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BRIEF OF ISLAMIC FINANCE CASES 1987-2009

1. Case name Tinta Press Sdn Bhd v Bank Islam (M) Bhd

Citation [1987] CLJ 396 / [1987] 2 MLJ 192

Court / Date Supreme Court, KL / 23 December 1986


decided
Facts • In this case the respondents had leased certain printing
equipment to the appellants under the lease agreement
of its letter of credit financing facility. The appellants
having defaulted in payment of the monthly rentals, the
respondents brought an action to recover possession of
the equipment and to recover the arrears of rent. The
respondents also made an ex parte application for and
obtained a mandatory injunction to enable the
respondents to recover possession of the equipment.
The appellants then applied to dissolve and set aside the
mandatory injunction. This was refused and the
appellants appealed.

Judgment The court set aside the appeal.


(1) The court has the discretion to grant an interlocutory
mandatory injunction before trial but the discretion
must be exercised and an injunction granted only in
exceptional and extremely rare cases. The case must be
unusually strong and clear in that the court must feel
assured that a similar injunction would probably be
granted at the trial on the ground that it would be just
and equitable that the plaintiff's interest be protected by
the immediate issue of an injunction, otherwise
irreparable injury and inconvenience would result.
Where the case is one of urgency an application can be
made ex parte;
(2) The learned Judge on the facts and circumstances of the
case rightly concluded that this was an exceptional case
where the court was justified in granting a mandatory
injunction on an ex parte application before the trial;
(3) The learned judge rightly concluded from the
documents and the affidavit evidence that the
agreement in this case was a lease agreement and not a
loan agreement;
(4) There was a clear breach of the lease agreement in this
case by the appellant and the respondent therefore
became entitled to immediate possession of the
equipment. The learned Judge was confident that the
court would grant a mandatory injunction at the trial of
the suit and rightly held that if the injunction had not
been granted earlier the respondent would suffer
irreparable damage and greater hardship. The balance
of convenience was very much in favour of the
respondent and the application was one of urgency.
There was no unreasonable delay on the part of the
respondent in filing the writ and the ex parte
application for injunction;
(5) This was a case where the learned Judge was more than
justified in granting a mandatory injunction on an ex
parte application.

Note ISLAMIC CONTRACT OF IJARAH UPHELD


The Islamic contract is Ijarah. The court pointed out that
this is leasing contract and not loan. As such, the court
upheld the decision of the courts below that the
equipments are owned by the respondent (as lessor). The
appellants do not have the right to the equipments until full
payment of the lease rentals to the respondents.
 

2. Case name Bank Islam Malaysia Berhad v Adnan Bin Omar

Citation [1994] 3 CLJ 735 / [1994] MLJU 221

Court / Date High Court, Shah Alam / 18 July 1994


decided
Facts • By a letter of offer extended to the defendant which the
defendant accepted, the plaintiff granted the defendant
a loan of RM583,000, secured upon a charge over a
certain parcel of land. The plaintiff granted this facility
under the Islamic Bai-Baithaman Ajil loan scheme
which in effect involved the execution of three
simultaneous transactions between the parties, namely
(1) the sale of the subject property by the defendant to
the plaintiff for RM265,000 which was duly paid by the
plaintiff (2) the plaintiff reselling the same to the
defendant for RM583,000 payable in 180 instalments
and (3) the defendant executing a charge over the land
as security for the said debt of RM583,000.
• It was a term of the charge document that in the event
of any default in the payment of the loan instalments by
the defendant, the plaintiff would be entitled to sell the
charged land. The defendant defaulted in his payments
and the plaintiff accordingly filed an originating
summons under O.83 Rules of the High Court 1980
praying for an order for the sale of the land to recover
the said loan. The defendant challenged the plaintiff's
right to relief under the said O.83 on the ground that
there was no compliance with Rule 3(3) thereof.
• The main issue was whether by virtue of the fact that
the defendant only received RM265,000 of the stated
loan amount of RM583,000, and by virtue further that
the plaintiff's claim did not include the claim for
interest, the Bai-Baithaman Ajil loan scheme ascribed
to by the parties herein had failed to comply with the
provisions of r.3(3)(a)(c) and (d) of O.83 RHC 1980.

Judgment (1) The transactions between the parties were above board
and made with the full knowledge of the defendant who
knew that the entire exercise was to implement the
grant of a loan to him in such a way as to bring the loan
transaction within the limits of Islamic Law. His
knowledge of this is evidenced by his acceptance of the
letter of offer containing all the terms of the loan. In the
circumstances the parties were ad idem in treating the
amount of RM583,000 as the facility amount given to
the defendant by the plaintiff, which amount coincided
with the price of the land in the second sale and
purchase agreement whereby the land was resold to the
defendant and for which the charge was meant to
secure. This being the case, this Court can only accept
the plaintiff's statement of the amount of advance under
O.83 r.3(3)(a) as being RM583,000. The amount is in
accord with the intention of the parties and the
defendant cannot now dispute the amount.
(2) In any event the words "except where the Court in any
case or class otherwise directs" in the preambular part
of r.3(3) of O.83 RHC indicates that the Court may
exercise its discretion to allow a certain flexibility in
the requirements of that provision in particular cases.
The instant case is one instance where such discretion
should be exercised.
(3) A reading of r.3(3) of O.83 RHC in the context of the
purpose of the whole order can only lead to one
reasonable interpretation and that is, that there must be
an amount of interest or an amount of instalment in
arrears at the given date, but not necessarily both. The
crucial precondition is the fact of default of payment of
whatever amount. In the present case there is no
question of there being any interest because of the
Islamic nature of the loan. Be that as it may, as the
defendant's default is in respect of the instalment
payments and as this has been duly particularised by
the plaintiff, there has been compliance with the said
provision.
Note ISLAMIC CONTRACT OF BBA UPHELD
The court took the approach that the defendant when
signing the agreements was fully aware of the nature and
consequences, and he is now estopped from denying that
the plaintiff has the right to claim from him the total sale
price indicated in the property sale agreement. It will be
inequitable to allow the defendant’s claim where he
himself has willingly entered into the contract in the first
place.
3. Case name Dato’ Hj Nik Mahmud Daud v Bank Islam Malaysia Bhd
Citation [1998] 3 CLJ 605
Court / Date Court of Appeal, KL / 8 June 1998
decided
Facts • The plaintiff, on 6 May 1984, had executed two
agreements, namely the 'property purchase agreement'
and the 'property sale agreement' with the defendant
under the defendant’s BBA property financing facility.
There was a purchase by the defendant through the
former agreement of properties ('the said lands') for a
price of RM520,000 which were then resold through
the latter agreement to the plaintiff for RM629,200.
Both the agreements were signed comtemporaneously.
On 8 May 1984, the plaintiff's attorney executed two
charges of the said lands in favour of the defendant as
securities for a loan of RM629,200, which loan was
purportedly granted under the Islamic banking concept
of Al Bai Bithaman Ajil.
• In this action, the plaintiff applied for an order that the
charges dated 8 May 1984, the property purchase
agreement and the property sale agreement be declared
null and void and of no effect. It was contended by the
plaintiff that the execution of the property purchase
agreement, the property sale agreement and the charge
documents would clearly tantamount to an exercise to
defeat the very purpose and intention of the Kelantan
Malay Reservations Enactment 1930 ('the Enactment')
and the National Land Code 1965 ('the Code'). Counsel
for the defendant raised various issues to resist the
motion, inter alia, the indefeasibility of the charges
under s 340 of the Code and the interpretation of the
Enactment, vis-a-vis Al Bai Bithaman Ajil transactions.
• The motion was dismissed with costs and the appellant
appealed.

Judgment The court dismissed the appeal.


(1) Section 7(i) of the Enactment prohibits any transfer or
transmission or vesting of any right or interest of a
Malay in reservation land to or in any person not being
a Malay. However, when the property purchase
agreement was signed the right that could be acquired
by the defendant under the agreement at that point of
time, the agreement being still executory, was only a
right to a registrable interest which right was yet to
crystallize into a registrable interest. It was only upon
registration that the title to the said lands would vest in
the defendant and it was only when the defendant
became the registered proprietor that its title would
have the indefeasibility which the Code conferred. As
there was no evidence to show a change in the
registered proprietorship of the said lands pursuant to
the execution of the property purchase agreement, the
plaintiff was and is the registered proprietor of the said
lands. That being the case, there was no transfer
effected and the proprietorship still remained with the
plaintiff. There was also no vesting of right or interest
in the said lands in the defendant.
(2) The contemporaneous execution of the property
purchase agreement and the property sale agreement
constituted part of the process required by the Islamic
banking procedure before the plaintiff could avail
himelf of the financial facilities provided by the
defendant under the Al Bai Bithaman Ajil concept.
That was what both parties had bargained for.
Therefore, the execution of the property purchase
agreement had not transgressed the provisions of ss 7
and 12 of the Enactment since there was no dealing or
attempt to deal in the said lands.
(3) In this case, indefeasibility could only be successfully
attacked by evidence which manifested that registration
was obtained by 'means of an insufficient or void
instrument'. This meant the plaintiff could only
successfully seek the aid of s 340(2)(b) of the Code if it
could be shown that there existed a defect or illegality
in the execution of the charge documents. A scrutiny of
the charge documents here did not disclose any form of
defect or illegality. The charge documents had been
registered in accordance with the procedure laid down
in the Code and such registration did not run counter to
the Enactment either. Therefore, there was nothing in
law and in fact that could deny the indefeasibility
accorded by s 340 of the Code to the charges.
(4) On appeal, it is held that it is clear that s 7(i) of the
Enactment prohibits any transfer or transmission or
vesting of any right or interest of a Malay in reservation
land to any person not being a Malay. In this case, the
trial judge had found that the appellant was all along
the registered proprietor of the properties; in short, no
transfer was being effected. Moreover, it was never the
intention of the parties to involve any transfer of
proprietorship. Accordingly, the execution of the
property purchase agreement had not transgressed the
provisions of ss 7 and 12 of the Enactment since there
was no dealing or attempt to deal in the lands contrary
to the provisions thereof. There was therefore no reason
to disagree with the findings of the trial judge.

