A Division Bench of the Kerala High Court on Thursday directed the State government and its instrumentalities to desist from participating in any way, financially or otherwise, in the business of a newly formed non-banking financial company, said to be based on Islamic laws, pending adjudication of the writ petitions challenging its formation.
The Bench of Chief Justice J. Chelameswar and Justice C.N. Ramachandran Nair passed the directive after hearing arguments on petitions filed by Al Barakh Financial Services Limited and the State government seeking to vacate an interim order.
The Bench had earlier directed the government and the Kerala State Industrial Development Corporation (KSIDC) to ensure that the newly formed company did not commence its operations until further orders from the court.
The interim order was passed on a writ petition filed by Janata Party president Subramanian Swamy against the government sanction given to the KSIDC to form such a company.
The Bench clarified that the interim order did not prohibit the company from carrying on its activities, provided such things were done in conformity with the law and after obtaining all clearances.
Dr. Swamy, opposing the pleas to vacate the interim order, submitted that there was no new development that warranted the lifting of the stay. He pointed out that the Union Finance Minister stated in the Lok Sabha on December 18, 2009 and March 5, 2010 that Islamic banking activities were not feasible in the current statutory and regulatory provisions.
RBI Deputy Governor Shyamala Gopinath had gone on record that the Islamic banking proposal had not come to the RBI because it was an issue between the Centre and the State. In fact, the RBI rejected such a proposal in 2007. The government and the KSIDC stated in their counter-affidavits that the company was RBI-compliant. He contended that the government order in this regard disclosed that it was an Islamic investment company. If the company was to function as per the Shariah laws, an amendment to the Banking Regulation Act would have to be made. The setting up of such a company with co-ownership of the state was ‘antithetical’ to equal treatment of all religions.
Dr. Swamy said that as per the government order, 11 per cent of the equity would be held by the KSIDC.
Counsel for the KSIDC submitted that the corporation had not yet made any investment in the company.
The government, in a counter-affidavit, refuted the allegation that the company would function in terms of the Shariah law.
The allegations were baseless and misleading. The company would function only in accordance with the RBI Act, rules and guidelines, it said.
source : hindu