Dubai: A legal wrangle between Kuwait's Investment Dar and Lebanon's Blom Bank has raised Sharia risk in the Islamic finance industry, ratings firm Moody's said in a research note Wednesday.

Blom Bank sued Dar for $10.7 million in a British court last year, seeking the principal it invested plus a 5 per cent return, as was structured in an Islamic deal it concluded with the company in 2007.

Dar said it would not pay as the fixed return constituted interest which it said was not Sharia-compliant and broke the company's own charter.

A judge ruled that while Dar should repay the principal, it had an arguable defence regarding the extra profit.