as may be directed by the Central Government. 15.8 What emerges from the above is that the activities that the Custodian or his authorised person carries out vis-à-vis the enemy such as the business of the enemy or in respect of managing the enemy property would also clearly indicate that the Custodian of the Enemy Property holds the said property in trust or as a trustee and not as an owner of the enemy property or by exercising rights of ownership over the enemy property. Carrying on the business of the enemy and dealing with the property of the enemy vested in the Custodian is in order to protect the business belonging to an enemy or enemy subject or enemy firm, who has left the country. The Custodian of Enemy Property for India who acts on behalf of the Enemy holds in trust the enemy property vested in him under the provisions of the Act. He does so as a trustee and therefore, the principles and legal doctrines applicable to a trustee are applicable to the Custodian accordingly. 15.9 It is trite that a trustee or Custodian in the instant case can never be the owner of the property. The vesting of property in a trustee or the Custodian which, in the instant case, is enemy property as defined under the Act is for the purpose of managing the said property and protecting it, so that the property does not fall into the hands of trespassers, unauthorised persons or render it as being ownerless and therefore, a free for all, so to say owing to the absence of the owner. The object and purpose of the Act is to ensure that the enemy property, which vests in the Custodian, is held in trust and is looked after, protected and managed as per the provisions of the Act. The statement of objects and reasons of the Act makes this position clear. Jurisprudential aspect of vesting:

16Copy pinpoint16. A discussion on the aforesaid provisions under the Act would indicate that the Custodian takes charge of the enemy property which vests in him by operation of law. Then the following questions would arise:

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(i) Does vesting of enemy property in the Custodian imply that the Custodian assumes ownership rights vis-à-vis enemy property vested in him? (ii) Secondly, whether the vesting of enemy property in the Custodian would imply that it becomes the property of the Union? These are the two crucial questions which are required to be answered in this case in order to decide the matter in all its perspectives. 16.1 The expression ‘vest’ or ‘vesting’ has no precise definition and it would depend upon the context in which the expression is used under a particular enactment. This Court has held that the expression ‘vest’ is of fluid or flexible content and can, if the context so dictates, bear the limited sense of “being in possession and enjoyment”. (See: Maharaj Singh vs. State of Uttar Pradesh, (1977) 1 SCC 155) (Para 18)]. In Dr. M. Ismail Faruqui vs. Union of India, (1994) 6 SCC 360 : AIR 1995 SC 605, it was observed that the word ‘vest’ has to be understood in the different contexts in which the word occurs. In the context of acquisition of certain area under the Ayodhya Act, 1993, it was observed that the vesting of the disputed area in Central Government is limited, as a statutory receiver, with the duty of its management and administration. According to Section 7 of the said Act, till it is handed over in terms of the adjudication made in the suit, the word ‘vest’ takes varying colours from the context and the situation in which the word is used in the statute. Under the Land Acquisition Act, 1894, vesting in the State, is from the date of taking possession under Sections 16 or 17(2) which is free from all encumbrances. But under the Land Reforms Act like abolition of estates and taking over thereof, the vesting takes effect from the date of publication of the notification in the official gazette until the occupant of the land is granted the occupancy rights. This is however not the position when enemy property vests in the Custodian under the provisions of the Act. The vesting of enemy property in the Custodian is not free from encumbrances. Therefore, the expression ‘vest’ has no fixed connotation. It is a word of variable input and therefore has to be understood in different contexts and under different circumstances. Therefore, the

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context and situation in which the word is used in the statute is significant in order to interpret the said expression. Under certain statutes, the word ‘vesting’ would mean placing into possession and not conferring ownership of the person who comes into possession of property. Therefore, the word ‘vesting’ is a word of variable input and has more than one meaning which must be discerned and the exact connotation must be found by looking into the scheme of law and the context in which it is used. The setting in which it is used would lend colour to it and divulge the legislative intent. In State of Gujarat vs. The Board of Trustees of Port of Kandla, (1979) 1 GLR 732, (“Trustees of Port of Kandla”), it was observed that the vesting of property in the Board of trustees is for the limited purpose of administration, control and management only without the Central Government having divested itself of ownership. Thus, vesting of property in a person or authority does not always mean transfer of absolute title in the property. In Bibhutibhushan Datta vs. Anadinath Datta, AIR 1934 Cal 87, (“Bibhutibhusan Datta”), it was observed that mere transference of management or control of a property, when transfer of proprietary rights is not intended, the requirements of vesting is not satisfied in terms of Section 10 of the Limitation Act. Under the Act under consideration, the vesting of the enemy property in the Custodian is not free from encumbrances but vesting is in accordance with the status of the property as held by the enemy, enemy subject or enemy firm prior to its vesting. Therefore, only when enemy property vests in the Custodian free from all encumbrances it will be a transfer of ownership from the owner of such property to the Custodian. This is because under the Act, Custodian holds or manages the property for and on behalf of the enemy, enemy subject or enemy firm only temporarily and there is no transfer of ownership to the Custodian or the Union of India. Hence, there is no necessity of payment of compensation to the owners of such properties. Under Section 5A of the Act under consideration, when property vests in the Custodian under the provision of the Act, he may

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issue a certificate to that effect and such certificate shall be evidence of the facts stated therein. Further, under Section 7 (1) of the Act, any sum payable by way of dividend, interest, share profits or otherwise to or for the benefit of an enemy or an enemy subject or an enemy firm shall, unless otherwise ordered by the Central Government, be paid by the person by whom such sum would have been payable to the Custodian or such person as may be authorised by him in that behalf and shall be held by the Custodian or such person subject to the provisions of the Act. Under Section 7 (3) of the Act, the Custodian shall, subject to Section 8 of the Act, can deal with any money paid to him or any property vested in him under the Act in such manner as the Central Government may direct. Section 8-A of the Act begins with a non-obstante clause and it states that notwithstanding anything contained in any judgment, decree or order of any court, tribunal or other authority or any law for the time being in force, the Custodian may, within such time as may be specified by the Central Government in this behalf, dispose of whether by sale or otherwise, as the case may be, with prior approval of the Central Government, by general or special order, enemy properties vested in him immediately before the date of commencement of the Amendment Act, 2017 in accordance with the provisions of this Act, as amended by the Amendment Act, 2017. The sale proceeds have to be deposited into the Consolidated Fund of India and the details thereof have to be intimated to the Central Government. The directions issued by the Central Government, by way of general or special order, vis-à-vis disposal of enemy property is binding upon the Custodian and the buyer of the enemy properties and the other persons connected to such sale or disposal. Further, instead of the Custodian disposing of enemy property, any Ministry or Department of the Central Government may do so as authorised and the provision of Section 8A applies to such authority or Ministry or Department. The Central Government can also deal with or utilise enemy property in such manner as it may deem fit. The scheme of Section 8A of the Act is only to regulate the disposal of the enemy property by the Custodian bearing in mind the guidelines and/or directions issued by the Central