Note ISLAMIC CONTRACT OF BBA UPHELD


The court took the approach that the defendant when
signing the agreements was fully aware of the nature and
consequences, and he is now estopped from denying that
the plaintiff has the right to claim from him the total sale
price indicated in the property sale agreement. It will be
inequitable to allow the defendant’s claim where he
himself has willingly entered into the contract in the first
place. Initially, there was no intention for real transfer of
the property from the defendant to the plaintiff vice versa,
as signing the PSA and the PPA are part of the whole
process for the Islamic financing called BBA. Hence no
issue arises as to the Malay reserved land, and whether the
plaintiff is a Malay or not.
4. Case name Bank Islam Malaysia Bhd v Shamsuddin Bin Haji Ahmad

Citation [1999] 1 LNS 275 / [1999] MLJU 450

Court / Date High Court, Alor Setar / 1 December 1999


decided
Facts • The application by the plaintiff in the proceeding is
made based on s. 265(3) of the National Land Code
1965. The section provides:-
“(3) If at the subsequent sale no bid is received at or
above the reserve price:-
(a) the land or lease shall be withdrawn from the
sale;
(b) the Land Administrator shall refer the mattter
to the Court, and
(c) the Court may substitute for the order of the
Land Administrator an order for sale under
section 256, or make such other order as it may
think just.”
• The defendant objects to this application on the
following grounds:
(i) There is ‘causes to the contrary’ following the
element of ‘interest’ in the charge which is prohibited
by the religion of Islam and contravenes the Islamic
Banking Act 1983.
(ii) There is non-compliance with O.83 r.3(2) of the
Rules of High Court in the plaintiff’s application.

Judgment The court allowed the application by the plaintiff and


dismissed the defendant’s objections.
(1) On the issue of ‘interest’ raised by the defendant is not
cause to the contrary, interest does not exist in this
transaction because the amount being the subject of the
financing is the re-purchase price by the defendant
from the plaintiff of the property, which is fixed at
RM217,500.00.
(2) The amount RM 217,500.00 is stated in the Property
Sale Agreement which amount is the subject
guaranteed under the property charge document. The
amount is stated in the relevant charge annexure.
(3) The court saw no reason to deal with the second
objection as there is no issue of non-compliance by the
plaintiff with the Rules of High Court.

Note ISLAMIC CONTRACT OF BBA UPHELD


The court took the approach that ‘interest’ as claimed by
the defendant does not come into the picture in BBA
contracts. This is because BBA involves purchase of the
property by the plaintiff at purchase price and sale of the
same property to the defendant at the sale price. The
difference between the two prices is custom in a business,
being the profit of the plaintiff.
5. Case name Bank Kerjasama Rakyat Malaysia Bhd v Nesaretnam
Samyveloo

Citation [2002] 8 CLJ 95 / [2002] 7 MLJ 103

Court / Date High Court, Ipoh / 31 October 2002


decided
Facts • The plaintiff granted a banking facility under the
Islamic contract of BBA to the defendant and as
security, the defendant charged a piece of land (‘the
said land’) in favour of the plaintiff. The defendant
defaulted under the banking facility and consequently,
the plaintiff issued a notice of default in Form 16D of
the National Land Code 1965 (‘NLC’) to the defendant
pursuant to s 254(1) thereof. In the Form 16D, the
defendant was given 14 days to remedy the breach,
failing which, the plaintiff would proceed to apply for
an order for sale in court. The defendant did not remedy
the breach and the plaintiff then proceeded to apply for
an order for sale of the said land in encl 1.
• At the hearing of encl 1, the defendant’s counsel
contended that the Form 16D was defective as it did not
provide for a period of at least one month within which
to remedy the breach as provided under s 254 of the
NLC. The counsel relied on the High Court decision of
Mohamad Khalid Rahaman & Anor v Citibank Bhd &
Anor [2000] 5 MLJ 421.

Judgment The court allowed the plaintiff’s application for order for
sale under the NLC.
(1) This court was very much persuaded by the High Court
decision of Mohamad Khalid Rahaman & Anor v
Citibank Bhd & Anor in dismissing the plaintiff’s
application. However, neither of the counsel drew to
the court’s attention that the said High Court decision
had been overruled by the Court of Appeal in Citibank
Bhd v Mohamed Khalid bin Farzalur Rahaman & Anor
Citibank Bhd v Mohamed Khalid bin Farzalur
Rahaman & Anor [2000] 4 MLJ 96. Accordingly, based
on the principle of stare decisis, this court was clearly
in error in dismissing the plaintiff’s application.
(2) As in the High Court cases of Mohamad Khalid
Rahaman & Anor v Citibank Bhd & Anor and OCBC
Bank (M) Bhd v Gunasegaran a/l Arunasalam [2000] 6
MLJ 859, the instant decision to dismiss the plaintiff’s
application was based on the more restrictive
interpretation of s 254 of the NLC, which had been
ruled by the Court of Appeal to be erroneous. In the
circumstances, the dismissal of the plaintiff’s
application cannot be upheld.

Note ISLAMIC CONTRACT OF BBA UPHELD –


ADMINISTRATIVE ISSUES
The issues in this case are very much administrative and
do not involve the substance or working mechanism of
BBA. Because all the requirements in the NLC and RHC
are fulfilled, the court granted the application for order for
sale by the plaintiff.
6. Case name Bank Kerjasama Rakyat Malaysia Bhd v Emcee
Corporation Sdn Bhd

Citation [2003] 1 CLJ 625 / [2003] 2 MLJ 408

Court / Date Court of Appeal, KL / 29 January 2003


decided
Facts • The appellant granted the respondent a facility under
the Islamic banking principle of BBA. Both parties
executed two agreements on the same date. The first
was the property purchase agreement (the first
agreement). Under the first agreement, the respondent
sold 22 pieces of land to the appellant for RM20
Million. The second agreement was the property sale
agreement (the second agreement). By that agreement,
the appellant sold to the respondent the same properties
upon deferred payment terms for 36 monthly
installments. As security for the repayment of the sale
price under the second agreement, the respondent
charged to the appellant 15 pieces of the land under the
NLC.
• The respondent failed to pay the installments under the
second agreement. The appellant issued a Form 16D
notice under the National Land Code against the
respondent. The respondent failed to comply with the
Form 16D notice and the appellant filed an originating
summons against the respondent for an order for sale
under s 256 of the National Land Code. The High Court
dismissed the application. The appellant appealed to the
Court of Appeal.

Judgment The court allowed the appeal, granted the order for sale.
(1) Although the facility was an Islamic banking facility,
that did not mean that the law applicable in this
application was different from the law that was
applicable if the facility was given under conventional
banking. The charge was a charge under the National
Land Code. The remedy available and sought was a
remedy provided by the Code. The procedure was
provided by the National Land Code and the Rules of
the High Court 1980. The court adjudicating it was the
High Court. So, it was the same law that was
applicable, the same order that would be, if made, and
the same principles that should be applied in deciding
the application.
(2) It was clear that the first installment should be paid
after the appellant bank released the facility to the
marginal deposit account. Clause 3.1 of the second
agreement talked about the first release of the facility
but nothing was mentioned about the amount of first
release. ‘First release’ was not defined either, but it said
that upon the first release being made the installment
period began to run. That there was a ‘first release’ or
‘releases’ was beyond any doubt. The installments
became payable and were paid partly. In the
circumstances, the demand could not be said to be
premature. There was nothing that brought it within the
three categories of cause to the contrary established in
Low Lee Lian v Ban Hin Lee Bank Bhd [1997] 1 MLJ
77. In the circumstances, the respondent failed to show
a cause to the contrary that warranted the refusal of the
order.

