The Enforceability of the Purchase Undertaking (Waʿd) in Sukuk Structures: A Comparative Analysis of Shariah Doctrine and English Contract Law

Author

Shehvar Saleem, Mohammad Salah Khan, Mehboor Yaseen

Abstract

 Sukuk have become one of the principal instruments of cross-border Islamic capital markets, with global outstanding issuance reaching approximately US$902.8 billion in 2024[International Islamic Financial Market, IIFM Sukuk Report: A Comprehensive Study of the Global Sukuk Market (14th ed., IIFM 2025) (reporting global outstanding sukuk of US$902.8 billion at end-2024 and total 2024 issuance of US$205 billion, including US$65.6 billion of international sukuk).]. Central to nearly every asset-based or equity-based sukuk structure is the purchase undertaking, a unilateral promise (– a waʿd –) by the obligor to repurchase the underlying assets from the sukuk trustee at a predetermined exercise price on maturity or upon an early dissolution event. The purchase undertaking performs the economic function that the coupon and principal repayment perform in a conventional bond, yet classical Shariah doctrine denies the ordinary bare promise the contractual status of a mutually binding agreement.

This article examines the resulting doctrinal tension. Under the majority Hanafi, Shafiʿi, and Hanbali position, a bare promise generates only a moral or religious obligation and is not judicially enforceable; only the Maliki school, and then only in defined circumstances, treats a promise as judicially binding. Contemporary Shariah standard-setting bodies, principally the OIC International Islamic Fiqh Academy and the Accounting and Auditing Organization for Islamic Financial Institutions (“AAOIFI”), have resolved this by treating the unilateral waʿd as binding on the promisor, but this resolution operates entirely within the confines of Islamic jurisprudence and says nothing about how a common law court, applying the governing law the parties have actually chosen, will treat the same promise.

The article argues that the enforceability of the purchase undertaking in practice depends almost entirely on English contract law’s own doctrinal tools – principally the deed and the exercised option – and that the Shariah characterisation of the waʿd as binding is, in litigation, legally inert. It examines the Court of Appeal’s decision in Shamil Bank of Bahrain EC v Beximco Pharmaceuticals Ltd and Leggatt J’s judgment in Dana Gas PJSC v Dana Gas Sukuk Ltd to demonstrate that English courts enforce the purchase undertaking as an English law contract or deed irrespective of, and indeed notwithstanding, challenges to the Shariah compliance of the wider structure. It concludes that this is not necessarily objectionable, but that the structural reliance on English doctrinal devices rather than on the Shariah characterisation of the waʿd itself exposes a gap between the instrument’s religious legitimation and its legal enforcement that sukuk documentation should address explicitly rather than obscure.

Keywords

Sukuk, Waʿd, Purchase undertaking, Islamic finance, AAOIFI, English contract law, deed, consideration

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The sukuk industry does not need to choose between Shariah legitimacy and English-law enforceability; the market has, in practice, already secured both, through the largely coincidental convergence of AAOIFI’s documentation requirements and English law’s doctrine of the deed. What the industry does need is more candour in its own documentation about which system is doing the enforcement work in any given clause, so that investors, issuers, and Shariah boards alike understand that the purchase undertaking’s religious legitimacy and its legal enforceability, while they point in the same direction in the overwhelming majority of cases, are not the same thing, and rest on entirely independent foundations. Dana Gas made that gap visible to the market once. Careful drafting, rather than renewed litigation, should be how the industry keeps it closed.

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