Cimb Islamic Bank Berhad v Ahmad Asyraf Bin Alias (KA-22M-11-03/2025)

This application for judgment in default brings into sharp focus the intersection between regulatory mandates and civil pleading requirements in the context of Islamic banking. The court’s decision was contingent upon the inclusion of a specific ibra’ clause in the Plaintiff’s Statement of Claim, in compliance with applicable regulatory requirements. The central legal issue before this Court is whether the failure to expressly plead an undertaking for ibra’ in a sale-based financing claim renders the statement of claim (SOC) defective, notwithstanding the contractual and regulatory framework mandating such a rebate. Brief Facts of the Case 2. At the Defendant’s request, the Plaintiff approved a Variable Home Financing-i Facility (Account No. 1606789248) (“the Financing Facility”) with a Purchase Price of RM375,528.00 and a Sale Price of RM1,447,101.60, subject to the terms and conditions set out in the letter of offer dated 13.09.2019 (“Letter of Offer”) and the charge created as security (“Charge”) and its annexures dated 12.01.2020.

The Defendant breached the terms of the Financing Facility by failing to pay the monthly instalments and/or the outstanding sums due to the Plaintiff, despite repeated demands for payment.

Due to the Defendant’s continued default, the Plaintiff exercised its right to foreclose the charged property. The property was sold via public auction on 19.08.2024 for RM320,000.00. The proceeds of the auction were applied towards satisfying and/or reducing the Defendant’s outstanding indebtedness.

After applying the auction proceeds, a substantial outstanding balance of RM1,157,568.02 remained due and owing to the Plaintiff as of 20.01.2025.

The Defendant has remained in default of the Letter of Offer and financing facility by failing, refusing, and/or neglecting to settle the outstanding balance of RM1,157,568.02 as of 10.01.2025.

Consequently, the Plaintiff, through its solicitors, issued a notice of withdrawal and termination dated 22.01.2025 (“Notice of Withdrawal and Termination”), served by way of registered post on 02.02.2025, demanding payment of the full outstanding sale price of RM1,157,568.02 (calculated as of 20.01.2025) within 14 days from the date of the notice.

To date, the Defendant has failed, refused, and/or neglected to settle the total outstanding amount within the period stipulated in the said notice.

As a result of the Defendant’s continued default, the Writ Summon (Encl.1) and Statement of Claim (“SOC”) (Encl.2) were duly filed by the Plaintiff against the Defendant, for: a) The sum of RM1,157,568.02 as calculated on 20.01.2025; b) Ta’widh at the rate of 1% per annum on the outstanding facility amounting to RM128,331.32, from 21.01.2025 until the date of judgment; c) Ta’widh at the prevailing Islamic Interbank Money Market daily overnight rate on the sum of RM128,331.32, from the date of judgment until full settlement; d) Costs on a solicitor-and-client basis; e) Costs of this action; and f) Such further and/or other relief as this Court deems just and appropriate.

The Defendant had never responded to Encl 1 and Encl 2. The Plaintiff then filed a notice of application for judgment in default (Encl. 7) (“the JID Application”) and was supported by an affidavit in support (Encl. 8) against the Defendant for the sums claimed in the SOC. Decision and Findings of the Court 11. After appraising the facts adduced by the Plaintiff, this Court was minded to allow the JID Application, subject to the inclusion of a specific ibra’ (waiver/ rebate) clause in the SOC. My reasons are set out herein.

Upon perusal of the SOC, the court observed that the prayers sought did not contain any clause relating to ibra’. While the precise quantum of ibra’ may not be crystallised until full settlement (if it takes place during the tenure of the facility), the Court takes the view that an undertaking to grant ibra’ must nonetheless be expressly pleaded.

Ibra’ literally means “elimination, release, acquittal, and removal of something.” Technically, it is an act by a person to withdraw or waive their right to collect a part of or full payment from a debtor. In the context of modern Islamic banking, ibra’ serves as a mechanism to ensure the 'just balance' of the contract, preventing the financier from claiming unearned profit upon early settlement or default.

Islamic Financial Institutions (“IFIs”) have given rebates (initially called muqasah, later ibra’) since the early days of Islamic banking in Malaysia, often as a reward for good customers who have paid promptly, driven by competitive needs. Ibra’ is typically practised in IFIs based on the discretion of the banks to grant it to a customer who settles his debt earlier than the stipulated period. The IFIs also have the right to determine the method of calculation and amount relating to ibra’. In the IFIs' sale-based financing agreements, the financier will normally include a clause obliging it to provide ibra’ to customers if the customers settle the facilities before the expiry date of the contracts. With the inclusion of such a clause, the bank is bound to honour that promise.

