Analysis of the Foundations and Legal and Jurisprudential Nature of Rescinding Property Ownership by Banks in Iranian Society and Banking System

Abstract

Rescission, as a means of dissolving binding contracts, has proven effective within Iran's banking system, with its primary application being the rescission of properties acquired by banks. Currently, in implementing Article 16 of the 2015 Act on the Removal of Barriers to Competitive Production and the Promotion of the Country’s Financial System, which mandates that banks annually divest at least 33% of their surplus assets, and as a consequence of this legal provision, the directive on the divestment of surplus assets of credit institutions was enacted by the Money and Credit Council and communicated to the banking network through the Central Bank of the Islamic Republic of Iran. Based on Article 2 of this directive, which specifies that the divestment of surplus assets of credit institutions should be conducted through auctions, it has been stated that bank-owned properties, per Clause "b" of Paragraph (3-1) of Article (1) of the directive, are classified as surplus assets. Consequently, the sale of these assets must occur via auction. Due to these enacted regulations, many banks have often evaded accepting requests for the rescission of owned properties to increase profits, while others remain hesitant about executing property rescissions. In light of these issues, this article seeks to examine the legal and jurisprudential foundations, as well as the status and functionality of rescission in Iran’s banking system, relying on Islamic jurisprudence, banking practices, and relevant laws and regulations, to offer practical and applicable solutions.