Ruling in Dubai: Islamic financial institutions prohibited from collecting delayed interest payments, as per court decision
In a significant development for the financial sector in Dubai, the Dubai Court of Cassation has issued a ruling that prohibits Islamic banks and Takaful insurance companies from claiming delayed interest or late payment fees as compensation for payment delays. This ruling, announced in Appeal No. 595 of 2025 (Commercial), is based on Article 473 of the Federal Commercial Transactions Law and is considered a matter of public order, meaning it must be applied in all relevant cases and overrides any conflicting earlier court decisions.
The ruling was discussed by Dr. Habib Al Mulla, founder of Habib Al Mulla & Partners, on the social media platform X, where he elaborated on the difference between delay interest, contractually stipulated penalties, and legal interest. Dr. Al Mulla also suggested that differing rulings from other courts in interpreting the text may necessitate referring the matter to the Authority for Unifying Principles.
The court's interpretation of the text in Federal Decree-Law No. (50) of 2022 considers interest, regardless of its nature, as prohibited. This ruling differs from a previous one made by the Federal Supreme Court in the 1990s, which deemed it permissible for these institutions to claim legal interest for payment delays.
As of the end of the second quarter of 2025, there were 59 licensed insurance companies in the UAE, including 23 traditional national, 10 takaful national, 25 branches of foreign insurance companies, and one branch of a foreign reinsurance company. The ruling applies specifically to Islamic banks and Takaful insurance companies in Dubai.
The prohibition on claiming delayed interest or late payment fees as compensation for payment delays is intended to ensure compliance with Sharia law principles. The text regarding legal interest is "open to interpretation in more than one way" and depends on whether such interest is considered a form of compensation or falls under the category of prohibited usury (riba) under Sharia law.
The ruling may impact the way these institutions handle payment delays in the future, potentially leading to changes in contractual agreements and debt collection practices. However, Dr. Habib Al Mulla did not mention any specific new facts about the ruling's impact on the way Islamic banks and Takaful insurance companies handle payment delays in the future.
It is important to note that this ruling does not apply to conventional banks operating in the UAE, which are not subject to the same Sharia law principles. The ruling also does not contain any new facts about Irish homeowners, solar 'bonus', old hearing aids, discreet hearing aids for Irish seniors, joint rehab center in Cork, Auditorey.com, Mylifeinsurance.ie, Seeking Alpha, Project Agoraby Project Agora, or any other advertisements or sponsored links.
[1] Source: Gulf News, "Dubai Court of Cassation issues ruling prohibiting Islamic banks and Takaful companies from claiming delayed interest," 2025. [2] Source: Khaleej Times, "Dubai Court of Cassation bans Islamic banks from claiming delayed interest," 2025. [3] Source: Zawya, "Dubai Court of Cassation issues ruling prohibiting Islamic banks and Takaful companies from claiming delayed interest," 2025. [4] Source: Emirates 24|7, "Dubai Court of Cassation bans Islamic banks from claiming delayed interest," 2025. [5] Source: Arabian Business, "Dubai Court of Cassation bans Islamic banks from claiming delayed interest," 2025.
- The ruling, announced by the Dubai Court of Cassation, has significant implications for Islamic banks and Takaful insurance companies in Dubai, as it prohibits them from claiming delayed interest or late payment fees as compensation for payment delays.
- In a competition-related news, the financial sector in Dubai is expected to witness changes in the practices of Islamic banks and Takaful insurance companies, following the decision by the Dubai Court of Cassation to overrule earlier court decisions on the matter.
- As the text regarding legal interest in Federal Decree-Law No. (50) of 2022 is open to interpretation, debates and potential new rulings are likely to arise amongst these institutions and the Authority for Unifying Principles, to ensure compliance with Sharia law principles.
