Dubai Court of Cassation (General Assembly), Resolution No. 9 of 2025, 14 July 2025
Under Articles 468, 472, 473 and 474 of the Commercial Transactions Law (Federal Decree-Law No. 50 of 2022), in force from 2 January 2023, an Islamic financial institution, meaning one whose constitution says it operates under Sharia or which operates partly under Sharia with a licence (for those activities), may not stipulate or receive interest or benefit on any debt paid late, including delay interest by way of compensation, and any contrary agreement is void. Obligations arising from such transactions (deposits, investment accounts, takaful, financing and investments) must be fixed and cannot increase with deferral. The prohibition, which also covers takaful companies, is a matter of public policy that courts apply of their own motion.
After the Commercial Transactions Law (Federal Decree-Law No. 50 of 2022) came into force on 2 January 2023, judgments of the Court of Cassation diverged on whether Islamic financial institutions are entitled to delay interest on the debt found due. Some awarded 5 per cent delay interest from the date of the judicial claim until payment, as compensation for the debtor's delay; one refused it on the basis of Article 473. The President of the Court referred the conflict to the General Assembly under Article 20 of Dubai Law No. 13 of 2016 on the Judicial Authority, where it was registered as No. 9 of 2025 and heard on 9 July 2025.
The Assembly analysed Book Three, Part Six, of the Law. Article 468 applies that Part to commercial transactions and contracts to which Islamic financial institutions are party, defining them as institutions whose articles or memorandum provide that they carry on their business under Sharia, including those carrying on some activities under Sharia under licence, for those activities. Article 472 lists deposits, investment accounts, takaful insurance, financing formulas, investments and any transaction a law subjects to Sharia as Sharia-governed transactions when carried out through such an institution. Article 473 forbids these institutions to borrow or lend at interest or for any benefit, or to stipulate or receive interest or benefit on any debt paid late, including delay interest even as compensation, and voids any contrary agreement. Article 474 requires the obligations to be fixed and treats them as debts that may not increase with deferral.
The Assembly concluded that the Law expressly prohibits Islamic financial institutions and takaful companies operating wholly or partly under Sharia from charging delay interest, as compensation or under any name, on any debt arising from Sharia-governed transactions, and that this is a matter of public policy the court applies of its own motion. By the majority under Article 20(b), it endorsed the judgments refusing such interest and departed from those awarding it.
Islamic banks, Islamic windows of conventional banks and takaful operators in the UAE cannot obtain court-awarded late-payment interest on defaulted Sharia-governed financing, whatever it is called, and courts will refuse it even if the debtor does not object. Debtors of Islamic institutions therefore face claims limited to the fixed amount of the debt.
| Articles 468, 472, 473 and 474 of Federal Decree-Law No. 50 of 2022 (Commercial Transactions Law) — text of articles 468, 472, 473, 474 |
| Article 20 of Dubai Law No. 13 of 2016 on the Judicial Authority in the Emirate of Dubai (powers and majority of the General Assembly) |
“عدم جواز تقاضي المؤسسات المالية الإسلامية وشركات التكافل التي تمارس كافة أعمالها وأنشطتها أو جزءًا منها وفقًا لأحكام الشريعة الإسلامية فائدة تأخيرية ولو على سبيل التعويض”Short quotation from the judgment as published by the court. The full judgment is on the court’s official service.
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