HC asks govt not to participate in Islamic financial firm

"Kerala state and institutions controlled by it will desist from participating financially or otherwise with the Kochi-based Al Barakah Financial Services Ltd," a Division Bench comprising Chief Justice J Chalameswar and C N Ramachandran Nair said in its interim order.

The court, however, permitted the company to carry on its proposed activities, provided they are in conformity with the law after obtaining necessary clearances.

The bench passed the order on petitions filed by the state government and Al Barakah company, seeking vacation of the stay granted by the court on its functioning.

On January 5 this year, the court had stayed the proposal to start the institution on a petition by Janata Party President Subramaniam Swamy and Hindu Aikya Vedi (Hindu unity forum) Secretary R V Babu.

According to them, the proposal was to first register the company as a Non Banking Financial Company (NBFC) and later convert it to a full fledged Shariah compliant bank to function "on a non-interest basis".

State owned Kerala State Industrial Development Corporation (KSIDC) was to invest about Rs 1.10 crore in the new company, with plans to raise an initial capital of Rs 500 crore from NRIs and Indian business houses.

Reserve Bank of India counsel told the court that nobody had filed an application for NBFC. The dispute is regarding the activity of state of Kerala which had decided to permit KSIDC pick up 11 per cent stake in the company, formed for carrying out banking business, the court said.

"We are not deciding by this order that the activity of the company would tantamount to banking business or otherwise which is a question to be examined," the bench said.
The case was posted to June 5 to enable RBI and Union of India to file their counter affidavits.
In their petitions, Swamy and Babu contended that the government order of Oct 14 2009 accorded sanction for registration of Islamic Finance serving company, to provide financial service in accordance with Shariah or Islamic law.