Lucknow Nagar Nigam vs Kohli Brothers Colour Lab Pvt Ltd on 22 February, 2024

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Supreme Court of India

Lucknow Nagar Nigam vs Kohli Brothers Colour Lab Pvt Ltd on 22 February, 2024

Author: B.V. Nagarathna

Bench: B.V. Nagarathna

2024 INSC 135
                                                                                    REPORTABLE

                                         IN THE SUPREME COURT OF INDIA

                                           CIVIL APPELLATE JURISDICTION

                                        CIVIL APPEAL NO. 2878 OF 2024
                                 (Arising out of S.L.P. (Civil) No.17402 of 2017)


                   LUCKNOW NAGAR NIGAM & OTHERS                                …APPELLANTS

                                                 VERSUS

                   KOHLI BROTHERS COLOUR LAB.
                   PVT. LTD. & OTHERS                                          …RESPONDENTS




                                                       JUDGMENT

NAGARATHNA, J.

Leave granted.

2. The present Civil Appeal has been filed by the Lucknow

Nagar Nigam (‘Municipal Corporation’) impugning the

judgment of the High Court of Allahabad that has allowed the

Writ Petition filed by respondent herein (‘the assessee’), thereby
Signature Not Verified

holding that the assessee is exempt from payment of property
Digitally signed by
NEETA SAPRA
Date: 2024.02.22
17:20:27 IST
Reason:

tax under the provisions of the UP Municipal Corporation

Civil Appeal @ SLP (C) No.17402 of 2017 Page 1 of 143
Adhiniyam, 1959 (hereinafter referred to as “Act of 1959”, for

brevity sake).

Bird’s Eye View of the Controversy:

3. Whether statutory vesting of property termed as enemy

property under the provisions of the Enemy Property Act, 1968

(hereinafter referred to as “the Act” for the sake of convenience)

amounts to expropriation which leads to the change of its

status inasmuch as its ownership is transferred to the Union

of India, is a question that has arisen in the present appeal. If

there is a transfer of ownership by its statutory vesting in the

Custodian for Enemy Property, whether the Union within the

meaning of Article 285 of the Constitution of India would be

entitled to exemption from payment of property or other local

taxes to Municipal Corporation under the provision of the Act

of 1959 is another question that has arisen in the present

appeal. Further, despite becoming the property of the Union,

whether, clause (2) of Article 285 enables the appellant herein

to impose property or other local taxes on the respondent,

which is the lessee of the subject property is the third question

which arises in this appeal.

Civil Appeal @ SLP (C) No.17402 of 2017 Page 2 of 143
Relevant Facts of the Case:

4. The subject property is an Enemy Property within the

meaning of the Act bearing House No.31/28/04(31/59) 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 is currently occupied and utilized for

profit-generating purposes by the respondent-assessee, in this

case.

4.1 Historically, prior to the fiscal year 1998-1999, the

appellant-Municipal Corporation imposed and collected taxes

in accordance with Rule No.174 ‘ka’ of the Act of 1959 from the

assessee. However, 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 conducted

an assessment based on Capital Value and issued a notice to

the assessee regarding the assessed Annual Value.

4.2 It is pertinent to note that respondent No.2, Office of the

Custodian of Enemy Property for India (for short ‘the

Civil Appeal @ SLP (C) No.17402 of 2017 Page 3 of 143
Custodian’), under the Ministry of Commerce, Government of

India, issued a Certificate on 03.10.2002, stating that the

subject property bearing premises No.53-54, Lawrie Building

Hazaratganj, Lucknow, 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.

4.3 The assessee, along with other tenants, inter-alia,

contested the assessment orders issued by the Municipal

Corporation and approached the High Court of Allahabad at

Lucknow by filing Writ Petition being Misc. Bench No. 3979 of

2003. However, this legal action was ultimately uncontested by

the tenants and was subsequently dismissed vide order dated

30.03.2017.

4.4 Due to outstanding dues of Rs.1,621,987.00/- under the

head of House Tax concerning the Enemy Property No.31/58

Hazaratganj, the Municipal Corporation, vide letter dated

28.03.2005 notified the District Magistrate, Lucknow, of its

Civil Appeal @ SLP (C) No.17402 of 2017 Page 4 of 143
intention to proceed with attachment and sealing of the said

premises under Sections 506-509 of the Act of 1959.

4.5 At this juncture, it is necessary to state that Raja

Mohammed Amir Mohammad Khan, the son of the Raja of

Mahmudabad, who remained in India as an Indian citizen, had

been actively seeking the release of enemy properties owned by

his late father. He contended that these properties should no

longer be vested with the Custodian after his father’s demise

as they were now vested in him, an Indian citizen. 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 by way of filing WP No.1524 of 1997. The High

Court ruled in his favor, directing the Custodian to surrender

possession of the properties to him. Being aggrieved with this

decision, the Union of India approached this Court by way of

filing SLP (C) No.22452 of 2001, which was converted to Civil

Appeal No.2501 of 2002. This Court by its judgment dated

21.10.2005 reported in Union of India vs. Raja Mohammad

Amir Mohammad Khan, (2005) 8 SCC 696 (‘Amir

Civil Appeal @ SLP (C) No.17402 of 2017 Page 5 of 143
Mohammad Khan’), dismissed the appeal preferred by the

Union of India and directed the Union of India to get the

buildings (residence or offices) vacated from such officers and

handover the possession to Raja Mohammed Amir Mohammad

Khan within eight weeks. The Court further directed that the

officers who are in occupation of buildings for their residences

or for their offices shall immediately vacate and hand over the

buildings or the properties to the Custodian to enable him to

hand over the possession.

4.6 As a result of these orders, proceedings were initiated by

various tenants, including respondent No.1. This Court, in SLP

(Civil) No.14943 of 2006 vide order dated 08.09.2006, clarified

its earlier judgment dated 21.10.2005 passed in Civil Appeal

No.2501 of 2002. It was clarified by this Court that individuals

who were allotted properties by the Custodian or who came

into possession after 1965, i.e., following the declaration of

Raja Mahmudabad’s property as an enemy property and the

appointment of the Custodian, were required to vacate these

properties. However, persons claiming possession prior to the

Custodian’s appointment, based on valid tenancy agreements

Civil Appeal @ SLP (C) No.17402 of 2017 Page 6 of 143
established by Raja Mahmudabad or his General Power of

Attorney, were exempted from this directive. The enquiry

conducted in pursuance to the above orders of this Court dated

08.09.2006 resulted in a report in favour of respondent No.1

herein as well as other similarly situated tenants. Ergo, they

continued to remain in possession vide Amir Mohammad

Khan.

4.7 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/-. The notice warned of proceedings for

recovery and attachment through the District Magistrate

under Section 64 if the payment was not settled within three

days.

4.8 Aggrieved by the aforesaid action, the assessee

approached the High Court of Allahabad at Lucknow by filing

Writ Petition being Misc. Bench No.2317 of 2012 seeking the

following reliefs:

“(a) issue a writ of prohibition or a writ, order or
direction in the nature of prohibition prohibiting the
opposite parties no.1 & 2 not to make any assessment
or raise bill for payment of House Tax or Water Tax/or

Civil Appeal @ SLP (C) No.17402 of 2017 Page 7 of 143
the property in the name and style of Lawrie Building
situated at 50, Hazratganj, Lucknow being the
property of Union of India and exempted from State
taxation;

(b) issue a writ of certiorari or a writ, order or direction
in the nature of certiorari quashing the impugned
bills/recovery notice in respect of payment of House
Tax for the year 2010-11, issued by the opposite party
no.I, contained in Annexure Number 1 to the writ
petition;

(c) issue a writ of certiorari or a writ, order or direction
in the nature of certiorari quashing the impugned
bills/recovery notice dated 28.5.2011, issued by the
opposite party no.2, contained in Annexure Number 2
to the writ petition; and

(d) issue a writ of mandamus or a writ, order or
direction in the nature of mandamus commanding
_the respondent numbers 1 to 3 to refund the amount
of Rs.7,29,7461- and Rs.2 lacs deposited by the
petitioner along with interest at the rate of 18% per
annum and within such time as may kindly be
stipulated by this Hon’ble Court”

4.9 During the pendency of the said proceedings, appellants’

counsel conceded that, as per the provisions of the

Constitution of India, the appellants could not levy taxes on

property belonging to the Government of India or Union

properties. However, the appellants reserved the right to

demand applicable fees for services rendered, such as water

and sewerage charges.

Civil Appeal @ SLP (C) No.17402 of 2017 Page 8 of 143
4.10 By virtue of the impugned judgment and order dated

29.03.2017, the High Court allowed the writ petition and

quashed the recovery notice dated 28.05.2011 on the ground

that this case pertained exclusively to taxes, namely House Tax

and Water Tax, which are not applicable to the respondent

No.1 since the property in question is an enemy property. The

High Court further directed respondent No.1 to make

representations for the recovery of any amounts previously

paid to the appellants.

Hence, the appellants have preferred this civil appeal.

Respondent No.2 has filed his counter affidavit which we

have perused.