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Government and to deposit the sale proceeds into the Consolidated Fund of India. The Custodian would nevertheless be acting as a trustee of the enemy property but under the directions of the Central Government as the Custodian is appointed under the Central Government and he, with the prior approval of the Central Government may dispose of the enemy property for valid reasons. It could be for the reasons that there is no succession to the enemy property or the said property is in a dilapidated condition or, if for any reason, there is litigation or legal or other complications arising which would make it difficult for the Custodian as the trustee of such property to manage the same. In such circumstance, there could be alienation of the said property. On such alienation, the sale proceeds would have to be deposited in the Consolidated Fund of India, as the Custodian, being an officer appointed under the provisions of the Act by the Central Government, would be discharging his duties under the Act. But the power of sale of an enemy property as envisaged under Section 8A of the Act, in our view, would also not imply that the Custodian would be acting as the owner of the property but only as a Custodian of such property. This view is further supported by Section 9 of the Act, which states that all enemy property vested in the Custodian under the Act shall be exempt from attachment, seizure or sale in execution of a decree of a civil court or orders of any other authority. Therefore, it is the duty of the Custodian as the trustee of the enemy property to ensure that the said property is saved from attachment, seizure or sale in execution of a decree of a civil court or orders of any other authority. Section 10 of the Act also categorically states that where the Custodian proposes to sell any security issued by a company and belonging to an enemy, the company may, with the consent of the Custodian, purchase the securities, notwithstanding anything to the contrary in any law or in any regulations of the company and any securities so purchased may be re-issued by the company as and when it thinks fit so to do. Where the Custodian executes and transfers any securities, he has to register them (securities) in the name of the transferee, notwithstanding that the regulations of the

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company do not permit such registration in the absence of the certificate, script or other evidence of title relating to the securities transferred. The expression securities includes shares, stocks, bonds, debentures and debenture stock but does not include bills of exchange. On sale of any immovable property vested in him to any person and on receipt of the sale proceeds of such property, the Custodian has to issue a certificate of sale in favour of the transferee and even in the absence of handing over the original title deeds of the property, the sale shall be valid and conclusive proof of transfer of ownership of such property to such person, who has the certificate registered in his name. Such transfer is obviously from the owner of the enemy property who is represented by the Custodian who only executes the sale and transfers the ownership of such property from the ownership of the enemy, enemy subject or enemy firm to the buyer of such property. The Custodian does not sell the enemy property as the owner of such property as no ownership rights are vested in him. Section 15 of the Act states that the Custodian may call from persons who, in his opinion, have any interest in, or control over, any enemy property vested in him under this Act, such returns as may be prescribed. In such an event, every person from whom a return is called for shall be bound to submit such return within the prescribed period. All such returns shall be recorded in such registers as may be prescribed, which shall be open to inspection subject to reasonable restrictions as may be imposed by the Custodian, if in the opinion of the Custodian, the person seeking inspection is interested in any particular enemy property as a creditor or otherwise. Such being the position of a Custodian, who under the Act, acts as the trustee for the enemy property under the Act and not as the owner of the property, but as a protector of the property vested in him, the Custodian can never be an owner or having any right, title or interest in the enemy property as owner. While Section 5-B states that any law related to succession or any custom or usage governing succession of property shall not apply in relation to enemy property under

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the Act as no person including a legal heir and successor of an enemy or enemy subject or enemy firm shall be deemed to have any right, title or interest or any benefit arising out of such property in relation to enemy property, this provision does not at the same time confer any right, title and interest or any benefit arising out of enemy property in the Custodian for Enemy Property. A Custodian is thus only a trustee of the enemy property. In the absence of any transfer of ownership or any benefit arising from enemy property being conferred on the Custodian, he acts merely as a trustee of the said property and not as the owner of enemy property. The Explanation to Section 5(3) states that for the purpose of that sub-section only ‘enemy property vested in the Custodian’ shall always be deemed to have included all rights, titles and interests in or any benefit arising out of such property vested in him under the Act. This is by a deeming provision and by a fiction only for the limited purpose of extinction of rights of succession on the death of the enemy or extinction or winding up of the business of enemy property or change of nationality of the legal heir or successor. Thus, if no ownership rights are conferred on the Custodian and he is appointed vis-à-vis any enemy property as a Custodian, in law, he cannot be construed to be the owner of such property. This position is also discerned from the manner in which the Custodian acts vis-à-vis the enemy property as a protector of such property and not as its owner. If the Custodian himself cannot be construed to be the owner of the enemy property, then much less the Central Government or Union can be considered to be the owner of such property. In our view, the Union or the Central Government cannot usurp rights of ownership and exercise all such rights of ownership vis-à-vis enemy property. In the absence of any provision conferring such ownership on the Custodian, the Central Government, which appoints the Custodian of Enemy Property in India by issuance of a notification in the Official Gazette to carry on his functions under the provisions of the Act, cannot assume ownership rights over such property. The same is having regard to the fact that the Act is a piece of parliamentary legislation and therefore, the State Legislatures or Governments have

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no competence to take steps under the Act and therefore, the Central Government appoints the Custodian of Enemy Property in India.

