SHARIA BANKING DISPUTES SETTLEMENT: Analysis of Religious Court Decision in Indonesia

: This study aims to analyze Sharia banking disputes settlement in Religious Court regarding Sharia compliance and state regulations. The data were obtained from the Supreme Court of the Republic of Indonesia website on Profit Sharing (PLS) financing, musyarakah , and non-profit Sharing (non-PLS) financing, murabahah . This is a legal empirical study with a comparative approach. The results showed Sharia banking disputes occurred partly due to the existence of legal loopholes and the general nature of the existing rules, which lead to multiple interpretations. Disputes were mainly caused by default and unlawful acts. Furthermore, there were differences in the judge's decision between the two case studies concerning the fulfillment of legal principles, including benefits, justice, and legal certainty. Regarding the suitability of the contract, in murabahah case, the pillars and conditions have been fulfilled, but there are other factors that damage the contract. Therefore, there is an urgent need to strengthen regulations related to more detailed financing contracts. The regulators are expected to promote an Islamic banking regulatory framework that guarantees legal certainty for both customers and Islamic financial institutions, as well as provide a stronger legal basis for disputes settlement.


Introduction
Islamic banking has continuously experienced significant growth, with a market share of 7.03% as of July 2022, supported by 12 Sharia commercial banks, 21 Sharia business units, and 166 Sharia rural banks 1 . This growth can be attributed to the expansion of various financing products, including profit and loss sharing (PLS), such as mudharabah and musyarakah financing, as well as non-profit and loss sharing financing (non-PLS), namely murabahah financing.
Despite PLS and non-PLS financing facilities provided by Islamic Banks, disputes and conflicts still arise among the parties involved. Such conflicts may be caused by one party engaging in unlawful acts that harm the other or refusing to honor the terms of the agreement. Sharia banking disputes can be resolved through litigation in Court or non-litigation methods, such as deliberation, mediation, and arbitration. However, most disputes are typically resolved through Court to achieve benefits, justice, and legal certainty from the results of decision.
2 "Undang-Undang Peradilan Agama, UU No.50 Tahun 2009Jo. UU No.3 Tahun 2006Jo. UU No.7 Tahun 1989, LN No.159 Tahun 2009TLN NO. 5078 Jo. LN No.22 Tahun 2006TLN No.4611 Jo. LN No.49 Tahun 1989TLN No.3400." (2006 In the resolution of Sharia banking disputes, Religious Court rely on various legal materials, including contracts (contract contents), Compilation of Sharia Economic Law (KHES) enforced as applied law through Supreme Court Regulation (PERMA) No. 2 of 2008, 4 Jurisprudence, Fatwa of the National Sharia Council-Indonesian Ulema Council (DSN-MUI), and Fiqh, which is the doctrine and knowledge of Islamic law (Sharia). The source of formal law that applies in Religious Court to resolve Sharia banking disputes is procedural law, relevant in the General Court environment unless there are special rules.

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Vol. 23, No. 1, June 2023 77 Until the end of 2022, there were 76 Sharia banking disputes cases in DKI Jakarta, comprising 18 cases at the first level, 13 at the appeal level, 7 at the cassation, and 1 case at the review level. The majority of these disputes shared similar causal factors, such as default, unlawful acts, and defective contracts. For  Nur also studied settlement of murabahah contract disputes between Sharia Bank X and PT AS at the National Sharia Arbitration Board. In this case, Bank Syariah X was found to have breached a promise by defaulting on the termination of financing for PT AS, and its employees violated Standard Operating Procedures (SOP). The arbitrator made decision based on the contractual agreements and referred to relevant regulations, such as Sharia Banking Law, the DSN MUI Fatwa, the Arbitration Law, and the Civil Code. The study focused on understanding how the arbitrator considered the case when making decision. 7 The increasing number of disputes indicated that the financing products offered by Sharia Banks had not reached the "ideal point." Therefore, the banks should exercise greater caution in implementing financing products and deepen their understanding of Sharia principles before applying them in the field to minimize future disputes. Although several studies have been conducted on Islamic banking disputes resolution, most of them only examined specific type of financing. The studies also failed to demonstrate the differences in disputes between PLS and non-PLS financing regarding contract schemes, causal factors, and loopholes. It will also provide recommendations for stakeholders regarding the regulation and performance of both contracts.