Historically, the granting of ibra’ was mainly at the discretion of the IFIs. This discretion led to inconsistent practices among IFIs. However, developments involving the Shari’ah Advisory Council (SAC) of Bank Negara Malaysia (BNM) and BNM itself have shifted ibra’ from a discretionary act to a mandatory obligation (See Abdul Hamid Mohamad and Adnan Trakic, Application and Development of Ibra’ in Islamic Banking in Malaysia, The Law Review 2013, p.31).

This shift is not merely administrative; it represents a fundamental evolution in Malaysian Islamic finance jurisprudence. By transforming ibra’ from a discretionary act of grace (tabarru’) into a mandatory regulatory right, Bank Negara Malaysia (BNM) has aligned the legal enforcement of sale-based contracts like Murabahah and Bai Bithaman Ajil with the principles of Maqasid al-Shari’ah (the objectives of Shari’ah), specifically the preservation of property (mal) and the prevention of hardship (raf’ al-haraj).

It was previously thought that ibra’ would only be given by the IFIs whenever the customer settled the facilities earlier and, thus, would not be provided in the event of default. As early as 2000, the SAC resolved that IFIs may incorporate a clause on undertaking to provide ibra’ for early settlement, which would bind them to honour that promise based on public interest (maslahah).

In 2010, the SAC resolved that BNM, as the authority, may require IFIs to grant ibra’ for early settlement of sale-based debt obligations and to incorporate these terms into financing agreements to eliminate uncertainty.

Crucially, in 2013, the SAC clarified that the formula for the implementation of ibra’ in early settlement cases is also applicable to default cases, resolving a long-standing issue and ensuring consistency with BNM's Guidelines.

The Guidelines on Ibra’ for Sale-Based Financing issued by BNM, in adopting the resolutions issued by the SAC in the 13th Meeting (10 April 2000) and the 101st Meeting (20 May 2010), have listed “settlement by customers in the case of default” as one of the situations when the IFIs are required to grant ibra’ to all customers who settle their financing before the end of the financing tenure (Mohd Johan Lee, Islamic Finance: Recovery, Rescheduling, and Restructuring of Islamic Financial and Capital Markets Products and Services in Malaysia (2nd ed, LexisNexis, 2019) p.130).

Issued in 2011, the Guidelines on Ibra’ (Rebate) for Sale-Based Financing explicitly require Islamic banking institutions to grant ibra’ to all customers who settle their financing before the end of the tenure. This obligation extends to various situations, including: a) Customers making an early settlement or redemption; b) Settlement due to financing restructuring; c) Settlement by customers in the case of default; and d) Settlement due to termination or cancellation of financing before maturity.

While initially the granting of ibra' was at the bank's discretion and only stated in offer letters, the situation changed due to SAC resolutions and BNM Guidelines. The SAC allowed upfront contracting of the provision of ibra’ to safeguard public interest and ensure justice, removing prior uncertainties in financing. This led to ibra' being required to be contracted for in the legal documentation of the financing. (Mohd Johan Lee, Islamic Finance: Shariah Theories, Principles, Practice, and Legal Documentation in Malaysia (Lexis Nexis, 2017), Ch 4 & Ch 5)

The Guidelines issued by BNM has thus mandated IFIs to grant ibra’ in sale-based financing and to stipulate the formula for its calculation for recovery purposes. Failure to disclose the applicability of ibra’ in early settlement of sale financing facilities may therefore be a non-compliance issue.

Hence, it is the practice of the industry that particulars relating to ta’widh and gharamah and the undertaking to provide ibra’ (for sale-based financings which the customers settled earlier than the original tenure) be expressly pleaded when stating the “total amount outstanding” at the filing stage. This would promote uniformity, clarity and certainty of law, while reducing inconsistent judicial interpretation and ensuring that Islamic finance pleadings remain consistent with regulatory requirements (See Syuhaeda Aeni, Rusni Hassan & Ahmad Azam Othman, Procedural Laws Governing Event of Default in Islamic Financing in Malaysia: Issues and Challenges in Emerging Issues in Islamic Finance Law and Practice in Malaysia (Emerald Publishing, 2019) pp.201 & 202).

This Court emphasises that the requirement to plead ibra’ is a substantive legal necessity rather than a mere procedural formality. In an Islamic financing suit, the indebtedness is not a static figure; it is a dynamic obligation subject to regulatory rebates. Therefore, a claim that fails to account for ibra’ is fundamentally incomplete and potentially misleading to the Court in its duty to dispense justice. It is not merely a matter of procedural tidiness, but a substantive requirement to ensure transparency, compliance with BNM Guidelines, and to avoid any risk of Shari’ah non-compliance.