17Copy pinpoint17. However, it was contended by Sri Balbir Singh, learned ASG appearing along with Sri Rupesh Kumar, learned counsel for the Custodian that by the appointment of the Custodian by the Central Government, the powers of the Custodian in respect of enemy property vested in him and such other actions that he may take vis-à-vis enemy property, would clearly indicate that the Custodian acts at the behest of the Central Government and therefore, the enemy property becomes Union property even though the same is vested in the Custodian who, in any case, is appointed by the Central Government. In order to buttress this submission, our attention was drawn to Section 8-A which begins with a non-obstante clause and which states that the Custodian may, with the approval of the Central Government, dispose of enemy property by sale or otherwise, as the case may be, the enemy property vested in him immediately before the date of commencement of the Amendment Act, 2017, in accordance with the provisions of the Act as amended by the Amendment Act, 2017. Further, the Custodian, on disposal of enemy property, has to deposit the sale proceeds into the Consolidated Fund of India immediately and intimate details thereof to the Central Government. Also, the Custodian has to submit a report of the enemy properties disposed of enclosing details of sale etc. The Central Government may also issue directions and guidelines to the Custodian in matters related to disposal of enemy property which are binding on the Custodian and the buyer. Moreover, the Central Government may deal with or utilise the enemy property in a manner as it may deem fit. On sale of any enemy property vested in the Custodian to any person he may, on receipt of the sale proceeds of such property, issue a certificate of sale notwithstanding the fact that the original title deeds of the property have not been handed over to that transferee. That once such certificate of sale is issued, the same shall be valid as conclusive proof of ownership of property by such person. Further, the certificate issued by the Custodian shall be a valid instrument for registration of the property in favour of the transferee as the registration in respect of enemy property for which such certificate has been issued by the Custodian, shall not be refused on the ground of lack of original title deeds in respect of such property or for any other matter.

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17.1 In our view, although the Custodian for the Enemy Property is empowered to alienate enemy property under the provisions of the Act, he does so as a trustee of the said property and not as the owner thereof or as the Central Government being the owner. As already stated, the ownership continues to remain with the enemy but the management and the custody of the property only remain with the Custodian and in the absence of the enemy, the Custodian is empowered to sell or alienate such property and can issue a sale certificate as is expedient to do so. This is in the interest of or benefit of the enemy property. Thus, the transfer of such enemy property by sale or otherwise is for and on behalf of the enemy who is not available in the country and in order to ensure that such property is not dissipated owing to the owner of the property being absent in the country. Thus in order to protect the enemy property, the Custodian is empowered to even sell the enemy property and deposit the sale proceeds with the Central Government. The sale or transfer of ownership of the enemy property in favour of the transferee is, in fact, on behalf of the enemy who is the owner of the property through the legal and statutory authority of the Custodian which empowers him to alienate the property for good and sound reasons and in the interest of the enemy property irrespective of whether there is any claim made by the enemy or his heirs or descendants. It is for this reason that the original title deeds may remain with the enemy or his family vis-à-vis the enemy property and in lieu of handing over of the title deeds of the property to the vendee or purchaser of the enemy property, a certificate of sale is issued in favour of such person by the Custodian and such certificate of sale is a valid instrument for seeking registration of the property in favour of the transferee. When the registration of the sale is made in favour of the transferee by the Custodian, the latter is acting as a trustee and not as the owner of the enemy property. Therefore, it cannot be accepted that the Custodian is acting as the owner of the property and by that logic the enemy property would become the property of the Union. 17.2 Further, since the Custodian is the trustee of the enemy property, if any monies are due to the enemy or if any order has been made with regard to enemy property vested in the

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Custodian which are paid or complied with by any person, as the case may be, and a certificate is issued in that regard by the Custodian, such a person, to whom the certificate is issued, shall not be liable to any suit or other legal proceeding, by reason only of such compliance. This aspect also indicates that payment made to the Custodian is payment to the enemy, enemy subject or enemy firm who accepts the same for and on behalf of the enemy and the payer is thus absolved of all his liabilities and obligations to the enemy. 17.3 In Amir Mohammad Khan, it was observed by this Court that vesting of enemy property in the Custodian is limited to temporary possession, management and control of the property till it becomes incapable of being used by the enemy subject for carrying on business and trading therein. This does not divest the enemy subject of his right, title and interest in the property. The aforesaid two aspects are totally distinct. However, in the said case this Court observed that on the death of the enemy subject the said property would cease to be enemy property if the same is succeeded to by his heir who is a citizen of India. Hence the Custodian could not be permitted to continue with the possession thereof and would be duty bound to release the property to the true owner. In our view, it is only in respect of succession to the enemy property on death of the enemy which has been abrogated by the Parliament by insertion of Explanations (1) and (2) to clause (b) of Section 2 which defines enemy or enemy subject or enemy firm which are with effect from 21.03.2018. Therefore, the jurisprudential position of the Custodian for Enemy Property vis-à-vis the enemy continues to remain as that of a trustee although the enemy property may vest in such Custodian for the protection, preservation and management thereof. Thus, such vesting of property in the Custodian does not result in the transfer of ownership from the owner of the property who is an enemy or enemy subject or enemy firm within the meaning of clause (b) of Section 2 of the Act to the Custodian. When the Custodian appointed by the Central Government in whom enemy property vests is only a trustee and does not adorn the status of an owner of such enemy property, consequently, the Central Government or the Union

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even within the meaning of Article 285 of the Constitution cannot usurp the ownership of such property. 17.4 That when enemy property is not the property of the Union within the meaning of Article 285 of the Constitution, there is no exemption from taxes imposed on by a State or by any authority within a State. When the aforesaid position of law was discussed during the course of submission and specifically put to Sri Balbir Singh, learned ASG by the Bench, the response was that the enemy property being the property of the Union is exempt from all taxes imposed by a State or by any authority within a State, save insofar as Parliament may by law otherwise provide. That in the instant case, Section 8(2)(vi) authorises the Custodian to make payments out of the enemy property any taxes, dues, cesses or rates to the State Government or to any local authority and therefore, the Parliament has by the said provision authorised the payment of taxes to the State Government or the local authority such as the appellant herein and hence, there is no exemption from payment of taxes in respect of enemy property which is by that reason Union property. In other words, the contention was premised on the fact that once the enemy property vests in the Custodian, it automatically becomes the property of the Union and having regard to the saving clause in Articles 285(1) of the Constitution, and bearing in mind Section 8(2) (vi) of the Act, there is no exemption from the payment of property tax in the instant case. 17.5 Thus, while both the appellant-Municipal Corporation or Nagar Nigam and the Union of India are at ad idem on the legal position that the property tax is liable to be paid to the appellant in the instant case but it is for different reasons or basis. 17.6 In this context, Mr. Kavin Gulati, learned senior counsel for the appellant emphasised that the subject property in question is not Union property but it is enemy property vested with the Custodian under the Act and continues to be so and is therefore, subject to payment of taxes, etc. to the appellant- Corporation and Section 8(2)(vi) is only an enabling provision. The Custodian collects the taxes on behalf of the enemy and pays it to the appellant and not as owner of the enemy property.