Method
This is a type of empirical legal study through focusing on a phenomenon or situation of the object in detail by gathering the facts that occur and developing existing concepts. Secondary data obtained from Sharia banking disputes decision were used, particularly those related to disputes on PLS financing (musyarakah), such as Jakarta A comparative study approach was employed, which analyzed the suitability of contract implementation in PLS and non-PLS financing within Islamic Banks according to Sharia principles and regulations. Furthermore, stakeholders analysis method was utilized to analyze deficiencies in implementing the contracts from Islamic Banks, customers, and the Government, with the aim of providing policy recommendations for the future.  The Panel of Judges considered that the execution of the auction violated Article 224 HIR because a forced order occurred when it was ordered by the head of the PA Central Jakarta and the head of Court, rendering the Mortgage certificate devoid of legal force. Since musyarakah contract had not matured, and the contrarian had defaulted, the execution of auctions without any bids led to no result or legal certainty. Circular  The auction conducted by the Islamic Bank was declared invalid, null, and void because it was not determined by the Chairperson of the PA whose jurisdiction covered the dependent object in question. In the event of debtor default, the creditor can utilize and manage mortgage rights, followed by the issuance of SHT based on PA determination.

Decision of the Jakarta Religious
The occurrence of default serves as the fundamental factor leading to disputes. Therefore, the creditor still has the right to fulfill the contract, when feasible, and is entitled to compensation, either simultaneously with the fulfillment of the achievement or as an exchange for its completion. After default, the overmatch lacks the authority to release the debtor. In a contract established on reciprocal agreement, the default of the first party grants the other party the right to petition the judge for contract cancellation, thereby releasing the Plaintiff from their obligations. 8 Vol. 23, No. 1, June 2023 Al-Risalah

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The study experts believed that decision of the Panel of Judges adhered to the principles of benefits, justice, and legal certainty. The emphasis on legal benefits can be observed through decision rendered in the form of an invalid auction conducted by a bank for an unmatured customer, even though a default occurs on the customer's part. It is crucial to execute auctions based on Court fiat. The principle of justice can be observed in decision to permit the execution of auctions conducted by the Bank on the due date. This decision aims to protect the Bank from losses due to customers' default. The principle of legal certainty can be seen from the judge's decision that action should be carried out in accordance with the existing decision. As a result, both the opposing and defending parties were obligated to comply with the judge's ruling.

Supreme Court Decision No. 401 K/Aug/2020 Jo. Jakarta High Court Decision No. 162/Pdt.G/2019/PTA Jo. South Jakarta Religious Court Decision 1957/Pdt.G/2018/PA.JS
The second disputes case study addressed murabahah contracts. The customer felt disadvantaged, alleging that Bank Syariah X changed the deed of murabahah financing from 47 vehicle units to 37, while the contract value remained unchanged at 30,000,000,000 IDR with a profit of 11,882,851,529.90 IDR. The customer claimed 10,500,000,000 IDR losses attributed to the decrease in vehicle unit prices, 10,800,000,000 IDR resulting from the non-utilization of ten vehicle units and heavy equipment for business purposes, as well as 1,000,000,000 IDR for immaterial losses (Table 2).
Islamic banks stated that the customer's guarantee had been transferred to another bank. The customer had failed to make any installment payments as per the contract since November 2016, and also agreed to modify the contents of the contract, reducing the number of vehicles from 47 to 37 by purchasing the vehicle directly from the supplier. The reduction in vehicle units did not affect the amount of the financing facility as the customer acknowledged and accepted this change. The Bank withheld copies of the documents due to the customer's failure to pay an administrative fee of 330,000,000 IDR. The customer still had an outstanding debt of 36,068,062,187.21 IDR, and Islamic banks had incurred losses of 500,000,000 IDR. Therefore, in these disputes, the Bank demanded the payment of 10,000,000 IDR per day for the delay in carrying out the contents of decision and payment of all Court fees.
The panel of Judges relied on various legal sources, with the investment financing contract for transferring financing using murabahah principle no. 229 and wakalah contract No. 230 dated 31 July 2013 being the most significant. Article 1338 of the Criminal Code states that "All contracts made legally are applicable as law for those who make them." Article 22 KHES regarding the pillars of the contract, includes, the contracting parties, the object of the contract, the primary purpose of the contract, and the contract itself. Therefore, the Panel of Judges considered the contract between the customer and Bank null and void as it did not fulfill the contract's pillars, specifically the contract's object.
According to Article 36, Supreme Court Rules No. 02 of 2008 concerning KHES, "A party can be considered to have breached a promise, when, due to their mistakes, "fail to fulfill what they promised." Article 38 Perma No. 02 of 2008 concerning KHES states that "Parties who breach a contract may be subject to sanctions, including paying compensation, canceling the contract, transferring risk, fines, and paying Court fees." The Bank and Notary cannot be held responsible for immaterial losses, and the forced money is no longer valid since the contract was canceled.

