ISLAMIC BANKING IN SRI LANKA AND MALAYSIA: AN IMMENSE NEED FOR A COMMON DISPUTE RESOLUTION MECHANISM

One of the major challenges the Islamic banking industry facing is as to how to legalise Shariah based cross-border transactions. Although the contracts are concluded vigilantly disputes are inevitable. Parties may disagree as to their individual rights and obligations no matter how vigilantly an agreement is written. The resolution of such disputes however need not be incompetent, costly and bitter. Alternative means of dispute resolution can preserve time, money and valuable business relationship. In addition, the civil courts that have jurisdiction over Islamic banking disputes in Sri Lanka and Malaysia have proved to be incompetent to handle them as the applicable law is not conducive to the industry and judges may be unfamiliar with the principles of the Shariah. Furthermore, litigation is costly and cases are delayed due to a number of unnecessary formalities. Hence, this paper strives to propose the arbitration that has been designed based on United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules and New York Convention as an alternative dispute resolution mechanism for more conducive, speedier, cost effective, less formal and confidential process for Islamic banking disputes. It is notable that Sri Lanka and Malaysia have a comprehensive, marvelous and effective legislation in this respect. For this purpose, a qualitative method of research is adopted for which primary and secondary sources were consulted. As such, the study found that the Arbitration Act 1995 of Sri Lanka and the Arbitration Act 2005 of Malaysia can play a major role in resolving disputes. Arbitration laws of both countries enable disputing parties to choose the law of arbitration, place and the manner in which the proceeding is to be carried out. Besides, in case the choice of laws is absent in the contract, the conflict of laws rules will be applicable. More importantly, there are provisions to enforce effectively domestic and foreign arbitral awards in both countries. In this sense, principles of the Shariah can also be incorporated into contracts as governing law. Therefore, Islamic banking industry is encouraged to make use of this unique mechanism for effective dispute resolution.