Tuesday, April 21, 2009

High Court to consult SAC on Islamic finance cases

The High Court will be compelled to consult the Shariah Advisory Council (SAC) of Bank Negara Malaysia (BNM) when hearing Islamic finance disputes when a new central banking act is passed.
"In the new central banking act which is due to be presented in parliament, the court shall refer to the Shariah Advisory Council (SAC) on Shariah matters," BNM governor Tan Sri Dr Zeti Akhtar Aziz told an Islamic finance forum in London on Friday, reports Reuters.
"It would allow for the consistent application of the interpretation given by the Shariah advisory council," she said.
Under proposed changes to the law, Zeti said judges would be guided by either the central bank or the capital market regulator's Shariah advisory body in deciding Islamic banking matters, according to the news wire report.
When contacted yesterday, BNM spokesperson confirmed the statement, but declined to give further elaboration on the matter.
The proposal confirmed a report by The Malaysian Reserve on Oct 29, 2008, that plans were underway to compel the High Court to refer to the SAC when presiding over Islamic banking and finance-related cases, unlike presently, where High Court judges are neither required to consult the Shariah experts nor heed their advise.
It was then learnt that the central bank was reviewing the necessary laws to make that possible. The development came on the heels of an intense debate over the Islamic financing under concepts like Al-Bai' Bithaman Ajil (BBA) and Bai Inah following a High Court ruling in July 2008 that had found its application to be contrary to Malaysia's Islamic banking laws.
Industry players were also debating on the role of the SAC, a body formed under the wings of the central body, in determining the compliance status of Islamic finance products.
Presently, SAC has the final say on Shariah matters for financial institutions involved in Islamic financing, whether it be approving new products or Shariah concepts, making the advisory body a powerful outfit. It is currently chaired by Shariah scholar Dr Mohd Daud Bakar.
When contacted, Zaid Ibrahim & Co chairman Datuk Dr Nik Norzrul Thani Nik Hassan Thani said the move by BNM was not entirely unexpected.
"It will provide certainty to the players. It will also alow for the development of the Islamic jurisprudence on Islamic finance cases and concepts," said the head of the nation’s largest law firm.
In July 2008, High Court judge Datuk Abdul Wahab Patail had ruled that the application of the BBA contracts in Arab Malaysian Finance Berhad v Taman Ihsan Jaya & Others (2008) was contrary to the Islamic Banking Act 1983 (IBA), as the sale element in the BBA was deemed "not a bona fide sale".
The judgment brought into question the profit portion of the facilities, as it suggests that defaulters need not pay more than the original financing amount obtained, thereby depriving banks of the profit they would otherwise have booked.
This reopened the debate on the usability of BBA from the Shariah point of view. However, on March 31, the Court of Appeal unanimously overturned Abdul Wahab 's much-debated judgment in Bank Islam Malaysia Bhd v Ghazali Shamsuddin & Two Others, and nine other cases.

(This story appeared in The Malaysian Reserve on Apr 22, 2009. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

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