Note ISLAMIC CONTRACT OF BBA UPHELD –


ADMINISTRATIVE ISSUES
The issues in this case are very much administrative and
do not involve the substance or working mechanism of
BBA. Because all the requirements in the NLC and RHC
are fulfilled, the court granted the application for order for
sale by the plaintiff.
7. Case name Bank Islam Malaysia Berhad v Pasaraya Peladang Sdn
Bhd

Citation [2004] 7 MLJ 355

Court / Date High Court, Alor Setar / 7 April 2004


decided
Facts • The plaintiff has granted an Islamic banking facility
under the Islamic contract of BBA to the defendant to
purchase property. As security for the repayment of the
Facility, the defendant charged 10 bidang of land (‘the
Land’) to the plaintiff. The charge is registered on 23
July 1997 via 2 Forms 16A of the National Land Code
(‘NLC’).
• When the defendant failed to make repayment, the
plaintiff issued claim notices. The defendant also failed
to observe the notices. The plaintiff later issued
statutory notice Form 16D of the NLC. Again the
defendant failed to make the payment. The plaintiff
applied for order for sale of the charged property as
provided in s. 256 of the NLC.

Judgment The court allowed the application by the plaintiff.


(1) The Al-Bai Bithaman Ajil banking facility is a banking
facility that usually requires land as its collateral. It
involves 3 separate agreements. The bank will purchase
the property from the charger in the first agreement. In
the second agreement, the bank will sell the property to
the charger and in the third agreement, the charger will
charge the property to the bank to entitle the bank to
sell the property in the event the charger fails to honour
its obligations. Although the Facility is borrowed from
Islamic teachings, the applicable law is the NLC and
the Rules of High Court (‘RHC’).
(2) Form 16D issued by the plaintiff clearly shows that the
debt payable by the defendant is RM8,117,601.43 on
21 February 2001. This amount if generated from the
Property Sale Agreement and is the same amount stated
in the claim notice.
(3) The form 16D can be used to enforce the payable
amount when prayed for. Hence, the issuance of the
statutory application by the plaintiff in Form 16D is
valid.

Note ISLAMIC CONTRACT OF BBA UPHELD –


ADMINSITRATIVE ISSUES
The issues in this case are very much administrative and
do not involve the substance or working mechanism of
BBA. Because all the requirements in the NLC and RHC
are fulfilled, the court granted the application for order for
sale by the plaintiff.
8. Case name Tahan Steel Corporation Sdn Bhd v Bank Islam Malaysia
Bhd

Citation [2004] 6 CLJ 25 / [2004] 6 MLJ 1

Court / Date High Court, KL / 23 February 2004


decided
Facts • The plaintiff had undertaken the development and
construction of Steckel Hot Strip Mill Plant to produce
Hot Rolled Coils (‘the said project’). The said project
was to be carried out on a piece of land measuring
approximately 119 acres in Klang. The land, a
leasehold property, was purchased from the Selangor
State Development Council, free from legal
encumbrances, at RM128m. They had secured RM97m
loan facility, from the defendant bank by using the
Syariah principle of Al-Istisnaa’ facility.
• Under this concept, the defendant purchased the said
project from the plaintiff for a purchase price of
RM97m which was disbursed immediately into a
financing payable account. From such account, the
monies were paid out to the plaintiff upon the latter
meeting all the conditions contained in the Al-Istisnaa’
purchase agreement.
• Concurrently, with the execution of the Al-Istisnaa’
purchase agreement, the defendant sold back the said
project to the plaintiff by way of the Al-Istisnaa’ sale
agreement for an agreed price comprising the purchase
price together with an agreed profit margin. Two
tranches of the facility amounting to a sum of
RM58,215,984.84m had been released by the defendant
bank to the plaintiff. The defendant has refused to
release the balance of the facility amounting to
RM38,784,015.16m from the financing payable
account.
• The plaintiff had filed a writ together with the
statement of claim against the defendant alleging
breach of contract on the part of the defendant. The
plaintiff also sought by way of an interim injunction to
prevent the defendant from exercising its lawful rights
under the security documents executed by the plaintiff
in favour of the defendant pending the outcome of the
writ action.
• The defendant contended that the plaintiff had failed to
met the condition precedents of the Al-Istisnaa’
purchase agreement, namely, to secure facilities
totalling approximately USD80m or such other amount
as the defendant reasonably determines from EXIM
banks for the purpose of part financing of the said
purchase. They also contended that the plaintiff had
unilaterally decided to substitute the EXIM loan
condition with a bond issue.
• Although not obliged with the above change, the
defendant were very accommodative, by stating its
agreement to accept the local bond issue provided that
the plaintiff was willing to meet certain conditions,
namely, that the local bond issue should be on a bought
deal basis. But the plaintiff failed to meet the condition.
Further the defendant argued that the plaintiff had
defaulted in its agreed obligation to the defendant even
before the defendant’s purported recession of the
contract.
• The plaintiff’s default was related to the fact that the
plaintiff had stopped making payment on the facility
from as early as 31 January 2002 when the defendant
had to liquidate a security cash deposit of RM1m to
enable the plaintiff to settle the instalments that were
due from the plaintiff.

Judgment The court dismissed the application.
(1) The conditions precedent imposed on the plaintiff of
obtaining the EXIM loan was neither whimsical nor
belligerent, they were based on sound commercial
basis. The plaintiff adopted a rather lackadaisical
attitude towards the express term and essential
condition, namely, securing the EXIM loan. The
plaintiff was not entitled to depart from the requirement
of the EXIM loan condition without the written and
signed consent of the defendant. The defendant was
within its rights to refuse to allow the disbursal of the
third tranche of the facility to the plaintiff since the
plaintiff has by their own admission failed to secure the
EXIM loan.
(2) A party is not entitled to unilaterally vary a contract
and then found a cause of action for breach of contract
against the other party based on that unilateral
variation. This goes against the prevailing law in this
country. It was the plaintiff that wished to change the
terms of the pre-existing contractual relationship, the
defendant was entitled to either accept such a change or
reject such changes or to accept those changes subject
to any new terms it might wish to add. The defendant
was certainly entitled to insist on strict compliance with
the Al-Istisnaa’ facility agreements.
(3) The defendant’s facility is only a small portion of the
total financing required for the successful completion
of the said project. If the plaintiff cannot even service
the defendant’s facility, how could the plaintiff service
any EXIM loan which it would have to have for the
successful completion of the said project.
(4) The defendant is a licensed bank governed by the
Islamic Banking Act 1983. It is not allowed to
participate nor conduct any business that contravenes
the Syariah. The defendant does not charge penalty
interest by whatever name one wishes to call it for late
payment. Even single instalment that is paid late to the
defendant is a loss of use of money owed to the
defendant for the period of delay. Viewed in this
context, the grant of an injunction to the plaintiff would
cause irreparable damage to the defendant.
(5) The defendant as the lender being an institution
operating under the Islamic banking principles would
be made to suffer loss of use of its money by the delay
in recovering monies from the plaintiff in the event that
the High Court ultimately decide that the injunction
should not have been granted. The courts cannot
compensate this loss since the defendant is prevented
by its strict adherence to Islamic banking principles
from taking any penalty interest which would be in the
nature of usury.
Note ISLAMIC CONTRACT OF AL-ISTISNAA’ UPHELD
The court upheld the Syariah principles involved in the
Istisnaa’ contract, and protected the rights of the
defendant. The court seem to discuss more on justice and
equity for possible losses or irreparable damage to the
defendant in the event the plaintiff’s application for
injunction is allowed.
9. Case name Arab-Malaysian Merchant Bank Bhd v Silver Concept Sdn
Bhd

Citation [2008] 6 MLJ 295

Court / Date High Court, Kuala Lumpur / 18 July 2008


decided
Facts • The defendant acquired a large piece of land from Ng
Eng Hiam Plantations Sdn Bhd, the vendor, at the price
of RM125,000,000. To finance the said acquisition, the
defendant had obtained a financing under the BBA
facility from the plaintiff, a consortium of financial
institutions, where the sale price was RM216,875,000
in aggregate made up of a purchase price and a profit
element.
• In connection with the above, the parties had entered
into a sale and purchase novation agreement. The
plaintiff also entered into the instalment sale agreement,
a component of the BBA facility. The defendant
defaulted in the instalment payment and accordingly,
the plaintiff claimed a sum of RM185,536,908.64,
being the unpaid sale price pursuant to the default
provisions in the instalment sale agreement.

Judgment The court allowed the application for an order for sale by
public auction by the plaintiff.
(1) While a question as to what was the amount due might
arise in the event of an early termination, it was plain in
this case that the date of payment was well past due
which meant the agreed profit for the time period
agreed to had already been exhausted and there could
be no question that any of the agreed profit had not
been re-earned by the plaintiff.
(2) It was the defendant who sought financing. The BBA
facility was offered and the defendant accepted it. The
defendant signed the novation agreement so that the
plaintiff was the legal purchaser. It then on the same
day bought from the plaintiff under the instalment sale
agreement, giving the plaintiff a profit. Under the terms
of the sale and purchase novation agreement and
instalment sale agreement, the plaintiff had the right to
cancel the ABBA facility upon default. It was not for
the defendant now to say it was a loan with interest to
seek to avoid paying back. The defendant was estopped
from denying liability.

