To this end, this article critically examines the existing legal framework of Islamic finance in Malaysia with reference to the need for an adequate framework for the fundamental concepts of trading. An effective legal framework for Islamic finance is needed not only to encourage but also to strengthen the practice of Islamic finance in the country.
ISLAMIC FINANCE AND LEGAL ISSUES ARISING FROM ENFORCEABILITY OF CONTRACTS
The courts in Malaysia have generally adopted two approaches when faced with Sharî'ah issues. One is not to deal with Shari'ah issues, but only to give effect to the terms agreed upon by the parties. The position of the bank is quite understandable as it was only a merchant trying to use Shari'ah concepts to do business.
In fact, the bench was even prepared to argue that the Shari'ah principles consist of conflicting rulings and also that there is considerable debate about what is permissible under the Shari'ah and what is not. His Lordship's ratio decidendi may not be relevant and the courts may be bound under the Federal Constitution or any other written law to ensure that Shari'ah principles are not violated.
APPROACHES OF THE MALAYSIAN COURTS IN DECIDING ISLAMIC FINANCE MATTERS
In Malaysia, the Federal Constitution is supreme and Islamic law and principles cannot be overruled only when the documents claim to be Sharia compliant. Courts can play a constitutional role to ensure that products are actually Sharia compliant. It should also be noted that the Court of Appeal's decision in the Shamil case may also be of little comfort to the Islamic finance industry, as Potter LJ had said that the English courts would be happy to consider foreign law issues if they wanted to. to be validly incorporated into English. contracts.
Such a proposal, if followed in England, could lead to a real explosion of business and uncertainty in the Islamic finance industry; such problems can only be addressed through an appropriate legislative framework.
Parties are Bound by Their Agreement
The court considered that the BBA is "more difficult than the usual "fish" loan, which is prohibited and unequivocally condemned"53 and that the BBA contract being implemented is not acceptable to all four schools of thought (madhahib) in Islamic jurisprudence.54 . As the BBA financing scheme is a scheme permitted under Sharia principles, it was therefore crucial that the court apply the correct interpretation of the term Islam and the Islamic religion to examine whether the BBA financing scheme is in accordance with Islamic concepts or not. In the appeal, the Court of Appeal had to examine the question of whether a comparison between a BBA contract and a conventional contract is appropriate, if the financing instruments are not similar and have different characteristics.55 The Court of Appeal took the position that the BBA contract is a contract of sale, while a conventional one is .
35; The court held that the learned judge was clearly wrong in equating the profit earned by BIMB as akin to riba or interest when the BBA contract is in fact a commercial transaction. The Court of Appeal further held that by giving BBA's interpretation of the contract as the learned judge did, substituting a fair interpretation for the sale price and substituting the customer's obligation to pay the sale price with a “credit lot and profit". the learned judge would in fact rewrite the contract for the parties and it is common for the court not to rewrite the terms of the contract between the parties which are considered fair and just.61.
Justice and Equity of the Case
The court also held that the comparison between BBA contract and conventional loan agreement is of no relevance citing the case of Bank Kerjasama Rakyat Malaysia Bhd, v Emcee Corporation Sdn Bhd58 where the Court of Appeal held that in dealing with Islamic bank facility, the applicable law was still the same law, the same principles that had to be applied.59 In that case, the Court of Appeal took the factor that the law is contract law and the same principle must be applied in deciding the cases and if the contract is "not affected by any harmful factor recognized in law such as fraud, coercion, undue influence, etc. In Ya'kup Oje's case, the learned judge stated that there was a gross injustice on the basis that the amount the defendants had to repay was excessive and repugnant to the idea of justice and equity (amount received RM80,065 but the amount to be returned payable was RM167,797.10). It was held that whether the BBA was valid or not depended on the nature of the instrument.
The learned judge further held that the question was not whether the BBA was valid, but rather whether the plaintiff's bank was entitled as of right to the entire profit in the event that the BBA was terminated much earlier, taking into account Article 148 (2 ). (c) of the Sarawak Land Code or for that matter section 256 of the National Land Code. The learned judge held that in order to obtain a just result and without dismissing the original writ petition, the court would make an order in terms of the application if the proposed reduction was just and equitable.
