Bank can not claim mark-up in decree
· Not specified
What This Case Was About
The Bank of Khyber sued a borrower, Nazamuddin, to recover money owed under a financial facility (loan). To settle the dispute over exact amounts owed, both parties agreed to let a Chartered Accountant examine the accounts. The accountant's report showed that both the principal amount and mark-up (the Islamic banking equivalent of interest) were outstanding.
The Borrower's Defense
Nazamuddin didn't deny receiving the financial facility—he only argued weakly (and too late, during arguments rather than in his formal defense) that the facility was meant for his business, not him personally. Since he never properly denied taking the facility, the court disregarded this argument.
However, he raised a more serious objection: each time the facility was "rolled over" (renewed), the bank had charged mark-up on top of previous mark-up—essentially compounding it like interest.
The Court's Decision
The court agreed this was a legitimate concern. Charging mark-up upon mark-up would effectively turn an Islamic mark-up-based facility into a conventional interest-bearing loan, which is not legally permissible.
Faced with this, the Bank's own lawyer conceded and dropped the claim for mark-up altogether, asking the court to award only the principal amount identified by the accountant.
Why It Matters
This case reinforces that Islamic banking facilities must strictly avoid compounding mark-up like interest, protecting borrowers from banks disguising interest charges as mark-up when loans are
Urdu translation not yet generated for this case.