Note ISLAMIC CONTRACT OF BBA UPHELD


The court took the approach that the defendant when
signing the agreements was fully aware of the nature and
consequences, and he is now estopped from denying that
the plaintiff has the right to claim from him the total sale
price indicated in the property sale agreement. It will be
inequitable to allow the defendant’s claim where he
himself has willingly entered into the contract in the first
place.
10. Case name Affin Bank Bhd v Zulkifli Abdullah

Citation [2006] 1 CLJ 438

Court / Date High Court, KL / 29 December 2005


decided
Facts • In 1997, and subsequently by a revised agreement in
1999, the defendant took a secured housing loan of
RM394,172.06 from the plaintiff bank through the
Islamic financing scheme of Al-Bai Bithaman Ajil ('the
facility'). Inter alia, the facility specified that upon
default, the defendant would repay not only the sum
loaned but also the bank's profit margin spanning
through the 25-year tenure of the facility (pre-
quantified and known as the 'bank selling price'). The
defendant defaulted in 2002 after paying the bank
RM33,454.19, and the bank, pursuant to the terms of
the facility, claimed from the defendant the bank selling
price of RM958,909.21 and applied for an order for
sale of the charged property. The defendant was
distraught that the facility, just 2 years and 8 months
after it was given, had blossomed into a claim for debt
amounting to RM958,909.21, and in the circumstances
took umbrage at the inherent principles of the facility,
and the bank's right to obtain an order for sale
thereunder.
• Upon the facts as presented to the court, the learned
judge, rather justifiably, examined the facility in its
substance, particularly as to the defendant's rights vis-a-
vis a borrower under a conventional loan _ and framed
the following question for determination, namely: what
was the amount that the defendant, after having paid
RM33,454.19 in installments for the loan, had to pay
the bank under thefacility on the date of the order for
sale (if granted).
Judgment The court allowed claim albeit for a reduced sum and
granting order for sale.
(1) Under a conventional loan, a defaulter need only to pay
the loan amount plus accrued interest and other charges
and, upon a disposal of the property at market value,
there is usually little that he has to add in order to be
released from liability. Further, in the event of default
before the end of tenure, the sum the borrower has to
pay is limited to the period from the release of the loan
until full settlement thereof. On the contrary, under the
Al-Bai Bithaman Ajil scheme, the bank claims the loan
amount as well as the profit margin thereon for the full
tenure of the facility. Thus, while no interest is applied
in a conventional loan upon the unexpired tenure, the
bank here seeks to claim a profit on the unexpired
tenure as well.
(2) The substance of the Property Sale Agreement in the
facility is that, it is not a sale price paid by a single
payment but by a series of equal monthly installments.
It is also a substance of the transaction that profit
margin is not a profit arising from a sale price arrived at
in a bargain, but based upon the agreed amount and
tenure of the facility and the profit rate of the provider.
The sale price is then the sum of the provider's purchase
price and the profit margin. Further, the profit rate is
based on an agreed real or actual profit of the provider
expressed as a percentage, and not an interest that is
being charged regardless. The profit margin is thus a
function of the bank purchase price, the agreed profit
rate on a constant rate of return and monthly rests, and
the agreed tenure of the facility, and calculated with the
profit rate applied to the full tenure of the facility.
(3) Since the defendant is required to pay the profit for the
full tenure, he must be entitled to have the benefit of the
full tenure. It follows that, it would be inconsistent with
his right to the full tenure if he could be denied the
tenure and yet be required to pay the bank's profit
margin for the full tenure. Furthermore, the sum that is
recovered from the facility in the event of default
before the end of tenure is applied to other facilities and
the bank continues to earn its profit rate on the same
sum. Hence, to allow the bank to also recover a profit
margin for the unexpired tenure of the facility means
that the bank is able to earn a profit twice upon the
same sum at the same time. Likewise, the profit margin
that continues to be charged on the unexpired part of
the tenure cannot be actual profit. It is clearly unearned
profit and therefore contradicts the principle of Al-Bai
Bithaman Ajil. Obviously, if the profit has not been
earned, it is not a profit and cannot be claimed under
the facility.
(4) The argument that the bank could give rebate, which is
entirely discretionary, is irrelevant and not an answer to
the question of whether in the event of early
termination of the facility upon default, the bank is
entitled to the unearned profit margin on the unexpired
tenure.
(5) The profit margin of the facility is calculated from: (i)
the agreed profit rate (at 9% per annum); (ii) the tenure
of the facility (300 months); and (iii) the amount of the
facility (the sale price). The profit margin could thus be
derived with certainty. Even if the tenure is shortened,
the profit margin could be recalculated with equal
certainty.
(6) Upon the calculations placed before the court, the bank
profit at the agreed profit rate of 9% per annum on
RM394,172.06 would be RM35,475.49 per annum or
RM2959.29 per month or RM98.54 per day. Between 1
November 1999 to the date of judgment on 29
December 2005 was a period of 74 months less 2 days,
thereby earning a profit of RM218,767.49. As agreed,
the bank is also entitled to a penalty of 3141.44 and,
added to the bank purchase price of RM394,172.06, the
total due on the date of judgment is RM616,080.99.
However, after crediting the defendant with his
payment of RM33,454.19, the balance due on the date
of judgment is RM582,626.80. The bank is also entitled
to profit per day hereafter until full payment at
RM98.54 per day.
(7) The bank is entitled to rely upon the existing registered
charge to recover the outstanding sum from the
defendant arising from the terms of the facility as
accepted by the defendant on 3 November 1999. The
statutory procedural requirements had been complied
with and there was nothing then to bring the application
before the court within the categories of 'cause to the
contrary' to warrant the refusal of the order for sale.
The court would therefore grant an order for sale by
auction under the National Land Code to recover the
sum of RM582,626.80 plus profit at RM98.54 per day
until full settlement.

Note ISLAMIC CONTRACT OF BBA EQUATED WITH


CONVENTIONAL LOAN, HENCE CALCULATION
OF INTEREST/PROFITS EQUATED, BANK
CANNOT CLAIM UNEARNED PROFITS
The court compared the BBA financing with the
conventional loan, and dismissed the bank’s claim for
unearned profits, and only granted the profits up to the date
of judgment, plus penalty, and daily profit until the full
settlement of the judgment sum.
11. Case name Malayan Banking Bhd v Marilyn Ho Siok Lin

Citation [2006] 3 CLJ 796

Court / Date High Court, Kuching / 8 June 2006


decided
Facts • The defendant took out a BBA house financing facility
with the plaintiff bank. Under this facility, the plaintiff
bought the defendant's property at a purchase price of
RM500,000 and then sold the property back to the
defendant at a purchase price of RM995,205.64 that
was to be paid in 240 monthly instalments at RM4,107
per month. As security for repayment, the defendant's
property was charged to the plaintiff. However, the
defendant defaulted in payments after 14 months. The
plaintiff brought the present action against the
defendant for sale of the defendant's property by public
auction to satisfy the sum of RM928,589.12 being the
balance of the sale price less the instalments paid by the
defendant.
• The defendant contended that the plaintiff's claim was
inequitable because the sale price included interest for a
period of 240 months. The defendant also contended
that the plaintiff failed to comply with O.83 r.3 of the
Rules of High Court 1980 (‘RHC’) since the plaintiff
failed to state the amount advanced and the relevant
interests. Further, the defendant contended that she had
no knowledge of the nature of the BBA banking
facility, alleging a plea of non est factum.

Judgment The court granted order for sale of defendant's property for
a reduced sum.
(1) The non-compliance of O.83 r.3(7) RHC was curable
by virtue of O.1A and O.2 r.3 RHC. The court shall
have regard to the justice of the case rather than non-
compliance of the rules. Further, the defendant was not
prejudiced by the non-compliance thereof.
(2) The defendant had not shown to the court that she had
satisfied the pre-conditions for the plea of non est
factum to apply. As such, that allegation should be
dismissed.
(3) The case of Affin Bank Bhd v. Zulkifli Abdullah was an
authority for the proposition that it would not be
equitable to allow the bank to recover the sale price as
defined when the tenure of the facility was terminated
prematurely. Further, it was in the public interest that
the Islamic Banking industry continued to flourish in
this country and abroad. Adopting the interpretation
given by the learned judge in the Affin case would
enhance the process.

