i BACKGROUND

Case: iArab-Malaysian iFinance iBhd iv iTaman iIhsan iJaya iSdn iBhd i& iOrs; iKoperasi iSeri iKota
Bukit iCheraka iSdn iBhd i(Third iParty) iand iother icases i[2009] i1 iCLJ i419 i/ i[2008] i5 iMLJ i631
Subject imatter: iValidity iof iBai iBithaman iAjil i(BBA) iContracts
Court: iHigh iCourt iMalaya, iKuala iLumpur
Judge: iAbdul iWahab iPatail

FACTS OF THE CASE

Plaintiff, iBank iIslam iMalaysia iBhd iand iother ifinanciers iwere idirected iby ithe icourt ito
ipresent itheir iindividual isubmissions iinvolving iforeclosure iand iother icivil iremedies iagainst ithe

iplaintiff's ivarious iindividual idebtors, icollectively iso ithat ithe iprinciples igoverning iIslamic

ifinancing ifacilities icould ibe iconsidered imore icomprehensively, iand iwith ithe iaim iof iobtaining ia

imore iconsistent iresult.

Although icommon ilaw isourced icivil ilaw iand iIslamic ilaw iare iboth iprotected iand
ienabled iby ithe iFederal iConstitution, ilimitations iarise ias ito iwhether icivil ilaw iand ithe iremedies

iavailable itherein icould iapply ito ian iIslamic ifinancing ifacility.Although icases iinvolving iIslamic

ifinancing iare ibrought iin ithe icivil icourts iit iis inot ifor ithese icourts ito iinterpret iwhich imazhab iin

iIslam iis ito iprevail iand ibe iapplied. iAdditionally, iIslamic ifinance iin iMalaysia iis iregulated iby ithe

i1983 iIslamic iBanking iAct iand ithe i1989 iBanking iand iFinancial iInstitutions iAct ifor ibanks

iauthorised iunder ithe iapplicable ilegislation. iThese iActs ido inot, ihowever, ilay idown ispecific

iprovisions ifor iIslamic ibanking iand ifinancing iexcept ito isay ithat ithe iBank’s iobjectives iand

ioperations ishould inot iinvolve iany ielement inot iapproved iby iIslam. iThe iprimary ielement

igoverning iIslamic ifinancing ifacilities iis ithe iprohibition iof iriba ior iinterest.

In ithis icase, ithe idefendant ihad ialready ibought ia iproperty ifrom ia ithird iparty iand ipaid
ipart iof ithe iprice ifor iit. iThey ihad ithen iapproached ithe iplaintiffs ito icomplete itheir ipurchase iof ia
ifacility. iThe iplaintiffs ihad iordered ithe idefendant ito isell ithe iproperty iwhich ihe ihad ipurchased

ifrom ithe iplaintiff ibanks ifor ithe ipurchase iprice idifference, iin icompliance iwith ithe iterms iof ithe

iland ipurchase iagreement i('PPA'). iThe iplaintiffs ithen isold ithe iproperty iback ito ithe irespective

iaccused iunder ithe iproperty isale iagreement iof ithe ibank i('PSA'), iin iwhich ithe irespective

iaccused iagreed ito ipay ian iagreed inumber iof imonthly iinstalments iof ispecific isums. iThe

idefendants iwere irequired ito iexecute icharge ior iassign ithe iproperty ito ithe iplaintiff ias isecurity.

iThe itotal iof ithe iagreed iinstalments iadded iup ito ithe ibank’s i‘selling iprice’, iunder ithe

itransaction iknown ias ia iBai iBithaman iAjil ias ipracticed iby ithe iplaintiffs.

The idefendants ifailed ito ipay ithe iselling iprice iof ithe ibanks, iand iconsequently ithe
ibanks iapplied ifor ian iorder ifor ithe isale iof ithe iproperty ithat iwas icharged. iThe idefendants
iargued ithat ithe icontract icontained ithe iletter iof ibid, ithe iPPA, ithe iPSA iand ithe ifee ior

iassignment iconcerned, iIt ibecame itransparent iin inature ifinancing iand ismacked iof iprofit

itransactions iand, iin ithe icircumstances, iappeals ito ithe icourt ito iexamine ithe isame iand

idetermine iwhether iit iinvolved ielements inot iapproved iby ithe iIslamic ireligion,,or iotherwise

icontravened ithe iprovisions iof ithe i1983 iIslamic iBanking iAct ior ithe i1989 iBanking iand

iFinancial iInstitutions iAct.

