This Judgement was related to a review petition against judgement dated 14-11-1991 in which the same Federal Shariat Court has already discussed the Status of Riba and has prohibited the use or application of Riba in any form whatsoever in Pakistan as per Islamic Law. This this judgement was already challenged through an appeal in the Shariat appellant Bench where the same judgment was upheld through Judgement PLD 2000 SC 225 in which the Bench struck down different laws in relation with the Riba. The Shariat Appellate Bench also made recommendations for economic reform in Pakistan. These included reducing government spending, controlling debt, and enacting new laws for financial regulation, transparency, and ethics. They also suggested creating new institutions to combat white-collar crime and improve financial oversight.
Whereas, the Judgment dated 14-11-1991 was set aside by a review judgment dated 24-06-2002 and the cases were remanded to Federal Shariat Court to decide it again in light of re-determination of issues.
Issues:
The issues raised in this petition were also similar to the last Judgments and mostly dealt with the same principles of Riba and Islamic Injuctions although there were some new issues which were also added later which include:
⦁ Whether the Federal Shariat Court has jurisdiction to adjudicate upon the matter as prayed for in different Shariat Petitions pending adjudication before it.
⦁ What is ‗Riba‘ according to injunctions of Islam in the light of Holy Qur‘an and Sunnah of the Holy Prophet (صلى الله عليه وسلم ( and how it is defined by the Muslim jurists and scholars in the light of Holy Qur‘an and Sunnah?
⦁ Whether the term Riba‘ is confined to compound interest only, hence in the light of Islamic injunctions only charging of compound interest on loans is prohibited and not the charging of simple interest.
⦁ Whether the prohibition of Riba in Islam changes with the change in the percentage of interest charged upon a loan and is there any difference between usury and interest?
⦁ Whether only the charging of interest upon consumption loans is prohibited and the charging of interest upon commercial or productive loan is not prohibited in Islam.
⦁ Whether the Islamic Banking model is practical or not and is the Islamic Banking a kind of heela(حيلة(.
⦁ What is the status of Islamic banking worldwide especially in the Islamic world and in Pakistan?
⦁ Whether the interest or Riba becomes permissible if the transaction are undertaken or made in the name of business.
⦁ Whether mechanism of indexation and inflation should be adopted by the banking sector in Pakistan to balance the inherent imbalance in the economic transactions.
⦁ Whether the charging of interest by banks on loans given by them to their customers is Riba or not; and whether the charging of interest by the depositors of a bank upon their deposits in the bank is Riba or not according to the Injunctions of Islam.
⦁ Whether Pakistan will have to obey its international commitments on payment of interest or Riba on international loans already taken, and how to deal with the future foreign borrowing of the Government in accordance with the Islamic Injunctions.
⦁ Whether the Federal Shariat Court should give timeline to the Government to take necessary steps for formulation of legislation which can provide enabling legal framework necessary to transform the Conventional Banking System into Riba-Free or Islamic Banking System.
These points were considered as determination points and were discussed one by one in the Judgement to make a clear view on the issues.
Determination Wise Findings:
I. Whether the Federal Shariat Court has jurisdiction to adjudicate upon the matter as prayed for in different Shariat Petitions pending adjudication before it?
The Shariat appellate bench of Supreme Court settled the debate about the Federal Shariat Court’s power. They ruled the Court has full authority to review any law based on Islamic teachings and decide if it contradicts them, regardless of the law’s connection to the Constitution. The federal Shariat court also refers to article 203 as the defining power of the court and specifically allow the Federal Shariat Court to decide on any law regarding the infringement of Islamic Injunction, Holy Quran and Sunnah. However, the Shariat Appellate Bench held that the provisions of the Constitution themselves are immune from scrutiny of the Federal Shariat Court and not the laws made on the authority of any provision of the Constitution as per the PLD 1986 SC 360.
The court reviewed the articles mentioned in the case and concluded they don’t limit the Federal Shariat Court’s authority to examine the laws challenged by the petitioners. The court also clarified that mentioning Article 38(f) (which talks about eliminating interest) is irrelevant here. They see Article 38(f) as further justification for the Court to hear these petitions challenging the presence of interest in various laws. Finally, the court emphasizes that petitioners themselves aren’t basing their case on Article 38(f). Therefore, concluded to hold without any hesitation that the Federal Shariat Court has exclusive jurisdiction to decide these matters; hence, the petitions are maintainable.
II. What is „Riba‟ according to injunctions of Islam in the light of Holy Qur‟an and Sunnah of the Holy Prophet (﵁ (and how it is defined by the Muslim jurists and scholars in the light of Holy Qur‟an and Sunnah?
