India's sale of enemy shares worth Rs 30 billion: All you need to know

Following wars with Pakistan and China, property owned in India by people from these countries were moved to the Custodian of Enemy Property of India

The government of India will sell stocks worth at least Rs 30 billion (at current prices) seized from their owners after the wars with China and Pakistan, as a way to make up for a shortfall in revenues. Sachin P Mampatta explains the nitty-gritty of the procedure.

What is the procedure laid down by the government relating to the sale of enemy shares?
 

The Union cabinet last week approved a plan to sell stock of 996 companies held by 20,323 shareholders, deemed as “enemy shares”. The government said 588 were active firms including 139 listed on the stock exchange.

In a note on November 8, the government said the Department of Investment and Public Asset Management will handle the sale. The money received from the sale is to be considered part of the government’s disinvestment initiative. The proceeds from the sale would be used for development and social welfare programmes. The government will issue a tender to appoint merchant bankers and other intermediaries to help complete the sale. 

“The decision will lead to monetisation of enemy shares that had been lying dormant for decades since coming into force (of) the Enemy Property Act in 1968,” the government said in a statement. 

Who holds these shares now?

“Enemy property” comprises stocks worth at least Rs 30 billion that once belonged to people who went to Pakistan and China with which India fought a war. The shares are currently held by the Custodian of Enemy Property. It owes its powers to national emergencies declared under Article 352 in 1962 after China attacked India, and then during two conflicts with Pakistan, in 1965 and in 1971. The conflicts resulted in the owners of these properties being treated as “enemies” and their assets in India including land and houses as well as shares were moved to the Custodian of Enemy Property of India.

What is the value of the assets held by the Custodian of Enemy Property of India?

The Custodian of Enemy Property of India holds around Rs 30 billion worth of equity shares besides land and property across India. This includes 9,280 properties belonging to Pakistani nationals. This comprises a total area of 11,882 acres, according to a Parliamentary report on the matter in 2016. It had pegged the value of the immovable property at over Rs 1 trillion. There is also gold and jewellry worth Rs 3.8 million. This is in addition to fixed deposits and government securities. There are also 149 properties belonging to Chinese nationals. 

Why does the government want to sell these shares now?

The government’s move comes at a time when it is struggling to meet its target of raising Rs 800 billion from the sale of state assets in the fiscal year ending in March 2019.

What is the international precedent on enemy property?

There have been instances of countries taking over assets belonging to enemy nationals. This has happened in the US and the UK. There are instances where the country has attempted to return such properties after the hostilities ceased. The UK did so after World War II. This was also seen in the case of the US which returned some properties of enemy countries like Italy. This was decided upon after a lot of debate, and was not necessarily easily done. In some cases, they were done on the condition of certain payments that accrue to the winning country. 

Does the current decision relate to all “enemy property”?

The immovable properties held by the Custodian of Enemy Property of India are yet to be decided on. There has been considerable litigation around them. For example, there was a case related to Raja Mohammed Amir Mohammed Khan who had migrated to Pakistan. But a lot of his family remained in Indian including his heir, who is an Indian citizen. A multi-year battle resulted in a Supreme Court judgment that allowed the heir to inherit the property. This was nullified after a change in regulation which did not allow inheritance of assets that had been declared “enemy property”.

Interestingly, immovable assets also account for a large portion of the total assets held by the Custodian of Enemy Property of India. The government will have to move separately on that since the current decision by the Cabinet exclusively covers shares held by the Custodian of Enemy Property of India.