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17.7 Per contra, Shri Guru Krishna Kumar, learned senior counsel appearing for the respondent-lessee contended that the subject property being enemy property vested with the Custodian under the Act is the property of the Union or Central Government and therefore, is exempt from any taxation under clause (1) of Article 285 of the Constitution. 17.8 Interestingly, while both learned ASG Sri Balbir Singh, appearing for the Union of India and Sri Gurukrishna Kumar, learned senior counsel appearing for the respondent-lessee have contended that the subject property is Union property, between them there is also a difference in their stand in the matter. While learned ASG contended that there is no exemption from payment of municipal taxes, on the other hand, learned senior counsel Sri Gurukrishna Kumar appearing for the respondent-lessee contended that the subject property being Union property is totally exempt from any kind of taxes to be paid to any Government or local authority. 17.9 But in view of our above analysis, we hold that the vesting of enemy property in the Custodian does not transfer ownership of such property in the Custodian and by that process in the Union or Central Government, but since the Custodian is only a trustee of the enemy property, the same is liable to tax in accordance with law, including to the appellant herein. The Custodian is only authorised to pay the taxes on the subject enemy property by virtue of sub-section (2) of Section 8 of the Act. The Custodian while doing so is not acting on behalf of the Union Government being the owner of the enemy property, rather, the Custodian who is appointed by the Central Government under the provisions of the Act, which is a Central legislation only discharges his duties and functions under the provisions of the Parliamentary legislation i.e. the Act under consideration. Such discharge of duties and functions, including the payment of taxes vis-à-vis enemy property vested in him would not also by the same logic imply that the Custodian is acting as if the property vested in him has become the Union property. We emphasise again that mere vesting of enemy property in the Custodian does not transfer ownership of the same from the enemy to the Union or to the Central Government; the ownership remains with

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the enemy but the Custodian only protects and manages the enemy property and in discharging his duties as the Custodian or the protector of enemy property he acts in accordance with the provision of the Act and on the instructions or guidance of the Central Government. The reason as to why the Central Government is empowered to issue guidelines or instructions to the Custodian is because the Custodian is appointed under the Act which is a Parliamentary legislation and the reason why the Parliament has passed the said law is in order to have a uniformity vis-à-vis all enemy properties throughout the length and breadth of the country in that the same are protected, managed and dealt with uniformly in accordance with the provisions of the Act.

18Copy pinpoint18. We say so because Article 300-A of the Constitution states that no person shall be deprived of his property save by authority of law. The word “law” is with reference to an Act of Parliament or of a State Legislature, a rule or a statutory order having the force of law. Although, to hold property is not a fundamental right, yet it is a constitutional right. The expression person in Article 300-A covers not only a legal or juristic person but also a person who is not a citizen of India. The expression property is also of a wide scope and includes not only tangible or intangible property but also all rights, title and interest in a property. Deprivation of property may take place in various ways, but where there is only control of property short of deprivation would not entail payment of compensation vide Indian Handicrafts Emporium vs. Union of India, (2003) 7 SCC 589, (Paras 109 and 111) and Chandigarh Housing Board vs. Major-General Devinder Singh (Retd.), (2007) 9 SCC 67, (Para 11). However, deprivation of property is to be distinguished from restriction of the rights following from ownership, which falls short of dispossession of the owner from those rights. Deprivation also takes within its nomenclature acquisition in accordance with law and not without any sanction of law. Before a person can be deprived of his right to property, the law must expressly and explicitly state so. Thus, the expression by authority of law means by or under a law made by the competent Legislature. 18.1 In KT Plantation Pvt. Ltd. vs. State of Karnataka, (2011) 9 SCC 1, it was observed that though the right to claim compensation or the obligation of the State to pay

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compensation to a person who is deprived of his property is not expressly included in Article 300-A of the Constitution, it is in-built in the Article. Within the scope of Article 300-A the doctrine of eminent domain could also be read inasmuch as the said doctrine states that the acquisition of property must be in the public interest and there must be payment of just and fair compensation therefor. When acquisition of property takes place either under the Land Acquisition Act, 1984 or the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013, it is always for a public purpose and on payment of compensation to the owner of the said property. The State then possesses the power to take control of the property of the owner thereof for the benefit of the public and when the State so acts it is obliged to compensate the owner upon making just compensation as the owner of the property would lose all his rights vis-à-vis the acquired land. 18.2 However, this position has to be distinguished vis-à-vis the Custodian for Enemy Property under the Act, as he takes possession of the enemy property only for the purpose of managing the same as per the provisions of the Act and does not become the owner of the property inasmuch as the ownership of the property from the enemy or enemy subject or enemy firm does not get transferred to the Custodian. On the other hand, if it is to be recognised that ownership of the property gets transferred from the enemy to the Custodian who takes possession of the property and administers it or manages it and thereby the ownership would then be that of the Union, in that event, it would be a deprivation of the property of the true owner who may be an enemy or an enemy subject or enemy firm but such deprivation of property cannot be without payment of compensation. Having regard to the salutary principles of Article 300-A of the Act, we cannot construe the taking possession of the enemy property for the purpose of administration of the same by the Custodian, as an instance of transfer of ownership from the true owner to the Custodian and thereby to the Union. This position is totally unlike the position under the provisions of the Land Acquisition Act, 1894 or the subsequent legislation of 2013

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which are expropriatory legislations under which acquisition of land would inevitably result in transfer of the ownership of the land from the owner to the State which is the acquiring authority, but the same would be subject to payment of a reasonable and fair compensation to the owner. 18.3 Further even under Article 296 of the Constitution, the manner in which ownership of certain types of property gets vested directly with the Union is stated when such property vests with the Union by virtue of the application of the doctrine of escheat or doctrine of bona vacantia. But under the provisions of the Act, the Custodian is appointed only to protect the property and to manage it as a trustee and not as an owner by vesting in the Custodian free from all encumbrances. By that, the Union cannot assume rights of ownership over such property through the Custodian.

19Copy pinpoint19. Therefore, we see no substance in the arguments of learned ASG appearing for the Union of India as well as that of Sri Guru Krishna Kumar appearing for the respondent-lessee to the effect that enemy property vested with the Custodian becomes property of the Union.

