"No religion is allowed to curb anyone's fundamental rights," the top court said on a petition by a Delhi-based advocate who challenged parallel religious courts run by institutions like the Darul Qaza and Darul-Iftaa.
The court said that Islamic judges, who interpret religious law, can only rule when approached and their decisions are not legally binding.
The order was welcomed by many Muslim leaders. "The order seems to be in consonance with the way Shariat courts function," said Maulana Anisur Rahman of the Imarat Shariah in Patna.
The petitioner in the case, Vishwa Lochan Madan, had argued that Shariat courts decided on religious and social freedoms of Muslim citizens and restricted their fundamental rights with their fatwas.
Mr Madan's petition in 2005 had cited the case of a Muslim woman who was forced to leave her husband because a fatwa directed her to live with her father-in-law who had allegedly raped her.
Zafaryab Gilani of the Muslim Personal Law Board said the Supreme Court ruling vindicated his group's contention that Sharia courts were not a parallel judiciary.
"It is just like an arbitration between parties," he told the NDTV, adding, "This ruling will encourage us to work under the framework not that Supreme Court recognizes us."
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