Submissions:

Submissions of the appellants:

5. Sri Kavin Gulati, learned senior counsel appearing on behalf

of the Municipal Corporation, at the outset, submitted that the

High Court erroneously held that the House Tax and Water Tax

levied herein are not leviable on the assessee respondent

herein in respect of property which is admittedly an enemy

Civil Appeal @ SLP (C) No.17402 of 2017 Page 9 of 143
property and not property of the Union or Central Government.

Therefore, it was submitted:

a) that the property is merely in the custody of the Custodian

as specified under the Act. That the preamble of the Act

provides that this is “An Act to provide for the continued

vesting of Enemy Property”. That there is no declaration by

the Union Government through any legislation declaring

the properties to be the property of the Union Government.

The only declaration that is contained is to vest the

property in the Custodian without a further declaration

that the property vests absolutely in the Union

Government free from all encumbrances. That whenever

the legislature desired that any property vests absolutely

in the Central Government, it would be specifically

provided so as in the case of Sections 16 and 17 of the

Land Acquisition Act, 1984 as well as in the case of Section

269 of the Income Tax Act, 1961. But the same is

conspicuous by its absence under the Act under

consideration;

Civil Appeal @ SLP (C) No.17402 of 2017 Page 10 of 143

b) that a perusal of the scheme of the Act, more particularly,

the Preamble, Section 2(c) and its proviso, Sections 15(1),

17(1)(c), and 18 read with Rule 5(1) and proviso 2, 5(2),

5(3) and 15(1) cumulatively would establish that the

Custodian has certain obligations regarding Enemy

Property. However, the Central Government or the

Custodian is not vested with ownership of the same.

Section 2(c), which defines enemy property reads that it

“means any property for the time being belonging to or held

or managed on behalf of an enemy…”. That the expression

“for the time being” would show that the nature of vesting

is not permanent and that the vesting is only for the

management of the enemy property;

c) that for the Union Government to claim ownership of

enemy property, it must follow the tenets of Article 300-A

of the Constitution of India as well as other relevant

provisions of the Constitution, which allow the acquisition

of private properties only on payment of a fair

compensation. This constitutional right is available to all

persons and not just to citizens of India. Being aware of

Civil Appeal @ SLP (C) No.17402 of 2017 Page 11 of 143
the aforesaid position that enemy properties do not

become properties of the Union of India, the legislature has

under Section 8(2)(vi) of the Act permitted the Custodian

for Enemy Property to deposit Municipal Taxes vis-à-vis

enemy property vested in him;

d) that even though the Union of India may have overarching

control over Enemy Properties, the status of the Union or

Central Government is not that of an owner. The

Custodian is a statutory authority in whom there is vesting

of enemy property, which is different from having

ownership over the same. The fact that the Custodian can

sell properties to third parties is akin to the powers

available to a Receiver or a Liquidator who can exercise

similar powers of sale [vide Delhi Administration vs.

Madan Lal Nangia, (2003) 10 SCC 321 (“Madan Lal

Nangia”) Paras 14,15; Lieutenant Governor of Delhi vs.

Matwal Chand (Dead) through LRs, (2015) 15 SCC 576

(“Matwal Chand”), Para 14; Municipal Commissioner of

Dum Dum Municipality vs. Indian Tourism

Development Corporation, (1995) 5 SCC 251 (“Dum

Civil Appeal @ SLP (C) No.17402 of 2017 Page 12 of 143
Dum Municipality”), Paras 14,18, 22 and 35 and State

of Andhra Pradesh vs. V.Subba Rao, 2011 SCC OnLine

AP 838 (“Subba Rao”), Paras 23-25];

e) that Article 285 (1) is not attracted to the present case as

the bar under Article 285 (1) is only applicable to the

properties ‘of the Union’. Even when the property is given

on lease by the Union to a private party, then under

Section 179 of the Act of 1959, tax is to be levied on the

‘occupier’. Reliance was placed on the judgment of the

Constitution Bench of this Court in Electronics

Corporation of India vs. Secretary, Revenue

Department, Govt. of Andhra Pradesh, (1999) 4 SCC

458 (“Electronics Corporation”) wherein it was held that

Article 285 will not be applicable in cases when the land

belonging to the Government of India was leased out to a

Government Company;

f) that this Court in Union of India vs. State of Uttar

Pradesh, (2007) 11 SCC 324 held that service charges

are a fee and cannot be said to be hit by Article 285 of the

Constitution;

Civil Appeal @ SLP (C) No.17402 of 2017 Page 13 of 143

g) that pursuant to this Court’s orders dated 19.11.2009 in

Rajkot Municipal Corporation vs. Union of India, Civil

Appeal No.9458-63 of 2003 (“Rajkot Municipal

Corporation”), the Ministry of Urban Development,

Government of India issued clarification/instructions

dated 17.12.2009 to all Secretaries (Urban Development)

of all State Governments. The relevant portion of the said

clarification/instructions dated 17.12.2009 is as follows:

“(1) The UOI & its Departments will pay service
charges for the services provided by appellant
Municipal Corporations. No Property Tax. will be
paid by UOI but service charges calculated @ 75%,
50% or 33 1/3% of Property Tax levied on property
owners will be paid, depending upon utilisation of
full or partial or Nil Services. For this, purpose
agreements will be entered into by UOI
represented by concerned Departments with
respective Municipal Corporation.”

h) that due to non-payment of taxes since the year 1998-

1999, Jal Sansthan Lucknow appellant No.3 herein,

served final Notice under the provisions of the Land

Revenue Act of the State of UP to respondent No.1 to pay

the pending bills of Water Tax/Sewer Tax/Water price of

Rs. 7,57,239/- by 31.03.2011;

Civil Appeal @ SLP (C) No.17402 of 2017 Page 14 of 143

i) that it is settled law that the exemption from state taxation

of property of the Union Government is only against

property taxes and not against all taxes including the

commercial taxes and services by local

administration/authorities. However, the High Court in its

final Judgment and Order dated 29.03.2017, erroneously

equated the commercial tenancy of a private person in

Enemy Property with the property of the Central

Government and accordingly, has quashed the recovery

notice dated: 28.05.2011;

j) that the Enemy Property occupied by private persons for

private business interests is not synonymous with the

interest of the State and is starkly in contrast to the

objectives and scheme of the Constitution. Accordingly, it

was contended that the interest or property of a private

person i.e. respondent No.1 is not exempted from property

taxes under Article 285 of the Constitution of India;

k) that the Custodian under the Act is empowered to realize

from occupants all taxes, fees and charges and pay to the

local authority. In the present case, it is admitted by the

Civil Appeal @ SLP (C) No.17402 of 2017 Page 15 of 143
Custodian-respondent No.2 that local taxes are payable to

the local authority in respect of the enemy property in

question vide Certificate dated 03.10.2002;

l) that although the Municipal Commissioner granted a

concession before the High Court, the said concession was

due to a threat of summoning him to file a personal

affidavit. In this regard, learned senior counsel argued that

there can be no concession or estoppel against the statute.

The power to levy tax is plenary. If the State is held to be

bound by a concession made in one case, it would result

in serious consequences for the State as such a concession

is against public interest. That it was held in State of

Uttar Pradesh vs. Uttar Pradesh Rajya Khanij Vikas

Nigam Sangharsh Samiti, (2008) 12 SCC 675 that

statement, assurance, or even an undertaking of any

officer or counsel is irrelevant and that there can be no

estoppel against the statute.

With the aforesaid submission, learned senior counsel

prayed that the impugned order passed by the High Court may

be set aside.

Civil Appeal @ SLP (C) No.17402 of 2017 Page 16 of 143
Submissions of the respondent No.1–assessee:

6. Per contra, learned senior counsel Sri Guru Krishna Kumar,

appearing for the assessee, supported the impugned judgment

and submitted that the High Court has proceeded to pass the

impugned order on a sound appreciation of the facts of the

matter and the applicable law and the same would not call for

any interference by this Court. It was further contended as

under:

a) that the appellant-Municipal Corporation has approached

the court with unclean hands and has deliberately

suppressed critical facts. The Municipal Corporation’s

reliance on the case of Amir Mohammad Khan is

misleading. In this regard, it was submitted that the

Municipal Corporation has conspicuously omitted to

disclose that the judgment in the aforementioned case has

been rendered nugatory due to the promulgation of an

Ordinance and the enactment of the Enemy Property

(Amendment and Validation) Act, 2017 (hereinafter

referred to as, “Amendment Act, 2017”). Further, as a

result of the said judgment and various tenants’ claims,

Civil Appeal @ SLP (C) No.17402 of 2017 Page 17 of 143
respondent No.1 herein approached this Court seeking a

clarification. This Court by order dated 08.09.2006,

clarified that persons in possession of properties based on

duly authenticated tenancy agreements before the

appointment of the Custodian declaring the property as

enemy property would not be covered by the judgment in

Amir Mohammad Khan. Accordingly, the respondent

No.1 has continued to be in possession.

b) Reliance was placed on the Amendment Act, 2017 as per

which the enemy property vested in the Custodian will

remain vested in the Custodian regardless of change in

circumstances such as the death of the enemy; the

extinction of the enemy status; the winding up of business

or a change in nationality of the legal heir and successor.