20Copy pinpoint20. There is another angle to the case which revolves around Article 285 of the Constitution. Clause (1) of Article 285 of the Constitution corresponds to the first paragraph of Section 154 and clause (2) corresponds to the proviso to Section 154 of the Government of India Act, 1935. For a more comprehensive understanding of the subject, it would also be useful to read Articles 286, 287, 288, 289 and Article 296 also. Article 289:

21Copy pinpoint21. Clause (1) of Article 289 exempts from Union taxation any income of a State, whether it is derived from governmental or non-governmental activities. However, an exception is provided in clause (2) thereof in that the income derived by a State from trade or business would be taxable, provided a law is made by Parliament in that behalf. Clause (3) is an exception to the exception prescribed in clause (2) which states that the income derived from a particular trade or business may still be immune from Union taxation if Parliament declares that the said trade or business is incidental to the ordinary functions of Government. This Article broadly corresponds to Section 155 of the Government of India Act, 1935 but has certain other conditions thereto.

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Articles 285 and 289 provide for the immunity of the property of the Union and the State from mutual taxation on the basis of the Federal principle. NDMC is a decision of nine-Judge Bench which dealt with a question whether the properties owned and occupied by various States within the National Capital Territory of Delhi are entitled to be exempted from the levy of taxes under the provision of Delhi Municipal Corporation Act, 1957 and New Delhi Municipal Council Act, 1994 by virtue of the provisions of Article 289(1) of the Constitution. The pertinent question was, whether, by virtue of Article 289(1), the States are entitled to exemption from the levy of taxes imposed by laws made by Parliament under Article 246(4) upon their properties situated within Union Territories. The Delhi High Court had taken the view that the properties of the States situated in the Union Territory of Delhi are exempt from property taxes levied under the municipal enactments in force in the Union Territory of Delhi. The said view was challenged in the appeals preferred by the New Delhi Municipal Council and the Delhi Municipal Corporation which are functioning under the respective parliamentary enactments. While considering Article 285 as well as the Article 289 of the Constitution which deal with exemption of property of the Union from State taxation and exemption of property and income of State from Union taxation, respectively, by a 5:4 majority judgment speaking through B.P. Jeevan Reddy, J., it was observed that in a federation there are two coalescing units, namely, the Federal Government or the Centre and the States or the Provinces. Articles 285 and 289 deal with the concept of doctrine of immunity from taxation. While the immunity created in favour of the Union is absolute, the immunity created in favour of the States is a qualified one. Article 285 provides a complete and absolute ban on all taxes that could be imposed by a State on Union property. There is no way in which a State Legislature can levy a tax upon the property of the Union but Article 289 is distinct. Although, the property and income of a State is exempt from Union taxation, the same is qualified inasmuch as the aforesaid ban imposed by clause (1) of Article 289 would not prevent the Union from imposition or from imposing or authorising the imposition of, any tax to such extent, if any, as Parliament may by law provide in respect of - (a) a trade or business of any kind carried on by, or on behalf of, the Government of a State, or (b) any

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operations connected such trade or business or (c) or any property used or occupied for the purposes of such trade or business, or (d) any income accruing or arising in connection with such trade or business. Article 289 clause (3) empowers Parliament to declare, by law, which trade or business or any class of trades or businesses is incidental to the ordinary functions of the Government, whereupon the trades/businesses so specified go out of the purview of clause (2) of Article 289. It was held that levy of taxes on property by the Punjab Municipal Act, 1911 (as extended to Part ‘C’ State (Law) Act, 1950), the Delhi Municipal Corporation Act, 1957 and the New Delhi Municipal Council Act, 1994 (both parliamentary enactments) constitute “Union taxation” within the meaning of Article 289(1). That by virtue of the exemption provided by clause (1), taxes are not leviable on State properties but clauses (1) and (2) of Article 289 go together, form part of one scheme and have to be read together. Therefore, Municipal Laws of Delhi are inapplicable to the properties of State Government to the extent such properties are governed and saved by clause (1) of Article 289 and that insofar as the properties used or occupied for the purpose of a trade or business carried on by the State Government, the ban in clause (1) does not avail to them and the taxes thereon must be held to be valid and effective. It was observed that the levy of the property taxes under the three enactments, namely, the Delhi Municipal Corporation Act, 1957; the New Delhi Municipal Council Act, 1994 and the Punjab Municipal Act, 1911 are valid to the extent the provisions related to land and building owned by State Government and used or occupied for the purposes of any trade or business carried on by the State Government. In other words, the levy is invalid and inapplicable only to the extent of those lands or buildings which are not used or occupied for the purposes of any trade or business carried on by the State Government. That it is for the authority under the said enactment to determine with notice to the affected State Government, which land or building is used or occupied for the purpose of any trade or business carried out or on behalf of that State Government. It was further observed that the said judgment was to operate prospectively commencing on 01.04.1996 onwards by invoking the Article 142 of the Constitution. Another aspect which was argued in the said case was that the exemption provided by clause (1) of Article 289 would not apply to

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compensatory taxes like water tax, drainage tax and so on. However, it was contended that even in respect of a composite taxes, known as property tax, insofar as the taxes on the services are concerned, the ban under clause (1) of Article 289 would not apply. However, the Court did not express any opinion on this aspect of the matter. Article 285: 21.1 Article 285 speaks about the doctrine of immunity restricting the taxing powers of the governments in a federation. The doctrine is based on the principle that there ought to be inter- governmental tax immunities between the Centre and the States. In a Constitution such as ours which has a federal character, where both the Union and State Governments have the powers to levy taxes even on governmental property, the immunity is intended for the smooth working of the Governments and for saving time and efforts in cross taxation. Clause (1) of Article 285 deals with immunity of the property of the Union from State taxation. Article 285 embodies a narrower aspect of the doctrine of “Immunity of Instrumentalities” as propounded in the United States inasmuch as it exempts only property and not the functions or instrumentalities of the Union. 21.2 Article 285(1) states that the property of the Union shall be exempted from all taxes imposed by the State or by any authority within a State unless so provided for by the Parliament by law. Clause (2) of Article 285 states that nothing in clause (1) shall prevent any authority within a State from levying any tax on any property of the Union to which such property was immediately before the commencement of the Constitution liable or treated as liable, so long as that tax continues to be levied in that State. Clause (2) of Article 285 is a clause which is transitional in nature and is in the nature of a saving clause intended to save all taxes levied on the property of the Union prior to the commencement of the Constitution so long as the taxes continues to be levied in that State. However, this saving clause is subject to any law that the Parliament may provide otherwise. 21.3 While applying clause (1) of Article 285, two considerations must be taken into account: firstly, whether the tax is claimed in respect of property, and secondly, whether such property

