Case Summary

The defendant bought a double storey link house and secured the loan under the Syariah principle of Al-Bai Bithaman Ajil from the plaintiff, who was his employer at that time, for a sum of RM346,000. The loan was to be repaid over an 18-year tenure by 216 monthly instalments and a charge was registered against the title. However, at the end of December 1997, the defendant resigned from the plaintiff bank and at his request, the loan facility was restructured whereby under the revised facility, the bank selling price of the house was RM992,363.40, payable over a period of 25 years. No fresh set of documents was executed, although earlier, the bank had requested. After making several payments totaling RM33,454.19, the last of which was in June 2001, the defendant again defaulted. The plaintiff issued a notice of default in Form 16D of the National Land Code seeking the repayment of RM958,997.21. Subsequently, two actions were filed, namely an order for sale and an order to recover such sums in the event of a deficiency in the proceeds of sale. The issue before the court was the actual amount that a customer has to pay to the provider of an Al-Bai Bithaman Ajil facility in the event of a default, in this case, after having paid RM33,454.19 in instalments.

Held, granting the order for sale and reducing the amount of repayment:

(1)If the customer is required to pay the profit for the full tenure, he is entitled to have the benefit of the full tenure. It follows that it would be inconsistent with his right to the full tenure if he could be denied the tenure and yet be required to pay the bank's profit margin for the full tenure. To allow the bank to also be able to earn for the unexpired tenure of the facility, means the bank is able to earn a profit twice upon the same sum at the same time (see para 29).

(2)The profit margin that continued to be charged on the unexpired part of the tenure cannot be actual profit. It was clearly unearned profit. It contradicted the principle of Al-Bai Bithaman Ajil as to the profit margin that the provider was entitled to. Obviously, if the profit had not been earned it was not profit, and should not be claimed under the Al-Bai Bithaman Ajil facility (see para 29).

(3)The profit margin could be calculated and derived with certainty. Even if the tenure was shortened, the profit margin could be recalculated with equal certainty (see para 34). The total due on the date of the judgment was RM616,080.99 and after crediting the defendant with all the payments he had made of RM33,454.19, the balance due on the date of judgment was RM582,626.80 (see para 37).

(4)Once it was established that there had been a default, then unless there was cause to the contrary, the order for sale must be given since a charge is an ad rem right to dispose of the security to recover a secured debt (see para 45).

Obiter:

When the grati