The Act further clarifies that “enemy property vested in the

Custodian” includes all rights, titles, and interests in or

benefits arising from such property. It includes the right of

expropriation of the enemy property, in exercise of the

police powers of the State. Also, the principles of

Civil Appeal @ SLP (C) No.17402 of 2017 Page 18 of 143
acquisition or requisition and payment of compensation

will not apply to such a legislation.

c) that the property in question unequivocally belongs to the

Central Government, specifically the Custodian; Enemy

Property is thus ‘property of the Union.’ The assessee is

merely a tenant of the Custodian of the Enemy Property

and therefore, no taxes can be levied on this property.

d) that Article 285 of the Constitution provides exemption

from State taxation in respect of properties of the Union of

India. He buttressed his submission by stating that how

the property sought to be taxed is being used is irrelevant

consideration as far as the interpretation of Article 285 of

the Constitution of India was concerned, vide NDMC vs.

State of Punjab, (1997) 7 SCC 339 (“NDMC”). There is

an absolute and emphatic ban on state taxation on the

property of the Union and the use of such property is

irrelevant.

e) that apart from Article 285, Section 172 of the Act of 1959

specifically provides that the Corporation may impose

taxes subject to the provisions of Article 285 of the

Civil Appeal @ SLP (C) No.17402 of 2017 Page 19 of 143
Constitution. Likewise, Section 177 of the said Act

provides exceptions in respect of the levy of tax amongst

others to buildings and land vesting in the Union of India.

However, Section 8(2)(vi) of the Act and/or Section 173 of

the Act of 1959 cannot amount to “law” authorizing levy of

property tax on Union property in terms of Article 285(1)

of the Constitution.

f) that property vested in the Union was expressly excluded

from the scope of general tax on land and building. In this

regard, it was submitted that the impugned judgment was

incorrect to the extent that it allows Union property to be

taxed on the basis of an extended definition of ‘owner’, and

is in conflict with the judgment of this Court in NDMC and

therefore, not good law. The property in question is

indisputably ‘property of the Union’ as per Article 285 of

the Constitution.

g) that the declaration of a property as enemy property would

be by exercise of police power of the State. In other words,

Article 300-A only limits the powers of the State inasmuch

as no person shall be deprived of his property save by

Civil Appeal @ SLP (C) No.17402 of 2017 Page 20 of 143
authority of law, implying that there can be no deprivation

without any sanction of law. Deprivation by any other

mode is not acquisition or taking possession under Article

300-A. It was submitted that war between two or more

countries is a reason for which no compensation is payable

for acquisition of enemy property. The Act as amended has

not been (and cannot be) challenged by the Municipal

Corporation and has to be treated as valid and be given its

full effect.

h) that the joint submission of Municipal Corporation and the

Union of India that Section 8(2)(vi) of the Act is a law

relatable to Article 285 of the Constitution of India was

neither raised before the High Court nor in any pleading

before this Court and is a clear afterthought raised for the

first time during oral replies;

i) in the alternative, this Court may balance the equities to

make the demand prospective considering the grave

hardship that the demand of entire past amount would

cause to respondent No.1 in case this Court holds against

respondent No.1.

Civil Appeal @ SLP (C) No.17402 of 2017 Page 21 of 143
With the aforesaid submissions, it was prayed that the

present appeal be dismissed as being devoid of any merit and

the impugned order of the High Court be affirmed.

Submissions of the respondent No.2:

7. Learned counsel Sri Rupesh Kumar, appearing on behalf of

the Custodian of the subject Enemy Property, respondent No.2

herein, submitted as under:

a) that the subject property belongs to a Pakistani National

namely, Raja of Mahmudabad and therefore, the property

is vested in the Custodian of Enemy Property for India

under the Act as amended by the Amendment Act, 2017

and is an undisputed enemy property;

b) that the property belonging to the Union Government is

exempted from state taxation under article 285(1) of the

Constitution of India. However, there is no such

exemption in respect of fee/service charges or other

charges and this position has been conclusively decided by

this Court in Union of India vs. State of Uttar Pradesh,

(2007) 11 SCC 324. Further, this stand has been

reiterated by this Court in Rajkot Municipal

Civil Appeal @ SLP (C) No.17402 of 2017 Page 22 of 143
Corporation. Consequently, the Ministry of Urban

Development, Government of India vide order No.11025/

26/2003 UCD dated l7.l2.2009 issued a

clarification/direction regarding the levy of taxes and

service charges in light of the judgments passed by this

Court.

c) that the respondent No.2 Custodian vide his certificate

dated 03.10.2002 has already clarified that it is under an

obligation to pay house tax and other local taxes as

respondent No.1 is running a private business for profit

from the said premises and therefore, not similar to a

Central Government enterprise and accordingly is liable

for taxation by the local authorities;

d) that this Court in the case of NDMC has held that private

parties are not exempted from taxation. Therefore, the

private person in occupancy of enemy property for

personal benefit is neither synonymous with Central

Government nor can he agitate it before the Court.

Learned ASG Sri Balbir Singh also made

submissions in the matter later on.

Civil Appeal @ SLP (C) No.17402 of 2017 Page 23 of 143

With the aforesaid submissions, it was prayed for this

Court to pass orders as this Court may think fit and proper.

Submissions of the respondent No.3 – State of Uttar
Pradesh:

8. State of Uttar Pradesh, at the outset, adopted the

contentions raised by the appellant-Municipal Corporation

and further submitted as under:

a) Admittedly, respondent No.1-assessee is a private entity

and a lessee of the Custodian of the enemy property in

question and the demand was raised by the appellant-

Municipal Corporation on the assessee and not on the

Custodian or the Central Government. A private entity,

that is running its business, on a property and continuing

on lease under the Custodian as per the provisions of the

Act cannot claim the benefit of Article 285 of the

Constitution of India;

b) that the Union of India has also taken a strident stand that

though the property is vested in the Custodian for the

enemy property in India, the running of the business by

respondent No.1 is not akin or synonymous with the

Civil Appeal @ SLP (C) No.17402 of 2017 Page 24 of 143
running of the business by the Central Government and

that therefore tax is payable by respondent No.1 to the

appellant herein;

c) that vesting, as envisaged under the Act does not make

such properties as properties owned by the Central

Government or Union properties. In this connection,

reference was made to the observations of this Court in

Amir Mohammad Khan, which shall be discussed later

in the judgment.

In light of the aforesaid submissions, it was urged that the

view taken by the Hon’ble High Court in the impugned

judgment and order needs to be set aside.

Points for consideration:

9. Having heard learned senior counsel and learned counsel

for the respective parties, the following points would arise for

our consideration:

1. Whether statutory vesting of enemy property including

the subject property in the Custodian amounts to

expropriation and transfer of ownership so as to confer

ownership of such enemy property on the Custodian?

Civil Appeal @ SLP (C) No.17402 of 2017 Page 25 of 143

2. Consequently, if the ownership of such enemy property is

conferred on the Custodian for Enemy Property, whether

such property becomes Union property within the

meaning of Article 285 of the Constitution and therefore,

it is exempt from payment of property or other local taxes

to the appellant-Municipal Corporation under the

provisions of the Act of 1959?

3. Whether despite such enemy property becoming property

of the Union, clause (2) of Article 285 of the Constitution

enables appellant herein to impose property or other local

taxes on the respondent which is lessee of the subject

property?

4. Whether the High Court was right in holding in favour of

the respondent?

5. What order?

Since these questions are inter-related, they shall be

considered together.

Preface:

9.1 Before we proceed further, we would like to preface the

discussion with a historical perspective.

Civil Appeal @ SLP (C) No.17402 of 2017 Page 26 of 143
9.2 Jean-Jacques Rousseau in his treatise the Social Contract

said that “War is constituted by a relation between things, and

not between persons… War then is a relation, not between man

and man, but between State and State…” The general aim of

the administration of enemy property is to eliminate enemy

influence from the national economy. The mischief that such

state instruments seek to cure is the provision of aid and

comfort to the enemy, for instance, through the making

available of funds for war financing. Enemy property can be

disposed of by various means including custodianship,

liquidation, expropriation, confiscation or nationalization. The

means of custodianship imply a fiduciary administration. 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.

Civil Appeal @ SLP (C) No.17402 of 2017 Page 27 of 143
9.3 In 1962, in the wake of the Chinese aggression, the

Custodian of Enemy Property for India was called upon to take

charge of the Chinese assets in India with the object of vesting

the movable and immovable properties of the Chinese subjects

left in India under the Defence of India Rules, 1962 specifying

the enemy nationals and the properties held by them.

Similarly, in the wake of the Indo-Pak war of 1965 and 1971,

there was migration of people from India to Pakistan. Under

the Defence of India Rules framed under the Defence of India

Act, 1962, the Government of India took over the properties

and companies of such persons who had taken Pakistani

nationality.