It was argued that The term „Riba‟ has not been defined in the Holy Qur‟an and all that has been held in the judgment under review is based on Analogy / Qiyas (كياس). Whereas the court differs and point out that the definition mentioned based on the Hadith compiled by as-Suyuti clearly indicates that the increased amount upon a loan transaction has to be pre-determined or has to be mentioned as a condition for grant of loan or granting of extra time at the end of agreed period to return the loan. Similarly, in the other Hadith the same meaning of pre-determination of the excess amount that has to be settled as precondition for granting any loan is depicted. The court also quoted number of AHadiths as per in Islamic Jurisprudence.
Then the court moved on to define different types of the RIba such as the foremost type of „Riba‟ is called Riba as al-Nasi‟h” (اىنفيئثٰربا) which is the most famous and well known type of Riba. Since this type of Riba is prohibited in Quran; therefore, it is also called Riba al-Quran in addition to that this type of Riba was known and practiced by the Arab tribes before the dawn of Islam in the period of ignorance. Therefore, this kind of Riba is also called Riba al-Jahiliya.Since this type of Riba is associated with or the transaction involving loan, therefore, it is also called Riba al-Qard. Some jurists have called it as Riba Jaliا being obvious in form.Another type of transaction known as Riba al-fadl is also prohibited which was explained by Prophet himself. The Riba al-fadl is also called Riba-ul-Sunnah because its prohibition is Ahadiths of Prohet(SAW) and Sunnah.
Therefore, court held that Sharia law strictly forbids all forms of interest (“Riba”) regardless of the situation. And rules on following points.
⦁ Definition of Riba & Types of Riba: All types of interest are prohibited.
⦁ People Involved: Riba applies equally to rich/poor, Muslim/non-Muslim in an Islamic state.
⦁ Loan Purpose: The reason for the loan (business, personal) doesn’t affect the prohibition.
⦁ Interest Rate: The amount of interest charged doesn’t change the fact that it’s forbidden. There’s no “acceptable” limit.
⦁ Legal Status: Even if the borrower/lender is a legal entity (company), Riba is still prohibited.
III. Whether the term „Riba‟ is confined to compound interest only, hence in the light of Islamic injunctions only charging of compound interest on loans is prohibited and not the charging of simple interest?
After a lengthy debate the court declares that Riba (interest) is completely forbidden in Islam, regardless of the amount or how it’s calculated. The authors examined scholarly works and believe the Quran’s wording prohibits all interest, not just “doubled or multiplied” or any form of compound interest. They conclude that Riba is entirely forbidden in any form or quantity. The courts also referes to multiple narrations of scholar as well examples for the life of shaba before deciding this rule in this judgement.
IV. Whether the prohibition of Riba in Islam changes with the change in the percentage of interest charged upon a loan and is there any difference between usury and interest?
The court concludes that “usury” and “interest” are simply English translations for the Islamic term “Riba.” Whether you call it Riba, usury, or interest, it’s all the same and strictly prohibited according to Islamic teachings from the Quran and Sunnah. The amount of interest charged doesn’t affect this prohibition. it’s forbidden regardless of the rate. In the light of Injunctions of Islam, we cannot say that certain percentage of usury called as interest is legal and more than that is illegal and prohibited or taking interest on private loans from needy and the poor is forbidden, whereas it is permissible on industrial or commercial loans. It cannot be said according to Holy Quran and Sunnah that uptill certain percentage interest upon transaction is permissible and more than that it is not permissible, for example, less than 5% of interest is permissible and more than 5% of interest is forbidden and known as usury or riba.
V. Whether only the charging of interest upon consumption loans is prohibited and the charging of interest upon commercial or productive loan is not prohibited in Islam?
The Court rejects individual opinions that contradict the prevailing view on riba in Islam. It argues that these opposing views emerged during colonialism when Islamic finance wasn’t established, and the scholars proposing them lacked the context to understand its application. The text emphasizes that Islamic rulings, like the prohibition of alcohol, remain constant regardless of changing circumstances. Finally, it concludes that the purpose of the loan (consumption or commercial) doesn’t affect the absolute prohibition of riba.
VI. Whether the Islamic Banking model is practical or not and is the Islamic Banking a kind of heelaٰ?
The petition before us one of the petitioners and a jurist-consult did advance a point that a few products of the Islamic Banking are seldom objected that they are not strictly in accordance with the Islamic principles of finance or banking. In such cases according to them the Shari‟ah Board of the State Bank for Pakistan remain continuously involved in taking affirmative actions and corrective measures whenever required. After hearing argument about any such apprehensions products used in Islamic Banking which 206 Shariat Petition No.30-L of 1991 & All other 81 connected matters relating to Riba/Interest are not strictly Shari‟ah-compliant; for that eventuality we are of the view that every citizen is at liberty to challenge the legality of any such product which is being practiced and acted upon in the name of Islamic Banking. If any citizen thinks that any product of Islamic Banking is not in accordance with the injunctions of Islam and the name of Islam is only being used as heela )ضييث )then he can invoke the jurisdiction of the Federal Shariat Court any time, till date no such petition is pending before this court challenging any specific product of Islamic Banking. We are of considered view that Islamic Banking model is not only practical but feasible also not only in Pakistan but all across the world.
