Shari’ah compliance in Islamic finance contracts: the Malaysian constitutional dilemma

Abstract

ABSTRACT A closer look at the recent Malaysian judicial decisions in Islamic finance cases shows that the power of the courts to adjudicate Islamic finance disputes has been diminished. The main cause of this seems to be the enactment of sections 56 and 57 of the Central Bank of Malaysia Act 2009, which mandated the courts to not only delegate the ascertainment of Shari’ah issues pertaining to Islamic finance to the designated Shari’ah Advisory Council (SAC), but also to accept and apply its rulings. This article examines the constitutionality of both sections with special reference to the recent decision in JRI Resources Sdn Bhd v Kuwait Finance House (Malaysia) Bhd [2019] 5 CLJ 569, in which the Federal Court upheld their validity by a slim majority of 5 to 4. The article offers alternatives that are both constitutional and receptive to the SAC’s role in the resolution of Islamic finance disputes.