Note ISLAMIC CONTRACT OF BBA EQUATED WITH


CONVENTIONAL LOAN, HENCE CALCULATION
OF INTEREST/PROFITS EQUATED, BANK
CANNOT CLAIM UNEARNED PROFITS
The court compared the BBA financing with the
conventional loan, and dismissed the bank’s claim for
unearned profits, and only granted the profits up to the date
of judgment, plus penalty, and daily profit until the full
settlement of the judgment sum.
12. Case name Malayan Banking Bhd v Ya’kup Oje & Anor

Citation [2007] 5 CLJ 311 / [2007] 6 MLJ 389

Court / Date High Court, Kuching / 30 August 2007


decided
Facts • At the request of the defendants, the plaintiff had
granted the defendants a financing facility amounting to
RM80,094 under the Syariah principle of BBA to
finance the purchase of a property (‘the property’). The
facility was entered on 15 July 2003 and the defendants
defaulted after paying the sum of RM16,947.62. The
plaintiff sought for an order for sale under Section
148(2)(c) of Sarawak Land Code (‘the SLC’) in
consequence of the defendants’ breach by non-payment
of the sum of RM167,797.10 due and owing to the
plaintiff as at 26 June 2006. The sum actually received
by the defendants was only RM80,065, but the amount
they had to repay was RM167,797.10 as at 26 June
2006, which sum on the face of it for the purpose of
repayment only, would be seen to be excessive,
abhorrent to the notion of justice and fair play when
compared and contrasted with the secular banking
facilities.
• In consequence of this glaring injustice, there were at
least two High Court decisions (in Affin Bank Bhd v
Zulkifli bin Abdullah [2006] 3 MLJ 67 and Malayan
Banking Bhd v Marilyn Ho Siok Lin [2006] 7 MLJ 249)
which had restricted the plaintiffs suing under BBA
facility from recovering the full profits that they were
entitled to under the agreement.
• The issue was whether the court should allow the order
for sale for the repayment of the sum in the original
form or restrict the order for sale as set out in the two
High Court cases or make suitable orders or directions
as the justice of the case requires and demands. The
question to be decided was whether the plaintiff was
entitled as of right to the full profits in the event the
BBA was terminated very much earlier as in this
instance, taking into consideration s 148(2)(c) of SLC
or for that matter 256 of NLC.

Judgment The court granted the order accordingly.


(1) Islamic contract relating to commercial transaction is
not only subject to the terms of the contract but must be
decided subject to the Quranic injunctions and/or
Islamic worldview as the case may be. For this very
purpose, the court can on their own motion decide the
issue or alternatively call experts to give their views,
pursuant to s 45 of the Evidence Act 1950 or pose the
necessary questions to the Syariah Advisory Council
for their views.
(2) Section 148(2)(c) of the SLC makes it mandatory to
exercise equity and the court may not grant the order if
it is going to be perverse to the defendants. When it
comes to justice and equity, similar powers is also
preserved under s 256 of the National Land Code 1965.
(3) As matter of practice, most of the Islamic banks do
exercise their discretion and give a rebate, thereby
keeping with the true spirit and intent of justice and
equity under the Syariah law. Further, Islamic law of
commercial transaction will not permit the bank to state
the rebate for default under the BBA as Islamic law of
contract, though it may appear to be similar to the
secular law, is not the same. The Syariah law does not
generally permit conditional contract, contract upon a
contract, etc. However, this does not mean that Islamic
bank cannot openly state their policy and rates of
rebate without encapsulating in BBA agreements. This
will promote transparency and equity. The fact that
‘ibrar’ is unilateral does not stop Islamic banks from
voluntarily relinquishing part of their claim or the court
upon default by the customer to demand that proper
concessions be granted to the customer on equitable
grounds when exercising its jurisdiction and powers for
order for sale under s 148(2)(c) of SLC or that of s 256
of NLC.
(4) Equity in this case applied both to the plaintiff as well
as to the defendants. To obtain a just result and without
dismissing this originating summons, the court would
give an opportunity to the plaintiff to demonstrate
equitable conduct by filing an affidavit stating: (i) that
upon recovery of the proceeds of sale they will give a
rebate; and (ii) specify the rebate. The amount
specified must not be a nominal rebate but a substantial
one taking into account the prevailing market force by
banks generally, and the meaningful decision in the
cases of Affin Bank Bhd and Malayan Banking Bhd. If
the court is satisfied that the proposed rebate is just and
equitable, it shall make an order in terms of the
plaintiff’s application, subject to the terms set out in the
proposed affidavit. Otherwise, the court may not make
the order as prayed or may make some other order as
the justice of the case requires.

Note ISLAMIC CONTRACT OF BBA EQUATED WITH


CONVENTIONAL LOAN, COURT TOOK MIDDLE
ROAD – TO UPHOLD BBA WITH CONDITION
The court has the benefit to refer to earlier decisions
(Zulkifli Abdullah and Marilyn Ho) that the bank is not
allowed to claim full unearned profits. The court took the
approach to do justice to both plaintiff and the defendant,
allowing the full claim by the bank, on the condition that
the bank will give rebate and to specify the rebate amount.
13. Case name Bank Kerjasama Rakyat Malaysia Bhd v PSC Naval
Dockyard Sdn Bhd

Citation [2008] 1 CLJ 784 / [2007] MLJU 0722

Court / Date High Court, KL / 14 December 2007


decided
Facts • The plaintiff bank had granted an Islamic banking
facility of Bai Al Inah to the defendant. By the facility,
the plaintiff purchased certain quoted shares from the
defendant for a cash consideration of RM15 million and
sold the same to the defendant for a purchase price of
RM23,437,500.
• It was a term of the facility that the defendant would
repay the said sum of RM23,437,500 by way of 59
installments of RM140,625 each and one last
installment of RM15,140,625. The defendant repaid the
sum owed till August 2004 or thereat, but had since
defaulted resulting in the termination of the facility.
Having terminated the facility, the plaintiff sued the
defendant for the whole sum due thereunder amounting
to RM15,418,147.41, and applied for summary
judgment of the claim pursuant to O. 14 Rules of the
High Court 1980.
• Summary judgment was however refused by the
Deputy Registrar, allegedly for reasons that: (i) the
quantum claimed, being more exorbitant than even the
‘interest-ridden loan under the conventional facility’,
ought to be litigated upon (following Affin Bank Bhd v.
Zulkifli Abdullah); and (ii) there was uncertainty as to
the assets used in the transaction and the alleged date of
default.
• This was the plaintiff’s appeal against the decision.

Judgment The court allowed the appeal; granted the summary


judgment.
(1) The defendant did not make it clear what the basis of its
comparison is when comparing Islamic Banking facility
to that of the conventional banking facility. If the
defendant is referring to the judgment sum of
RM582,626.80 with a daily profit of RM98.54 allowed
in the Affin Bank’s case, as compared to RM958,997.94
claimed by the bank therein, then its argument on this
point is seriously flawed.
(2) It is to be noted that in Affin Bank, the sum of
RM958,997.94 claimed by the bank and disallowed by
the court was the final amount that the bank could
obtain as a judgment sum under the relevant Islamic
banking facility. Be that as it may, the judgment sum of
RM582,626.80 with a daily profit of RM98.54 awarded
to the bank by the court therein could run to a limitless
figure, and could even exceed the total sale price of
958,997.94 stated in the agreement. In short, subject to
the defendant therein realizing the amount quickly, the
lesser sum awarded could exceed the amount claimed
by the bank.
(3) In the present case, the amount claimed by the plaintiff
has already reached its maturity and therefore no issue
of unearned profit could arise. Consequently, the
argument that the plaintiff had based its claim on the
full purchase price so as to obtain unearned profit
would not hold water. It follows further that the
contention that Islamic banking is more burdensome
than conventional banking remains a mere speculation.
(4) Certainty is a basic requirement in any contract whether
under the Islamic law or under the Contracts Act 1950.
However what is certain and what is uncertain is a
question of fact. Therefore, the issue to be determined
here is whether the assets sold in the form of quoted
shares as enumerated in the first schedule to the
agreement is uncertain.
(5) The quoted shares here are clearly stipulated and their
lot numbers are also stated very clearly. At the point of
entering into the agreement, the defendant was aware of
what it has purchased and no issue of uncertainty was
then raised. Consequently, both parties were ad idem as
to the quoted shares and the particular shares and
number of shares that formed the subject matter of sale.
In any case, if the descriptions of the shares are not
clear to the defendant, there is no reason why it should
agree to the agreement and pay up part of the purchase
price.
(6) The facts showed that when the bank terminated the
facilities vide its letter of 7 February 2005, the
defendant, far from challenging the amount claimed,
had in fact requested for the period of payment to be
extended for another 12 months. This very conduct of
the defendant showed that it has full knowledge of what
and when the breach took place.

