Benefits of “delay in payment” in Islamic banks in violation of the law

Last week, the General Authority of the Court of Cassation in Dubai decided the controversy over the right of Islamic banks in imposing interest on delay in payment, and issued a historic ruling that it is not permissible to collect it, based on the law of commercial transactions and contracts, which stipulated in Article 473 that “Islamic financial institutions may not borrow or lend to benefit or benefit in any way, nor to arrange or require interest or benefit to any amount of debt delay With it, including the delay benefit, even if for compensation, and every agreement is null and void.

Historical rule

The legal director of the Princess Saqr Office for Lawyer, Dr. Al -Sabah Amali, told «Emirates Today»: “The judgment returned matters to their quorum, as we were surprised by how banks operating according to the principles of Islamic Sharia are to impose benefits in addition to the agreed amount, even if it was in order to urge the customer to commit to and not be late in payment,” noting that it is possible to set other mechanisms and controls.

Ashry added: «The importance of the ruling issued that it is from the General Authority of the Court, as there were departments within the court that governed Islamic banks with benefits and fines on funds and cards, which means that they were not different from the traditional banks in something, and some departments were refusing to do so, so the ruling of the General Authority of the Court of Cassation came to unite the principles in which the departments of the Court of Cassation operate, along with the courts of appeal, and the courts of the first degree.

He continued: «Law, the General Authority of the Court of Discrimination will be held when there is conflict or disagreement over a specific issue, and its issuance of this historical ruling means that Islamic banks are not entitled to take benefits, fees or fines. He said: «As lawyers, we talked a lot in this matter, and the referee is decisive and binding on all the degrees of litigation.

Customer practices

On the other hand, two officials in legitimate bodies of Islamic banks said: “Islamic banks were not previously charged in paying fees for various funds, but this led to many negative practices by dealers who took advantage of this by not paying the installments on time.”

They added: “This constituted a great pressure on the collection companies, and pushing the legal fatwa committees to leave the collection of fees, based on the rule (commitment to the donation), so that the amounts obtained from (delayed payment fees) are kept in a fund, and then directed to the licensed charities.”

The two officials, who preferred their names, confirmed that the Islamic banks, and based on the opinion of the internal fatwa bodies, put in their contracts a condition and a clause that obliges the customer to donate a third party in the event of a delay in paying the installment.

They explained that the fees for delaying the installments revolves around about 200 dirhams per month, and later, another fatwa has been issued for Islamic banks to collect the costs and fees of issues that are raised to the dealers, and other amounts of delay fees, with a limit of no more than 49%, of the total amounts collected as fees, to cover legal expenses, and the collection staff fees and lawyers.

He continued: «This pattern is currently in effect by Islamic banks, as part of an initiative issued by the Sharia Board of the Banking Union, given the banks that the banks are incurred by great losses from the delay in some dealers in payment.

“Discrimination” decision

The General Authority of the Dubai Court of Cassation stated in an important judicial ruling issued last Monday, and the Emirates Today obtained a copy of it, that it is not permissible for Islamic banks and takaful companies to demand the benefits of delay in payment, as a result of the debtor’s laxity in fulfilling his obligations.

The court said in a session headed by Judge Abdel -Qader Musa Muhammad, that at the request of the President of the Court of Cassation regarding the variation of the rulings on the issue of the entitlement to Islamic financial institutions for the amount of the debt is delayed benefits, to serve as compensation, the judge, the President of the Court of Cassation, decided to refer this difference to the General Authority of the Court of Cassation, to adjudicate it, pursuant to Article 20 of Law No. 13 of 2016, regarding the judicial authority in the Emirate of Dubai.

According to the verdicts of the ruling, the law of commercial transactions and contracts stipulated in Article 473 that the Islamic financial institutions may not borrow or lend to benefit or benefit in any way, nor that it arranges or requires interest or benefit to any amount of debt that is delayed in fulfillment, including the delay interest, even if for compensation, and every agreement is null and void.

The ruling added that Article 474 of the same law states that “the financial obligations arising from the transactions and commercial contracts subject to the provisions of this section are specific, and the extent designation, and is considered a debt that does not exceed the increase in its amount, with the postponement of its entitlement, and each agreement is null and void.”

The ruling added: «Therefore, the apparatus – with the issuance of the decree of a federal law No. 50 of 2022 issuing the Commercial Transactions Law – has been explicitly banned in Article 473 thereof, on Islamic financial institutions and solidarity companies that practice all their work and activities, or part of it, in accordance with the provisions of Islamic Sharia, a delay benefit, even if for compensation, or whatever it is called for any amount of debt or financial commitment that is resulting On the treatment or commercial contracts subject to the provisions of Islamic Sharia, the debtor is delayed in fulfilling it.

According to what was stated in the text of the ruling, the General Assembly decided to approve the rulings that ended in the inadmissibility of receiving Islamic financial institutions, and the solidarity companies that practice their work and activities or part of it, in accordance with the provisions of Islamic Sharia, a delay benefit, even as a matter of compensation, or whatever it is named for any amount of debt or financial commitment that is due to treatment or commercial contracts subject to the provisions of Islamic Sharia, the debtor is delayed in fulfilling With public order, the court is required by itself, while refusing to contradict the rulings.

• The Commercial Transactions and Contracts Law stipulated in Article 473 that it is not permissible to borrow or lend to benefit or benefit in any way, nor that it is arranged or required for benefit or benefit to any amount of debt that is delayed in fulfillment, including the delay interest.