9.4 At this juncture, we may notice the expression ‘on behalf

of an enemy’ occurring in the definition of enemy property in

Rule 133-I of Defence of India (Amendment) Rules, 1962, and

Subrule 4 of Rule 138 of Defence of India Rules, 1971 implying

that the enemy property is only held and managed by the

Custodian for a specific purpose. We ought to appreciate that

the Statement of Objects and Reasons of the Enemy Property

Act, 1968 intend to continue the vesting and maintenance of

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the properties by the Custodian of Enemy Property until the

Government of India arrives at a settlement with the

Governments of enemy countries. The intent of the Parliament

is further illuminated by the Tashkent Declaration by India

and Pakistan dated January 10, 1966, which included a clause

stating that the two countries would discuss the return of the

properties and assets taken over by either side in connection

with the conflict.

Legal framework:

Provisions of the Act:

10. The Parliament has enacted the said Act to provide for the

continued vesting of enemy property vested in the Custodian

of Enemy Property for India under the Defence of India Rules,

1962 and the Defence of India Rules, 1971 and for matters

connected therewith.

10.1 Part IV of the Defence of India Rules, 1962 deals inter alia

with restriction of movements and activities of persons. While

Part XIV-A deals with control of trading with enemy, Part XIV-

B deals with control of enemy firms. Section 133-A defines the

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expression ‘enemy’ inter alia to mean any individual resident

in enemy territory. In Part XIV-B, the definition of enemy

subject and enemy firm have been given and also the definition

of enemy property. Under the said Rules, the Controllers,

Deputy Controllers or Inspectors appointed by the Central

Government had to carry out the supervision of firms

suspected to be enemy firms and do all other ancillary and

incidental acts as delineated under the said Rules.

10.2 Similarly, under the Defence of India Act, 1971, Part IV

deals with restriction of movement and activities of person.

Part XVI deals with control of trading with enemy and the

definition of enemy is in Rule 130 of the said Rules and

similarly, Controllers or Deputy Controller were appointed for

controlling the trading with enemy. Part XVII deals with control

of enemy firms to carry out the business of enemy firms, etc.

Rule 151 of the 1971 Rules clearly states with a view to

preserving enemy property, the Central Government may

appoint a Custodian of Enemy Property for India and one or

more Deputy Custodians and Assistant Custodians of Enemy

Property for such local areas as may be prescribed.

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The Act under consideration is essentially to provide for

the continued vesting of enemy property vested in the

Custodian of Enemy Property for India under the Defence of

India Rules, 1962, and the Defence of India Rules, 1971 and

for matters connected therewith.

10.3 At this stage, we can refer to the relevant provisions of the

Act. The expression “Custodian”, “enemy” or “enemy subject”

or “enemy firm” and “enemy property” are defined as under:

“2. Definitions.- In this Act, unless the context
otherwise requires,-

(a) “Custodian” means the Custodian of Enemy
Property for India appointed or deemed to have been
appointed under section 3 and includes a Deputy
Custodian and an Assistant Custodian of Enemy
Property appointed or deemed to have been appointed
under that section;

(b) “enemy” or “enemy subject” or “enemy firm” means
a person or country who or which was an enemy, an
enemy subject including his legal heir and successor
whether or not a citizen of India or the citizen of a
country which is not an enemy or the enemy, enemy
subject or his legal heir and successor who has
changed his nationality or an enemy firm, including its
succeeding firm whether or not partners or members
of such succeeding firm are citizen of India or the
citizen of a country which is not an enemy or such firm
which has changed its nationality, as the case may be,
under the Defence of India Act, 1962, and the Defence
of India Rules, 1962 or the Defence of India Act, 1971
(42 of 1971) and the Defence of India Rules, 1971, does

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not include a citizen of India other than those citizens
of India, being the legal heir and successor of the
“enemy” or “enemy subject” or “enemy firm”;

(c) “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:

Provided that where an individual enemy subject dies
in the territories to which this Act extends, or 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 this Act;”

10.4 Section 3 of the Act deals with appointment of Custodian

of Enemy Property for India and Deputy Custodian, while

Section 4 deals with appointment of Inspectors of Enemy

Property. Section 5 states that property vested in the

Custodian of Enemy Property for India under the Defence of

India Rules, 1962 to continue to vest in the Custodian. The

said provisions read as under:

“3. Appointment of Custodian of Enemy Property
for India and Deputy Custodian, etc.—The Central
Government may, by notification in the Official
Gazette, appoint a Custodian of Enemy Property for
India and one or more Deputy Custodians and
Assistant Custodians of Enemy Property for such local
areas as may be specified in the notification:
Provided that the Custodian of Enemy Property for
India and any Deputy Custodian or Assistant

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Custodian of Enemy Property appointed under the
Defence of India Rules, 1962 or the Defence of India
Rules, 1971, as the case may be, shall be deemed to
have been appointed under this section.

4. Appointment of Inspectors of Enemy Property.—
The Central Government may, either generally or for
any particular area, by notification in the Official
Gazette, appoint one or more Inspectors of Enemy
Property for securing compliance with the provisions
of this Act and may, by general or special order,
provide for the distribution and allocation of the work
to be performed by them for securing such compliance:

Provided that every Inspector of Enemy Firms
appointed under the Defence of India Rules, 1962 or
the Defence of India Rules, 1971, as the case may be,
shall be deemed to be an Inspector of Enemy Property
appointed under this section.

5. Property vested in the Custodian of Enemy
Property for India under the Defence of India Rules,
1962 to continue to vest in Custodian.—(1)
Notwithstanding the expiration of the Defence of India
Act, 1962 (51 of 1962), and the Defence of India Rules,
1962, all enemy property vested before such expiration
in the Custodian of Enemy Property for India
appointed under the said Rules and continuing to vest
in him immediately before the commencement of this
Act, shall, as from such commencement, vest in the
Custodian.

(2) Notwithstanding the expiration of the Defence of
India Act, 1971 (42 of 1971) and the Defence of India
Rules, 1971, all enemy property vested before such
expiration in the Custodian of Enemy Property for
India appointed under the said Rules and continuing
to vest in him immediately before the commencement
of the Enemy Property (Amendment) Act, 1977 (40 of
1977) shall, as from such commencement, vest in the
Custodian.

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(3) The enemy property vested in the Custodian 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 to remain, save as otherwise
provided in this Act, vested in the Custodian.
Explanation. – 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 this Act.”

10.5 Section 5A and Section 5B were inserted with

retrospective effect from 07.01.2016 and 10.07.1968 by Act 3

of 2017. They read as under:

“5A. Issue of certificate by Custodian. —The
Custodian may, after making such inquiry as he
deems necessary, by order, declare that the property
of the enemy or the enemy subject or the enemy firm
described in the order, vests in him under this Act and
issue a certificate to this effect and such certificate
shall be the evidence of the facts stated therein.
5B. Law of succession or any custom or usage not
to apply to enemy property.—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.

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Explanation.—For the purposes of this section, the
expressions “custom” and “usage” signify any rule
which, having been continuously and uniformly
observed for a long time, has obtained the force of law
in the matters of succession of property.”

10.6 Section 6 has been substituted by Section 6 of Act 3 of

2017 with retrospective effect from 10.07.1968. Prior to its

substitution, it read as under:

“6. Prohibition to transfer any property vested in
Custodian by an enemy, enemy subject or enemy
firm.—(1) No enemy or enemy subject or enemy firm
shall have any right and shall never be deemed to have
any right to transfer any property vested in the
Custodian under this Act, whether before or after the
commencement of this Act and any transfer of such
property shall be void and shall always be deemed to
have been void.

(2) Where any property vested in the Custodian under
this Act had been transferred, before the
commencement of the Enemy Property (Amendment
and Validation) Act, 2017, by an enemy or enemy
subject or enemy firm and such transfer has been
declared, by an order, made by the Central
Government, to be void, and the property had been
vested or deemed to have been vested in the Custodian
by virtue of the said order made under section 6, as it
stood before its substitution by section 6 of the Enemy
Property (Amendment and Validation) Act, 2017 such
property shall, notwithstanding anything contained in
any judgment, decree or order of any court, tribunal or
other authority, continue to vest or be deemed to have
been vested in the Custodian and no person (including
an enemy or enemy subject or enemy firm) shall have

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any right or deemed to have any right (including all
rights, titles and interests or any benefit arising out of
such property) over the said property vested or deemed
to have been vested in the Custodian.”

10.7 Section 7 deals with payment to Custodian of money

otherwise payable to an enemy, enemy subject or enemy firm,

the same reads as under:

“7. Payment to Custodian of money otherwise
payable to an enemy, enemy subject or enemy firm.

– (1) 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 but for the prohibition under the Defence
of India Rules, 1962 or the Defence of India Rules,
1971, as the case may be, to the Custodian or such
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 this Act.

(2) In cases in which money would, but for the
prohibition under the Defence of India Rules, 1962 or
the Defence of India Rules, 1971, as the case may be,
be payable in a foreign currency to or for the benefit of
an enemy or an enemy subject or an enemy firm (other
than cases in which money is payable under a contract
in which provision is made for a specified rate of
exchange), the payment shall be made to the
Custodian in rupee currency at the middle official rate
of exchange fixed by the Reserve Bank of India on the
date on which the payment became due to that enemy,
enemy subject or enemy firm.