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is vested in the Union Government. The expression property must be given its widest meaning to include both tangible and intangible property as well as moveable and immovable property. The immunity conferred under clause (1) of the Article 285 is only in respect of a tax on property. The rationale for providing Articles 285 and 289 of the Constitution is based on the principle that one sovereign cannot tax another sovereign. Thus, under Article 285, all property of the Union is exempted from State taxes, while Article 289 exempts all incomes and property of a State from Union taxation; no distinction is made between the Union property used for commercial purposes or used for governmental functions. Thus, irrespective of use of the Union property is put to, there is an exemption. 21.4 The expression ‘vest’ is not found in Article 285, though, it occurred in Section 154 of the Government of India Act, 1935. However, this does not really make a difference, so long as the owner of the property is the Union. For instance, property which is requisitioned by the Union does not affect the ownership of the requisitioned property. But, if the Union Government erects buildings on requisitioned lands, the buildings become property of the Union within the meaning of Article 285 although, the Union is not the owner of the land upon which the building stands vide The Governor-General of India in Council vs. The Corporation of Calcutta, AIR 1948 Cal 116 affirmed by The Corporation of Calcutta vs. Governors of St. Thomas’ School, Calcutta, AIR 1949 FC 121. 21.5 The immunity from taxation on property of the Union therefore depends upon the factum of the ownership of the property. If a property accrues to the Union by escheat, lapse or bona vacantia under Article 296 of the Constitution, such property would be immune from State taxation. Thus, where the Union Government is not the owner of the property but is a lessee from a private owner, a tax on such owner is not exempted under Article 285 of the Constitution. Similarly, where the Union Government is using the property for governmental purposes or has control over its use, does not give it immunity from State taxation. Conversely, where the Government is the lessor, a tax on the interest of the private lessee is not a tax on the property of the Union. Since the immunity is confined to property vested

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in the Union, the same cannot be claimed by entities other than the Union. In order to ascertain this aspect i.e., whether the statutory corporation or other entities do not come within the scope and the ambit of Article 285, the doctrine of “piercing the veil” may be pressed into service. Thus, Article 285 would not apply when the property to be taxed is not of Union of India but of a distinct and separate legal entity. Thus, the State cannot levy road tax on the vehicles owned by the Central Government or the Railway, which is a Ministry of the Union Government. 21.6 In Union of India vs. City Municipal Council, Bellary, AIR 1978 SC 1803 (“City Municipal Council”), it was observed that the property of the Union is exempt from all taxes imposed by the State or by any authority within the State under Article 285(1), unless the claim can be supported and sustained within the parameters of Article 285 (2). The expression “save in so far as Parliament may by law otherwise provide” in clause (1) of Article 285 is to enable the Parliament to control Union property. Thus, the Parliament may by law permit a State or any authority or instrumentality within a State to impose tax on Union property. But if no such law is made by the Parliament the immunity would continue. Similarly, clause (2) of Article 285 which is in the nature of an exception to clause (1) thereof, has given an overriding power to Parliament to take away any existing taxation of a State or a local authority of Union property prior to the commencement of the Constitution and which has continued to be levied in the State even after the enforcement thereof. In City Municipal Council, question arose whether the Railway (Local Authorities Taxation) Act, 1941 which created a liability on the Railways to taxation by local authorities was contrary to Article 285 (1) of the Constitution. It was held that the aforesaid Act being enacted prior to the enforcement of the Constitution was not a law which came within the scope of the expression “save in so far as Parliament may by law otherwise provide” in clause (1) of Article 285. Hence, it was observed that the said law could not be enforced after the enforcement of the Constitution, and the Railway property was immune from State taxation. 21.7 As already noted, clause (2) of Article 285 is in the nature of an exception or a proviso to clause (1) of the said Article.

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However, it empowers Parliament to restrict the exception. In other words, any local taxes on Union property which were saved by virtue of clause (2) of Article 285 shall cease to be valid as soon as the Parliament by law provides to that effect. This implies that clause (2) of Article 285 which saves the existing power of the State and the local lawful bodies to tax Union property would continue and the status quo would be maintained till Parliament would legislate otherwise. In clause (2) of Article 285, the expression “liable or treated as liable” is of significance. The conditions necessary to bring a property within clause (2) of Article 285 in order to make it liable to taxation are as under: "(a) Physical existence of the property immediately before the commencement of the Constitution; (b) Liability of the property to the tax on that date; (c) Physical existence of the property now, i.e., at the time when the tax is sought to be levied; (d) Liability of the property to tax now; (e) The tax in question must be the ‘same tax’ as that which was levied or leviable at the commencement of the Constitution; (f) The local authority seeking to levy the tax must be in the same State to which the pre-Constitution authority belonged.” [Source: Shorter Constitution of India by D.D. Basu, 16th Edition] 21.8 The aforesaid conditions would mean that the nature, type and the property on which the tax is being levied prior to the commencement of the Constitution must be the same, as also the local authority of the same State to which it belongs before the commencement of the Constitution. If the conditions of clause (2) of Article 285 are not satisfied, the pre-Constitution tax cannot be continued to be levied by a State by virtue of Article 372(1) as the latter Article states that the continuance of the existing law would be ‘subject to the other provisions of the Constitution’. Hence, any law which is inconsistent with Article 285 cannot be continued by virtue of Article 372(1) of the Constitution.

