Federal Shar¯ıah Court’s Judgment for Riba¯ Free Pakistan

Abstract

The controversy of whether modern-day commercial interest falls under the purview of riba¯ and, therefore, prohibited or not was resolved globally by the end of the 1980s by resolutions, fatawa, and reports of various forums and committees. Accordingly, Islamic banking started evolving, and Pakistan was the pioneer in this regard. Yet, as the Constitution of the Islamic Republic of Pakistan required elimination of riba¯ from the entire economy, certainly a difficult task, the controversy was re-initiated when an appeal was preferred by the government against the judgment of the Federal Shar¯ıat Court (FSC) of Pakistan declared in its of 14th November 1991. The FSC (1991) declared that the Non-Interest Based (NIB) system introduced by the SBP in 1985 was un-Islamic mainly due to the involvement of ‘Sell and Buy-Back’ and sale of debts/receivables and ordered that the whole system be Islamised in its true sense by the end of June 1992. The Shar¯ıat Appellate Bench (SAB) of the Supreme Court of Pakistan rejected the appeal against the FSC judgment (1991) in its verdict given on 23rd December 1999 and ordered that the laws involving interest Laws would cease to have effect finally by 30th June 2001. The government first got an extension of one year but then filed a review petition, and the newly constituted SAB remanded both earlier judgments back to the FSC in June 2002. In the FSC, the case remained pending for 2 decades till it was decided on 28th April 2022. The FSC (2022) again declared that all types of interest on loans and debts (either for commercial, production-related, or personal purposes) fall under the definition of riba¯. The FSC directed the government to complete the necessary legislative amendments by 31st December 2022 to replace the laws declared void due to involvement of interest and that the interest must be eliminated from the economy by the end of 2027.