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From ARRSEpedia

Another bit of slang the Army picked up whilst we still had an Empire to run.

A Mufti was a scholar in India who interpreted the law, and dressed in civvies, unlike most other civil serpents at the time. Thus someone who habitually wore a uniform, but was currently dressed as a civvy, was said to be "in mufti".

See also Bint, Wallah, Bunduk and Jaldi

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