VI. What is the status of Islamic banking worldwide especially in the Islamic world and in Pakistan?
The court based on expert advice, has determined that Pakistan’s robust Sukuk framework allows for a government-level shift to a Shariah-compliant, interest-free financial system through regular Sukuk issuance. The government can establish a phased approach to convert all borrowing to Islamic models within the next few years, ultimately phasing out interest-based instruments. To fully eliminate Riba, we mandate that all public sector entities transition to exclusively using interest-free, Shariah-compliant financial instruments approved by the State Bank of Pakistan.
VII.Whether the interest or Riba becomes permissible if the transaction are undertaken or made in the name of business?
Simply looking at the Quran verse, it’s clear: trade (bay’) is allowed, while usury (riba) is forbidden. One is lawful (halal) and the other is unlawful (haram). This is a foundational principle used by Islamic jurists to analyze each banking transaction individually, comparing it to permitted and forbidden types of sales (bay’) through analogy (qiyas). This aligns with Sharia Law as interpreted in case number 222 Shariat Petition No. 30-L of 1991 and related cases concerning interest (riba) prohibitions in Islam. Therefore, we rule against the defendants. Any bank transaction involving interest (riba), regardless of amount, form (simple, multiplied, or compound), is prohibited and unlawful (haram). Banking itself isn’t inherently allowed or disallowed in Islam. It’s the nature of the transactions that determines its permissibility. Sharia-compliant transactions are allowed, while non-compliant transactions or those with doubtful compliance are forbidden under Islamic Law. Importantly, the initial assumption that conventional banking with interest is essential has been proven wrong by the success of Islamic banking. This demonstrates that an interest-free system is indeed viable.
IX. Whether mechanism of indexation and inflation should be adopted by the banking sector in Pakistan to balance the inherent imbalance in the economic transactions.
Court hold that to give a policy guideline to the government or to any sector in order to mould that sector in accordance with the principles of Islam is not job of Federal Shariat Court. This is the obligation and duty of the Parliament to follow the guiding principles by itself keeping in view the Islamic provision of the Constitution like Article 2-A and 227 in addition to the overall framework of the Constitution or to seek the assistance of Council of Islamic Ideology of Pakistan.
X. Whether the charging of interest by banks on loans given by them to their customers is Riba or not; and whether the charging of interest by the depositors of a bank upon their deposits in the bank is Riba or not according to the Injunctions of Islam?
CPurt held that by the experts during the hearing of this case and examining the relevant classical Juristic opinions and literature, they are of the considered view that banking interest is Riba in all its forms and manifestation. There is consensus of jurists that a loan that draws any additional amount which is normally called as interest is Riba; be it the amount taken by the banks from their customers upon lending them loan for any purpose or be it the payment made by the banks to its customers against their deposits which they maintain with the banks.
XI. Whether Pakistan will have to obey its international commitments on payment of interest or Riba on international loans already taken, and how to deal with the future foreign borrowing of the Government in accordance with the Islamic Injunctions?
Following consultations with financial experts and the State Bank of Pakistan, Court acknowledge Pakistan’s obligation to fulfill existing foreign debt under Islamic principles. However, conversion to Shariah-compliant options requires lender consent. Importantly, a variety of well-recognized Shariah-compliant financing methods exist in international markets for future borrowings, making claims of their unavailability baseless. The Pakistani government has the flexibility to choose the most suitable mode for future needs.
XXI. Whether the Federal Shariat Court should give timeline to the Government to take necessary steps for formulation of legislation which can provide enabling legal framework necessary to transform the Conventional Banking System into Riba-Free or Islamic Banking System.
As a corollary to the above discussion Court opinioned that they are hopeful that the Federal Government shall comply with the mandatory constitutional requirement of Article 29 (3) regarding the submission of annual report before the National Assembly and the Senate on the observance and implementation of the Principles of Policy specifically as stated in Article 38 (f) of the Constitution of Pakistan 1973, regarding complete elimination of Riba within the above stipulated period. This is an inbuilt Constitutional mechanism to ensure the observance and implementation of the Principles of Policy which empowers the Parliament to keep an eye on the working of any Government, had that constitutional duty been observed and complied with, many things in our polity would have been different, and Riba would have been eliminated from Pakistan much earlier in compliance of Article 38(f) of the Constitution.