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21.9 The expression “immediately before the commencement of this Constitution” under clause (2) of Article 285 would mean that the property is liable or treated as liable to tax until the Union Parliament legislates to the contrary. One of the ways of interpreting this is that the property must have been liable to taxation even under the Government of India Act, 1935 in as much as if any property was not liable to be taxed under the said Act, in other words, if there was an immunity during the enforcement of the said Act then it would not have been taxed from the date of enforcement of the Constitution. It is also necessary to understand the meaning of expression “that tax” in clause (2) of Article 285 which would have a relation to its nature and character and not its quantum or rates. So long as the taxes remains the same, the State or local authority can always increase or reduce its rate, in accordance with law. The variation of the quantum or rate would not affect its power to continue to levy the tax so long as it remains “that tax,” in its nature and character. Thus, if the tax remains the same, it is only the Parliament which can prevent the continuance of levy of that tax by the State or local authority or by any law. This Court in City Municipal Council held that it does not matter whether the liability is imposed by one statute or other as long as liability is of a particular kind of tax. 21.10 Section 172 of the Act of 1959 categorically states that subject to Article 285 of the Constitution, the corporation shall impose, inter alia, property taxes assessed and levied in accordance with the provisions of the Act of 1959 and the rules and bye- laws framed thereunder. Sub-section (4) of Section 172 of the Act of 1959 states that nothing in the said sub-section shall authorize the imposition of any tax which the State Legislature has no power to impose in the State under the Constitution of India provided that where any tax was being lawfully levied in the area included in the city immediately before the commencement of the Constitution of India, such tax may continue to be levied and applied for the purposes of the Act of 1959 until provision to the contrary is made by Parliament. Section 172, in fact, summarises Article 285 of the Constitution in the context of levy of property taxes imposed

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under the said Act by the Corporation. Section 173 deals with property tax leviable which is again subject to Section 172(1) of the Act of 1959. It includes a general tax, a water tax, drainage tax and conservancy tax. The said taxes shall be levied on the annual value of the building and land, as the case may be. However, the aggregate of the property taxes shall in no cases be less than 15 per cent nor more than 25 per cent of the annual value of the building or land or both assessed to such taxes. The definition of annual value is given under Section 174 of the Act of 1959. Restrictions on imposition of water tax are delineated under Section 175 while the primary responsibility for certain property taxes on annual value is stated in Section 179. It states that the property tax shall be leviable primarily from the actual occupier of the property upon which the tax is assessed, if he is the owner of the buildings or lands or holds them on a building or other lease from the Central or the State Government or from the Corporation, or on a building leased from any person. In any other case, tax shall be leviable as per sub- section (2) of Section 179 of the Act of 1959. The drainage taxes are assessed. Therefore, the levy of property taxes or other taxes on land and building is subject to Article 285 of the Constitution. 21.11 We have already discussed the scope and ambit of the two clauses of Article 285 of the Constitution. Applying the same to the present case and having regard to the reasoning given by us in the earlier part of this judgment, we have held that enemy property is not the property of the Union although it may vest with the Custodian for Enemy Property in India who is a person appointed by the Central Government. If the enemy property is not the Union property in terms of clause (1) of Article 285 of the Constitution then such property cannot be exempt from the taxes imposed by the State or by any authority within the State unless otherwise provided by the Parliament. 21.12 For the sake of completeness of the discussion assuming for a moment that the vesting of the enemy property with the Custodian becomes the property of the Union, then clause (2) of Article 285 would apply in the instant case.

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Lucknow Nagar Nigam & Others v. Kohli Brothers Colour Lab. Pvt. Ltd. & Others

This is because an authority within the State is not prevented from levying any tax on any property of the Union to which such property was immediately before the commencement of the Constitution was liable or treated as liable so long as that tax continued to be levied in that State. Applying the same to the facts of the present case, it is noted that the property in question which is located in Lucknow within the State of Uttar Pradesh and in respect of which the Act of 1959 applies was earlier governed by the Act of 1916. On a perusal of the relevant provisions of the Act of 1916, it becomes clear that the property tax was leviable on the subject property. Act of 1916 is a pre-Constitution enactment and therefore immediately before the commencement of the Constitution, the subject property was liable to property tax under the Act of 1916 and therefore until the Parliament by law provides otherwise, the appellant corporation can continue to levy municipal taxes including the property tax on the subject property as it was liable to pay such tax prior to the commencement of the Constitution under the provisions of 1916 Act. For ease of reference, the relevant provisions of the 1916 Act are also extracted above. Therefore, even as per the provisions of clause (2) of Article 285 even if the subject property is assumed to be Union property under clause (2) of Article 285, the appellant-Corporation is entitled to levy the property tax and the municipal tax on the said property even though, it vests with the Custodian under the provisions of the Act. That is why under Section 8 of the Act, Custodian is duty bound to pay the taxes, duties, cesses and rates to the municipal authority. We wish to also make another observation. 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

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such enemy properties in the Custodian is thus only for the purpose of administration and management of such properties. In view of our discussion made above, there would be no transfer of ownership and such properties vest in the Custodian for their protection and management only. By such vesting, the Union cannot usurp ownership of such properties. In the same vein, when many persons who are resident in India left their properties and settled in enemy countries, the Custodian has taken possession of such properties which is only for the purpose of protection and maintenance and to be handed over as and when a conducive environment between the countries arises. We also observe that it was never the intention under the Defence of India Rules, 1962 and 1971 or under the provisions of the Act that enemy subjects would lose all their right, title and interest in the properties once the said properties vest in the Custodian and thereby become Union properties. In this regard, we also would like to emphasise that the expression “vest in the Union” is clearly mentioned in Article 296 of the Constitution. The said provision deals with properties which for want of a rightful owner or as bona vacantia would vest in a State if the property is in a State or vest in the Union in any other case. The Constitution has therefore clearly differentiated between vesting of properties in the Union or a State which is totally distinct from vesting of enemy properties in the Custodian for Enemy Property. 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.

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Lucknow Nagar Nigam & Others v. Kohli Brothers Colour Lab. Pvt. Ltd. & Others

22Copy pinpoint22. In Amir Mohammad Khan case, the father of the respondent therein was a Raja, who had migrated to Pakistan in 1957 and became a citizen of that country. However, the respondent therein and his mother (since deceased) continued to reside in India as Indian citizen. Under the provisions of the Enemy Property (Custody and Registration) Order, 1965, the property of the respondent’s father in India vested in the Custodian of Enemy Property. After the enactment of the Act under consideration, by virtue of Section 24 thereof, the property continued to be vested in the Custodian. In 1973, the Raja died in London. The respondent then sought the Government of India and the Custodian to release that property as the same stood vested in him as an Indian citizen. In 1981, the Government of India agreed to release 25% of the property to the legal heirs and successors of the late Raja in India and the Custodian of the Enemy Property asked the respondent for legal evidence regarding such heirs and successors. In 1986, at the instance of the respondent, the civil court declared that the respondent was the sole heir and successor of his father and thereby entitled to 25% or whatever percentage it might be of the suit property. The said judgment became final. Since, the properties were not handed over to the respondent, he filed a writ petition before the Bombay High Court which was allowed by directing that the possession of the properties should be handed over to the respondent. The Union of India filed an appeal before this Court by way of a Special Leave. Dismissing the appeal, this Court held that the Act was enacted for the purpose of continued vesting of enemy property in the Custodian of Enemy Property for India under the Defence of India Rules, 1962 and the Defence of India Rules, 1971. 22.1 This Court observed that the respondent therein was the sole heir and successor of the late Raja and properties belonging to the late Raja was succeeded to by the respondent by way of succession and the properties in question could no longer be enemy property within the meaning of Section 2(c) of the Act. Therefore, the Custodian could not be permitted to continue in possession of such properties. During the pendency of the Writ Petition before it, the High Court directed the appellant therein to place on record a copy of the note put up for release of the property of the respondent’s father and the decision taken thereon by the Cabinet.

