Judicial Practice Analysis Regarding Conclusion of a Bank Participation Contract in order to Settle Outstanding Facilities

The bank participation contracts whereof the bank and customer would participate to invest and share the benefits are among the most important bank contracts. In spite of the tit-for-tat transactions, in participation contracts the rate of bank charges is not determined by Central Bank and only the minimum expectable bank charges’ rate would be approved and announced annually, therefore the banks would prefer to utilize the frame of participation contract for providing facilities in order to maximize their benefit via more rate of bank charges. Notwithstanding the accuracy of these utilization by bank system, unfortunately in case of nonpayment of installments of the facilities that have already been given to the customers, the banks would take action to furnish the debited customer with the new facilities whose bank share includes accumulation of the primary facility, bank charges and the damages for delays of nonpayment of installments of that primary facility, instead of extension of repayment period of debited customer and then immediately the banks would settle primary facilities with this new facility mechanism. Different interpretations have been raised regarding accuracy of this type of participation contract in court hearings, and we will conclude ultimately, with due consideration of judicial approaches and court’s decisions, that the interpretation would be more acceptable which provides for non-accuracy of such contract due to non-formation and believes that banks should be entitled for receipt of its outstanding as per primary facility.