Islam has legitimized the arbitration method in order to simplify the process of litigation. Islamic jurisprudence has given the subject of arbitration utmost attention and organized a well-established rules and regulations. The advantages of arbitration lie in streamlining its procedures, confidentiality of its hearings, and legal basis in particular if those in charge are recognized for their competence, skill, independence, experience, integrity and wisdom, as well as the possibility of implementing its provisions internationally.
The definition of arbitration in law is equivalent to Islamic Shari'a, which is an agreement between concerned parties for the resolution of disputes outside the courts, wherein the parties to a dispute refer it to one or more persons (the "arbitrators" or "arbitral tribunal"), by whose decision (the "award") they agree to be bound.
The legitimacy of arbitration is evidenced by the Holy Qur'aan and Sunnah, and it differs from Fatwa, judiciary, reconciliation and conciliation, and is a separate contract with its specificities, conditions, rules, and principles. Arbitration in Islamic jurisprudence expands in all its financial and social fields, except Hudud (boundaries), Li’aan (“Mutual cursing”-- a form of divorce), and penalties.
We find the evidence of legitimacy of arbitration in the Holy Quran, Allah Almighty Says: (If ye fear a breach between them twain, appoint (two) arbiters, one from his family, and the other from hers; if they wish for peace, Allah will cause their reconciliation: For Allah hath full knowledge, and is acquainted with all things) An-Nisa: Verse 35, and also says: (But no, by the Lord, they can have no (real) Faith, until they make thee judge in all disputes between them, and find in their souls no resistance against Thy decisions, but accept them with the fullest conviction) An-Nisa: Verse 65. In the Prophetic Sunnah, It was narrated from the Messenger of Allah, peace be upon him, that he said: "Whoever arbitrates between two consensual without fairness, the curse of Allah on him." As for the consensus: the Companions of prophet, agreed on the permissibility and legitimacy of arbitration.
The Islamic and Arab countries paid a particular attention in arbitration, they have a special chapter in the Civil and Commercial Procedures Code. Some countries such as United Arab Emirates recognized arbritration as an independent system through Federal Law No. 6 of 2018. Most of the Islamic and Arab countries joined and ratified New York Convention 1958.
The International Islamic Fiqh Academy in its ninth session which was held in Abu Dhabi, United Arab Emirates (April 1995), supported arbitration as a legitimate means of dispute settlement and decided that arbitration is an agreement between the two parties to a specific dispute, to mandate a third party to arbitrate between them and settle their differences through a binding verdict that is observant of Islamic Shari'a. Arbitration, thus conceived, is permissible, whether it is amongst individuals or in the field of international conflicts. It has been clarified that Arbitration is not mandatory for the two conflicting parties nor is it for the arbitrator. Either of the parties may decline it as long as the arbitration has not started, and the arbitrator may disassociate himself from the matter - even after consenting once - as long as he has not initiated issuing any verdict. He may not designate someone else as a substitute for himself without the authorization of the two parties concerned, for their consent is tied up to his own personality.
No arbitration is permissible in matters that are exclusive divine right, such as Hudud (boundaries), nor in matters for which a verdict is dependent on the establishment or rebuttal of another verdict concerning a third party over whom the arbitrator has no trusteeship, such as "Li'aan*" (“Mutual cursing” -- a form of divorce), in view of its impact on the child's right; Nor is arbitration permissible in matters that fall within the exclusive realm of jurisdiction. Any arbitration in matters that are not eligible for arbitration is null and void. The rule is that the verdict issued by the arbitrator should be carried through voluntarily. In case of refusal by either party, the matter is submitted for implementation to the law courts, and the latter may not repeal the verdict unless it is found to constitute an obvious inequity or in contrary to Shari 'a. The council has clarified that in the in the absence of any international Islamic Court, Islamic States or institutions may seek arbitration from non-Islamic courts in a quest for Shari 'a-compatible settlement.
It is clear that there are significant differences between the judiciary and the arbitration, as it is clear from the subject of jurisdiction that the judge has a broader jurisdiction than the arbitral tribunal, which cannot be used in arbitration such as Hudud (boundaries), punishment and marriage. The argument of the arbitral decision is binding on the parties, whereas, argument of judgment of a court is generally valid. The arbitrator cannot delegate another to arbitrate, but the judge can delegate another judge. Arbitration is broader than the judiciary in territorial jurisdiction, as arbitration is valid between the two parties, even if their places are different, whereas, in court jurisdiction, the judge is restricted according to the rules of jurisdiction. Accordingly, the arbitrator may consider the case with the consent of both parties even if the respondent does not reside in the country of arbitration.
The importance of Islamic arbitration in recent years has been growing exponentially. The need to resolve disputes related to commercial transactions in general, especially in the Islamic financial industry, which has led to create mechanisms based on the principles of Islamic Shari'a in resolving disputes due to the increasing role of Islamic financial institutions internationally, and the need to absorb some of the characteristics of Islamic banking.
The International Islamic Centre for Reconciliation and Arbitration (IICRA) is an independent, non-profit international Islamic financial industry, where the Center specializes in resolving all financial and commercial disputes that arise between financial or commercial institutions and their customers, or between them and third parties, which choose to apply Islamic law to settle disputes through arbitration. The Center operates locally, Gulf Cooperation Council (GCC) and internationally. The consent of two parties is required to entrust the Center with arbitration.