‘Restraining commercial activities of the state on secular principles will not be legal’.
The Kerala High Court on Thursday dismissed petitions against formation of the country’s first Islamic bank. The petitions were filed by Subramanian Swamy, former Union law minister, among others. This clears the way for the state government to formally launch the bank, if banking authorities agree.
A Bench of Chief Justice J Chelameshwar and Justice P R Ramachandra Menon rejected Swamy’s contention and that of the other petitioner, R S Babu, that forming such a bank would breach the principle of secularism in the Constitution.
The Bench also approved the order of the principal secretary, industries, allowing the Kerala State Industrial Development Corporation (KSIDC) to register an entity to form a non-banking financial company (NBFC) working according to the principles of Sharia, the Islamic law.
The government intended to establish a bank that worked without charging interest and doing so would not violate any fundamental principle of the Constitution, the Bench decided. To restrain commercial activities of the state on secular principles would not be legal, it said.
In April 2010, the court’s interim order had restrained the state government and government-controlled enterprises from associating with the proposed bank. An earlier order, on January 5, 2010, had stayed the bank’s formation, with a Bench of the then chief justice, S R Bannurmath, and Thottathil B Radhakrishnan, issuing a notice to KSIDC, the chief promoter.
The Kerala government had initiated formation of the first Islamic Bank in India in May 2009 and made KSIDC the nodal agency. A few months later, an NBFC named Al-Baraka Financial Services was registered, as the first step towards starting a bank under the Sharia code.
An NBFC was registered because the Banking Regulation Act does not allow operation of an Islamic bank. KSIDC has 13 per cent stake in the company. The rest is with Gulf-based Indian businessmen.
Swamy filed the petition challenging the order of the principal secretary, industries in October 2009, allowing KSIDC to register a company to provide banking services in line with the Sharia principles.
He argued that such an institution would be against the basic principles of the Indian Constitution, which provided equal status to all religions. Starting a bank that followed Sharia principles and came under a Sharia board would be preferential treatment to a religion and, so, against the fundamental principles of the Constitution.
Later, KSIDC invited applications for the posts of chief executive officer and company secretary for the NBFC. The notification said the officers should report to the Sharia board that governed the NBFC. This clearly showed, said the petition, that the institution would be governed by Muslim personal law, whereas Sharia principles were confined to those of the Islamic faith. So, starting a bank under this law would be against the fundamental principles of the Constitution, said the petitioner.