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Vol. 23, No. 1, June 2023 81 MA Jurisprudence No. 2123/K/Pdt/1996 states that to assess a default, it is wrong to base the application of the law on factors outside the contents of the agreement, even when there is a contract the parties failed to implement. Since the investment financing contract for transferring financing using murabahah principle has been canceled, there are no more default parties. The customer cannot be burdened with the payment of the remaining margin debt or the bank losses, but only the principal debt of Rp. 21,243,190,172 A panel of Judges in the first level concluded that Islamic Bank X had committed an unlawful act by altering the contents of the Deed of Investment Financing Transfer Contract with murabahah principle. In Indonesia, PMH is regulated in Article 1365 of the Civil Code as "any act that violates the law and causes harm to other people by mistake, obliges the person who caused the loss to compensate for the loss." Unlawful acts not only violate written rules but also encompass any action infringing upon the rights of other people guaranteed by law. This includes actions contrary to the legal obligations of the perpetrator, decency (goedzeden); and the good attitudes in society or considers the interests of others. 9 The study experts believed that Decision of the Panel of Judges at the first and appeal levels was wrong and failed to reflect the principles of benefits, justice, and legal certainty. This was because murabahah contract was declared invalid, without determining the authenticity of the deeds. Court's decision at the cassation level reflected justice by rejecting the customer's claim while awaiting the determination of the original and the fake deeds. This letter should be sent after the agreedupon period of delay and should include details, such as the minimum number of days of delay, the balance significant earning assets, ratios, margins or fees, penalties, and compensation. Regarding the execution of guarantees, Article 67 mandates certain requirements should be met, including proving that the customer is in default, providing a warning letter to the customer, as well as ensuring the Islamic banks possess a certificate of fiduciary guarantee, certificate of mortgage right, and certificate of mortgage right. Banks are expected to explain the process of collateral execution as a mechanism for selling collateral. Article 48 stipulates that when the customer fails to fulfill their obligations within a specific timeframe after the execution of the collateral, Islamic banks can only sell the collateral through a public auction and recover settlement of the receivables. Banks also have the option to sell collateral privately based on an agreement and return excess proceeds from collateral sale. and Sharia Business Units of Financing Companies. These differences became apparent due to the existence of violations in the execution of auctions conducted by the Bank before the due date.

Differences can be observed in Musyarakah
The practice of musyarakah in Islamic Banks differs from musyarakah contract outlined in DSN MUI Fatwa No. 105/DSN-MUI/X/2016 concerning Guaranteed Refunds for Mudharabah, Musyarakah and Wakalah Bil Istitsmar Financing. According to this fatwa, when a business incurs losses and the capital owners hold different opinions regarding the cause of the loss, the management should prove the losses suffered are not a result of taaddi, tafrith or mukhalafat al-syruth or any actions violating the agreed upon terms at the time of the contract. When proven, the losses become the responsibility of the capital owners, which in this case, is the Islamic banks. Fatwa No. 08/DSN-MUI/IV/2000 concerning Musyarakah Financing also supports the notion that losses should be shared proportionally among the partners based on their respective shares in the capital. Similarly, KHES article 558 affirms the Islamic financial institution should bear the loss according to its portion in the included capital.
In fatwa No. 129/DSN-MUI/VII/2019 concerning Real Costs As Ta'widh Due to Default (At-Takalif Al-Fi'liyyah An-Nasyi'ah 'An An-Nukul), default is defined to encompass various scenarios, namely failure to pay obligations altogether, paying obligations on time but with a less agreed amount, paying debts with the agreed amount but beyond the agreed time, and obligation to pay beyond the agreed time with an amount less than what was agreed. Others include the non-fulfillment of obligations related to debts (al-dain), ujrah, realization of PLS on business profits which are the rights of LKS, and losses due to noncompliance with contracts, preceded by orders (wa'd) to purchase goods.