Considering the Substance of the Agreement
It is also the essence of the transaction that the profit margin is not a profit resulting from a sales price reached at a bargain, but is based on the agreed amount and term of the facility and the provider's profit rate. The sales price is then the sum of the supplier's purchasing price and the profit margin. The essence of the profit rate is based on an agreed real or actual profit of the provider, expressed as a percentage, and not on an interest rate charged anyway. Please note that the profit margin is calculated using the profit rate applied to the entire term of the facility, during which installments are payable. To enable the bank to also recover a profit margin for the unexpired term of the facility, this means that the bank is able to make a profit twice on the same amount at the same time.
The profit margin that continues to be collected on the unexpired part of the term of office cannot be actual profit. This is contrary to the BBA's principle regarding the profit margin to which the provider is entitled.
Consideration of the Case as a Whole
The court ruled that the installments had become due and had been partially paid and that the defendant had not shown any counter-evidence justifying the refusal of the sales order and that the appeal was allowed. On the issue of the constitutionality of sections 56 and 57, the Supreme Court held that the function of the SAC was limited to establishing Islamic law in the field of finance and that it is still the duty of the Court to apply this on the facts of the case. Second, the plaintiff argued that Sections 56 and 57 are unconstitutional because they conflict with Articles 8 and 74 of the Federal Constitution.69.
Regarding the alleged violation of Article 8 of the Federal Constitution, the Court of Appeal ruled that Articles 56 and 57 are applied without discrimination to all parties in the same circumstances, therefore it cannot be argued that they were contrary to Article 8 of the alleged usurpation of the powers and jurisdiction of the court with by the SAC, the Court of Appeal ruled that the SAC's duty is limited solely to ascertaining Islamic law on financial matters or business.
IFSA AND THE CHALLENGE OF RESOLVING ISLAMIC FINANCE DISPUTES IN THE CIVIL COURT
Adherence to Sharia means that it must be in accordance with the principles of Sharia by adhering to the principles, conditions and principles espoused by Sharia.73. Bank-level committee and a centralized Sharia advisory board at central bank level. The Shariah Committee is expected to perform a supervisory role on Shariah matters related to the financial institution's business and operations.
This shall be achieved through the Shari’ah review and the Shari’ah audit functions. Any ruling made by the Shari’ah Advisory Council pursuant to a reference made under this Part shall be binding on the Islamic financial institutions under section 55 and the court or arbitrator making a reference under Section 56.”.
The Establishment of Islamic Finance Tribunal
The advantages of a court with a specialist judge for matters related to Islamic finance are obvious. i) The expertise of the judge serving in the court can lead to a more efficient and simpler development of the hearing. This reduces the scope for misunderstandings (intentional or not), the wasted time spent on educating judges or sometimes the lawyers themselves or tactical games which do not only serve as a complete waste of judicial time and increase the cost;. ii) the outcome of the case becomes more predictable and uniform; iii) all these would result in a greater possibility of settlement for the right reasons; and. iv) if an Islamic finance court is realized as proposed, there is no doubt that it will contribute to stability in the Islamic finance industry. In fact, the establishment of the specialized Muamalat Panel at the Kuala Lumpur High Court has shown how much it helps to create more certainty in the end of the dispute and faster resolution of cases, even though there is still no specialist judge trained in Islamic banking or finance as such.
Nevertheless, this latest proposal for an Islamic Finance Court is a step further than the previously recorded success of the establishment of the Muamalat Court at the High Court.
The Use of ADR (Arbitration) to Resolve Islamic Finance Disputes
SAC has adopted AAOIFI as a secondary source in deliberating on any Sharia issue on Islamic finance.92. In this regard, the Kuala Lumpur Regional Center for Arbitration (KLRCA) had taken the initiative to offer its professional services to resolve Islamic financial disputes through arbitration. Oseni and Abu Umar Faruq Ahmad, “Blazing the Trail: The Institutional Framework for Dispute Resolution in Malaysia's Islamic Finance Industry”, (2012), ISRA International Journal of Islamic Finance, Vol.
Kabir Hassan, "Dispute Resolution Framework for the Islamic Capital Market in Malaysia: Obstacles and Legal Options". In M. The advantage of arbitration over litigation is that the award given by the arbitrators is enforceable in 149 member states of the Convention worldwide.97 Therefore, if one promotes the settlement of Islamic financial disputes through arbitration, it can help in promoting Malaysia as an arbitrage center in Islamic finance and at the same time as a global Islamic financial centre.98.
CONCLUSION
