Authority of the Shariah Advisory Council
Under sections 56-57 Central Bank of Malaysia Act 2009
Under the Federal Constitution the power
to decide legal cases is conferred to the law court. No other body can make a
decision in a legal dispute except the Court. Any law authorizing or conferring
such power to body others than law court to decide legal dispute is tantamount to unconstitutional. There have been some issue on the authority of the Shariah
Advisory Council as relating to the power of the courts. Under the old law of
Malaysia Central Bank Act 1958 (as amended in 2003) which now repealed by CBA
2009, it is clear that reference to SAC by courts of law is discretionary but encouraged through the following cases:
1. Affin Bank Bhd v Zulkifli Abdullah
[2006] 3 MLJ 67 [2006] 1 CLJ 438 - the high court decides with strong words:
"... thus reference of this case to another forum for a decision would be
an indefensible abdication by this court of its function and duty to apply
established principles to the question before it".
2. Arab Malaysia Finance Bhd v. Taman
Ihsan Jaya Sdn Bhd & Ors [2008] 5 MLJ 631 -"There is neither necessity
nor reason to refer these concepts to the Shariah Advisory Council for any
ruling, which in any case, while they are to be taken into consideration, are
not binding upon the court"
3. Arab-Malaysian Merchant Bank Bhd v
Silver Concept Sdn Bhd [2008] 6 MLJ 295 - "Section of the CBA 1958 however
does not make reference mandatory... In the case of reference by the court, the
ruling is not binding but shall be taken into consideration. Given that
reference is discretionary and the rulings are not binding ... the court is of
the opinion reference is not necessary".
See also the following cases:
- Malayan Banking Bhd v Ya'kup Oje [2007]
6 MLJ 389
- Bank Kerjasama Malaysia Rakyat Bhd v PSC
Naval Dockyard [2007] MLJ 722
The above cases which saw a trend not to
refer to SAC probably have led certain adventurous judge to decide on the
substance of Islamic banking contracts. Thus the following cases illustrated
this adventure:
1. Affin Bank Bhd v. Zulkifli Abdullah
[2006] 3 MLJ 67; [2006] 1 CLJ 438 - reducing the sale price using equitable
interpretation of the contracts term - "The profit margin that continued
to be charged on the unexpired part of the tenure cannot be actual profit. It
was clearly unearned profit. It contradicted the principle of Al-Bai Bithaman
Ajil as to the profit margin that the provider was entitled to. Obviously, if
the profit had not been earned it was not profit, and should not be claimed
under the Al-Bai Bithaman Ajil facility".
2. Arab Malaysia Finance Bhd v. Taman
Ihsan Jaya Sdn Bhd & Ors [2008] 5 MLJ 631 - "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".
3. BIMB v. Lim Kok Hoe & Anor and
other appeals [2009] 6 MLJ 839 - declaration by the High Court Judge that
BBA contracts were contrary to the basic principles of Islam was set aside by
the Appeal Court - "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"
Interestingly all of the above cases were
decided by the same High Court judge. In the appeal case of BIMB v. Lim Kok Hoe
as above, the appeal court judges took the opportunity to remind the judiciary
that they are not trained in Shariah law to make decision on Shariah matters on
their own: "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"
Probably on the authority of this appeal
case, the authority and role of the SAC were further entrenched with the
inclusion of a separate section on SAC in the new CBA law of 2009 which
provides in section 56 and 57 the mandatory reference to the SAC where any
question concerning Shariah matters arise in any proceeding relating to Islamic
finance business before any court or arbitrator. And any reference made to the
ruling of SAC under the above sections shall be binding to the courts. The
above provisions took effect soon after the enforcement of the new law in the
following cases:
1. Mohd Alias bin Ibrahim v. RHB Bank Bhd
& Anor [2011] 3 MLJ 26; [2011] 4 CLJ 654 - "Thus, if the court
referred any question under s 56(1)(b) of the Act to the SAC, the latter was
required to merely make an ascertainment and not a determination of the Islamic
laws related to the question. The sole purpose of establishing the SAC was to
create a specialised committee in the field of Islamic banking to ascertain speedily
the Islamic law on a financial matter" and "Thus, in a matter where
there were differences of opinion regarding the validity of a certain Islamic
finance facility, the SAC could be referred to so as to ascertain which opinion
of the jurist was most applicable. This ascertainment of Islamic law would then
be binding upon the courts as per the impugned provisions and it will then be
up to the courts to apply the ascertained law to the facts of the case. As
such, the final decision in the matter remained with the court in that it had
to still decide the ultimate issues which had been pleaded by the
parties".
2. Tan Sri Abdul Khalid bin Ibrahim v
Bank Islam Malaysia Bhd [2012] 7 MLJ 597 - the argument that CBA 2009 does not
apply retrospectively was rejected by the Court "The only difference would
be that as from 25 November 2009, the discretionary power of the court to take
into consideration any written directive issued by BNM had been taken away and
the ruling of the SAC was binding on the court".