This ihas iposed ia iquestion iof ithe icorrect imeaning ito ibe igiven ito ithe iagreed isale iprice iunder ia
iBithaman iAjil icontract iwith iAl-Bai. iIt ihas ialso ibecome iimportant ito iconsider ithe icivil icourt's

irole iin ideciding icases iinvolving iIslamic ifinancing. i

 ISSUE
The imain iissue iraised iin ithis icase iis iwhether ithere iis ian ielement iin iBBA iwhich iis inot
iapproved iby ithe iIslamic ireligion ibecause iof iRiba.

LAW/LEGISLATION
1. iSection i66 iof ithe iContract iAct i1950
2. iArticle i74 iof ithe iFederal iConstitution
3. iSection i256 iand i257(1) iof ithe iNational iLand iCode
4. iOrder i83 iRule i3(3) i& i(7) iof ithe iRules iof iHigh iCourt
 JUDGMENT
1. The icivil icourt ishall ideal iwith icases iconcerning iIslamic ifinance ifacilities istrictly iacts ias
ia icivil icourt, iand idoes inot ibecome ia iSyariah icourt. iCivilian ithe irole iof ithe icourt, iin ithis

iregard, iis ito irender ia ijudgment ibefore iit iin iaccordance iwith ithe ilaw iand inot ito iapply

iIslamic ilaw ias ithough iit iwere ia iSyariah iCourt. iIts ifunction iis ito iexamine ithe iapplication

iof ithe iIslamic iconcepts iand ito iensure ithat itransactions ido inot iinvolve iany ielement inot

iapproved iby iIslam iin ithe icases ibefore ithey ioccur.

2. There iis inothing iin iIslamic ifinancing ithat ibans ithe igiving iof ia iloan. iIt iis ionly ithe iriba
ielement iforbidden iin ithe iloan. iSo iloans iare ipermitted iwithout iriba iie ibenevolent iloans

ior iqard ial-Hasan.

3. The iterm iAl-Bai’ iBithaman iAjil iis ino imore ithan ia isale iand ideferred ipayment iof ithe
iprice ias iagreed ito ibetween ithe iparties. iAs isuch, ithe iselling iprice iis iordinarily ipaid

iupon idelivery. iHowever iif ithe ipayment iis ito ibe imade ilater, ithe iseller iis iin ieffect

iextending ia icredit ior ia iloan iof ithat iselling iprice. iAt ithe isame itime iit imust ibe

iremembered ithat ithe ideferred ipayment iof ithe iselling iprice iis ia icredit ior ia iloan iwhich iis

ionly ipermissible ibecause ino iriba iis icharged. iMoreover, ithe isecret ito ithe iclaim ithat ithe

iAl-Bai's iBithaman iAjil ischeme idoes inot iinclude iany iitem inot iapproved iby iIslam iis ithe

iindependent ireading iof ithe iPSA. iTherefore, imaintaining ia ibona ifide isale iis iessential,

iso ithat ithe iprice iof iprofit ior isale ishould inot ibe ian ielement idisapproved iby iIslam. iEven

iso, ian iunderstanding iof ithe isale iprice idoes inot iplace ia iheavier iburden ithan ion ian

iinterest-bearing iloan.

4. Before idrawing iany iconclusions iabout ithe iexistence iof ithe iAl-Bai's iBithaman iAjil
itransactions, ithe icourt ihas ithe iright ito ilook ibeyond ithe iagreement's iterms iat ithe ireal

ifacts iof ithe icase iand iassess ithe iessence iof ithe itransaction ibetween ithe iplaintiffs iand

ithe idefendants. iIt iis iimportant ito ilook ipast ithe ilabels iused iand ilook iat ithe iproduct

iparticularly iin ithe ilight iof ithe ifact ithat ithe idefinition iproposed iby ithe iplaintiffs iresulted

iin ithe iaccused ibeing iburdened iwith ia idebt iwell ibeyond ithat iif ithey ihad itaken iinterest

ion ithe ibasis iof ia itraditional icredit.

