Affin Bank Berhad V Zulkifli Abdullah (HCM 2005)
(as reported in the NST 30/12/2005)
The high Court made a landmark judgement yesterday on whether a person who has taken a loan through the Islamic banking (name only) Al-Bai Bithaman Ajil loan facility is liable to the entire amount that he has "akaded".
Fact of the case is that in 1997 Zulkifli Abdullah took an Islamic loan facility for an amount of RM346,000 for the purchase of an end lot terrace house. The amount he had consented at the akad was RM959,000, divided into eqaul installment over 18 years or 216 monthly payments. When he defaulted in the payment, the bank sued for default in the amount that he had "akaded".
Justice Abdul Wahab Patail, in reducing the debt by some RM376,000, noted that the consequence of defaulting on an Islamic loan facility is far more burdensome on the borrower than a conventional loan. He ordered the house to be auctioned under the National Land Code (forfeiture) to recover RM582,000 instead of RM959,000 as sought by the bank.
The learned judge said the issue before the court was the amount a customer has to pay to the provider of the facility in the event of a default after having paid his installments. He said the reason for the difference was that in the event of a default before the end of a tenure in a conventional loan, the amount to be paid over and above the borrowed sum is the interest and late payment charges limited form the period the facility was released until full settlement.
The Judge cited two previous cases in the High Court involving similar Islamic banking facility to arrive at his decision, one for an amount of RM265,000 and another for an amount of RM150,000.
In the words of the learned Judge: When the gratification of being able to satisfy the pious desire to avoid financing containing the element of riba gives way to the sorrow of default before the end of the tenure of the facility, the revelation that even after the security had been auctioned off at full market value, there remain a substantial sum owing to the bank, comes as a startling surprise. This is more shocking when iot is further realised that a borrower under a conventional bank was far better off. To allow the bank to recover the"profits" for the unexpired tenure of the facility would mean the bank was able to earn a profit twice upon the same sum at the same time.
"That profit continued to be charged on the unexpired part of the tenure cannot be actual profit. It is actually unearned profits. It contradicts the principle of Al-Bai Bithaman Ajil as to the profit margin that the provider is entitled to. Obviously as the profit has not been earned it is not profit and cannot be claimed under the facility.
He ordered tha house be auctioned off on March 29 and the bank is entitled to earn RM98.54 per day profit until full settlement of the loan.
(as reported in the NST 30/12/2005)
The high Court made a landmark judgement yesterday on whether a person who has taken a loan through the Islamic banking (name only) Al-Bai Bithaman Ajil loan facility is liable to the entire amount that he has "akaded".
Fact of the case is that in 1997 Zulkifli Abdullah took an Islamic loan facility for an amount of RM346,000 for the purchase of an end lot terrace house. The amount he had consented at the akad was RM959,000, divided into eqaul installment over 18 years or 216 monthly payments. When he defaulted in the payment, the bank sued for default in the amount that he had "akaded".
Justice Abdul Wahab Patail, in reducing the debt by some RM376,000, noted that the consequence of defaulting on an Islamic loan facility is far more burdensome on the borrower than a conventional loan. He ordered the house to be auctioned under the National Land Code (forfeiture) to recover RM582,000 instead of RM959,000 as sought by the bank.
The learned judge said the issue before the court was the amount a customer has to pay to the provider of the facility in the event of a default after having paid his installments. He said the reason for the difference was that in the event of a default before the end of a tenure in a conventional loan, the amount to be paid over and above the borrowed sum is the interest and late payment charges limited form the period the facility was released until full settlement.
The Judge cited two previous cases in the High Court involving similar Islamic banking facility to arrive at his decision, one for an amount of RM265,000 and another for an amount of RM150,000.
In the words of the learned Judge: When the gratification of being able to satisfy the pious desire to avoid financing containing the element of riba gives way to the sorrow of default before the end of the tenure of the facility, the revelation that even after the security had been auctioned off at full market value, there remain a substantial sum owing to the bank, comes as a startling surprise. This is more shocking when iot is further realised that a borrower under a conventional bank was far better off. To allow the bank to recover the"profits" for the unexpired tenure of the facility would mean the bank was able to earn a profit twice upon the same sum at the same time.
"That profit continued to be charged on the unexpired part of the tenure cannot be actual profit. It is actually unearned profits. It contradicts the principle of Al-Bai Bithaman Ajil as to the profit margin that the provider is entitled to. Obviously as the profit has not been earned it is not profit and cannot be claimed under the facility.
He ordered tha house be auctioned off on March 29 and the bank is entitled to earn RM98.54 per day profit until full settlement of the loan.
posted by basar at 10:20 PM
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