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22.2 The Union of India was directed by this Court to get the buildings (residence or offices) of the subject property vacated from such officers and hand over the possession to the respondent therein within eight weeks. While holding so, this Court observed that on a conjoint reading of Sections 6, 8 and 18 of the Act, the enemy subject is not divested of his right, title and interest of the property which vest in the Custodian is limited to the extent of possession, management and control over the property temporarily. The object of the Act was to prevent a subject of an enemy State from carrying on business and trading in the property situated in India. It is, therefore, contemplated that temporary vesting of the property takes place in the Custodian so that the property till such time, as it is enemy property, cannot be used for such purpose. The question considered was, whether, after the inheritance of the property by the respondent therein who was a citizen of India, upon the death of the original owner of the property who was declared to be an enemy, the property continued to be enemy property? It was answered in the negative. It was observed that the definition of enemy provided under Section 2 (b) of the Act excluded a citizen of India as an enemy or enemy subject or an enemy firm. Therefore, 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. 22.3 It was further observed that after the death of the enemy, the right, title and interest of the enemy was succeeded to by his heirs who are Indian citizens. Therefore, the enemy property would cease to be a property belonging of the enemy, hence the Custodian could not be permitted to continue with the possession of such property. In this regard, it was observed that the reliance placed by the Union of India on Section 13 of the Act was totally misplaced. That in the said case this Court noted that Union of India - appellant therein had agreed to release 25% of the property in favour of the respondent therein on production of proof of his having succeeded to the property of his father. That the property of an enemy could

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be released in favour of an Indian citizen provided he had succeeded to the estate of the deceased enemy subject. That the title of the enemy property did not vest with the Custodian but the property vested in the Custodian for the purposes of management, control and possession of the properties only. In the said case, Union of India had admitted that under the provision of the Act, title of the property of an enemy does not vest in the Custodian but the Custodian takes over the enemy property only for the purpose of possession, control and management. That an Indian citizen is excluded from the definition of an “enemy” or “enemy subject” under Section 2(b) of the Act. That on the death of the enemy subject, his successors and legal heirs being Indian citizens were entitled to succeed to the subject property as it ceased to be an enemy property. That even though a decision was taken to release only 25% of the property to the respondent therein, the same was also not implemented, for over three decades. Therefore, the direction was issued to the appellant-Union of India therein to get the buildings (residence or offices) vacated from such officers and hand over the possession to the respondent therein within eight weeks. The appeal of the Union of India was dismissed with costs of Rs.5 lakhs. This decision was rendered on 21.10.2005. 22.4 Thereafter, on 08.09.2006 in the case of Kohli Brothers vs. Amir Mohammad Khan, (2012) 12 SCC 625 (“Kohli Brothers”), this Court disposed of certain Special Leave Petitions with the clarification that persons who were inducted/ allotted properties by the Custodian or who came in possession after 1965 i.e. on or after declaring the property of the Raja of Mahmudabad as enemy property and appointment of the Custodian, had to vacate the properties in their possession. But persons claiming possession prior to the appointment of the Custodian declaring the property of Raja of Mahmudabad, father of the respondent therein, as enemy property, based on duly authenticated tenancy created by the then Raja of Mahmudabad or his general power of attorney was not to be covered by this Court’s judgment passed in Amir Mohammad Khan.

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In this regard, it would be useful to reiterate the statement and objects of the Act wherein it has been stated that immovable property, cash balances and firms belonging to Chinese nationals in India were vested in the Custodian of Enemy Property for India appointed under the Defence of India Rules, 1962. Similarly, upon the aggression by Pakistan in 1965, enemy properties were vested in the Custodian of Enemy Property under the power derived from the Defence of India Rules, 1962. That the properties vested in the Custodian of Enemy Property in India has to continue as it has not been possible for the Government of India so far to arrive at a settlement with the respective Governments of those countries. On a perusal of the impugned order, it is noted that the learned counsel appearing for the appellant-Lucknow Nagar Nigam had submitted before the High Court that the Nagar Nigam may not charge in respect of property of Central Government but may demand fee, if any, with respect to services provided like water charge or sewerage charge. The present case relates to house tax and water tax. The High Court construed the said submission as an admission of the fact that the subject property is the Central Government’s property and therefore, quashed the recovery sought to be made by the appellant-Nagar Nigam. In fact, the submission of the learned counsel for the appellant-Nagar Nigam has to be construed in the context of the provisions of the Act as well as the relevant provisions of the Constitution which we have now interpreted. Therefore, 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. We have granted a relaxation to the respondent in view of the fact that the High Court by the impugned order dated 29.03.2017, had held in favour of the respondent herein

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and we are now reversing the said order. In view of the aforesaid discussion, we arrive at the following conclusions: 1) 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. 2) That 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. 3) That in view of the above conclusion, Union of India cannot assume ownership of the enemy properties once the said property is vested in the Custodian. This is because, there is no transfer of ownership from the owner of the enemy property to the Custodian and consequently, there is no ownership rights transferred to the Union of India. Therefore, the enemy properties which vest in the Custodian are not Union properties. 4) 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. 5) In view of the above, the High Court was not right in holding that the respondent as occupier of the subject property, is not liable to pay any property tax or other local taxes to the appellant. In the result, the impugned order of the High Court dated 29.03.2017 passed in Misc. Bench No.2317 of 2012 is liable to be set aside and is accordingly set aside.

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6) 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. In the result, the appeal is allowed in the aforesaid terms. Parties to bear their respective costs.

Headnotes prepared by: Bibhuti Bhushan Bose Result of the case: Appeal allowed.