It was therefore the finding of this Court that the SOC did not provide an undertaking to provide ibra’ if the customer/Defendant settles the outstanding balance earlier than the contracted tenure. Given that the home financing facility concerned uses a sale-based Islamic financing contract, this undertaking is essential. Upon query by this Court, the Plaintiff’s counsel, acknowledging the necessity of the clause in light of the Court's observations, moved to amend the SOC and insert the following additional clause: “Walaupun Defendan masih mempunyai jumlah keseluruhan terhutang sebanyak RM1,157,568.02 yang dikira setakat 20 Januari 2025, Plaintif adalah bertanggungjawab di bawah kemudahan pembiayaan perumahan komoditi murabahah menurut terma dan syarat surat tawaran bertarikh 13.9.2019 untuk memberikan ibra’ kepada Defendan setelah penyelesaian jumlah keberhutangan. Jumlah ibra’ yang dikira setakat 20 Januari 2025 adalah sebanyak RM992,544.66”. (“Although the Defendant still owes a total outstanding sum of RM1,157,568.02 calculated as of 20 January 2025, the Plaintiff is obligated under the commodity murabahah home financing facility, pursuant to the terms and conditions of the letter of offer dated 13.09.2019, to grant ibra’ to the Defendant upon settlement of the indebtedness. The amount of ibra’ calculated as of 20 January 2025 is RM992,544.66.”)

The oral application to amend was thereby granted. In view of the Plaintiff’s agreement to amend the SOC to include the requisite ibra’ clause, the Court is satisfied that the relief sought is now in compliance with the applicable regulatory requirements and contractual framework.

Accordingly, the Court allowed the Plaintiff’s JID Application in Encl.7, subject to the amended SOC reflecting the ibra’ clause as directed.

The Court further directed the Plaintiff’s counsel to add the following phrase to the draft order and judgment: “Bagaimanapun jumlah sebenar ibra’ akan ditentukan bila mana penyelesaian penuh dilaksanakan sebelum tamatnya tempoh kemudahan”. ("However, the actual amount of ibra’ shall be determined at the time full settlement is effected before the expiry of the facility's tenure.") Conclusion 30. In light of the above legal developments, regulatory directives, and binding Shari’ah resolutions, this Court finds that the inclusion of a specific ibra’ clause in the statement of claim is not a mere procedural nicety but a substantive legal necessity. It ensures transparency, safeguards against unjust enrichment, and aligns the claim with the mandatory obligations set out in BNM’s Guidelines. It goes without saying that, in light of the above legal developments, regulatory directives, and binding Shari’ah resolutions, the inclusion of a specific ibra’ clause in the statement of claim is not merely a procedural formality but a substantive legal necessity.

The integrity of the Islamic financial system in Malaysia relies on the seamless integration of Shari’ah principles into the civil litigation process. By requiring the express pleading of ibra’, the Court ensures that its judgments are not only legally enforceable but also Shari’ah compliant, thereby upholding the public's confidence in the Islamic banking sector in particular and Islamic finance in general. Dated: 30th December, 2025 ............................................................. YA DR. Hj JOHN LEE KIEN HOW @ MOHD JOHAN LEE JUDGE HIGH COURT MALAYA ALOR SETAR, KEDAH DARUL AMAN For the Plaintiff : Amira Zakiyah Ismail Messrs. Hoe & Ahmad Zaki Advocates & Solicitors Defendant : In Absentia Table of Authorities Guidelines The Guidelines on Ibra’ for Sale-Based Financing, BNM. Treaties Abdul Hamid Mohamad and Adnan Trakic, Application and Development of Ibra’ in Islamic Banking in Malaysia, The Law Review 2013. Mohd Johan Lee, Islamic Finance: Recovery, Rescheduling, and Restructuring of Islamic Financial and Capital Markets Products and Services in Malaysia, 2nd ed, LexisNexis, 2019. Mohd Johan Lee, Islamic Finance: Shariah Theories, Principles, Practice, and Legal Documentation in Malaysia, Lexis Nexis, 2017. Syuhaeda Aeni, Rusni Hassan & Ahmad Azam Othman, Procedural Laws Governing Event of Default in Islamic Financing in Malaysia: Issues and Challenges in Emerging Issues in Islamic Finance Law and Practice in Malaysia, Emerald Publishing, 2019.