The Constitutionality Of Shariah Advisory Council Of Bank Negara Malaysia (SAC) Vis-a-vis JRI Resources Sdn. Bhd. V Kuwait Finance House (Malaysia) Berhad


27 June, 2019   866 views   Noor Suhaida Binti Kasri
Shari'ah Standardisation

Food for Thought

The Constitutionality of Shariah Advisory Council of Bank Negara Malaysia (SAC)


JRI Resources Sdn. Bhd. v Kuwait Finance House (Malaysia) Berhad


Dr. Noor Suhaida Kasri


Brief Profile: Dr. Noor Suhaida Kasri is a researcher at the International Shariah Research Academy for Islamic Finance (ISRA). She can be contacted at [email protected].

In a recent landmark case, JRI Resources Sdn. Bhd. v Kuwait Finance House (Malaysia) Berhad, the Federal Court, the apex court in the judicial system of Malaysia decided that the ascertainment of Islamic law by the Shariah Advisory Council of Bank Negara Malaysia (SAC) is binding on the judiciary and is not tantamount to a judicial decision. From the nine panel judges, four judges dissented and argued against the legality and constitutionality of the SAC. The dissenting judges argued that the SAC had been vested with judicial power by section 57 of the Central Bank of Malaysia Act 2009. Hence this section is unconstitutional, and invalid, therefore, needs to be struck down. This brief write-up will shed some light on key issues underlying this historic judgment. Before that, let us take a quick look at the impetus that spurred the establishment of the SAC.

The Impetus for the Establishment of the Shariah Advisory Council (SAC)

Before the setting up of the Shariah Advisory Council of Bank Negara Malaysia (SAC), Shariah governance and compliance issues were managed independently by Shariah Committees (SC), which was established in all Islamic financial institutions including the Islamic windows of conventional banks. The role of the SC is to ensure that the bank’s Islamic banking products are Shariah compliant. However, due to the divergence of Shariah interpretations on similar matters by the respective SCs, the Bank Negara Malaysia (BNM) in 1997 established a national Shariah Advisory Council to ensure uniformity and avoid inconsistency in Shariah rulings on the same issue.

At the initial stage of the establishment of the SAC, the courts when dealing with matters pertaining to Islamic banking and finance did not refer to the SAC for guidance despite their ‘incompetence’ in dealing with Shariah issues. To overcome this, amendments were made in 2002 and 2009 via the Central Bank of Malaysia Act 2009 (CBA) in particular section 56 and 57 that empowered and elevated the SAC’s status as the ‘authority for the ascertainment of Islamic law for the purposes of Islamic financial business’ (CBMA 2009, section 51). Due to this statutory amendment, the court or arbitrator shall take into consideration any published rulings of the SAC, and if there is none, to refer Shariah issues to the SAC for its ruling. The ruling arising from such reference binds the court and the arbitrator.

Manual for Reference by the Court and Arbitrator to the SAC

To ensure uniformity and clarity in making such reference, the SAC in 2012 issued a Manual for Reference by the Court and Arbitrator to the SAC. The Manual guides the court or arbitrator on the manner of referring Shariah issues to the SAC. It highlights that only questions concerning Shariah matters arising from the court proceeding may be referred to SAC. It is noteworthy to point out that ‘question concerning Shariah matters’ is defined in the Manual as:

‘A Shariah question on a matter relating to Islamic finance involving matters that have not been determined by the SAC. Such questions include, but are not limited to, aspects of the Islamic finance business such as the structure of the business, products or services, implementation or operation, terms and conditions or documentation.’ 

The Manual also emphasised that the SAC is only to ascertain Shariah rulings in regard to the issue forwarded. It has no jurisdiction to make findings on facts or to apply a particular ruling on the facts of the case and make a decision, as such are within the jurisdiction of the court and the arbitrator.

Read Full Article in I-FIKR Digest 14, June 2019


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