With many jurisdictions being Shari’a compliant in International Commercial Arbitration it makes sense to have Shari’a compliant Arbitration Agreements
Over 50 countries around the world have a majority Muslim population. Shari’a or the religious Islamic law is prevalent in varying degrees among the over one billion Muslim population. Shari’a compliant finance has developed phenomenally, is expected to grow at a steady pace of 15 per cent year on year, and is estimated to be valued at 700 billion US dollar. The relevance and following for Shari’a compliant investments and companies can be seen from the fact that almost all leading stock exchanges in the world today have a Shari’a index. Shari’a principles are not set in statute and do not have a common interpretation; these principles of Shari’a very often lead international commercial transactions in various countries.
Islamic banking is allowed in many nonIslamic developed economies including America and the European markets like France, Germany and the United Kingdom. Most multinational banks have an Islamic banking division e.g. Citibank, Deutsche Bank and HSBC bank.With such proliferation of Shari’a compliant domestic / cross border business, it is logical thatdisputes arising from such transactions are adjudicated only through Shari’a law.
The Bombay Stock Exchange (BSE) has partnered with the Taqwaa Advisory AndShariahInvestment Solutions to develop the first Indian Shari’a compliant equity index under the guidance of a Shari’a advisory board. The index consists of 50 largest and the most liquid Shari’a compliant stocks within BSE 500.
The Banking Regulation Act, 1949 in India does not conform to allow Shari’a compliant Islamic banking, which is an interest-free system. The Reserve Bank of India (RBI) has written to the government to bring about amendments in the law to allow Islamic banking. Our Law Minister, Mr. Salman Khurshid is quoted in the press to have written to the Planning Commission and the RBI on the issue of reforms to allow inclusion of Islamic banking in the mainstream.
Arbitration or Tahkim has been relevant and accepted as means of dispute resolution and adjudication under Shari’a law since time immemorial. Prophet Mohammed is believed to have adjudicated on arbitral disputes between the Jews andMuslim as early as 622 AD in the now holy city of Medina.
Today Saudi Arabia, the Saudi Arbitration Regulations, 1985 requires the sole arbitrator to base awards on such knowledge of the Shari’a and local customs. The statutory law in Yemen holds any award void, which is not in keeping with the Shari’a.
The Bahrain Chamber for Dispute Resolution (BCDR-AAA), a centre for arbitration and mediation of commercial disputes, jointly set up by the American Arbitration Association and the Ministry of Justice, Bahrain has rules that have application of aspects of Shari’a.
The arbitration laws in the United Arab Emirates (UAE) have application of Shari’s which has done away with some of the stringent restrictions such as stipulating the religion and gender of the arbitrator.
For us in India, who draft international commercial arbitration agreements / clauses or defend international commercial arbitration, understanding the basic nuances of Shari’s is now an absolute imperative, as one of the contracting parties may designate the national law of a country, which is predominantly based on Shari’a as the governing law.
In case the arbitration clause is silent on the issue of governing law and if the same has to be decided by the arbitrator, the arbitral tribunal may prefer Shari’a compliant governing law.
The most dangerous and fatal fall out could be for an award to be denied enforcement in a Shari’a jurisdiction on being against public policy (for want of Shari’a compliant). It is pertinent to point out here that one of the grounds to refuse enforcement of an international award under the New York Convention of 1958 is if the award is against the ‘public policy’ where it is sought to be enforced.
It is best to understand the national laws as to provisions that define a qualification for who can be appointed as an arbitrator. For instance, the Saudi Arabian laws require all arbitrators to be Muslim men having knowledge of Shari’a rules and commercial regulations, customs and traditions, as applicable in Saudi Arabia.
In Egypt and Oman, the Shari’a principles have been liberally interpreted to allow women and non-Muslims to act as arbitrators. Further, in 14 Middle Eastern countries, the current statutes do not have express prohibition on women and nonMuslims from acting as arbitrators, and indirectly allow for their appointment.
Prophet Mohammed has statedin a hadith that a Muslim’s right cannot be abolished even if it is remote in the past. Though most modern Islamic nations have accepted the applicability of limitation period for most cause of action. This aspect is very relevant in international commercial arbitration and continues to be a grey area and a possible impediment to execution under the New York Convention.
Most Shari’a driven jurisdiction clearly prohibit adjudication of disputes that arise out of transaction that are expresslyprohibited by Shari’a. For example, in Yemen, the statute expressly prohibits arbitration on “forbidden things”. Under these provisions, it is to be clearly understood what the “forbidden things” are. A partial list is elaborated below:
As the volume and complexity of Shari’a compliant businesses and financial investments grow both in India and elsewhere, the transactional business disputes will also grow. There is an eminent threat of deadlocks, which will follow because of non-enforcement of awards in Shari’a/non-Shari’a jurisdictions on account of public policy.
With radically different views, it is difficult for the International Commercial Arbitration rules to be modified to accommodate Shari’a compliances. Such rules will have no legitimacy in the Middle East and the larger Islamic world, if the Shari’a methodology is ignored or undermined.
“As the volume and complexity of Shari’a compliant businesses and financial investments grow both in India and elsewhere, the transactional business disputes will also grow. There is an eminent threat of deadlocks, which will follow on account of non-enforcement of awards in Shari’a/nonShari’a jurisdictions on account of public policy.”
There is a need for a truly international arbitration system that needs to evolve from statutory amendments across the world that allows tolerance and acceptance to the views offered by Shari’a. To have a truly evolved system for International Commercial Arbitration, the United Nations will need to constitute a working committee to look at the contentious aspects and work out a model code, which could be incorporated by the various countries around the world for uniformity in statute.
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