IslamicFinance.de

Blom Developments Bank SAL (“Blom”) placed US$10 million with The Investment Dar Company KSCC (“TID”)under a wakala agreement (the “Agreement.

The Agreement was governed by English law and provided that TID would invest the Capital Sum (as the agent of Blom) in a shari’ah compliant manner. The Agreement further provided that at the end of the investment period TID had an obligation to pay to Blom the Capital Sum together with the anticipated agreed profit (the “Profit”).

TID failed to fulfill its obligations under the Agreement to pay to Blom the Capital Sum and the Profit at the end of the investment period. As a result Blom brought a summary judgment application in the English High Court. The Court ordered TID to pay to Blom the Capital Sum (but not the Profit).

TID appealed the decision. At the appeal TID’s legal counsel argued that (i) TID was prohibited by its constitutional documents from entering into agreements which did not comply with shari’ah, (ii) the Agreement did not comply with shari’ah and (iii) the Agreement had been entered into beyond the corporate powers of TID and was therefore void. The Court held that TID’s counsel had made an arguable case

The arguments put forward by TID’s legal counsel in this case could have a negative impact on the Islamic finance sector.

See full text at the link below.