Mahyuddin Khalid emkay@salam.uitm.edu.

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ISLAMIC FINANCIAL LEGAL FRAMEWORK

JURISDICTION OF THE COURT OVER ISLAMIC BANKING DISPUTES

CONTENT
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INTRODUCTION CIVIL COURT SHARIAH COURT ARTICLE 121 (1A) OF FEDERAL CONSTITUTION JURISDICTION FOR ISLAMIC BANKING CASES ALTERNATIVE DISPUTE RESOLUTION ARBITRATION CONCLUSION

INTRODUCTION
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In countries having dual judiciary system (civil and Shariah), a clear stand must be made as to which court shall have jurisdiction to preside power over Islamic banking disputes. Ideally, cases involving Islamic banking ought to be heard at the Shariah court as they apply Islamic law and principles. However in most if not all of the Islamic countries, commercial issues such as banking are not within the jurisdiction of Shariah court.

CIVIL COURT
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Administration of justice is a federal matter and civil courts therefore fall under federal authority. The civil courts which comprises the Federal Court, the Court of Appeal, the High Courts (Malaya and Borneo) and subordinate courts are set up under the Federal Constitution. The Federal Court and the Court of Appeal have jurisdiction throughout the Federation. The two high Courts are of co-ordinate jurisdiction and status.

JURISDICTION OF CIVIL COURT

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The jurisdiction of the civil court is provided by the Federal Constitution in the Ninth Schedule, List I Federal List. List I clearly vests the establishment of the court of justice under the power of the federal government. Thus, the civil court shall have jurisdiction, among other matters which come under the civil courts jurisdiction are contracts such as partnership, agency and banking facilities such as negotiable instrument, bill of exchange, cheques, promissory notes, foreign exchange and others.

SHARIAH COURT
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The Shariah court comprises the Shariah Subordinate Court, Shariah High Court and Shariah Court of Appeal. The Shariah Courts are set up under the respective states administration of Islamic law Enactments/Acts. These courts deal principally with the personal and family laws of persons professing the religion of Islam, Islamic law of succession, betrothal, marriage, divorce, dower, maintenance, adoption, legitimacy, and criminal offences under Islamic law.

JURISDICTION OF SHARIAH COURT

Paragraph I of the State List of the Ninth Schedule to the-Federal Constitution shows the state authority and jurisdiction of the Shariah court. This paragraph clearly stipulates the administration of Shariah court limited only over persons professing the religion of Islam It shall not have any jurisdiction in respect to offences stated in the Federal List. The criminal jurisdiction of the Shariah courts is limited to offences punishable with:

imprisonment for up to three years fine for up to RM5000 whipping for up to six strokes or any combination of the above.

ARTICLE 121 (1A) OF FEDERAL CONSTITUTION

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In view of the above, the most significant change to the jurisdiction of the Shariah courts was effected by the amendment of article 121 of the Federal Constitution in 1988 that among others added a new clause (1A) which stipulates that the High Court in Malaya and the High Court in Borneo shall have no jurisdiction in respect to any matter within the jurisdiction of the Shariah court. It should be noted that the purpose of the amendment is to prevent the High Court from exercising its powers of judicial review over decisions of the Shariah court. The effect of the amendment is that the High Courts and courts subordinate to it shall have no jurisdiction in any matters under the Shariah court jurisdiction. However, the jurisdiction of the High Court is not taken away if the jurisdiction of the matter does not fall within that of the Shariah court.

ARTICLE 121 (1A) OF FEDERAL CONSTITUTION

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This issue was raised in the case of Bank Islam Malaysia Bhd v. Adnan bin Omar & Ors. The defendant raised a preliminary objection that, as the plaintiff was an Islamic bank, the court had no jurisdiction to hear the case following the inclusion of Clause (1A) of Article 121 of the Federal Constitution. NH Chan overruled the preliminary objection that the civil court cannot exercise jurisdiction over Islamic banking matters based on the following grounds:

List I the Federal List enumerates various matters in respect of which the Parliament may make the law; included within its scope are banking. List H the State List courts and stipulates that Shariah courts shall have jurisdiction only over persons professing the religion of Islam.

Since Bank Islam is a body corporate, it does not have a religion and, as such, will not be subject to the jurisdiction of the Shariah court.

