ARAB MALAYSIAN FINANCE BHD v. TAMAN IHSAN JAYA SDN – BHD & ORS; KOPERASI SERI KOTA BUKIT CHERAKA BHD (THIRD PARTY) AND OTHER CASES

[2009] 1 CLJ 419  [2008] 1 LNS 504

ARAB MALAYSIAN FINANCE BHD v. TAMAN IHSAN JAYA SDN – BHD & ORS; KOPERASI SERI KOTA BUKIT CHERAKA BHD (THIRD PARTY) AND OTHER CASES
HIGH COURT MALAYA, KUALA LUMPUR
ABDUL WAHAB PATAIL J
[SUIT NOS: D4-22A-067-2003, D4-22A-215-2004, D4-22A-1-2004, D4-22A-185-2005, D4-22A-399-2005, OS NO: D4-22A-395-2005, WRIT NOS: D4-22A-166-2006, D4-22A-167-2006, D4-22A-178-2006, SUIT NO: D4-22A-192-2006, WRIT NOS: D4-22A-203-2006 & D4-22A-204-2006]
18 JULY 2008

ISLAMIC LAW: Islamic Finance – Riba – Qur’anic prohibition and condemnation of riba – Profit upon sale is allowed – Interest upon loan is prohibited – Importance of maintaining distinction between sale and loan – Islamic financing transactional schemes to be viewed as a whole and not as separate components – Whether existence of “aqad” and before that “ijab” and “qabul” prevent courts from examining terms of transaction – Court to look beyond labels used and look at substance 

BANKING: Securities for advances – Islamic Financing – Al-Bai’ Bithaman Ajil transaction – Whether contrary to Islamic principles – Correct interpretation of agreed purchase price under Al-Bai’ Bithaman Ajil Contract – Where Bank becomes owner under novation Agreement, sale to customer a bona fide sale – Where Bank purchases directly from customer and sells back to customer at higher price, sale is not bona fide sale but a financing transaction – Profit portion of such Al-Bai’ Bithaman Ajil facility renders it contrary to Islamic Banking Act 1983 or Banking and Financial Institutions Act 1989 – Bank entitled under s. 66 of Contracts Act 1950 to return of original facility amount only

CONTRACT: Illegality – Restitution – Islamic financing – Profit portion of Al-Bai’ Bithaman Ajil facility renders it contrary to Islamic Banking Act 1983 or Banking and Financial Institutions Act 1989 – Bank entitled under s. 66 of Contracts Act 1950 to return of original facility amount only

In the Al Bai’ Bithaman Ajil cases herein, the respective defendants had already purchased the property from a third party and had paid for part of the price. Approaching the plaintiff banks for facilities to complete the purchase, the defendants were required to sell the property they had bought to the respective banks for that balance sum stipulated in the banks’ property purchase agreement (‘PPA’). The banks then sold the property to the defendants via the banks’ property sale agreement (‘PSA’). It was not in dispute that under the PSA, the defendants would pay an agreed number of instalments of specific sums to the banks, the total of which made up the banks’ “selling price”. The facts further showed that as security for this Al Bai’ Bithaman Ajil facility, the respective defendants were required to and had executed a charge cum assignment of the property to the respective banks. The defendants defaulted in the payment of the banks’ selling price, and the banks in consequence applied for an order for sale of the charged property. The defendants argued that the transaction herein, comprising as it were of the letter of offer, the PPA, the PSA and the charge or assignment in question, became transparently financing in nature and smacked of transactions for profits, and in the circumstances, beseeched the court to examine the same and determine whether it involved elements not approved by the religion of Islam – or had otherwise contravened the provisions of the Islamic Banking Act 1983 or the Banking and Financial Institutions Act 1989.

Approaching Mendatangi/pergi berjumpa
required to sell Dikehendaki menjual
balance sum Baki jumlah
stipulated dinyatakan
It was not in dispute Ia tidak dipertikaikan
instalments of specific sums Bayaran ansuran jumlah yang ditetapkan
defaulted in the payment Gagal dalam membuat pembayaran
financing                Pembiayaan kewangan
smacked of transactions for profits Mempunyai unsur urusniaga untuk mendapatkan keuntungan
beseeched the court to examine Memohon mahkamah untuk memeriksa
determine whether Menentukan sama ada
contravened Melanggar/menyalahi
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