"Fatwa DSN MUI Nomor 49/DSN-MUI/II/2005
Tentang Konversi Akad Murabahah." Musyarakah Financing Contract Case No. 52, dated 27 April 2015, explicitly indicates the presence of challenges in carrying out business activities. From August 2018 to April 2019, there was an unforeseen situation in the coal sector, beyond market expectations, affecting the customer's business. The market was in an idle state due to an incompatible national situation in the political industry as at that time. Therefore, when referring to the fatwa, it is important to note that default is not necessarily attributed to the customer, considering several factors regarding bankruptcy.
In the case of murabahah, after a review by a first-instance judge, the financing contract was considered null and void due to the failure to fulfill the fundamental requirements of the contract, specifically the object of the contract. The bank provided facilities in the form of non-goods funds (murabahah bil wakalah contract). Although customer's purchase of goods was permissible, it posed risks for Islamic banks. Murabahah contract should be ideally executed when the item, in principle, belongs to the Bank. The price in murabahah sale and purchase contract needs to be stated clearly at the time of the contract, whether through bidding, auction, or tender. Islamic banks faced a significant reduction in margins from murabahah financing activities due to decision of the first-level panel of judges, which only required payment of the principal debt caused by the change in the contract from Murabahah to Qard.  (Ta'widh). The amount of compensation corresponds to the actual loss incurred in the transaction, and this compensation is applicable only to debt contracts, such as salam, istishna, murabahah, and ijarah. 13 While guarantees are regulated in fatwa No.74/DSN-MUI/I/2009 concerning Sharia Guarantees, collateral is allowed on the basis that the customer is capable of fulfilling payment obligations. Collateral serves the purpose of guaranteeing customers to pay off their debts. In the event of default, the customer may be subject to late fees and ta'widh or reimbursement of costs incurred by the guarantee recipient due to the insured party's delayed payment of obligations. However, adding additional guarantee for extended payment time is not in accordance with the existing MUI DSN fatwa. 14 Parties can consider entering into a new separate agreement or establish a new payment schedule through an addendum to the old agreement. Scheduling new payments increases the risk, and may prompt the bank to request additional collateral in the new agreement, separate from the previous contract. 15  Economic Stimulus for Sharia Commercial Banks and Sharia Business Units. This regulation outlines the quality of financing for customers that can be restructured by providing a responsible period for the payment of principal financing.
In KHES, the contract should adhere to several principles namely voluntary agreement without coercion, ensuring implementable promises, employing a precautionary principle with careful consideration, maintaining consistency to uphold a clear purpose, promoting mutual benefits for both parties, establishing equality where parties occupy the same position, fostering transparency, responsibility and openness, considering the ability of the parties in contract, facilitating ease of implementation of the agreement, demonstrating good faith, providing lawful reasons that align with the law, upholding freedom of contract, and documenting the agreement in writing. 16 In the second case mentioned, the contract in question is a facade contract that can be voided. This is because while the pillars and conditions may have been fulfilled, other factors, such as changes in the number of vehicle units, undermine the contract based on considerations of benefit.
A gap still exists between the regulation and implementation of financing in Islamic banks. Studies in certain cases may benefit the winning party while offering losses to the losing party, providing solutions that are perceived as lacking the principle of justice for the disputing parties. Norms utilized by judges in case decision should align with the development of existing regulations. Islamic

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Vol. 23, No. 1, June 2023 85 banking regulations have not fully accommodated the operational activities of Islamic banks due to variations in operational implementation compared to conventional banks. In terms of systems and ecosystems, Islamic banking lags behind the conventional banking industry, as evident from the dominance of murabahah contracts in financing. From the internal factor, murabahah financing in Islamic banks appears to be more expensive than in conventional banks. Externally, these discrepancies are influenced by national and even world economic conditions experiencing turmoil.

