The Supreme Court of Sudan (المحكمة العليا), the country's highest appellate court, delivered a significant ruling on the consequences of early termination of a Murabaha — the cost-plus financing contract that forms the backbone of Sudan's fully Islamicised banking system. The dispute concerned an agricultural-processing company that had defaulted on a five-year Murabaha facility used to finance the purchase of milling equipment, and the financing bank's attempt, upon accelerating the facility and declaring the full deferred price immediately due, to recover not only the outstanding cost price (the principal) but also the entire deferred-profit margin scheduled for the remaining unexpired instalments. The Court held that (i) a Murabaha is a sale contract in which the profit element is earned as a counterpart of the deferred-price credit extended to the purchaser, but that profit is only "earned" as time elapses and the debt matures; (ii) upon early termination the bank is entitled to the outstanding cost price, plus profit accrued up to the date of termination, plus any actual loss proven before the court; and (iii) the bank may not recover the unearned profit attributable to the unexpired term of the facility, because demanding profit for time that has not yet run would amount to riba (usury) prohibited by the Islamic Shariah and by Sudan's Islamic banking legislation. The decision is one of the clearest judicial articulations in the Sudanese system of the distinction between legitimate deferred-price profit in a Murabaha and prohibited interest, and it aligns Sudanese jurisprudence with the Shariah standards of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI).
Sudan's banking sector has operated under a regime of full Islamicisation since the 1980s, and since the Comprehensive Peace Agreement and the interim constitutional arrangements of the mid-2000s the conventional interest-based system has been formally replaced by Shariah-compliant products administered under the supervision of the Central Bank of Sudan and the Higher Shariah Supervisory Board. In 2021, the claimant bank — a licensed Islamic bank — entered into a Murabaha agreement with the respondent, a private company operating flour-milling plants in the Gezira region, for the purchase and onward sale of industrial milling equipment with a cost price of SDG 900 million. Under the Murabaha structure, the bank purchased the equipment from the manufacturer, took constructive possession through its agent (the respondent itself), and resold it to the respondent at a deferred price of SDG 1,350 million, representing a disclosed profit margin of SDG 450 million spread over sixty monthly instalments across five years. The respondent duly took delivery of the equipment and made twenty-four of the sixty scheduled instalments before falling into arrears. After the respondent defaulted on three consecutive instalments, the bank exercised an acceleration clause in the agreement, declared the entire outstanding balance — including the full unearned profit for the remaining thirty-six months — immediately due and payable, and sued before the commercial court for the outstanding cost price plus the whole unearned profit. The commercial court granted the bank's claim in full, holding that the acceleration clause bound the respondent to the entire deferred price once default occurred. The respondent appealed to the Court of Appeal, which affirmed the commercial court, and the matter reached the Supreme Court by way of a further appeal raising a single question of law: whether the bank was entitled, on early termination of a Murabaha, to recover the full deferred-price profit for the unexpired term.
The Supreme Court framed three questions for determination: (1) Whether a Murabaha financing agreement is a genuine contract of sale in which the deferred-price profit is lawfully earned as consideration for the credit extended, or whether its profit element is functionally equivalent to interest and therefore subject to the same restrictions on recovery; (2) Whether an acceleration clause in a Murabaha agreement entitles the financier, upon the client's default and early termination of the facility, to recover the entire deferred-price profit scheduled for the remaining term, or only the profit accrued up to the date of termination; and (3) Whether, and to what extent, the bank may additionally claim compensation for loss occasioned by the default consistent with Shariah principles, in particular the prohibition on charging a defaulting debtor a penalty computed by reference to time or to the amount of the debt.