JURISDICTION FOR ISLAMIC BANKING CASES

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Abdul Hamid JCA asserted that only the civil court has the jurisdiction to hear cases involving Islamic banking transactions The Shariah court is not an adequate forum to decide over Islamic banking cases. He argued:

Disputes over Islamic banking transactions which have arisen so far do not involve Islamic law only, but involve the applications of other statutes under the civil law such as the National Land Code, the Companies Act, the Contracts Act etc., of which the Shariah court has no jurisdiction and the Shariah court judges are not trained in and not familiar with. The power of enforcement and remedies available in the Shariah courts are very limited. Islamic banking customers are not only confined to Muslims but also include non-Muslims. The Shariah court does not have jurisdiction over non-Muslims and neither can non-Muslim lawyers appear in the Shariah court. Shariah court has a limited power of imposing a fine which must not exceed five thousand ringgit in criminal offences.

JURISDICTION FOR ISLAMIC BANKING CASES

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The civil courts are not equipped to decide on Shariah issues arising from Islamic banking disputes due to:
The civil court judges are not trained in Islamic law and thus are not in the position to ascertain the law. It was suggested that the civil court judge, in hearing Islamic banking disputes should be assisted by a Shariah advisor who must be well versed in Islamic banking. The judge would pose the Shariah issues to the Shariah advisor for his ruling and the ruling would be binding on the judge.

Shariah court obviously has no jurisdiction and sufficient power and legal provisions which would

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ALTERNATIVE DISPUTE RESOLUTION

Litigation is arguably not the preferred method of dispute resolution in Islam. Instead, some of the alternative dispute resolution mechanisms that would appear to be more in line with Islamic precepts would be consultation (shura), mediation and conciliation (sulh), as well as arbitration. Alternative dispute resolution mechanism that has been recommended as a substitute for litigation is arbitration.

ARBITRATION
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Arbitration is an integral part of the Shariah system. The ultimate objective of arbitration is to obtain a fair resolution of disputes. It also helps to put an end to a dispute without unnecessary delays and expenses as it is done through a tribunal. which act differently from a court. Obviously, through arbitration settlement, the parties to a dispute can agree that Shariah principles be the governing legal principles to solve their conflict and dispute. This is because the law of arbitration gives the freedom to the parties concerned to have their own choice of law or principles of law to find a solution to any given dispute.

ARBITRATION
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Arbitration is regulated by the courts under Arbitration Act 1952 that regulates the conduct of arbitration general. The Act only applies to arbitration proceedings that arise out of a written agreement. The arbitration proceedings that excluded from the supervision of the Malaysian Courts are those conducted under:

Convention on the Settlement of Investment Disputes Between the States and Nationals of Other States 1965 United Nations Commission on International Trade Law Arbitration Rules 1976 Rules of the Regional Centre for Arbitration Kuala Lumpur.

Using ADR mechanisms in Islamic banking and finance transactions is a new approach. Arbitration is the preferred form of dispute settlement while recourse to the common law court is often regarded as a last resort.

REJECTION OF LITIGATION
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The settlement of investment disputes by litigation rejected by foreign investors for several reasons:
Litigation is regarded as protracted because it often takes a court years to render a final judgment investors cannot afford to wait for such a long period. Most foreign investors tend to remove potential disputes in the host countries - because they lack sufficient knowledge about the legal systems of the host country, Litigation usually causes unwanted publicity to the foreign investors who usually prefer to be secretive on their investment disputes. Foreign investors may have no confidence in the impartiality of the national courts of some host

ARBITRATION OF ISLAMIC FINANCIAL DISPUTES

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The qualification of the arbitrator

Must be learned and well versed in the principles of Islamic law. A stricter requirement such as having practical working experience in Islamic finance for a certain number of years. Reference to Shariah principles must be made to avoid reliance on English principles of law. The clause Shariah principles manifested in at least four main schools of law, which raises the issue of which version of Islamic law is to be followed in the arbitration exercise. The quality of evidence and the procedure for accepting evidence since Islamic law has a different set of principles for evidence and procedures. This should not deter us from preparing a complete code of evidence and procedures to support the practice of Islamic-lawbased arbitration.

The governing principles of law

The arbitration proceedings.

CONCLUSION
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The amendment of the CBA in 2003 has given recognition to BNMs SAC as the highest reference point for all IFI. The above provisions also acknowledge the authority of the arbitrator as one of the process in dispute resolutions in cases involving Islamic banking matters. The advice made by the SAC will be binding on the decision of the arbitration tribunal. The decision of the SAC should be equally binding on the judges of the civil court to end the dispute on the substantive interpretation of Shariah principles. Otherwise, the problem of substantive interpretation of Islamic banking practice might to harm Islamic banking development in the future particularly in legal disputes at the civil court.

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END OF CHAPTER