Case Citator

[2007] 5 CLJ 311  


30 AUGUST 2007
BANKING: Islamic banking – Loan facility – Al-Bai Bithaman Ajil – Default by borrower – Rights of financier/chargee – Whether could claim full profit thereof – Whether could claim profit in respect of unexpired tenure – Whether bound to give substantial rebate to borrower – Whether agreement subject to wider Islamic principles of justice and equity

LAND LAW: Charge – Order for sale – Loan granted under Al-Bai Bithaman Ajil facility – Default – Remedies of chargee – Whether entitled to order for sale – Sarawak Land Code (Cap 81), s. 148(2)(c) – National Land Code, s. 256Rules of the High Court 1980, O. 83

On 23 July 2003, the plaintiff bank granted a loan facility of RM80,094 to the defendants under the Syariah principle of Al-Bai Bithaman Ajil (‘BBA’) to finance the purchase of a property. The defendants defaulted after paying RM16,947.62, and the plaintiff, having failed to obtain repayment, which amounted to RM167,797.10 as at 26 June 2006, filed the originating summons herein praying for an order for sale of the said charged property pursuant to s. 148(2)(c) of the Sarawak Land Code (Cap. 81) (‘SLC’). The defendants averred that the sum claimed was excessive and abhorrent to the notion of justice, and hence implored the court to tamper the application with other orders or directions as the court deemed fit and just. It was also the defendants’ stand that the court ought to follow the decisions in Affin Bank Bhd v. Zulkifli Abdullah [2006] 1 CLJ 438 ; Malayan Banking Bhd v. Marilyn Ho Siok Lin [2006] 3 CLJ 796, and refused the full sum claimed under the BBA.

Held (ordering rebate on sum claimed):

(1) The issue here is not whether the BBA is valid. The question is whether the plaintiff is entitled as of right to the full profits in the event the BBA is terminated very much earlier as in this instance, taking into consideration s. 148(2)(c) SLC or for that matter s. 256 National Land Code (‘NLC’). (para 9)

(2) Section 148(2)(c) SLC makes it mandatory to exercise equity and the court may not grant the order sought for if it is perverse to the defendants. Similar powers is also preserved under s. 256 of the NLC. (para 12)

(3) However, when parties enter into an Islamic commercial transaction, they are always subject to Qur’anic injunctions to act with justice and equity and there is also a need for them to respect Islamic worldview on such transaction. The Syariah has propagated that all trading activities must involve risk, and the ‘no risk no gain’ concept is already entrenched in Islamic commercial transactions. Consequently, one cannot borrow the Islamic label for obtaining benefits only but must balance it with justifiable burdens. (para 6)

(4) All trade related documents under the Syariah must have elements of employment of capital, labour and risk, failing which they may be tainted as riba transactions and forbidden. The fixing of profits in Syariah banking activities, however, is more akin to riba than trade. It must also be emphasized that the basic and most important characteristic of Islamic financing is that it does not deal with fixed interest rate or pre-determined profits. It is based on a profit and loss sharing contract. It is, in crux, equity-based financing. (para 7)

(5) In the present case, nothing could prevent the plaintiff from relinquishing part of their claim or the court from demanding that proper concessions be granted to the defendants on equitable grounds before exercising its jurisdiction and powers under s. 148(2)(c) SLC or s. 256 NLC. The court also accepts the fact that most of the Islamic Banks, as a mater of practice, would exercise discretion and give a rebate, thereby keeping with the true spirit and intent of justice and equity under the Syariah. In the circumstances, exercising equity to obtain a just result and without dismissing the originating summons herein, the court would give an opportunity to the plaintiff to demonstrate equitable conduct by filing an affidavit stating that, upon recovery of the proceeds of sale, they will give a rebate. The amount specified must not however be nominal but a substantial one taking into account the prevailing market forces and the meaningful decisions in Affin Bank Bhd and Malayan Banking Berhad. (para 12)

(5a) The court would give an order in terms of the application if the proposed rebate is just and equitable. Otherwise, it will refuse the prayers or make some other orders as the justice of the case requires. (para 12)

[Plaintiff given liberty to file affidavit within one month.]

Case(s) referred to:

Affin Bank Bhd v. Zulkifli Abdullah [2006] 1 CLJ 438 HC (refd)

Bank Islam Malaysia Bhd v. Adnan Omar [1994] 3 CLJ 735 HC (refd)

Century Land Resources Sdn Bhd v. Alliance Bank Malaysia Bhd [2004] 4 CLJ 793 CA (refd)

Co-Operative Central Bank Ltd v. Y & W Development Sdn Bhd [1997] 4 CLJ 170 CA (refd)

K Umar Kandha Rajah v. EL Magness [1984] 2 CLJ 23; [1984] 1 CLJ (Rep) 416 FC (refd)

Kuching Plaza Sdn Bhd v. Bank Bumiputra Malaysia Bhd And Another Appeal [1991] 3 CLJ 1702; [1991] 1 CLJ (Rep) 223 SC (refd)

Low Lee Lian v. Ban Hin Lee Bank Bhd [1997] 2 CLJ 36 SC (refd)

Malayan Banking Bhd v. Marilyn Ho Siok Lin [2006] 3 CLJ 796 HC (refd)

Public Bank Bhd v. Teck Huat Bricks and Tiles Factory Sdn Bhd [2004] 1 LNS 155 ; [2004] 3 MLJ 88 (refd)

RHB Bank Berhad v. Alom Industries Sdn Bhd [2007] 5 CLJ 138 ; [2007] 3 AMR 670 (refd)

Legislation referred to:

Evidence Act 1950, ss. 45, 114(e)

National Land Code, ss. 256(3), 340

Rules of the High Court 1980, O. 83

Sarawak Land Code, s. 148(2)(a), (b), (c)

Other source(s) referred to:

Is There A Need For Legislative Intervention To Strengthen Syariah Banking And Financial Instruments? [2002] 3 MLJ clxx

Islam, The Islamic Worldwide, And Islamic Economics, IIUM Journal of Economics & Management 5, No 1 (1997): 39-65


ad-Dukhan verses 38-39

al-Anbiyaa verse 47

al-An’am verses 58, 68, 115

al-Baqarah verse 213

al-Hadid verse 25

al-Hijr verse 85

al-Imran verses 18, 57, 86

al-Jathiya verse 18

al-Maidah verses 8, 29, 45

al-Nahl verse 90

an-Nisaa verses 58, 105, 107, 135

ar-Rahman verses 7 to 9

ash-Shura verse 15

at-Tin verse 8

Ghafir verse 20

Hud verse 113

Sad verse 26

Yunus verse 13


For the plaintiff – Cecil Ha Chung Yen; M/s Kadir, Wong, Lin & Co

Defendants Unrepresented

Reported by WA Sharif

[Ordered accordingly.]

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