5. Thus, iwhen ithe ibank ibecame ithe iowner iof ithe iproperty ithrough ia idirect ibuy ifrom ithe
ivendor ior ithrough ia inovation ifrom iits icustomer, ias iin ithe ipresent icases, iand ithen isold

ithe iproperty ito ithe icustomer, ithe iinterpretation iof ithe iselling iprice iby ithe iplaintiff

ishould ibe irejected iand ithe iequitable iinterpretation iapplied. iWhere ithe ibank

ipurchased idirectly ifrom iits icustomer iand isold iback ito ithe icustomer iwith ideferred

ipayment iat ia ihigher iprice iin itotal, ithe isale iwas inot ia ibona ifide isale ibut ia ifinancing

itransaction iand ithe iprofit iportion iof isuch ian iAl-Bai iBithaman iAjil itransaction irendered

ithe ifacility icontrary ito ithe iIslamic iBanking iAct i1983 ior ithe iBanking iand iFinancial

iInstitutions iAct i1989, ias ithe icase imay ibe.

6. Since ithe iactions iof ithe iplaintiffs imost ilikely iresulted ifrom imisunderstanding irather
ithan iafterthought iintent, ithe iplaintiffs iwere ientitled iunder is i66 iof ithe i1950 iContracts

iAct ito ia ireturn iof ithe ioriginal iamount iof ifacilities ithey ihad iextended. iIt iwas ifair ithat ithe

iplaintiffs iwere iseeking ia iprice ithat iwas ias iclose ito, iIf inot imore ithan, ithe imarket iprice

ias ifar ias ipossible iand ithe iproceeds ito ithe irespective idefendants ishall ibe iaccounted

ifor.
 CONCLUSION

The imajority iof iIslamic iFinancial iitems iin iMalaysia iwas ibased ion ithe iBBA
iAgreement iduring ithe itime ithis icase iwas idecided. iConsequently, ithe isaid idecision
ihas ihad ia imajor iimpact ion ithe iIslamic iFinance iIndustry iand iserious iimplications ifor iit.

iThe idecision ipresented ia ivery iserious ichallenge ito ithe iIslamic ifinance iindustry, inot

ijust ifrom ia ilegal iand iregulatory ipoint iof iview ibut ialso iits ivery iexistence itoo. iDifferent

iopinions ihave ibeen iexpressed ito isupport iand iobject iexperts ito ithe idecision iin ithis

icase. i

In icases iinvolving iArab-Malaysian iFinance iBhd iv iTaman iIhsan iJaya iSdn iBhd
i& iOrs, ithe icourt iheld ithat iwhere ithe ibank ibought ithe iproperty idirectly ifrom iits

icustomer iand ithen isold ithe isame iproperty iback ito ithe icustomer iwith ideferred

ipayment iat ia itotal ihigher iprice, isuch ia isale iis inot ia ibona ifide isale ibut ia ifinancing

itransaction. iHence iwhere igross iinjustice iappears, ias iin ithe iprevious icase, ithe icourts

ihave ithe iright ito iinvoke iegalitarian ivalues iwith ia iview ito iremoving iinjustices.

To isummarize, ithe ijudge ibasically iheld ithat ithe iBBA icontract i(which iat ithat
ipoint iof itime iis ithe imost iIslamic iFinancial iContract iused iin iMalaysia) ican ino ilonger ibe

iused ior inot ivalid. iThe idecision iin ithis icase isuggests ithat ia ibank iproviding iIslamic

ifinance iusing ithe iBBA icannot iact ias ia imere ifinancial iinstitution ibut imust iinstead istep

iinto iits icustomer's ishoes iby iactually ibuying ithe iproperty ifrom ithe ideveloper ior ivendor

iand inot ifrom ithe icustomer. iThis icase ialso iindicates ithat iit imust ibe iaccepted iby iall ifour

iIslamic ischools iof ithought iin iorder ifor ia iSyariah iconcept ito ibe iconsistent iwith iIslam.
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