Note ISLAMIC CONTRACT OF BBA UPHELD –


ADMINISTRATIVE ISSUES
The court considered the full facts of the case and
distinguished with the case heavily relied upon by the
defendant (Affin Bank), and found that the defendant had
not raised any defence with merits to deserve a trial. This
is therefore a plain and obvious case for summary
judgment to be entered against the defendant under O. 14
of the RHC.
14. Case name Arab-Malaysian Finance Bhd v Taman Ihsan Jaya Sdn
Bhd & Ors, Koperasi Seri Kota Bukit Cheraka Bhd (Third
Party) and Other Cases

Citation [2009] 1 CLJ 419 / [2008] 5 MLJ 631

Court / Date High Court, KL / 18 July 2008


decided
Facts • This judgment, which had arisen from the introduction
of Islamic financing into Malaysia, is a consideration of
the basic principles governing Islamic financing and the
jurisdictional limitations imposed upon the civil courts
in dealing with these issues because of Malaysia’s
constitutional arrangements.
• Bank Islam Malaysia Bhd and other financiers (‘the
plaintiffs’) have been directed by the court to present
their individual submissions, which involved
foreclosure and other civil remedies against various
individual debtors of the plaintiff bank, collectively so
that the principles governing Islamic financing facilities
could be considered more comprehensively, and with
the aim of obtaining a more consistent result.
• Although common law sourced civil law and Islamic
law are both protected and enabled by the Federal
Constitution, limitations arise as to whether civil law
and the remedies available therein could apply to an
Islamic financing facility.
• Although cases involving Islamic financing are brought
in the civil courts it is not for these courts to interpret
which mazhab in Islam is to prevail and be applied.
• In addition, Islamic financing in Malaysia is governed
by the Islamic Banking Act 1983 and the Banking and
Financial Institutions Act 1989 for banks licensed
under the respective legislation. However these Acts do
not lay down specific provisions for Islamic banking
and financing except to say that the aims and operations
of the bank should not involve any element not
approved by Islam.
• The primary element governing Islamic financing
facilities is the prohibition of riba or interest.
• In the cases before the court the defendants had already
purchased a property from a third party and had paid
for part of the price. They had then approached the
plaintiffs for a facility to complete their purchase. The
plaintiffs had required the respective defendant to sell
the property he had bought to the plaintiff banks for
that balance of the purchase price, according to the
terms of bank’s property purchase agreement (‘PPA’).
• The plaintiffs then sold the property back to the
respective defendants under the bank’s property sale
agreement (‘PSA’), wherein the respective defendants
agreed to pay an agreed number of monthly
installments of specific sums. As security the
defendants were required to execute charge or
assignment of the property to the plaintiff.
• The total of the agreed installments added up to the
bank’s ‘selling price’, under the transaction known as a
Bai-Bithaman Ajil as practised by the plaintiffs.
• This gave rise to the issue as to the correct
interpretation to be given to the agreed selling price
under an Al-Bai’ Bithaman Ajil contract. It also
became necessary to consider the function of the civil
court when deciding on cases that involve Islamic
financing.

Judgment The court ordered a sale by public auction of the charged


properties with costs to be taxed.
(1) When dealing with cases involving Islamic financing
facilities, the civil court functions strictly as a civil
court and does not become a Syariah Court. The civil
court’s function, in this regard, is to render a judicially
considered decision before it according to law and not
apply Islamic law as if it were a Syariah Court. Its
function is to examine the application of the Islamic
concepts and to ensure that the transactions in the cases
before it do not involve any element not approved in
Islam.
(2) In Islamic financing there is nothing that prohibits the
giving of a loan. It is only the riba element in the loan
that is prohibited. Hence, loans without riba ie
benevolent loans or qard al-Hasan are allowed.
(3) The term Al-Bai’ Bithaman Ajil is no more than a sale
and deferred payment of the price as agreed to between
the parties. As such, the selling price is ordinarily paid
upon delivery. However if the payment is to be made
later, the seller is in effect extending a credit or a loan
of that selling price. At the same time it must be
remembered that the deferred payment of the selling
price is a credit or a loan permissible only because no
riba is charged. Furthermore, the key to the argument
that the Al-Bai’ Bithaman Ajil scheme does not involve
any element not approved by Islam is to read the PSA
independently. Therefore it is essential to maintain a
bona fide sale in order that the profit or selling price
should not be an element disapproved by Islam. Even
so, an interpretation of the selling price must not be
such as to impose a heavier burden than on a loan with
interest.
(4) The court has the authority to look beyond the words of
the agreement to the actual facts of the case in order to
determine the substance of the transaction between the
plaintiffs and the defendants before it draw any
conclusions on the nature of the Al-Bai’ Bithaman Ajil
transactions. It is necessary to look beyond the labels
used and look at the substance particularly in the light
of the fact that the interpretation advanced by the
plaintiffs resulted in the defendants being burdened
with a debt far in excess of that if they had taken
interest based on a conventional loan.
(5) Thus when the bank became the owner of the property
by a direct purchase from the vendor or by a novation
from its customer, as in the present cases, and then sold
the property to the customer, the plaintiffs’
interpretation of the selling price ought to be rejected
and the equitable interpretation applied. Where the
bank purchased directly from its customer and sold
back to the customer with deferred payment at a higher
price in total, the sale was not a bona fide sale but a
financing transaction and the profit portion of such an
Al-Bai Bithaman Ajil transaction rendered the facility
contrary to the Islamic Banking Act 1983 or the
Banking and Financial Institutions Act 1989, as the
case may be.
(6) Since the plaintiffs’ actions resulted most likely from a
misapprehension rather than intent afterthought, the
plaintiffs were entitled under s 66 of the Contracts Act
1950 to a return of the original facility amount they had
extended. It was equitable that the plaintiffs seek to
obtain a price as close to, if not more than, the market
price as possible, and account for the proceeds to the
respective defendants.

Note ISLAMIC CONTRACT OF BBA EQUATED WITH


CONVENTIONAL LOAN, HENCE CALCULATION
OF INTEREST/PROFITS EQUATED, BBA NOT IN
COMPLIANCE WITH LAW AND SYARIAH
The court took the approach that BBA financing is no
different from conventional loans, and as such showed
calculations prevalent in conventional loans. It is at one
point stated by the court that the BBA financing is not in
compliance with the IBA, and has caused much distress
amongst the Islamic finance industry players. Later at the
appeal (BIMB v Lim Kok Hoe) did the Court of Appeal
reversed the decision at the High Court level and upheld
the operations of BBA as being in compliance with
Shariah, should not be equated with conventional loan, and
does not involve the element of riba.
15. Case name Majlis Amanah Rakyat v Bass Bin Lai

Citation [2009] 2 CLJ 433

Court / Date High Court, Sibu / 10 February 2009


decided
Facts • By the Bay al Inah facility secured upon a third party
charge herein ('the facility'), the plaintiff agreed to sell
some assets to the customer for RM24,137.81 upon
deferred payment and then repurchased same for cash
payment of RM21,000. The customer defaulted in the
repayment and following that the plaintiff applied to
foreclose the property under s. 148 of the Sarawak
Land Code ('SLC').
• Before the learned Judicial Commissioner, the
defendant chargor objected to the application arguing,
presumably, that the facility, having transgressed the
riba rule, was prohibited in Islam. The plaintiff retorted
that notwithstanding that the proceeding was predicated
upon the provisions of the SLC and pertained to Islamic
banking facilities, the court should apply the same
principles as applicable in conventional banking
facilities.
• Alternatively, it was argued that even upon the
assumption that the facility was tainted with riba or
contravened Islamic commercial or banking principles,
the court could still follow Arab-Malaysia Finance Bhd
v. Taman Ihsan Jaya Sdn Bhd ('Taman Ihsan's case),
invoke s.66 of the Contracts Act 1950 and grant an
order for sale for the sum of RM21,000.

Judgment The court allowed order for sale as prayed.


(1) The general complaint in respect of transactions such as
Bay al Inah is that the sale is fictitious and that the
whole purpose is to grant a loan with profits thereby
breaching the riba rule. The riba rule does not permit
one to earn a profit directly from cash transactions
unless it is a trade-related transaction with the
employment of capital, labour and risk.
(2) The proper procedure to challenge the legality of a
contract is by filing an originating process and seeking
relief as set out in the Specific Relief Act 1950.
However, that does not mean that the court has no
power or jurisdiction to consider such issues if properly
raised or argued in a foreclosure proceeding. Only that
in such proceeding, the court is focused on whether to
allow the application for foreclosure as prayed or
restrict the sum claimed according to the justice of the
case and will not per se make any declaratory order if
there is no counterclaim for declaratory relief to set
aside, annul or declare the contract null and void.
(3) The challenge to the contract here was not taken
according to law for curial scrutiny as to whether the
contractual terms said to be pursuant to Bay al Inah was
in fact shariah compliant, and there was thus no
necessity for the court to deal with the issue. However,
for the purpose of the relief, and bearing in mind
Malayan Banking Bhd v. Ya'kup Oje & Anor, the court
could still consider whether the sum claimed is
equitable.
(4) The plaintiffs averred that the tenure of the facility had
expired and in consequence there is no issue of rebate
arising with the result that the sum prayed should be
allowed. There was merit in this submission and the
court would hence allow the plaintiff's originating
summons as prayed.

