The Kerala High Court on Thursday dismissed petitions challenging
the Kerala government's decision to establish India's first
Islamic Bank which will work on the principles of Shariah.
The order came from a Division Bench comprising Chief Justice J
Chalameswar and Justice P R Ramachandra Menon, which rejected
petitions filed by Janata Party President Subramaniam Swamy and
The petitioners contended that the state establishing a
bank which will work on the principles of a religion will violate
the principle of secularism enshrined in the Constitution.
However, the court did not agree.
The state had first floated the idea of establishing the bank
under an entity registered as Al-Baraka Financial Services way
back in December 2009. The bank was also to have a body of Islamic
scholars to advise whether the principles of shariah were being
But in January 2010, the HC stayed the government's plans and
issued notices to the RBI, Finance Ministry and Kerala State
Industries Development Corporation (KSIDC) which was to hold 11
percent equity in Al-Baraka.
The RBI replied that the current laws did not permit such a bank.
With its plans running into rough weather, the state government
too lost hope and even told the state assembly that its plan was
not to establish an Islamic bank, but only a financial institution
that would work on the interest-free principle.
Reacting to the verdict, H. Abdur
Raqueeb, general secretary of Indian Center for Islamic Finances,
(ICIF) said, “It’s a welcome verdict and will have a positive
impact on the future of interest free banking in India.”
Al-Baraka has 14 promoters who have contributed Rs.4.20 crore
toward its capital and a 17-member board, with prominent
Gulf-based businessmen P. Mohammed Ali as chairman and C.K. Menon
as the vice-chairman.
Welcoming the judgment, member of Al-Baraka and another prominent
businessman E.M. Najeeb told media persons, “We welcome the
honorable court's order today. We will very soon convene a meeting
of our board of directors and discuss the future course of action
to begin operations.”
"The basic principle our company would follow is: There will be no
interest charged, no interest taken. There are many people who are
willing to put in their money and need no interest. We will pool
this money and invest in infrastructure projects," Najeeb added.
Al-Baraka company, accordingly, will not operate as a bank and
extend loans, but make direct investments into such projects,
after which profits would be shared in the form of dividends and
not as interest.
In its interim judgment last year the bench had asked the state
government and agencies under it to keep off from the proposed
bank but said in its final order that there was nothing wrong in
Meanwhile, reacting to the HC verdict, Janata Party President
and the petitioner Subramaniam Swamy said he will consider appealing
to the Supreme Court after going through the full text. "I will
challenge the same if it was dismissed on merits,'' he said.