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gif Market Review Kerala High Court bench gives nod to Islamic banking Source: GlobalIslamicFinanceMagazine.com


The debate on whether Islamic banking is permissible in India took another turn on 10th of February 2011, with a division bench of the Kerala High Court dismissing writ pe- titions filed against the government sanction for starting a non-banking finance company by the Kerala State Indus- trial Development Corporation (KSIDC), based on Islamic principles.


The bench consisting of Chief Justice J Chelameswar and Justice PR Ramachandra Menon dismissed the petitions filed by Janata Party president Subramanian Swamy and others. The court observed that when KSIDC proposed to carry on NBFC business in a Shariah-compliant manner in addition to complying with the laws of the country, it could not be treated as promoting a religion.


Earlier, there had been a court restraint on the government and KSIDC from partici- pating in it in any way, financially or otherwise, in the newly-formed NBFC. The petitioner, however, could not demonstrate how the impugned government order had the effect of directly promoting a particular religion.


The company, Al Barakh Financial Services, wel- comed the green signal for its venture. “It is a very favourable devel- opment and the board of directors will meet to decide on the plan of action,” Al Barakh direc- tor EM Najeeb told ET.


“The idea behind the banking system is to make use of funds with- out interest, directly or indirectly, for infrastruc- ture projects in Kerala and reward the investors through profits,” Najeeb said. He pointed out that there were thousands of Keralites in Gulf coun- tries, both Muslims and


others, who had kept funds in Shariah-compliant banks. Subramaniam Swamy had argued that the setting up of a financial service company with government participation, which would follow the canons of Muslim religion, went against the secular principles, and that the company had been formed in accordance with the Shariah.


He pointed out that the government order said 11% of the equity was held by KSIDC. He submitted that this showed the identification of KSIDC with Islam, and that the set- ting up of a company with co-ownership of the state was antithetical to equal treatment for all religions. The state government had refuted the allegation that the company functioned as per Shariah law.


behind the banking ,,


system is to make use of funds without interest, di- rectly or indirectly, for infra- structure projects in Kerala and reward the investors through profits


The government had pointed out that Al Barakh Finan- cial Services, was registered under the Companies Act, and that it was a joint venture with private participation from big industrialists and en- terprises. It also sub- mitted that the compa- ny was not controlled by the government.


T h e i d e a


The division bench’s decision comes just three months after Prime Minister Manmo- han Singh had said in Kuala Lumpur that he would ask RBI to study the demand for estab- lishing Islamic banking in India.


Earlier last year, RBI governor D Subbarao had said in Kerala that Islamic banking was not possible under the provisions of the pres- ent Banking Regulation Act.


Observers here say a new legislation may have to be put in place to usher in Islamic banking in the country.


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