(3) The Custodian shall, subject to the provisions of
section 8, deal with any money paid to him under the

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Defence of India Rules, 1962 or the Defence of India
Rules, 1971 as the case may be or under this Act and
any property vested in him under this Act in such
manner as the Central Government may direct.”

10.8 The powers of Custodian in respect of enemy property

vested in him as amended are delineated in Section 8 which

reads as under:

“8. Power of Custodian in respect of enemy
property vested in him.— (1) With respect to the
property vested in the Custodian under this 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 this Act.
(2) Without prejudice to the generality of the foregoing
provision, the Custodian or such person as may be
specifically authorised by him in this behalf, may, for
the said purpose,—

(i) carry on the business of the enemy;

(ia) fix and collect the rent, standard rent, lease rent,
licence fee or usage charges, as the case may be, in
respect of enemy property;

(ii) take action for recovering any money due to the
enemy;

(iii) make any contract and execute any document in
the name and on behalf of the enemy;

(iv) institute, defend or continue any suit or other legal
proceeding, refer any dispute to arbitration and
compromise any debts, claims or liabilities;
(iva) secure vacant possession of the enemy property
by evicting the unauthorised or illegal occupant or

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trespasser and remove unauthorised or illegal
constructions, if any.

(v) raise on the security of the property such loans as
may be necessary;

(vi) incur out of the property any expenditure including
the payment of any taxes, duties, cesses and rates to
Government or to any local authority and of any wages,
salaries, pensions, provident fund contributions to, or
in respect of, any employee of the enemy and the
repayment of any debts due by the enemy to persons
other than enemies;

(vii) transfer by way of sale, mortgage or lease or
otherwise dispose of any of the properties;

(viii) invest any moneys held by him on behalf of
enemies for the purchase of Treasury Bills or such
other Government securities as may be approved by
the Central Government for the purpose;

(ix) make payments to the enemy and his dependents;

(x) make payments on behalf of the enemy to persons
other than those who are enemies, of dues outstanding
on the 25th October, 1962 or on the 3rd December,
1971; and

(xi) make such other payments out of the funds of the
enemy as may be directed by the Central Government.”

10.9 Section 8A deals with sale of property by Custodian which

has been inserted with retrospective effect from 07.01.2016

while Section 10A deals with power to issue certificate of sale.

The same are extracted as under:

“8A. Sale of property by Custodian.—(1)
Notwithstanding anything contained in any judgment,
decree or order of any court, tribunal or other authority

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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
Enemy Property (Amendment and Validation) Act,
2017 in accordance with the provisions of this Act, as
amended by the Enemy Property (Amendment and
Validation) Act, 2017.

(2) The Custodian may, for the purpose of disposal of
enemy property under sub-section (1), make
requisition of the services of any police officer to assist
him and it shall be the duty of such officer to comply
with such requisition.

(3) The Custodian shall, on disposal of enemy property
under sub-section (1) immediately deposit the sale
proceeds into the Consolidated Fund of India and
intimate details thereof to the Central Government.

(4) The Custodian shall send a report to the Central
Government at such intervals, as it may specify, for the
enemy properties disposed of under sub-section (1),
containing such details, (including the price for which
such property has been sold and the particulars of the
buyer to whom the properties have been sold or
disposed of and the details of the proceeds of sale or
disposal deposited into the Consolidated Fund of India)
as it may specify.

(5) The Central Government may, by general or special
order, issue such directions to the Custodian on the
matters relating to disposal of enemy property under
sub-section (1) and such directions shall be binding
upon the Custodian and the buyer of the enemy
properties referred to in that sub-section and other
persons connected to such sale or disposal.

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(6) The Central Government may, by general or special
order, make such guidelines for disposal of enemy
property under sub-section (1).

(7) Notwithstanding anything contained in this section,
the Central Government may direct that disposal of
enemy property under sub-section (1) shall be made by
any other authority or Ministry or Department instead
of Custodian and in that case all the provisions of this
section shall apply to such authority or Ministry or
Department in respect of disposal of enemy property
under sub-section (1).

(8) Notwithstanding anything contained in sub-
sections (1) to (7), the Central Government may deal
with or utilise the enemy property in such manner as
it may deem fit.

x x x
10A. Power to issue certificate of sale.—(1) Where
the Custodian proposes to sell any enemy immovable
property vested in him, to any person, he may on
receipt of the sale proceeds of such property, issue a
certificate of sale in favour of such person and such
certificate of sale shall, notwithstanding the fact that
the original title deeds of the property have not been
handed over to the transferee, be valid and conclusive
proof of ownership of such property by such person.

(2) Notwithstanding anything contained in any law for
the time being in force, the certificate of sale, referred
to in sub-section (1), issued by the Custodian shall be
a valid instrument for the registration of the property
in favour of the transferee and the registration in
respect of enemy property for which such certificate of
sale had 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 such other reason.”

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10.10 Section 9 states that all enemy property vested in the

Custodian under this Act shall be exempt from attachment,

seizure or sale in execution of a decree of a civil court or orders

of any other authority. The same is extracted as under:

“9. Exemption from attachment, etc. – All enemy
property vested in the Custodian under this Act shall
be exempt from attachment, seizure or sale in
execution of decree of a civil court or orders of any
other authority.”

10.11 Section 12 speaks of protection for complying with

orders of Custodian and the same reads as under:

“12. Protection for complying with orders of
Custodian.- Where any order with respect to any
money or property is addressed to any person by the
Custodian and accompanied by a certificate of the
Custodian that the money or property is money or
property vested in him under this Act, the certificate
shall be evidence of the facts stated therein and if that
person complies with the orders of the Custodian, he
shall not be liable to any suit or other legal proceeding
by reason only of such compliance.”

10.12 Section 13 deals with validity of action taken in

pursuance of orders of Custodian while Section 14 deals with

proceeding against companies whose assets vest in custodian,

which read as under:

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“13. Validity of action taken in pursuance of orders
of Custodian.—Where under this Act,—

(a) any money is paid to the Custodian; or

(b) any property is vested in the Custodian or an
order is given to any person by the Custodian in
relation to any property which appears to the
Custodian to be enemy property vested in him
under this Act,
neither the payment, vesting nor order of the
Custodian nor any proceedings in consequence thereof
shall be invalidated or affected by reason only that at
a material time,—

(i) some person who was or might have been
interested in the money or property, and who
was an enemy or an enemy firm, has died or had
ceased to be an enemy or an enemy firm; or

(ii) some person who was so interested and who was
believed by the Custodian to be an enemy or an
enemy firm, was not an enemy or an enemy
firm.”

14. Proceedings against companies whose assets
vest in Custodian – Where the enemy property vested
in the Custodian under this Act consists of assets of a
company, no proceeding, civil or criminal, shall be
instituted under the Companies Act, 1956 (1 of 1956),
against the company, or any director, manager or other
officer thereof except with the consent in writing of the
Custodian.”

10.13 Section 17 pertains to levy of fees and the same reads as

under:

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“17. Levy of fees.— (1) There shall be levied by the
Custodian fees equal to five per centum of—

(a) the amount of moneys paid to him;

(b) the proceeds of the sale or transfer of any property
which has been vested in him under this Act; and

(c) the value of the residual property, if any, at the time
of its transfer to the original owner or other person
specified by the Central Government under section
18:

Provided that in the case of an enemy whose property
is allowed by the Custodian to be managed by some
person specially authorised in that behalf, there shall
be levied a fee of five per centum of the gross income
of the enemy or such less fee as may be specifically
fixed by the Central Government after taking into
consideration the cost of direct management incurred
by that Government, the cost of superior supervision
and any risks that may be incurred by that
Government in respect of the management:

Provided further that the Central Government may, for
reasons to be recorded in writing, reduce or remit the
fees leviable under this sub-section in any special case
or class of cases.

Explanation.—In this sub-section “gross income of the
enemy” means income derived out of the properties of
the enemy vested in the Custodian under this Act.

(2) The value of any property for the purpose of
assessing the fees shall be the price which, in the
opinion of the Central Government or of an authority
empowered in this behalf by the Central Government,
such property would fetch if sold in the open market.

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(3) The fees in respect of property may be levied out of
any proceeds of the sale or transfer thereof or out of
any income accrued therefrom or out of any other
property belonging to the same enemy and vested in
the Custodian under this Act.

(4) The fees levied under this section shall be credited
to the Central Government.”

10.14 Section 18 deals with transfer of property vested as

enemy property in certain cases and the said provision reads

as under:

“18. Transfer of property vested as enemy property
in certain cases.—The Central Government may, on
receipt of a representation from a person, aggrieved by
an order vesting a property as enemy property in the
Custodian within a period of thirty days from the date
of receipt of such order or from the date of its
publication in the Official Gazette, whichever is earlier
and after giving a reasonable opportunity of being
heard, if it is of the opinion that any enemy property
vested in the Custodian under this Act and remaining
with him was not an enemy property, it may by general
or special order, direct the Custodian that such
property vested as enemy property in the Custodian
may be transferred to the person from whom such
property was acquired and vested in the Custodian.”

