SMALL MEDIUM ENTERPRISE DEVELOPMENT BANK MALAYSIA BERHAD v 1. ) PRM FOODS & MARKETING SDN BHD 2. ) RAMLE BIN MUDA 3. ) CHE MINAH BINTI MOHD ALI 4. ) MOHD FIRDAUS BIN RAMLE

Case Significance

Illustrates the treatment of a Shariah-compliance challenge to Islamic banking facilities at the summary-judgment stage: where the facilities accord with the applicable financing structures under the Islamic Financial Services Act 2013 and a Certificate of Indebtedness with a conclusive-evidence clause proves the debt, the void ab initio defence raises no bona fide triable issue.

This High Court decision at Kuala Lumpur (Commercial Division), delivered by Judicial Commissioner Yusrin Faidz bin Yusoff, concerns an application for summary judgment by an Islamic-finance lender and a Shariah-based challenge to the underlying facilities. The plaintiff, Small Medium Enterprise Development Bank Malaysia Berhad, had extended Islamic banking facilities to the first defendant, PRM Foods & Marketing Sdn Bhd, guaranteed by the second, third and fourth defendants, and sued under Order 14 of the Rules of Court 2012 on the first defendant's alleged default in repayment. The defendants resisted, contending that the facilities agreement did not comply with the Shariah concepts of Al-Bai Bithaman Ajil, Al-Ijarah and Commodity Murabahah, that it breached Shariah principles and the rulings of the Shariah Advisory Council so as to be void ab initio, that the facilities and guarantees did not bind them, and that the claim was in any event premature.

The court granted summary judgment. It held that the facilities agreement was consistent with the applicable Shariah-based financing structures and the framework governing Islamic financial business under the Islamic Financial Services Act 2013, and it rejected the contention that the agreement was void ab initio for breach of Shariah principles or Shariah Advisory Council rulings. It gave effect to the Certificate of Indebtedness supported by a conclusive-evidence clause as sufficient proof of the sums due, absent evidence of fraud or manifest error, and held that the facilities and guarantees bound the defendants and that the claim was not premature. Finding that none of the defences raised a bona fide triable issue, the court allowed the plaintiff's application for summary judgment with costs of RM6,000. The judgment illustrates how the courts treat a Shariah-compliance challenge to an Islamic financing facility at the summary-judgment stage, and the evidential effect of a conclusive-evidence clause in establishing the amount of the debt, while confirming that a bare assertion of non-compliance with Shariah principles, unsupported by cogent material, will not suffice to send an Islamic-finance recovery claim to trial.