📝 AI Summary — Plain-Language Overview
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
Generated from the full judgment text below — not a substitute for reading the actual opinion.
Citation Name : 2010 CLD 1792 KARACHI-HIGH-COURT-SINDH Side Appellant : BANK OF KHYBER Side Opponent : NAZAMUDDIN Ss. 3, 9 & 10—Suit for recovery of loan– court by consent of the parties appointed a Chartered Accountant to examine the account and submit report regarding outstanding amounts-Chartered Accountants submitted the report that principal amount and amount of mark-up were outstanding against the borrower—Borrower had not denied financial facility given to him by the bank, but all that had been said in his application for leave to defend was that request for such facility was not made by the borrower in his personal capacity, but was extended to his business concern–Borrower, in circumstances, had admitted to have availed the financial facility—In view of absence of denial of the borrower to the extent of availing said facility, oral objection with regard to non-availing of such facility at the time of arguments, was of no legal consequence—Objection of borrower, that whenever a financial facility was rolled-over, mark-up over mark-up had been charged, was a substantial objection—Charging of mark-up after roll-over, would amount to converting a mark-up based facility into interest bearing facility, which was not permissible under Law–Counsel for the Bank conceded that against all facilities provided to the borrower, Bank would not press its claim for mark-up; and sought decree only on the principal amount that had been determined by Chartered Accountant in his report—Suit was decreed accordingly.