KOCHI: The Kerala High Court stayed the functioning of ‘Islamic Bank’ in the State.
A Division Bench comprising of Chief Justice S R Bannurmath and Justice Thottathil B Radhakrishnan directed that the company should not commence any activity until further orders.
The interim order was issued while admitting a petition challenging the functioning of the ‘Islamic Bank’ filed by Former Union Law Minister Subramanian Swamy alleging it was in violation of the secular principles enshrined in the Constitution of India.
The court accepted the petition and asked notices to be issued to the Central government and KSIDC.
He also alleged in the court the plan to operate a bank on the basis of Sharia Law was violative of the Reserve Bank of India(RBI) guidelines. The High Court suo motu impleaded the Union Government and the RBI in the case.
The State Government had informed the court that the company had already been registered in accordance with the Company Law and RBI guidelines.
Last year, in response to questions raised in the Assembly, State Finance Minister Thomas Isaac had said that the share capital of the proposed bank had been fixed at Rs 1,000 crore.
The government gave the green signal to the project after a feasibility study found that an Islamic bank was a viable proposition in Kerala, following which a company was registered to take the process forward.
Soon after the court ruling, a company director told IANS on conditions of anonymity that the ruling would be challenged.
“Now that the company has been formed, we will also see that we fight the case,” he said.
As per the proposal, the bank will not pay any interest to customers, while a Sharia board would decide what sort of investments it would make.
The proposed bank would have Sharia compliant banking products and profits made out of the investments would be distributed to the shareholders.
Muslims comprise the second largest community in Kerala, accounting for close to 24 per cent of the State’s 3.2-crore population.
Of the total remittances of Rs 24,525 crore received by the State till 2007, that by Muslims stood at Rs 12,158 crore.
Dr Swamy argued that the government action was against the country’s secular principles and would lead to similar demands from other religions.
Counsel for the KSIDC said the company, already registered, would function not on the basis of Islamic laws but in accordance with the Companies Act and the Reserve Bank of India Act.
In its order, the Bench said the question whether the KSIDC was a company owned by the government required deeper consideration. It impleaded the Centre and the RBI as additional respondents to know their views in the case.
The court said no activity could be undertaken by the newly formed company in violation of the provisions of the Reserve Bank of India Act, the Banking Regulation Act and related laws.
According to Dr Swamy, the setting up of a financial service company, with government participation, which would follow the canon of law of a particular religion was a clear instance of the State favouring a particular religion. It was clear from the order that the company was to be set up strictly in accordance with the Sharia. It also implied the setting-up of a Sharia Advisory Board. It was stated in the order that the company’s chief executive officer was required to report to the Sharia board. This made it clear that the board would have some measure of supervision over the company.
Dr Swamy said that as per the government order, 11 per cent of the equity would be held by the KSIDC. This showed the identification of the KSIDC with Islam. The setting-up of a company with co-ownership of the state was “antithetical” to equal treatment of all religions. The Sharia compliant operation of the company would also mean imposing prohibitions under the Sharia law.