Govt should not participate in Shariah compliant bank: HC

via HK published on April 8, 2010

KOCHI: The Kerala High Court today directed the state government not to participate “financially or otherwise” in a proposed bank which was to be run in accordance with Islamic law.

A division bench passed the order on petitions filed by the state government, Kerala State Industrial Development Corporation (KSIDC) and Al Barakah Financial Company, seeking vacation of its stay on starting the institution.

State-owned KSIDC had proposed to have an 11 per cent stake in Al Barakah Financial Company.

The bench, comprising Chief Justice J Chalameswar and C N Ramachandran Nair, however, allowed the company to carry out its activities as law permits after necessary clearance.

The court had stayed the proposal to start the Islamic financial institution on January 5 this year on a petition by Janata Party President Subramaniam Swamy and Hindu Aikya Vedi secretary R V Babu.

KSIDC had proposed to invest about Rs 1.10 crore in the new company, which had planned to raise an initial capital of Rs 500 crore from leading NRIs and Indian business houses.

The plan was to first register it as a non-banking financial company and later get it transformed into a full-fledged Shariah compliant bank, to function on a non- interest basis.

According to the petitioners, the government by its October 14 2009 order, sanctioned registration of the company by KSIDC, to provide financial service in accordance with Shariah.

KSIDC would contribute about 11 per cent equity and the corporation was taking steps to promote Islamic financial institution, the petitioners submitted.

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