The effect of Section 281 of Islamic Financial Services Act 2013.
One of the pertinent issue highlighted by the
High Court in dismissing the application for summary judgement by Maybank
Islamic Bank Berhad in the case of MAYBANK ISLAMIC BERHAD v. GOLDEN BASE
CONSTRUCTION SDN BHD & ORS [2019] 1 LNS 1785 was that the mere use of the
words “Shariah-compliant commodities determined by the Bank as per the
e-certificate” in the financing documents was insufficient to identify the
underlying asset. Thus, the legality of the Murabahah transaction was in
question due to the uncertainty of the underlying Murabahah asset,
In Islamic finance, the Murabahah Contract
refers to Cost-plus financing. This is a contract sale between the bank and its
customer for the sale of goods or commodities at a price that includes a
profit margin agreed by both parties. The Murabahah transaction is to be
completed in two stages. In the first stage, the customer requests the bank to
undertake a Murabahah transaction and promises to buy the commodity specified
by him. In the second stage, the customer purchases the good acquired by the
bank on a deferred payments basis and agrees to a payment schedule.
The High Court in the above case referred to
the guideline issued by Bank Negara Malaysia BNM/RH/STD 028-4 dated 23 December
2013 on Murabahah particularly with regards to the asset to be traded in a
Murabahah contract that must meet the following conditions: (a) recognised by
Shariah as valuable, identifiable and deliverable; and (b) already in existence
and owned by the seller.
The Court agreed with Defendant’s argument
that the underlying asset for Murabahah contract with Plaintiff was never specified
and identified in the Letter of Offer and the Asset Sale Agreement. The agreement only refers to “Shariah-compliant commodities determined by the Bank
as per the e-certificate” which doesn’t meet the Shariah requirement as
prescribed in BNM Guidelines.
Of course, Maybank Islamic Berhad had appealed
the High Court decision to the Court of Appeal and the appeal was then allowed.
In reversing the decision, the Court held that non-compliance with Shariah
principles do not render a financing facility contract illegal and
unenforceable based on existing case law and Section 281 of the Islamic
Financial Services Act 2013. It is interesting to note that, the issue of the illegality of Murabahah Contract due to non-shariah compliance was not
addressed at this juncture and requires the shariah expert opinion in the full
trial.
Nevertheless, this case is a reminder to all Islamic Banks and Financial Institutions on strict compliance with shariah products mechanism and to have clear and concise Islamic financing documentation.
Source from Skrine.com the solicitor acting for Maybank Islamic Berhad :
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