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Kerala High Court clears way for India's first Islamic bank

Thursday February 03, 2011 09:59:21 PM, Agencies

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Thiruvananthapuram: 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 another.


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 complied with.

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 granting permission.


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.








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