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Case Update: Federal Court rules Bank Negara Malaysia’s Shariah Advisory Council's findings binding on Civil Courts

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CONSTITUTIONAL LAW
Syariah Advisory Council (SAC) – Federal Constitution – Judicial power over civil matters in the High Court – Whether a ruling made by the Shariah Advisory Council (SAC) is ultra vires Article 121 of the Federal Constitution – Central Bank of Malaysia Act 2009, Sections 56 and 57 – Federal Constitution, Article 121

JRI Resources Sdn Bhd v Kuwait Finance House (Malaysia) Berhad (President of Association of Islamic Banking Institutions Malaysia & Anor Interveners)
[2019] MLJU 276, Federal Court
- see the grounds of judgment here

Facts The Applicant, JRI Resources Sdn Bhd was given by the Respondent, Kuwait Finance House (Malaysia) Berhad, various Islamic credit Facilities (the Facilities) to facilitate the leasing of shipping vessels. The Applicant defaulted in making monthly lease payments under the Facilities, resulting in the Respondent applying for and succeeding in the summary judgment application at the High Court. The Applicant appealed to the Court of Appeal and argued that there was a failure to derive income from the charter proceeds due to the Respondent’s failure to carry out major maintenance works on the shipping vessels as owner of the vessels. Such contention is also contrary to the express wordings in clause 2.8[1] of the ljarah Agreements. The Applicant further submitted that the High Court should have referred this issue to the Shariah Advisory Council of Bank Negara Malaysia (the SAC) pursuant to Section 56[2] of the Central Bank of Malaysia Act 2009 (CBMA). The Court of Appeal set aside the summary judgement and remitted the case to the High Court for trial with an order to the High Court that a reference be made to the SAC on the following question: “Whether clause 2.8 of the Ijarah Agreements (which makes it the obligation of the Customer, to bear all the costs of maintaining the leased vessels including major maintenance), is Shariah compliant”. The Applicant filed an application for a reference to the Federal Court.

Issue The main issue before the Federal Court was whether a ruling made by the Shariah Advisory Council established under Sections 56 and 57[3] of the Central Bank of Malaysia Act 2009 (CBA) is ultra vires Article 121[4] of the Federal Constitution (FC) which, inter alia, vests judicial power over civil matters in the High Court.

Held The Federal Court found that the SAC in ascertaining the Islamic law for Islamic banking, does not conclusively and finally determine the right between the parties. The contest between parties remain with the adjudicating judge. Therefore, a ruling by the SAC was held to not be in breach of Article 121 of the FC and is thus not unconstitutional.
 
 
[1] “…the Parties hereby agree that the Customer (meaning the Applicant here) shall undertake all of the Major Maintenance as mentioned herein and the Customer will bear all the costs, charges and expenses in carrying out the same”.
[2] Reference to Shariah Advisory Council for ruling from court or arbitrator
[3] Effect of Shariah rulings
[4] Judicial power of the Federation