1. 1
Mardhiyyah Sahri
ISLAMIC FINANCIAL
LEGAL FRAMEWORK
AN ANALYSIS OF THE COURTS‟ DECISIONS ON
ISLAMIC FINANCE DISPUTES

2. CHRONOLOGY OF CASES
2
1994 • BIMB v. Adnan Omar
1996 • Dato‟ Hj Nik Mahmud v. BIMB
2006 • Affin Bank Bhd v. Zulkifli Abdullah
2007 • Malayan Banking v. Ya‟kup Oje
2008 • Arab Malaysian Finance v. Taman Ihsan Jaya
2009 • BIMB v. Lim Kok Hoe
2010 • BIMB v. Azhar Osman

3. BIMB v. Azhar Osman (2010)
3
 FACTS:
 Two sets of appeal went to Court Of Appeal
 It was decided that BBA contact was valid and
enforceable.
 The cases were sent back to High Court to decide on
the quantum of claim and amount due.
 BIMB was unsatisfied with the decision and now
appealed to Court of Appeal.
 ISSUE:
 Whether there is an obligation for the defendant to
pay full sale price stated in the Property Sale
Agreement irrespective of a premature termination?

4. BIMB v. Azhar Osman (2010)
4
 PRINCIPLES:
 BBA are sale contracts and the court must give
full effect to the same
 Ibra‟ is applicable in early settlement cases and
not in default cases
 The bank is allowed to claim balance sale price
 Court should not interfere with the contract if
there is no vitiating factors to do so
 DECISION:
 Claim to recover full sale price was granted

5. BIMB v. Lim Kok Hoe (2009)
5
 FACTS:
 Appeal judgment for 12 cases concerning
islamic financing.
 Whereby the learned judge declared that the
BBA contract was contrary to the religion of
Islam
 Questioned the validity and enforceability of the
BBA contract
 ISSUES:
 Whether BBA contract was more
onerous/burden than the conventional loan
agreement with riba.
 Whether BBA contract was prohibited in Islam

6. BIMB v. Lim Kok Hoe (2009)
6
 PRINCIPLES:
 Comparison between conventional & Islamic
(BBA) contract was not appropiate.
 Judge should not decide on their own. They
should consult to qualified jurists.
 Intepretation of “Islamic Banking Business”
under section 2 of the Islamic Banking Act 1983
does not mean banking business whose aims
and operations are approved by all the four
mazhabs.
 DECISION
 Court of Appeal (COA) allowed the appeal.

7. Arab Malaysian Finance v. Taman Ihsan Jaya
(2008)
7
 FACTS
 The respective defendants had already purchased the
property from third party and had paid part of the price.
 Approaching the plaintiff banks for facilities to complete
the purchase , the defendants were required to sell the
property they had bought to the respective bank for the
balance stipulated in the bank‟s PPA.
 The bank then sold the property to the defendants via the
bank‟s PSA.
 The defendants defaulted in the payment of the bank
selling price and the bank applied for an order for the sale
of property.
 The defendants argued that the transaction herein
comprising the letter of offer , the PPA, the PSA and the
charge or assignment became transparently financing in
nature.

8. Arab Malaysian Finance v. Taman Ihsan Jaya
(2008)
8
 ISSUE
 Whether involved element not approved in Islam.
 Whether riba a prohibition element in Islamic financing
 PRINCIPLES
 The functions of civil court.
 Pertaining to the section 66 of the Contract Act; the price
of the property must close to the market price and cannot
be more than that.
 Section 256 of the National Land Code read with the
Order 83 Rule 3.
 The element must be recognised by the four mazhabs as
it to be approved by the religion of Islam.
 Interpretation of the BBA Contract.
 Interpretation of other elements which not approved in the
religion of Islam; riba and usury.

9. Arab Malaysian Finance v. Taman Ihsan Jaya
(2008)
9
 DECISION
 Court
ordered sale by public auction of the
charged properties with costs to be taxed.

10. Malayan Banking v. Ya‟kup Oje (2007)
10
 FACTS
 Plaintiff had granted the defendants financing
amount RM 80, 094 under BBA .
 Defendants defaulted after paying the sum of
RM 16, 947.62
 Plaintiff sought an order for sale under section
148 (2)(c) of the Sarawak Land Code to recover
the sum of RM 167, 797.10
 ISSUES
 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.

