The Hindu Business Line : Shares with the `enemy'

INJUSTICE, it appears, is being meted out to Pakistani nationals of Indian origin who were citizens of undivided India and who are classified as "enemy" and whose shareholdings in companies (which were incorporated before the partition of India) are called "enemy properties".

In terms of Section 11 of the SEBI Act, protecting the interests of investors , by taking necessary steps as it deems fit, is one of the duties of SEBI.

It is pertinent to highlight that the Act must embrace all segments of investors irrespective of place or nationality, so much so that it is incumbent upon SEBI to approach the appropriate authority and come to an arrangement where the grievances of such investors can be addressed.

In the normal circumstances, regulators wake up either when there is a media expose or a public outcry, not otherwise. A look now at the legal position as it emerges:

During the Indo-Pakistan war, the Enemy Property Act 1968 (EPA) was enacted. Under the EPA provisions, the Central Government is authorised to appoint a custodian of enemy property for India and one or more deputy/assistant custodians of enemy property for such local areas as may be specified in the notification. There is a provision which validates the appointments made under the Defence of India Rules 1962 and 1971.

Section 5 of the EPA reads thus: "Notwithstanding the expiration of the Defence of India Act 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.

"Notwithstanding the expiration of the Defence of India Act 1971 and the Defence of India Rules 1971, all enemy property vested before such expiration of 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 shall, vest as from such commencement, vest in the custodian."

Section 2(b) describes "enemy" or "enemy subject" or "enemy firm" as a person/country who/which was an enemy, an enemy subject or an enemy firm, 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 or the Defence of India Rules 1971), but does not include a citizen of India.

Under the notification issued on 10th and 11th September 1965, the Central Government had vested the the following property in India belonging to, held by, or managed on behalf of, Pakistani nationals in the custodian of enemy property for India with immediate effect: immovable property; all lockers and safe deposit; all negotiable instruments such as promissory notes, shares, debentures and other government securities; all vessels and vehicles, including automobiles and aircraft.

Significantly, such property is not expatriated. By virtue of the provisions under the Enemy Property custody and registration (Order) 1962, it is incumbent on any one in possession of such property to submit to the custodian at his official address a return of all such property. Pursuant to the said order, it is incumbent upon every company then in existence to submit the return in respect of shareholding of Pakistani nationals in the company and the dividend on those shares payable to them.

Accordingly, all the shares and dividend and other accretions by way of bonus shares, and so on, are lying vested with the custodian. The value of such assets runs into several crores of rupees.

The solution to this problem lies in Section 18 of EPA where, the Central Government may, by general or special order, direct that any enemy property vested in the custodian under this Act and remaining with him shall be divested from him and be returned, in such manner as may be specified in the direction and thereupon such property shall cease to vest in the custodian and shall revest in such owner or other person.

There are some shareholders who originally stayed in India, temporarily went to Pakistan and expired there and whose heirs and successors are settled abroad as foreign nationals. Such nationals can be regarded as "persons of Indian origin' and subject to the provisions of FEMA, where such shares can be repatriated on satisfactory evidence being produced.

With the current softening of relationship between the two countries, a solution must be found to address the grievance of such shareholders whose property worth crores of rupees are blocked for no fault of theirs.

SEBI is the right authority to take the necessary initiative to protect the rights of such investors.

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