The Supreme Court allowed the appeal in part and issued the following holdings:
(1) A Murabaha is a lawful contract of sale, and its deferred-price profit is not, in principle, interest. The Court held that a properly constituted Murabaha — in which the financier genuinely acquires the asset, assumes the risk of the asset, and resells it at a disclosed mark-up — is a sale contract in which the profit margin is the lawful price of the credit term extended to the purchaser, and is not riba. The Court cautioned, however, that this characterisation depends on the financier's genuine assumption of ownership and risk; a Murabaha that is merely a device for advancing money at a fixed return, without a real underlying asset and the transfer of asset risk, would be recharacterised as a prohibited loan with interest.
(2) Profit under a Murabaha is earned only as the deferred-price debt matures over time, and unearned profit cannot be recovered on early termination. The Court held that, upon the client's default and the financier's election to terminate the facility early, the financier is entitled to (a) the outstanding cost price (the principal) as a debt due and payable, and (b) the profit accrued up to the date of termination, being the portion of the mark-up attributable to the instalments that had already fallen due and remained unpaid. The Court expressly rejected the bank's claim to the full unearned profit for the remaining thirty-six months, holding that profit is the consideration for the credit actually extended over time, and that demanding profit for time that has not yet elapsed is indistinguishable from interest and is therefore riba, void and unenforceable.
(3) A financier may claim compensation for proven actual loss, but not a time-based penalty. The Court held that, while the bank could not recover unearned profit, it was entitled to claim compensation for any actual, proven loss directly caused by the default — such as documented administrative and recovery costs and the cost of funds actually deployed — provided such compensation is not computed as a percentage of the outstanding debt or by reference to the passage of time, which would violate the Shariah prohibition on riba. The Court remitted the assessment of any such proven loss to the commercial court, to be established by evidence rather than by contractual stipulation.
(4) The acceleration clause could not override the Shariah-compliant character of the transaction. The Court held that a contractual acceleration clause cannot, merely by its terms, convert unearned deferred-price profit into an immediately payable sum, because the parties may not by agreement render lawful that which the Shariah and the governing legislation declare to be riba. Acceleration may render the outstanding cost price and accrued profit immediately due, but it cannot accelerate the earning of profit that has not yet accrued.
This judgment is a landmark for Islamic finance litigation in Sudan and, more broadly, in the Arab banking market, because it draws a clear and enforceable line between the deferred-price profit of a genuine Murabaha and the prohibited recovery of unearned profit that would amount to interest. For Sudanese banks, the ruling requires a material recalibration of how acceleration and early-termination clauses are drafted and enforced: standard-form Murabaha agreements that purport to make the entire deferred price — including all unearned profit — immediately due on default will no longer be enforceable to that extent, and financiers will need to structure their recovery claims around the outstanding cost price, accrued profit, and evidence-based compensation for actual loss. The decision also reinforces the centrality of the "genuine asset" requirement: banks that operate Murabaha facilities without a real underlying asset and the transfer of ownership risk face the prospect of having the entire arrangement recharacterised as an interest-bearing loan, with the profit clause struck down altogether. More broadly, the ruling aligns Sudanese judicial practice with the AAOIFI Shariah Standard on Murabaha, which likewise provides that the financier may not claim profit for the period after the termination of the contract, and it is likely to be cited by courts and Shariah boards across the Gulf and North Africa where similar clauses are routinely litigated. Practitioners note that the decision also signals the Supreme Court's willingness to enforce Shariah principles directly through the civil courts, independently of the Central Bank's regulatory supervision, thereby elevating the Shariah-compliant character of Islamic banking from a matter of regulatory form to a matter of substantive, judicially enforceable law.
"The Murabaha is a sale, and its profit is the price of the time during which the price is deferred. When the contract is brought to an end before that time has run, the price of the unexpired time has not been earned, and it cannot be demanded. To demand profit for time that has not passed is not a price; it is riba, and riba is forbidden by the Shariah and by the law of this country. A clause in the contract that purports to accelerate the whole of the deferred profit does not change its nature, for the parties cannot by agreement make lawful that which the Shariah has made unlawful. Let the bank recover its capital and its accrued profit and its proven loss, and let it not recover that which it has not earned." — Justice of the Supreme Court of Sudan