Note ISLAMIC CONTRACT OF BAY AL-‘INAH UPHELD


The court upheld the Islamic contract of Bay’ al-Inah,
accepted its operational mechanisms and allowed the
plaintiff’s claim for order for sale.
16. Case name Bank Islam Malaysia Berhad v Lim Kok Hoe & Anor and
other Appeals

Citation [2009] 6 CLJ 22 / [2009] 6 MLJ 839

Court / Date Court of Appeal, Putrajaya / 26 August 2009


decided
Facts • This judgment concerned an appeal by BIMB, the
appellant, against a common judgment delivered by the
High Court for 12 cases (‘the common judgment’),
which involved Islamic financing. The respondents in
all the 12 cases were BIMB’s customers who had
entered into BBA with BIMB.
• In the common judgment the High Court judge (‘the
trial judge’) questioned the validity and enforceability
of the BBA contracts on two main grounds, namely that
he found the BBA contracts to be more onerous than
the conventional loan with riba which was prohibited in
Islam; and that he found that the BBA contract
practised in this country was not acceptable by all the
four mazhabs in Islam. He thereby concluded that the
BBA contracts were contrary to the basic principles of
Islam. Based on such a conclusion the trial judge found
that an Islamic bank could only recover the balance of
the facility plus profit on the balance principal
calculated at a daily rate until payment.
• The main issues for determination in this appeal (9 out
of 12 appeals) were thus whether the BBA contract was
more onerous than the conventional loan agreement
with riba and also whether the BBA contract was
prohibited in Islam.

Judgment The Court allowed the appeal with costs here and below.
(1) The trial judge’s comparison between a BBA contract
and a conventional loan agreement was not appropriate.
A BBA contract was a sale agreement whereas a
conventional loan agreement was a money lending
transaction. As such, the profit in a BBA contract is
different from the interest arising in a conventional loan
transaction. Thus, the trial judge was plainly wrong
when he equated the profit earned by BIMB as being
similar to riba or interest when the two types of
transaction cannot be similar and when the BBA
contract is in fact a trade transaction. Further, the
comparison between a BBA contract and the
conventional loan agreement is of no relevance and
serves no purpose as the law applicable in a BBA
contract is no different from the law that is applicable
in a conventional loan agreement. The law is the law of
contract and if the contract is not vitiated by any
vitiating factor such as fraud, coercion, undue
influence, etc the court had a duty to protect the
sanctity of the contract entered into between the parties.
(2) By replacing the sale price under the PPA with an
equitable interpretation of the same and by substituting
the obligation of the customer to pay the sale price with
a loan amount and profit computed on a daily basis the
trial judge was in fact rewriting the contract for the
parties. It is trite law that the court should not rewrite
the terms of the contract between the parties that it
deems to be fair or equitable.
(3) The trial judge had misinterpreted the meaning of
‘Islamic banking business’ under s 2 of the Islamic
Banking Act 1983 (‘the Act’). ‘Islamic banking
business’ as defined in s 2 of the Act does not mean
banking business whose aims and operations are
approved by all the four mazhabs. Further, the judges in
civil courts should not take it upon themselves to
declare whether a matter is in accordance to the religion
of Islam or otherwise as it needs consideration by
eminent jurists who are properly qualified in the field
of Islamic jurisprudence. Moreover, as we had the legal
infrastructure to ensure that Islamic banking business as
undertaken by the banks in this country did not involve
any element not approved by Islam, the court had to
assume that the Syariah Advisory Council under the
aegis of Bank Negara Malaysia had discharged its
statutory duty to ensure that the operation of the Islamic
banks was within the ambit of Islam.
(4) In any event it was clear that the validity and
enforceability of the BBA contract had been ruled upon
by the superior courts. It is trite law that based on the
doctrine of stare decisis a decision of the superior court
is binding on all courts below it. In the light of this, the
trial judge ought to have held himself bound by those
decisions instead of ignoring or disregarding the
decisions of the Supreme Court or the Court of Appeal
as that would create misapprehensions in the judicial
system.

Note ISLAMIC CONTRACT OF BBA UPHELD


The court took the approach to uphold BBA, by stating
that BBA is shariah compliant, should not be equated with
conventional loans, hence the calculations of profit of
BBA should not be compared to the calculations of interest
under conventional loan, and the conventional loan should
not at all be brought into the picture following the different
laws governing the two. Earlier judgments have held that
BBA is valid, lower courts are bound by it.
17. Case name Light Style Sdn Bhd v KFH Ijarah House (Malaysia) Sdn
Bhd

Citation [2009] CLJ 370 / [2009] 1 LNS 193

Court / Date High Court, KL / 6 March 2009


decided
Facts • The defendant granted the plaintiff an Islamic revolving
trade line facilities up to a sum of RM5,600,000, of
which the plaintiff utilized on 17 occassions. For each
of the occasions, the plaintiff undertakes to purchase
the goods from the defendant. Based on this
undertaking, the defendant purchases the goods and
thereafter sells to the plaintiff, resulting in 17
Murabahah sale agreements. The plaintiff defaulted in
9 occassions, hence bringing to this action.
• This is an application by the plaintiff for an interim
injunction to restrain the defendant and its servants or
agents from filing, presenting, advertising and or
prosecuting a winding up petition against the plaintiff.
• The plaintiff alleges illegality and invalidity of the
agreements, being in contravention of BAFIA, IBA and
Moneylenders Act.

Judgment The court dismissed the application by the plaintiff.


(1) On the contention that the agreements contravene
BAFIA on the ground that it is financing, and the
defendant is not authorized to provide financing
pursuant to BAFIA, the court found that Section 125 of
BAFIA would have saved the Murabahah sale
agreements.
(2) On the contention that the agreements contravene IBA
on the ground that the defendant held itself out as an
Islamic bank but actually holds no license under IBA,
the court held that provising financing under the name
Islamic banking does not necessitate the definition of
‘Islamic banking business’ under IBA, as such there is
no contravention with IBA.
(3) On the contention that the agreements contravene MLA
on the ground that it is in fact money lending, and the
defendant is not licensed under the Act, the court held
that the plaintiff accepted the facilities and signed the
agreements in full knowledge of the mechanism of the
financing facilities, to allow the claim would be
inequitable because the plaintiff himself ought to have
been aware of in the first place.

Note ISLAMIC CONTRACT OF MURABAHAH UPHELD


The court decided that the Islamic contract of Murabahah
as practiced by the defendant does not contravene BAFIA,
IBA and/or MLA.
18. Case name Arab-Malaysian Merchant Bank Berhad v Foreswood
Industries Sdn Bhd & 4 Others

Citation [2007] MLJU 664 / [2007] 1 LNS 539

Court / Date High Court, Kuching / 23 November 2007


decided
Facts • The plaintiff and its sister-company (Arab-Malaysian
Bank Bhd) besides this suit also filed four other
separate suits against the five defendants: 1st defendant
was the principal borrower and the other four
defendants were director-guarantors. At the material
time, the 2nd, 3rdand 5thdefendants were directors of the
1st defendant. The 4th and 5thdefendants have both been
declared bankrupt by creditors in Sibu and the actions
remain in respect of the 2ndand 3rddefendants. Plaintiff
applied for summary judgment in all the suits and the
affidavits filed are similar.
• By a letter of offer the plaintiff agreed to grant to the 1st
defendant a BBA or (deferred payment sale) facility of
RM5.0 million for financing the purchase of machinery
and equipment for the 1st defendant. The transaction set
out in the equipment sale/purchase agreements contain
terms of a finance facility based on the Islamic banking
concept of BBA. This finance facility involves two
transactions between the plaintiff and the 1st defendant,
namely: (1) the purchase of the equipment by the
plaintiff from the 1st defendant at the purchase price of
RM5 million. (2) the plaintiff reselling the same to the
1st defendant for RM5,925,910.00 on a deferred
payment basis, payable in 36 monthly installments.
• The appellants say the equipment sale agreement was
entered into before the equipment purchase agreement
and this was in breach of BBA concepts. Further, the
appellants say the equipment sale agreement and the
equipment purchase agreement are bills of sale within
the meaning of the Bills of Sale Ordinance (Sarawak
Cap.68) and are therefore void for want of attestation
and registration in accordance with the provisions of
the said Ordinance.

Judgment The court allowed the appellant’s appeal, and decided that
this is a fit and proper case for full trial and cannot and
should not be disposed off summarily. It is trite that the
BBA concept is valid and is now widely used.

Note ISLAMIC CONTRACT OF BBA UPHELD –


ADMINISTRATIVE ISSUES
The issues in this case are very much administrative and
do not involve the substance or working mechanism of
BBA. The court ordered full trial as the case cannot and
should not be disposed off summarily
19. Case name Fadzillah Ahmadi Bin Alii v Mayban Finance Berhad

Citation [2007] MLJU 663 / [2007] 1 LNS 536

Court / Date High Court, Kuching / 23 November 2007


decided
Facts • The facility agreement in this case was granted by the
respondent under the principle of BBA. The plaintiff
applied for summary judgment against the defendant
for the sum of RM148,955.96 calculated as at 16-07-
2003 and costs of the action. The said amount was the
balance owing under a facility agreement to purchase
100,000 unit trusts from Abrar Investment fund,
entered by the plaintiff as the financier and the
defendant as the borrower.
• By way of security for the facility the defendant
executed a memorandum of deposit wherein the said
unit trusts were deposited with the plaintiff. That was in
addition to a RM30,000 fixed deposit also placed with
the plaintiff. Under the said agreement, the defendant
was obliged to pay monthly installments towards the
amount financed (ie the selling price of the unit trusts)
but in breach of the same, the defendant defaulted in
payment of the said monthly installments. Hence the
facility was terminated by the plaintiff's letter dated 25-
07-2003. In the same letter the plaintiff also demanded
payment of the sum stated above.
• The defence of the defendant prima facie cannot be
said to be a sham defence, the defendant raises a
number of triable issues which are very much peculiar
to issues related to validity of the facility agreement
under BBA principle.