11. Malayan Banking v. Ya‟kup Oje (2007)
11
 PRINCIPLE:
 Based on just and equity.
 Islamic contract must be decided based on
Quranic injuctions.
 DECISION:
 Bank to resubmit amount with proposed rebate.
 If the court is satisfied that the proposed rebate
is just and equitable, it shall make an order for
sale
 Otherwise the court may make some other order
as the justice of the case requires

12. Affin Bank Bhd v. Zulkifli Abdullah
12
(2006)
 FACTS
 The defendant bought a double storey link
house
 Secured the loan under the Shariah principle of
BBA from the plaintiff, who was his employer at
that time, for the sum of RM 346,000.
 Then, the defendant resigned from the plaintiff
bank and at his request, the loan facility was
restructured whereby under the revised facility
 The bank selling price of the house was
RM992,363.40 payable over a period of 25
years

13. Affin Bank Bhd v. Zulkifli Abdullah
13
(2006)
 ISSUES
 What is the amount that a customer has to pay
the provider of BBA facility in the event of default
 Whether provider of an BBA facility can, in the
event of a default before the end of tenure, claim
as part of the sale price or bank selling price the
profit margin for the unexpired tenure of the
facility
 When tenure shortened, whether profit margin
could be recalculated with equal certainty

14. Affin Bank Bhd v. Zulkifli Abdullah
14
(2006)
 PRINCIPLES
 Principle of applicability of civil law as found in the Court
of Appeal‟s decision in Bank Kerjasama Rakyat Malaysia
Bhd v. Emcee Corporation Sdn Bhd.
 Under a conventional loan, the amount due by a borrower
over and above the loan amount (i.e. interest and late
payment interest), is limited to the period from release of
the loan until the loan amount is fully settled, and not for
the full original tenure of the loan where no interest is
applied on the unexpired tenure. However, in this case,
the bank is seeking to claim the profit on the unexpired
tenure of 25 years.
 The bank's selling price in BBA financing, is not a sale
price paid in a single payment, but is a series of equal
monthly installments.
 The profit margin is calculated with the profit rate applied
to the full tenure.

15. Affin Bank Bhd v. Zulkifli Abdullah
15
(2006)
 PRINCIPLES
 If the customer is not given the full tenure to pay the
selling price, then the bank is not entitled to claim for
the bank's profit margin for the full tenure, as to allow
the bank to do so would mean that the bank is able
to a earn a profit twice upon the same sum at the
same time.
 The profit margin charged on the unexpired part of
the tenure is unearned profit and not actual profit,
and therefore cannot be claimed under BBA.
 DECISION
 Granting the order for sale and reducing the amount
of repayment

16. Dato‟ Hj Nik Mahmud v. BIMB (1996)
16
 FACTS:
 The plaintiff with attorney had entered into a PSA
and PPA with the defendant in respect of 25 lots
of land in BBA concept.
 The defendant purchased the properties and
resold back to the plaintiff with additional prices
and charges.
 The plaintiff applied for an order that the charges
be declared null and void.
 He also applied for the return the titles of the
properties, free of all encumbrances.

17. Dato‟ Hj Nik Mahmud v. BIMB (1996)
17
 ISSUES:
 Whether sale of land in accordance with IB
Concept of BBA contravened the Malay
Reservations Enactment 1930 of Kelantan.
 Whether purchase and resale of land for profit
by bank contravened the Malay Reservations
Enactment 1930 of Kelantan

18. Dato‟ Hj Nik Mahmud v. BIMB (1996)
18
 PRINCIPLES:
 Section 7(i) of the Enactment prohibits any transfer or transmission or
vesting of any right or interest of 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 executor, was only a right to a registrable interest
which right was yet to crystallized into a registrable interest.
 The contemporaneous execution of the property purchase agreement
and 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 himself of the
financial facilities provided by the defendant under the BBA concept.
 Indefeasibility could only be successfully attacked by evidence which
manifested that registration was obtained by „means of insufficient or
void instrument‟. This meant that the plaintiff could only successfully
seek the aid of section 340(2)(b) of the NLC if it could be shown that
there existed a defect or illegality in the execution of the charge
documents
 DECISION:
 Dismissing the appeal with costs.

19. BIMB v. Adnan Omar (1994)
19
 FACTS:
 The defendant sold to the plaintiff a piece of land
for $265,000.
 On the same date, the plaintiff resold the same
piece of land to the defendant for $583,000
which amount was to be paid by the defendant
in 180 monthly instalments and the land was
charged to the plaintiff by the defendant as
security for the debt of $583,000.
 In case of default in payment by the defendant,
the plaintiff entitled to sell the charged land as
agreed in the BBA contract.

20. BIMB v. Adnan Omar (1994)
20
 ISSUES
 Whether they have a full knowledge when sign
the contract.
 Whether they have the same understanding of
the term of the agreement.
 Whether the civil court will hear matter of Islamic
finance.

21. BIMB v. Adnan Omar (1994)
21
 PRINCIPLES
 Shariah courts have jurisdiction only over
persons processing the religion of Islam.
 Bank Islam is a body corporate entity will not be
subject to the jurisdiction of the shariah courts.
 Shariah court has no jurisdiction on debt
 When they have been an agreement between
the parties, the contract cannot be disputes
because the agreement show they have a full of
knowledge

22. BIMB v. Adnan Omar (1994)
22
 DECISION
 Failureto pay the installment is a breach of the
agreement and the plaintiff has the right to
terminate the facilities and demand for the
immediate full repayment of the load.
 Order of sale granted.

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