Existing laws related to riba & interest against Shariah: Federal Shariat Court
ISLAMABAD, April 28 (SABAH): The Federal Shariat Court (FSC) on Thursday said that existing laws related to riba and interest are against Shariah and declared the Interest Act 1839 un-Islamic. The Federal Shariat Court ruled that the elimination of interest (riba) is a legal obligation as per Islamic injunction as it ordered the government to eradicate the interest-based banking system by the end of 2027. The judgment was reserved on 12th April.
The decision was made on petitions filed by 86 parties including Jamaat-e-Islami Pakistan against riba after the Supreme Court of Pakistan referred the case back to the court in 2002 following the appeals against the decision of the FSC. During the hearing JI Naib Emirs Professor Muhammad Ibrahim Khan and Dr. Farid Ahmed Piracha appeared before the court along with their lawyers Qaiser Imama, Saifullah Gondal, Dr. Muhammad Akif Saeed from Tanzeem-e-Islami and Allama Sajid Ali Naqvi appeared before the court along with their counsels.
In its order after hearing the case for at least 17 years, the federal court said interest-free banking was possible all over the world and it disagreed with the government’s argument which had cited negative impacts of the interest-free banking model.
The three-member bench of the Federal Shariat Court (FSC) headed by Chief Justice Muhammad Noor Meskanzai and comprising Justice Dr. Syed Muhammad Anwer and Judge Justice Khadim Hussain M. Shaikh, in its verdict said that it is the responsibility of the government to replace the existing system and bring laws in accordance to the guidance in Quran and Sunnah.
Interest payment on all interest and external debts by the government is Riba, the top Islamic court ruled and directed the government that transactions with international institutions including IMF and World Bank should be made interest free.
It also directed the government to following Shariah laws while finalizing agreements with Chinese government for CPEC projects. The government should remove the word “interest” from every law, the order said.
From June 1, all legal clauses that contain the word “interest” will be considered null and void, the shariah court said.
It said the elimination of interest was a religious and legal obligation as parliament had already agreed to make sharia-compliant laws. The operative part of the ruling consisting of 320 pages was read out by FSC Justice Dr. Syed Muhammad Anwar said the amount received by the banks that exceeded the actual loan fell under the category of interest. “Every kind of interest of banks is called riba,” it added.
The ruling said that the Islamic banking system was “risk-free and against exploitation” and added that eradication of riba from society was one of the basic Islamic injunctions. The court also banned the payment of interest over late payment of bank loans. “The government should immediately remove the word ‘interest’ from all laws,” the decision said
The court further directed the government to take internal and external loans under an interest-free system and added that an interest-free system would be more beneficial.
It declared the West Pakistan Money Laundering Act and the Interest Act 1839 against Shariah. “All laws and regulations that facilitate interest are considered illegal,” the court said, adding that such laws should be abolished from June 1, 2022.
The Shariat Court said it was understood that the transition towards an Islamic system would take time but the bank’s deposit “could be cleared of riba immediately”. The court also said it could not understand why the government needed more time to eliminate the riba system since the case had been pending for 17 years.
In its arguments, the federal government had argued that the interest-based could not be eradicated as it would damage the already fragile economy. It had supported a parallel interest-free banking system already functioning in Pakistan. It had also urged the court to leave this matter to parliament as it had far-reaching consequences.
It is pertinent to mention that Riba case was remanded by Shariah Appellate Bench Supreme Court of Pakistan in 2002. The existing bench of the Federal Shariat Court headed by the chief Justice Muhammad Noor Meskanzai took keen and unprecedented interest in this matter.
Around 34 hearings were conducted. Petitioners, their counsels, juris consults, Amicus Curiae, Economists, Experts, scholars, chartered accountants, Attorney General, and Advocate Generals advanced their arguments and the Court heard them with patience. They also gave suggestions for conversion of the existing banking system into Riba free Islamic Banking system.