Most will be adjudicated in court in Arab-Malaysian

Most of the Islamic
financial institutions operates in mixed legislative framework. The
implementation of the Al’Bay’ Bithaman Ajil (BBA), which is a deferred payment
sale is contradict with the Islamic Banking Act 1983 and the Banking and
Financial Institution Act 1989.1 A
good illustration indicate how Shari’ah principles deal with the laws of
jurisdiction and how it will be adjudicated in court in Arab-Malaysian Merchant Bank Bhd. v Silver Concept Sdn. Bhd.2

The plaintiff was a
bank incorporated in Malaysia while the defendant was a company and an owner of
a large tract of land.3 A sale
and purchase agreement was entered by the defendant and a vendor to buy a piece
of land. The defendants apply BBA facility from the plaintiff. The plaintiff as
an agent brought a consortium of financial institutional to offer financing to
the defendant. The defendant then default in instalment payment under the facilities.

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The plaintiff sued the
defendant and stated that the land shall be subject to a public auction under
S.256 and S.257 of NLC to satisfy the sum due. The defendant claimed that the order
sought by plaintiff must fail as the existed issues be that might be considered
as ’cause to the contrary’, also the contract cannot be enforced due to it was tainted
by riba.

The court allows decision order for sale. Burden of
proof is on the part of defence. If the defendant can well establish that there
is exists fatal procedural defects, deceit, and bribery, un-Islamic practices
such as usury, the originating summons will fail.4

Despite of S.259(2)(a), the plaintiff acting as arranger
and part vendor should not participate the auction. However, this ground was insufficient
to qualify as cause to the contrary to prevent any auction order.

The court held that the facility is not tainted by
riba, and the BBA agreement was valid and enforceable.5 Thus,
the bank is entitled to claim back the profit of the full tenure from the
borrower.

In short, the chargor being deprived of rebate does
not fall within the category of cause to the contrary.

Besides, a recent case Resolution Alliace Sdn Bhd v Murkan A/l Karuppaiah6,
the defendant is the owner of the property, who had obtained BBA facility from
Maybank. Unfortunately, the defendant failed to pay back the repayment according
to the agreement.

The court allowed public auction to be held “unless
it is satisfied of the existence of cause to the contrary”.

In Bank Kerjasama
Rakyat Malaysia Bhd v Emcee Corporation Sdn Bhd7,
the appellant granted the respondent a BBA facility. The appellant sold same
properties for the purpose of deferred payment terms for 36 monthly instalments
to the respondent. 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 NLC.8 But
later, the respondent failed to pay the instalments.

The appellant issued a Form 16D notice against the
respondent. The respondent failed to comply with the form and the appellant
filed an originating summons against the respondent.

The Court of Appeal in favour of appellant because the
respondent failed to show a cause to the contrary that warranted the refusal of
the order.

Another case is Southern
Bank Bhd v Ayer Keroh Park Sdn Bhd9. An
application made by the plaintiff in seeking an order to sell certain land
through public auction. The plaintiff had given the defendant banking facilities
and the defendant in return had create three registered charges over the land as
security. Upon the defendant’s default in complying the terms of the charges,
the plaintiff served the default notice in Form 16D to the defendant.

As a result, the plaintiff applied to LA for an
order for sale. Although two public auctions were conducted, there was no
bidder. The issue is whether the plaintiff’s prayer for an order for sale pursuant
to S.256 could appropriately be classified as a case failing within the ambit
of S.265(3A) of NLC. The application was allowed.

Overall, Islamic
finance does apply the principle of cause to the contrary regarding land
matters. The difference is defaulters in BBA facility are only liable as to the
original facility amount, but not the selling price.10

1 ‘The
Case Of Arab Malaysian Finance’
accessed 27 January 2018

2 2005
5 MLJ 210

3 Islamicbanker’s
Weblog, ‘ARAB-MALAYSIAN MERCHANT BANK BHD V SILVER CONCEPT SDN BHD’ (July 11,
2008)
accessed 27 January 2018

4 Yasminbaharilegalnews,
‘2006 8 CLJ 9 ARAB-MALAYSIAN MERCHANT BANK BHD v. SILVER CONCEPT SDN BHD’ (July
21, 2010)
accessed 27 January 2018

5 Analysis:
(Malaysia), ‘Analysis: Case law on Islamic finance (Malaysia)’ (June 9, 2013)
accessed 27 January 2018

6 2012
MLJU 45

7 2005
1 CLJ 625; 2003 2 MLJ 408

8 ‘Brief
of Islamic Finance Cases 1987-2009’
accessed 27 January 2018

9 2005
6 CLJ 134; 2005 4 AMR 597

10 Ibid,
n1