Stakeholders Analysis
The Islamic banking industry in Indonesia coexists with conventional banks, as Indonesia practices a dual banking system that promotes financing in the national sector. The Islamic banking system is characterized by PLS principle, providing an alternative banking system that benefits both the public and the banks. It emphasizes fairness in transactions, ethical investment, prioritizes unity and brotherhood in production, and avoids speculative activities in finance. The development of Sharia banking is directed at benefiting society and contributing to the national economy. Therefore, the development of national Islamic banking aligns with other strategic plans, such as the Indonesian Banking Architecture (API), Indonesian Financial System Architecture (ASKI), the National Medium-Term Development Plan (RPJMN), and the National Long-Term Development Plan (RPJPN). Sharia banking is regulated by Law Number 21 of 2008 which holds lex specialis legal status in relation to Banking Law. This Sharia Banking Law specifically governs Islamic banking, while Banking Law applies to banking in general, including both Islamic and conventional banking. According to the principle of lex specialis, derogate lex generalis means that special laws override general laws. To establish the law, Sharia banking products need to comply with the 2008 Sharia Banking Law, Financial Services Authority Regulations, Fatwa of the National Sharia Council, and Compilation of Islamic Economic Law. This guideline has long been issued by the regulator. On the other hand, Indonesia follows a civil law system, which requires adherence to existing rules. There are instances where cases in the field differs from what is stipulated in the regulations, necessitating the judge to explore existing legal sources, including jurisprudence. This tensions between existing legal developments and implementation in the field, particularly in the Islamic banking industry, creates opportunities for LKS to exploit these gaps.
From the customer's perspective, disputes sometimes arise due to hasty financing decision without considering the ability to repay in installments. Customers should have sufficient knowledge of financing contract agreements, possess legal literacy skills, and assess their future business prospects, to avoid being harmed by financing. Lack of understanding regarding the financing agreement can create legal loopholes in the contractual agreements, benefiting the bank when the customer defaults or commits other violations.
On the government side, encompassing the legislature, executive and judiciary, there are also shortcomings that create legal loopholes exploitable by irresponsible parties. In terms of legislation, both Sharia banking law and laws governing disputes resolution need strengthening, as they serve as operational guidelines for Sharia banking and a legal basis for judges in deciding cases at Religious Court. From a juridical perspective, the existing legal basis can be reformed in line with legal developments in banking industry, particularly in guiding judges on decision regarding Sharia banking disputes.

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The executive/government,represented by the Financial Services Authority and Bank Indonesia, is required to establish a regulatory framework for Sharia banking. This framework should guarantee legal certainty and provide detailed technical instructions to close legal loopholes exploitable by stakeholders, particularly those who tend to be manipulative and seek profit.

Conclusion
In conclusion, this study showed that Sharia banking disputes occurred partly due to the existence of legal loopholes and the general nature of the existing rules, leading to multiple interpretations. These disputes were primarily caused by default and unlawful acts. Regarding the suitability of contract in murabahah case, although the pillars and conditions were fulfilled, the contract could be nullified due to considerations of benefit. Religious Court Judges utilized various legal sources, including the Compilation of Sharia Economic Law, DSN Fatwa, Jurisprudence, Civil Code, and Herziene Indonesich Reglement, to make the best decision. In musyarakah cases, decision was made in accordance with the principles of benefits, justice, and legal certainty, as the auction was conducted before the maturity date, and not based on an order from the head of Court. However, in murabahah cases, decision of the panel of judges at first and appeal levels were wrong, as they did not reflect these principles. This decision highlighted the invalidity of murabahah contract, despite the absence of a definitive determination regarding the authenticity of the respective deeds. Court's decision at the cassation level demonstrated justice by not accepting the customer's lawsuit while awaiting the determination of the original and fake actions.
From the customer's point of view, financing disputes sometimes occurred due to hasty decision without considering the ability to make installments. It is essential for customers to be aware of their capacity to repay financing installments to Islamic banks. These banks are expected to carry out financing activities based on Sharia principles, have a better understanding of regulations, and ignore the desire to gain significant profits. Moreover, they should exercise patience when determining the eligiblity of customers for financing facilities and resolve problematic financing by considering the best solutions with maturity. The executive/government and legislative/ regulatory are expected to issue Islamic banking regulations that guarantee legal certainty and provide more detailed technical regulations to close existing legal loopholes in the Islamic banking industry. From a juridical perspective, it is crucial to update existing legal sources to stay abreast of the legal developments in banking industry.

Case
Bank Syariah X conducted auction executions on land and buildings serving as collateral in musyarakah agreements because the customer defaulted (nonpayment of installments). The customer was dissatisfied with this situation as the debt was still outstanding even after the execution of the auction. The Central Jakarta Religious Court was requested to cancel the auction conducted by Bank Syariah X, the Deed of Mortgage granting was declared null and void, and all defendants were ordered to pay Court fees.

Case
The customer felt disadvantaged because they believed that Bank Syariah X had changed murabahah financing deed from 47 vehicles to 37, despite the contract value remaining unchanged. The customer demanded Bank Syariah X compensate for the loss; pay dwangsom money; return additional collateral in the form of a certificate of land ownership, requested the judge to declare the Plaintiff no longer had any obligation to make installment payments to the Bank; ordered Sharia Bank X and Ny. X to issue an apology, to be announced in the Kompas daily newspaper media (1 full page for three consecutive days); and to cover all Court costs.