10.15 Section 18A, Section 18B and Section 18C though

related to Section 18, however, are not relevant for the

purposes of this case. Section 22 gives overriding effect to this

Act and the same reads as under:

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“22. Effect of laws inconsistent with the Act.—The
provisions of this Act shall have effect notwithstanding
anything inconsistent therewith contained in any other
law for the time being in force, (including any law of
succession or any custom or usage in relation to
succession of property).”

Section 22A is a validation clause which reads as under:
“22A. Validation.—Notwithstanding anything
contained in any judgment, decree or order of any
court, tribunal or other authority,—

(a) the provisions of this Act, as amended by the Enemy
Property (Amendment and Validation) Act, 2017, shall
have and shall always be deemed to have effect for all
purposes as if the provisions of this Act, as amended
by the said Act, had been in force at all material times;

(b) any enemy property divested from the Custodian to
any person under the provisions of this Act, as it stood
immediately before the commencement of the Enemy
Property (Amendment and Validation) Act, 2017, shall
stand transferred to and vest or continue to vest, free
from all encumbrances, in the Custodian in the same
manner as it was vested in the Custodian before such
divesting of enemy property under the provisions of
this Act, as if the provisions of this Act, as amended by
the aforesaid Act, were in force at all material times;

(c) no suit or other proceedings shall, without prejudice
to the generality of the foregoing provisions, be
maintained or continued in any court or tribunal or
authority for the enforcement of any decree or order or
direction given by such court or tribunal or authority
directing divestment of enemy property from the
Custodian vested in him under section 5 of this Act, as
it stood before the commencement of the Enemy
Property (Amendment and Validation) Act, 2017, and
such enemy property shall continue to vest in the
Custodian under section 5 of this Act, as amended by

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the aforesaid Act, as the said section, as amended by
the aforesaid Act was in force at all material times;

(d) any transfer of any enemy property, vested in the
Custodian, by virtue of any order of attachment,
seizure or sale in execution of decree of a civil court or
orders of any tribunal or other authority in respect of
enemy property vested in the Custodian which is
contrary to the provisions of this Act, as amended by
the Enemy Property (Amendment and Validation) Act,
2017, shall be deemed to be null and void and
notwithstanding such transfer, continue to vest in the
Custodian under this Act.”

10.16 Section 24 states that certain orders made under the

Defence of India Rules, 1962, to continue in force and the same

is extracted as under:

“24. Certain orders made under the Defence of
India Rules, 1962, to continue in force. – (1) Every
order which was made under the Defence of India
Rules, 1962, by the Central Government or by the
Custodian of Enemy Property for India appointed
under those Rules, relating to enemy property and
which was in force immediately before the expiration
thereof shall, in so far as such order is not inconsistent
with the provisions of this Act, be deemed to continue
in force and to have been made under this Act.

(2) Every order which was made under the Defence of
India Rules, 1971 by the Central Government or by the
Custodian of Enemy Property for India appointed
under those rules relating to enemy property and
which was in force immediately before the expiration
thereof shall, in so far as such order is not inconsistent
with the provisions of this Act, be deemed to continue
in force and to have been made under this Act.”

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The Enemy Property Rules, 2015:

10.17 The Enemy Property Rules, 2015 deal with procedure for

identification of immovable property, procedure for declaration

and vesting of the enemy property. While Rule 5 deals with

procedure for preservation, management and control of

immovable property, Rule 6 deals with procedure for taking

possession of moveable property; on the other hand, Rule 7

deals with procedure for taking possession of certain moveable

property. Rule 15 deals with procedure for divestment of enemy

property vested in Custodian which reads as under:

“15. Procedure for divestment of enemy property
vested in Custodian.- (1) The Central Government
may, on a reference or complaint or on its own motion,
initiate process for divestment of an enemy property
vested in the Custodian, to the owner thereof or to
such other person.

(2) An officer of the rank of Joint Secretary or above in
the Government of India shall be the Chairperson of
the proceedings for divestment of the enemy property
under this rule.

(3) The Chairperson shall give thirty days’ notice to all
concerned including the Custodian, requiring them to
submit a reply, produce all documentary evidence and
appear in person or through authorised
representative:

Provided that if any party fails to appear on the date
fixed for hearing, then a second and final notice shall

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be served through registered post and if he again fails
to appear after the second notice, then the proceedings
shall be heard ex parte:

Provided further that the Chairperson shall record the
reasons for such ex parte proceedings.

(4) The notices shall be served on all concerned parties
before each hearing.

(5) The presenting officer who has been engaged for
presentation of the case on behalf of the Central
Government, shall examine such witnesses and
documentary evidences in respect of the property as he
thinks fit.

(6) On completion of the proceedings, the details
including depositions shall be furnished to the parties.

(7) The Chairperson, after examining the evidence and
calling for further reports and inquiry as may be
necessary, shall pass such orders thereon as it thinks
fit, and a copy of the said orders shall be sent to the
parties.”

11. Articles 285, 289, 296 and 300-A of the Constitution of

India are relevant while interpreting the Act and read as under:

“285. Exemption of property of the Union from
State taxation.—(1) The property of the Union shall,
save in so far as Parliament may by law otherwise
provide, be exempt from all taxes imposed by a State
or by any authority within a State.

(2) Nothing in clause (1) shall, until Parliament by law
otherwise provides, 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 this Constitution liable or treated as

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liable, so long as that tax continues to be levied in that
State.

x x x

289. Exemption of property and income of a State
from Union taxation.— (1) The property and
income of a State shall be exempt from Union taxation.

(2) Nothing in clause (1) shall prevent the Union from
imposing, or authorising the imposition of any tax to
such extent, if any, as Parliament may by law provide
in respect of a trade or business of any kind carried on
by, or on behalf of, the Government of a State, or any
operations connected therewith, or any property used
or occupied for the purposes of such trade or business,
or any income accruing or arising in connection
therewith.

(3) Nothing in clause (2) shall apply to any trade or
business, or to be incidental to the ordinary functions
of Government.”
x x x

296. Property accruing by escheat or lapse or as
bona vacantia. – Subject as hereinafter provided, any
property in the territory of India which, if this
Constitution had not come into operation, would have
accrued to His Majesty or, as the case may be, to the
Ruler of an Indian State by escheat or lapse, or as bona
vacantia for want of a rightful owner, shall, if it is
property situate in a State, vest in such State, and
shall, in any other case, vest in the Union:

Provided that any property which at the date when it
would have so accrued to His Majesty or to the Ruler
of an Indian State was in the possession or under the
control of the Government of India or the Government
of a State shall, according as the purposes for which it
was then used or held were purposes of the Union or
of a State, vest in the Union or in that State.

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Explanation: In this article, the expressions “Ruler”
and “Indian State” have the same meanings as in
article 363.

x x x

300-A. Persons not to be deprived of property save
by authority of law.- No person shall be deprived of
his property save by authority of law.”

12. The Uttar Pradesh Municipalities Act, 1916 (hereinafter

referred to as “Act of 1916”) consolidates and amends the law

relating to Municipalities in the erstwhile United Provinces and

presently State of Uttar Pradesh. The city of Lucknow was a

municipality and later was constituted as Nagar Nigam or

Corporation under the Act of 1959 and till then the Act of 1916

was applicable. Hence, the relevant provisions of the Act of

1916 are extracted as under:

“128. Taxes which may be imposed.- (1) Subject to
any general rules or special order of the State
Government in this behalf, the taxes which a
Municipality may impose in the whole or part of a
municipality are,-

(i) a tax on the annual value of building or lands
or of both;

(ii) a tax on trades and callings carried on within
the municipal limits and deriving special
advantages from, or imposing special burdens
on municipal services;

(iii) a tax on trades, callings and vocations
including all employments remunerated by
salary or fees;

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(iii-a) a theatre tax which means a tax on
amusements or entertainments;

(iv) a tax on vehicles and other conveyances plying
for hire or kept within the municipality or on
boats moored therein;

(v) a tax on dogs kept within the municipality;

(vi) a tax on animals used for riding, driving,
draught or burden, when kept within the
municipality;

     (vii)    [***]
     (viii)   [***]
     (ix)     a tax on inhabitants assessed according to
              their circumstances and property;
     (x)      a water tax on the annual value of buildings
              or lands or of both;
     (x-a)    a drainage tax on the annual value of

buildings leviable on such buildings as are
situated within a distance, to be fixed by rule
in this behalf for each municipality from the
nearest sewer line;

     (xi)     a scavenging tax;
     (xii)    a conservancy tax for the collection, removal

and disposal of excrementious and polluted
matter from privies, urinals, cesspools;

(xiii) [***]
(xiii-A) [***]
(xiii-B) a tax on deeds of transfer of immovable
property situated within the limits of the
municipality;

(xiv) [***]

(2) Provided that taxes under clauses (iii) and (ix)
of sub-section (1) shall not be levied at the same time
[***] nor shall the taxes under clauses (x-a) and (xii) of
sub-section (1) be levied at the same time;

Provided further that no tax under clause (xiii-B)
of sub-section (1) shall be levied on deeds of transfer of
immovable property situated within such area of the
municipality as forms part of the local area of any

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Improvement Trust created under Section 3 of the U.P.
Town Improvement Act, 1919 (UP Act No. VIII of 1919):

Provided also that no tax under clause (iv) of sub-
section (1) shall be levied in respect of any motor
vehicle.