Judgment The court allowed the appellant’s appeal, and decided that
this is a fit and proper case for full trial and cannot and
should not be disposed off summarily. It is trite that the
BBA concept is valid and is now widely used.

Note ISLAMIC CONTRACT OF BBA UPHELD –


ADMINISTRATIVE ISSUES
The issues in this case are very much administrative and
do not involve the substance or working mechanism of
BBA. The court ordered full trial as the case cannot and
should not be disposed off summarily.
20. Case name Bank Muamalat Malaysia Bhd v Suhaimi Bin Md Hashim
& Anor

Citation [2007] 1 MLJ 275 / [2006] 7 CLJ 321


Court / Date High Court, KL / 24 May 2006
decided
Facts • The claim is filed by the plaintiff for an order for sale
under Section 254 of the NLC and an order for
repayment of the total judgment sum of RM68,463.62
said to be outstanding under the BBA financing facility
as of 12 May 2005 and to end the said financing
facility.
• As required under Section 254 and the RHC, notice in
Form 16D and originating summons was served on the
defendants.
• The defendants entered defence claiming that the
default was not until the expiry of the 180 months,
whereas the plaintiff is claiming for the total 180
months. The defendant claimed that the plaintiff should
not claim profits for the 134 months.

Judgment The court allowed the defendant’s contention, stating that


the defendant is charged on the plaintiff’s profits for the
future 134 months. This is unfair and contradicts the
Syariah principles for carrying a heavier duty to the
customer compared to normal loan that does not follow
Syariah principles. The court allowed the plaintiff’s claim
from the date the loan was disbursed until the date of
judgment (i.e. 46 months), and forbids any claims for the
following months.

Note ISLAMIC CONTRACT OF BBA EQUATED WITH


CONVENTIONAL LOAN, HENCE CALCULATION
OF INTEREST/PROFITS EQUATED, BANK
CANNOT CLAIM UNEARNED PROFITS
The court compared the BBA financing with the
conventional loan, and dismissed the bank’s claim for
unearned profits, and only granted the profits up to the date
of judgment, plus penalty, and daily profit until the full
settlement of the judgment sum.
21. Case name Southern Bank Bhd v Ayer Keroh Park Sdn Bhd

Citation [2005] 6 CLJ 134 / [2005] 4 AMR 597

Court / Date High Court, Melaka / 25 February 2005


decided
Facts • This was an application by the plaintiff seeking an
order pursuant to Section 256, NLC to sell certain land
by means of a public auction. The plaintiff had given
the defendant banking facilities and the defendant had
created three registered charges over the land in favour
of the plaintiff by way of security. Upon the defendant's
default in complying with the terms of the charges, the
plaintiff served the default notices in Form 16D ('the
statutory notices').
• As a consequence of the defendant's failure to comply
with the necessary payment pursuant to the statutory
notices, the plaintiff applied to the land administrator
('the LA') for an order for sale, which was granted.
Although two public auctions were conducted, there
was no bidder, and the LA consequently issued a
certificate and referred this matter to this court under
Section 265(3)(b) of NLC.
• The issue that needed to be addressed herein was
whether the plaintiff's prayer for an order for sale
pursuant to Section 256 of NLC could appropriately be
classified as a case falling within the ambit of Section
265(3A) of NLC.
• The defendant also contended that there was a cause to
the contrary established ie, that the charge had failed to
meet the conditions precedent for the making of an
application for an order for sale on the basis that the
latter statutory notice was defective and had
contravened Section 254(1) of NLC.

Judgment The court allowed the application.


(1) In the light of the absence of a bidder, the reference by
the LA to this court was clearly consistent with Section
265(3)(b) of NLC. Upon a true construction of the clear
and unambiguous provision of Section 265(3A) of
NLC, it was abundantly plain that the plaintiff's
application for an order for sale under Section 256 of
NLC would appropriately be classified as a case falling
within the ambit of Section 265(3A) of NLC. In the
circumstances, the plaintiff's prayer as pleaded in the
originating summons was proper and the plaintiff was
able to legitimately rely on Section 265(3A) of NLC;
hence, the contention of the defendant to the contrary
did not appear to be of any merit.
(2) The two statutory notices in Form 16D had been served
on the defendant for the purposes of obtaining the order
for sale from the LA, which had already made an order
in terms thereof and there was no appeal against the
LA's order for sale. In this court's view, there could be
no issue arising from there and there was no way the
defendant could successfully mount the challenge in
relation to the statutory notices. Thus, the defendant's
case was devoid of merits.

Note ISLAMIC CONTRACT OF BBA UPHELD –


ADMINISTRATIVE ISSUES
The issues in this case are very much administrative and
do not involve the substance or working mechanism of
BBA. Because all the requirements in the NLC and RHC
are fulfilled, the court granted the application for order for
sale by the plaintiff.
22. Case name Malayan Banking Berhad v Zainal Abidin Abdullah &
Anor

Citation [2008] MLJU 180

Court / Date High Court, Shah Alam / 31 March 2008


decided
Facts • The plaintiff instituted foreclosure proceedings against
the defendant for defaulting under the BBA facility.
The plaintiff issued Form 16D (notice to remedy
default) for the full amount under the PSA.
• The defendant claimed that the Form 16D is defective
in contravention of Section 254(1) of NLC, and that the
plaintiff should not have claimed the full amount under
the PPA for profits of the unexpired tenure of the BBA
facility.

Judgment (1) The court dismissed the action by the plaintiff on


administrative grounds, the Form 16D was found to be
defective, but the plaintiff is at liberty to issue a fresh
Form 16D and if need, to institute a fresh foreclosure
action.
(2) On the issue of the claim for full amount under the
PPA, assuming the Form 16D is valid, the court held
that it is unconscionable for the plaintiff to claim for the
realization of the full balance sale price when the full
tenure of the facility has not yet expired. In other
words, the plaintiff should not claim for the unearned
profits.

Note DESPITE BEING DISMISSED ON


ADMINISTRATIVE GROUNDS, THE COURT
CONSIDERED TO UPHOLD THE BBA CONTRACT
ONLY UP TO THE DATE OF JUDGMENT
The court took the approach to follow the calculations
mentioned in Affin Bank v Zulkifli Abdullah taking into
account only profits up to the date of judgment, not taking
into account unearned profits as mentioned in the PSA and
the Charge documents.
23. Case name Bank Kerjasama Rakyat Malaysia v Sea Oil Mill Sdn Bhd
& Anor

Citation [2003] MLJU 207 / [2003] 1 LNS 718

Court / Date High Court, KL / 17 April 2003


decided
Facts • The plaintiff granted a revolving credit facility to the
defendant based on the contract of Bay’ al-Inah for an
amount not exceeding RM20 million.
• The defendant defaulted repayments and the plaintiff
applied for summary judgment to be entered on the
defendant, but the application was rejected by the
senior assistant registrar. This is an appeal against the
decision by the senior assistant registrar.
• The defendant claimed that the buy and sale
transactions under the Bay al’Inah concept are void,
and it is mere lending transaction.

Judgment The court allowed the plaintiff’s appeal to enter summary


judgment on the defendant, and upheld that operations of
financing facility under the contract of Bay al-‘Inah. The
court held that the defendant willingly entered into the
contracts, and knowingly agrees to the terms and
conditions thereto. It is unfair for the defendant to deny
liability therafter.

Note ISLAMIC CONTRACT OF BAY AL-‘INAH UPHELD


Although the decision is purely administrative, the
upholding of the Bay’ al-Inah concept is attributed to the
court for taking into consideration of line of Islamic
financing in Malaysia, and ordered accordingly for
summary judgment be entered on the defendant.
24. Case name Oriental Bank Berhad v Gandingan Ilmu Sdn Bhd & Ors

Citation [2003] MLJU 485

Court / Date High Court, KL / 4 May 2003


decided
Facts • The respondent granted banking facilities to the
appellant based on the contract of BBA for the amount
of RM7.5 million.
• The appellant defaulted repayments and the respondent
applied for summary judgment to be entered on the
appellant. The application was granted by the senior
assistant registrar. This is an appeal against the decision
by the senior assistant registrar.
• The appellant claimed that the respondent failed to
manage the loan in accordance with Islamic principles.

Judgment The court dismissed the appellant’s appeal, and upheld that
operations of financing facility under the contract of BBA.
The court held that there are no triable issues to move a
full trial.

Note ISLAMIC CONTRACT OF BBA UPHELD


Although the decision is purely administrative, on whether
tere are any triable issues which the court found to be not
affirmative, the upholding of the BBA concept is attributed
to the court for taking into consideration of line of Islamic
financing in Malaysia, and upheld the earlier decision by
the senior assistant registrar for summary judgment be
entered on the appellant.