Bai salam documentation and transaction mechanics
Produced in partnership with Trowers & Hamlins LLP
Bai salam documentation and transaction mechanics

The following Banking & Finance guidance note Produced in partnership with Trowers & Hamlins LLP provides comprehensive and up to date legal information covering:

  • Bai salam documentation and transaction mechanics
  • Key elements of bai salam
  • Documentation and mechanics
  • Mechanism for entry into individual transactions
  • Mechanism for notice of delivery and confirmation of receipt
  • General terms
  • Stand-alone bai salam agreement
  • Agency agreement
  • Security for delivery
  • Insurance

Key elements of bai salam

As discussed in more detail in the Practice Note: The structure and required elements of a bai salam transaction, in particular with regard to some of the differing views amongst Shari'ah schools of thought, there are some key conditions for a valid bai salam contract:

  1. payment of the purchase price in full at the time the contract is made

  2. exact, unambiguous specification of the quality and quantity of the asset to be delivered, generally by reference to recognised trade standards

  3. the contract must not be for a particular asset, and

  4. clear terms of delivery, in particular date and place

Certain additional requirements for a parallel bai salam must be met, namely:

  1. the parallel bai salam contract must be entirely independent of the first contract. Each party's rights, obligations and liability are separate under the respective contract

  2. delivery of the asset under the parallel contract may not be linked to or conditional upon the delivery terms under the first contract, and

  3. the counterparty to the parallel contract must be a third party, ie may not be the original seller under the first contract

Documentation and mechanics

Master bai salam agreement and associated notices

Where the parties intend to enter into a series of transactions over a period of time, they may wish to put in