(3) Nothing in this section shall authorize the
imposition of any tax which the State Legislature has
no power to impose in the State under the
Constitution:

Provided that a Municipality which immediately before
the commencement of the Constitution was lawfully
levying any such tax under this section as then in
force, may continue to levy that tax until provision to
the contrary is made by Parliament.

(i) A tax on the annual value of buildings or lands or
both;

(ii) A water tax on the annual value of buildings or
lands or both;

(iii) A drainage tax on the annual value of buildings
leviable on such buildings as are situated within
a distance, to be fixed by rules in this behalf for
each municipality from the nearest sewer lines;

(iv) A conservancy tax for the collection, removal and
disposal of excrementious and polluted matter
from privies, urinals, cesspools;

(2) x x x

(3) The municipal taxes shall be assessed and
levied in accordance with the provisions of this Act and
the rules and bye-laws framed thereunder.

(4) Nothing in this section shall authorize the
imposition of any tax which the State Legislature has
no power to impose in the State under the
Constitution:

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Provided that a Municipality which immediately
before the commencement of the Constitution was
lawfully levying any such tax under this section as
then in force, may continue to levy that tax until
provisions to the contrary is made by the Parliament.

x x x

129-A. Levy of tax on annual value of buildings or
lands or both.- The Tax on annual value of buildings
or lands or both shall be levied in respect of all
buildings and lands situated in the municipal limit
except,-

x x x

(e) building and land vested in the Union of India,
except where provisions of clause (2) of Article 285
of the Constitution of India, apply;”

12.1 Section 140 of the said Act defines annual value.

13. The relevant provisions of the Act of 1959 are extracted as

under as they are applicable to Lucknow Nagar Nigam

(Municipal Corporation) – the appellant herein:

“172. Taxes to be imposed under this Act. – (1) For
the purposes of this Act and subject to the provisions
thereof and of Article 285 of the Constitution of India
the Corporation shall impose the following taxes,
namely-

(a) property taxes;

x x x
(3) The Corporation taxes shall be assessed and levied
in accordance with the provisions of this Act and the
rules and bye-laws framed thereunder.

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(4) Nothing in this 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 this Act until provision to the contrary is made by
Parliament.

173. Property taxes leviable. – (1) For the purposes
of sub-section (1) of Section172 property taxes shall
comprise the following taxes which shall, subject to the
exceptions, limitations and conditions hereinafter
provided, be levied on buildings and lands in the City

(a) a general tax which may be levied, if the
Corporation so determines, on a graduated scale;

(b) a water tax;

(c) drainage tax leviable in areas provided with sewer
system by the Corporation;

(d) a conservancy tax in areas in which the
Corporation undertakes, the collection; removal
and disposal of excrementitious and polluted
matter from privies, urinals and cesspools.
(2) Save as otherwise expressly provided in this Act or
rules made thereunder, these taxes shall be levied on
the annual value of buildings or land as the case may
be:

Provided that the aggregate of the property taxes shall
in no case be less than 15 per cent nor more than 25
per cent of the annual value of the building of land or
both assessed to such taxes.

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174. Definition of “Annual Value” – “Annual value”
means –

(a) in the case of railway stations, colleges, schools,
hostels, factories, commercial buildings, and other
non-residential buildings, a proportion not below 5 per
cent, to be fixed by rule made in this behalf of the sum
obtained by adding the estimated present cost of
erecting the building, less depreciation at a rate to be
fixed by rules, to the estimated value of the land
appurtenant thereto; and

(b) in the case of a building or land not falling
within the provisions of clause (a), the gross annual
rent for which such building exclusive of furniture or
machinery therein, or such land is actually let, or
where the building or land is not let or in the opinion
of the assessing authority is let for a sum less than its
fair letting value, might reasonably be expected to be
let from year to year.

Provided that where the annual value of any building
would, by reason of exceptional circumstances, in the
opinion of the Corporation, be excessive if calculated
in the aforesaid manner, the Corporation may fix the
annual value at any less amount which appears to it
equitable.

Provided further that where the Corporation so
resolves, the annual value in the case of owner
occupied buildings and land shall for the purposes of
assessment of property taxes be deemed to be 25 per
cent less than the annual value otherwise determined
under this Section.

175. Restrictions on imposition of water tax.-The
imposition of a tax under clause (b) of sub-section (1)
of Section 173 shall be subject to the restriction that
the tax shall not be imposed –

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(i) on any land exclusively for agricultural
purposes, unless the water is supplied by the
Corporation for such purposes; or

(ii) on a plot of land or building the annual value
whereof does not exceed rupees three hundred and
sixty and to which no water is supplied by the
Corporation; or

(iii) on any plot or building, no part of which is
within the radius prescribed for the City, from the
nearest stand-pipe or other waterworks whereat water
is made available to the public by the Corporation.

Explanation. – For the purposes of this section –

(a) ‘building’ shall include the compound, if any,
thereof, and, where there are several buildings in a
common compound, all such buildings, and the
common compound;

(b) ‘a plot of land’ means any piece of land held by a
single occupier, or held in common by several co-
occupiers, whereof no one portion is entirely separated
from any other portion by the land of another occupier
or of other occupiers or by public property.

x x x

177. General tax on what premises to be levied. –
The general tax shall be levied in respect of all
buildings and lands in the City except –

x x x

(f) buildings and lands vesting in the Union of India
except where provisions of clause (2) of Article 285 of
the Constitution of India apply;

x x x

179. Primary responsibility for certain property
taxes on annual value. – (1) Except where otherwise
prescribed, every tax (other than a drainage tax or a
conservancy tax) on the annual value of buildings or
lands shall be leviable primarily from the actual

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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 lease from any person.

(2) In any other case the tax shall be primarily leviable
as follows, namely, –

(a) if the property is let from the lessor;

(b) if the property is sublet from the superior
lessor;

(c) if the property is unlet from the person in
whom the right to let the same vests.

(d) if the property is let in pursuance of an order
under the Uttar Pradesh Urban Buildings
(Regulations of Letting, Rent and Eviction) Act,
1972, from the tenant.

(3) On failure to recover any sum due on account of
such tax from the person primarily liable, the Mukhya
Nagar Adhikari may recover from the occupier of any
part of the buildings or lands in respect of which it is
due that portion thereof which bears to the whole
amount due the same ratio as the rent annually
payable by such occupier bears to the aggregate
amount of rent payable in respect of the whole of the
said building or lands, or to the aggregate amount of
the letting value thereof in the authenticated
assessment list.

(4) An occupier who makes any payment for which he
is not primarily liable under the foregoing provisions
shall, in the absence of any contract to the contrary,
be entitled to be reimbursed by the person primarily
liable.

180. Liability for payment of other such taxes. – (1)
A drainage tax, or a conservancy tax on the annual
value of buildings or lands shall be levied from the

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actual occupier of the property upon which the taxes
are assessed:

Provided that, where such property is let to more
occupiers than one, the Mukhya Nagar Adhikari may
at his option levy the tax from the lessor instead of
from the actual occupiers.

(2) A lessor from whom a tax is levied under the proviso
to sub-section (1) may, in the absence of a contract to
the contrary, recover the tax from any or all of the
actual occupiers.

181. Property taxes to be a first charge on premises
on which they are assessed. – (1) Property taxes due
under this Act in respect of any building or land shall,
subject to the prior payment of the land revenue, if
any, due to the State Government thereupon, be a first
charge, in the case of any building or land held
immediately from the State, upon the interest in such
building or land of the person liable for such taxes and
upon the movable property, if any, found within or
upon such building or land and belonging to such
person; and, in the case of any other building or land,
upon the said building or land and belonging to the
person liable for such taxes.

Explanation. – The term “property taxes” in this section
shall be deemed to include any charges payable for
water supplied to any premises and the costs of
recovery of property taxes as specified in the rules.

(2) In any decree in a suit for the enforcement of the
charge created by subsection (1), the Court may order
the payment to the Corporation of interest on the sum
found to be due at such rate as the Court deems
reasonable from the date of the institution of the suit
until realization, and such interest and the cost of
enforcing the said charge, including the costs of the
suit and the cost of bringing the premises or movable

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property in question to sale under the decree, shall,
subject as aforesaid, be a first charge on such premises
and movable property along with the amount found to
be due, and the Court may direct payment thereof to
be made to the Corporation out of the sale proceeds.”

Legal status of the Custodian under the Act:

14. At this stage, it would be useful to dilate on the

jurisprudential aspect of ownership of property and examine

the nuances thereof vis-à-vis the status of the Custodian of

Enemy Property for India under the Act.

14.1 According to Salmond on Jurisprudence, the expression

‘ownership’ in a generic sense, extends to all classes of rights,

whether proprietary or personal, in rem or in personam, in re

propria or in re aliena. Every man is the owner of the rights

which he owns. Ownership in its generic sense as a relation in

which a person stands to any right vested in him, is opposed

to two other possible relations between a person and a right.

In the first place, it is opposed to possession. A man has

possessory right without owning it or secondly, he may own a

right without possessing it. Thirdly, the ownership and

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possession may be united as they usually are, in the context of

de jure and the de facto relation being co-existent or coincident.

14.2 In the first of the above, possession is a de facto

relationship while the second is de jure ownership or

relationship. In the second sense, the ownership of a right is

opposed to the encumbrance of it. The owner of the right is he,

in whom the right itself is vested, while the encumbrancer of it

is he, in whom, is vested, not the right itself, but some adverse,

dominant and limiting right in respect of it. In law, there are no

separate names for every distinct kind of encumbrancer.

However, an encumbrance is opposite to ownership; every

encumbrancer is nevertheless himself the owner of the

encumbrance, that is to say, he, in whom, an encumbrance

stands in a definite relation, not merely to it, but also to the

right encumbered by it.

How is ownership acquired? :

14.3 Ownership is an important right vis-à-vis any property

and more so immovable property. What are the modes of

acquisition of ownership? Under the provisions of the Transfer

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of Property Act, 1882, acquisition of ownership in relation to

immovable property is by a transfer or conveyance. The

expression “transfer” is defined with reference to the word

convey which is an assurance inter vivos under the provisions

of the said Act. Thus, the transferor must have an interest in

the property before he can convey it. A person who has no

interest in the property, cannot convey any interest in the

property, in other words, he cannot sever himself from it and

yet convey it. Further, there are various modes of transfer of

immovable property known to law. Section 54 of the Transfer

of Property Act defines a sale to be a transfer of ownership in

exchange for a price paid or promised or part-paid and part-

promised. The definition of sale itself indicates that in order to

constitute a sale, there must be transfer of ownership from one

person to another, i.e., all rights and interests in the property

which is possessed by a person are transferred by him with his

free consent to another person for a price called consideration.

The conveyance has to be regarded in accordance with law.

Then only the transaction of sale is complete and title in the

property passes from the seller to the buyer. The transferor

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cannot retain any part of his interest or right in that property

or else it would not be a sale. On the other hand, any transfer

by operation of law, or by or in execution of a decree or order

of a court within the meaning of Section 2(d) of the Transfer of

Property Act are outside the scope of Section 54, and need not

be registered. Thus, where the property is sold at a court

auction, a certificate of sale issued by the court is enough as

the purchaser’s document of title. But in order to constitute a

sale, the parties must intend to transfer the ownership of the

property for a price to be paid in present time or in future. Sub-

section (2) of Section 55 states that the seller shall be deemed

to contract with the buyer that interest which the seller

professes to transfer to the buyer which subsists and he has

power to transfer the same. Proviso thereto further states that,

where the sale is made by a person in a fiduciary character, he

shall be deemed to contract with the buyer that the seller has

done no act whereby the property is encumbered or whereby

he is hindered from transferring it.

14.4 Similarly, gift is the transfer of certain existing movable

or immovable property made voluntarily and without

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consideration, by one person, called the donor, to another,

called the donee, and accepted by or on behalf of the donee.

Such acceptance must be made during the lifetime of the donor

and while he is still capable of giving. If the donee dies before

acceptance, the gift is void. The donor is the person who gives.

Any person who is sui juris can make a gift of his property.

Therefore, it is only a person who is the owner of the property,

can gift his property and according to the provisions of the

Transfer of Property Act.

14.5 In the same vein, an exchange is when an exchange of

immovable property takes place when two persons mutually

transfer the ownership of one thing for the ownership of

another, neither thing or both things being money only. A

transfer of property in completion of an exchange can be made

only in a manner provided for the transfer of such property by

sale. In the case of an exchange also, the person must have the

ownership in the property before the same can be exchanged

for any immovable property.

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14.6 Similarly, transfer of ownership of movable property is by

sale, gift or exchange and in the case of a sale, the provisions

of the Sale of Goods Act, 1930 would apply.

14.7 Transfer of ownership other than transfer inter vivos is by

succession or inheritance under a testament or a will/codicil

in which case, the provisions of the Indian Succession Act,

1925 would have to be adhered to.

14.8 In the context of acquisition of land under the power of

eminent domain such as under the provisions of Land

Acquisition Act, 1894 or the Right to Fair Compensation and

Transparency in Land Acquisition, Rehabilitation and

Resettlement Act, 2013, there is divesting of ownership of the

owner of the property only when land “vests absolutely in the

Government free from all encumbrances” such as under

Section 16 of the Land Acquisition Act, 1894. This Court in

Fruit and Vegetable Merchants Union, Subzi Mandi, Delhi

vs. Delhi Improvement Trust, Regal Buildings, Cannaught

Place, AIR 1957 SC 344 has held that the property acquired

becomes the property of the Government without any

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conditions or limitations either as to title or possession when

it vests free from all encumbrances in the Government. The

word encumbrances means a burden or charge upon property

or a claim or lien upon an estate or on the land. Encumber

means burden of legal liability on property, and therefore,

when there is encumbrance on a land, it constitutes a burden

on the title which diminishes the value of the land. But where

the land acquired by the State is free from all encumbrances,

it vests absolutely and free from all encumbrances. In such a

case, it would be an incidence of transfer of ownership from

the owner of the land to the Government as there would be

divesting of land from its true owner.

14.9 Amongst the distinct kinds of ownerships, a trust

ownership and beneficial ownership is relevant to the case. A

trust is a very important and curious instance of duplicate

ownership. According to Salmond, the trust property is that

which is owned by two persons at the same time, the relation

between the two owners being such that one of them is under

an obligation to use his ownership for the benefit of the other.

The former is called the ‘trustee’ and his ownership is the ‘trust

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ownership’; the latter is called the ‘beneficiary’ and his is

beneficial ownership.

14.10 The trustee’s ownership of any property is a matter of

form rather than a substance and nominal rather than real. A

trustee is not effectively an owner at all but in essence a mere

agent, upon whom the law has conferred the power and

imposed the duty of administering the property of another

person. The trustee is a person to whom the property,

substantially that of someone else is technically attributed by

the law on the footing that the rights and powers that it vests

under him are to be used by him on behalf of the real owner.

As between the trustee and beneficiary, the law recognises that

the property belongs to the latter and not to the former. But

as between the trustee and the third persons, the fiction

prevails, inasmuch as the trustee is clothed with the rights of

his beneficiary and personate or represent him in dealings with

the world at large. This principle is actuated under various

provisions of the Act including Section 8 thereof vis-à-vis an

enemy who is the owner of a property and the Custodian in

whom the property vests under the provisions of the Act. This

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position becomes clear on a reading of the Rules under the

Defence of India Rules, 1962 and 1971 as discussed above.

14.11 Thus, the trusteeship is to protect the rights and

interests of persons, who, for any reason are unable effectively

to protect them for themselves. The law vests those rights and

interests for safe custody in a trustee, who is capable of

guarding them 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

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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.

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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?

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.

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(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

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possidendi need not amount to a claim or intent to use 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

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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 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.

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Analysis:

Let us apply the aforesaid jurisprudential principles to the

provisions of the Act under consideration.

15. 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

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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 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,

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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

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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

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

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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)

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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 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

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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

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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 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

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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

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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 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.

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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

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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:

16. 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:

(i) Does vesting of enemy property in the Custodian imply that

the Custodian assumes ownership rights vis-à-vis enemy

property vested in him?

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(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

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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

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

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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

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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 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,

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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

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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

Government and to deposit the sale proceeds into the

Consolidated Fund of India. The Custodian would nevertheless

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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

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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

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

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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

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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

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

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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

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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 no competence to take steps under the Act

and therefore, the Central Government appoints the Custodian

of Enemy Property in India.

17. However, it was contended by Sri Balbir Singh, learned

ASG appearing along with Sri Rupesh Kumar, learned counsel

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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

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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

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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

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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 even within the meaning of Article

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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

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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

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pays it to the appellant and not as owner of the enemy

property.

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

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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

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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 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.

18. 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

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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

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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

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

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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

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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 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.

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19. 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.

20. 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:

21. 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

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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.

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

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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

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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 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

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(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

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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 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.

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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

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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 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

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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

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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 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

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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

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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.

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

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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

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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.

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

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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

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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 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

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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

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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. 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

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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

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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.

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

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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

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285 of the Constitution. In our view, the said Article has no

application to enemy properties.

22. 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

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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

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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.

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,

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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

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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 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

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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

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not to be covered by this Court’s judgment passed in Amir

Mohammad Khan.

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

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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 and

we are now reversing the said order.

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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

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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.

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

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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.

……………………………….J.
(B.V. NAGARATHNA)

……………………………….J.
(UJJAL BHUYAN)
NEW DELHI;

FEBRUARY 22, 2024.

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