Rasulullah (sallallahu alayh i wasallam) said: “ The truthful and honest trader will be (on the Day of Qiyaamah ) with the Ambiya, the Sid - diqeen and the Shuhada (Martyrs).”
NO ABSOLUTION
“ Verily, Maut (Death) does not absolve the debtor from debt. It is for this reason that the debt will be de- manded from him in the Aakhirah. There is consen- sus (Ijma’) on this.”
(Musallamuth Thuboot)
THE WORST SIN
“ The greatest (worst) of sins after the major sins prohibited by Allah, with which a servant (of Allah) will meet Allah is that a man dies sad- dled with debt for which he has not left assets to pay it.” (Al-Jaamius Sagheer)
THE CONCEPTS OF ‘JURIDICAL PERSON ' AND LIMITED LIABILIT Y
The concept of juridical person and the idea of limited liability are c o r- nerstones of the western capitalist economic system. Simply and truly a ‘juridical person ' is a non - existing or imaginary pers on created by western law. This imaginary or fictitious person is regarded as a legal entity supposedly having transacting and contractual ability and powers in the same or in almost the same way as a real, living human being. It is a ‘person' existing o n paper and in relation to the word ‘person' it is pure fiction.
Although the ‘juridical person' is acknowledged and understo o d to be a figment of the imagination of men, it is nevertheless accorded some consequences in the capitalist system of economi c s. The two main consequences of the fictitious man created by western economists are:
(1 ) The acquisition of capital from investors
(2 ) Insulating the partners of the business enterprise against the debt they owe their creditors. This safeguard which the ‘juridical person' provides is termed the ‘principle of limited liablity'.
In terms of this principle if the business suffers a loss or becomes i n- solvent the partners or shareholders are absolved of their debts. The rights of creditors extend to only the amount which the s hareholders have invested and whatever assets are registered in the company's name. Beyond the assets of the fictitious person , the creditors have no claim whatsoever. They have to suffer and write off the debts even if the partners and the actual contrac t ors/transactors who happen to be shareholders enjoy the bounty of enormous wealth in their personal names.
ABSOLUTION FROM DEBT
The theory of absolution from debt, that is, to be absolved of debt wi t h out payment or a wholehearted waiver by the creditors, is a ku f- faar concept alien and unacceptable to Islam. Not only fictitious en t i- ties, the s o - called juridical persons, but even living persons are a b- solved of their debts by virtue of the insolvency law of the western ku f faar. Thus, when a man is declared insolvent and all his assets have been possessed and disposed of to pay his creditors, he i s totally set free from all remaining debts. Thereafter when he again acquires wealth, even millions, his creditors have no righ t in terms of western kuffaar law to pursue him for demanding what he owes them.
This same theory of arbitrary and legal absolution of debt, which d e - nies the rights of the creditors, is extended to the fiction called ‘juridical person'. When a company (the fictitious entity) i s declared insolvent, the claim of the creditors is limited to the assets registered in the name of the fictitious person or the ‘juridical person' in the term i- nology of the capitalists. The debts are simply written off and cannot be claimed from anyone. Those who had incurred the debt a re let off the hook to go free to earn and become rich while those who hav e h u- qoo q (rights), namely, the creditors, have to simply relinquish their rights and claims under duress of kuffaar economic laws.
In his book , An Introduction To Islamic Finance, Hadhrat Mufti Taqi Uthmaani of Pakistan, presents argument in favour of the ab s olution of debt, juridical person and limited liability concepts of the western ca p i- talists.
In his argument, he firstly presents the concept of juridical person. Henceforth we shall refer to the juridical person as the fictitious p er- son, for it is nothing other than a figment of the imagination of the ku f- faar. According to the venerable Mufti Saheb, the concept of ‘limited liability' which gives rise to arbitrary absolution from debt, is the lo g i- cal consequence of the concept of the fictitious person. Therefore, if sanction for the fiction can be acquired from the Shariah, then the c o n- cept of limited liability with its absolution from debt will be a logical necessity.
Outlining his postulate, Mufti Taqi Saheb states :
“ The basic question, it is believed, is whether the concept of a juridical person is acceptable in the Shariah or no t . Once the concept of ‘juridical person ' is accepte d and it is admitted that, despite its fictive nature, a juridical person can be t r eated as a natural person in respect of the legal consequences of the transactions made in its name, we will have to accept the c o n- cept of ‘limited liability' which will follow as a logical result of the former concept.”
The ‘logical result' postulated by M ufti Taqi Saheb will be correct if the Shariah is made subservient to the laws of the kuffaar economists who fabricate theorie s and laws according to their thinking. Assuming that the concept of a fictitious person does exist in Islamic Law in d e - pendently from kuffaar economic law, then too there is no logical n e - cessity to latch onto this concept the idea of limited liability and arb i- trary absolution from debt. Limited liability and automatic absolution from debt as logical consequences of the fictitious pers o n theory will have to be proven on the basis of Shar'i evidence. It is a mere arbitrary conclusion to assert that if the concept of a ‘juridical person' is a c - cepted, then liability and arbitrary absolution from debt are logical c o n sequences. There is no basis and no proof for this other than to t e n- der the assertion that according to western economic law limited liab i l- ity is inseparable from the concept of a ‘juridical person'. But this h y- pothesis is baseless in the Shariah and repugnant to Islamic intell i- gence.
Hadhrat Mufti Taqi Saheb, as substantiation for his claim of ‘logical result', argues that:
“The reason is obvious. If a real person, i.e. a human being dies insolvent, his creditors have no claim except to the extent of the assets he has left behind. If his liabilities exceed his a s- sets, the creditors will certainly suffer, no remedy being left for them after the death of the indebted person.”
The presentation of this analogy in support of the contention that li m- ited liability is a logical consequence of the concept of the fictitious person indeed staggers the mind.
There is absolutely no scope for the general idea of limited liability and absolution of debt in the effect and consequence of the insolvent estate of the deceased.
In respect of the insolvent estate of a deceased, the question of ‘limited liability' simply does not feature. The creditors cannot claim from p er- sons other than the deceased because others are not the debtors. The rights of the creditors are restricted to the assets of th e person who is the true debtor, namely, the deceased. The creditors cannot claim from the heirs for the simple and obvious reas on that they are not the debtors and they inherit no part of the insolvent deceased's assets which will be entirely possessed by the creditors.
Furthermore, the unfulfilled amount of the debt is not waived nor arb i- trarily cancelled by the Shariah. It does not follow from the insolvent estate of the deceased that he is automatically absolve d from his debt. The claim and rights of the creditors remain valid and will extend right into the Aakhirah where they will be e n titled to lodge their claims and demand payment or fulfillment of their rights in the Divine Court which is NOT a fictitious in s titution like the kuffaar concept of a ‘juridical person'. The Divine Court has greater reality than this ma t e - rial world in which we live. Hadhrat Mufti Saheb is fully aware of the consequences of unpaid debt, especially if the non - paym e nt is willful. The rights and demands of creditor s — even non - Muslim creditor s — will be satisfied and fulfilled in full measur e in the Divine Court on the Day of Qiyaamah.
The Divine Court, the Aakhirah and Allah Ta'ala are inseparable from the Muslim w ay of life and thinking. These fundamental Entities are REAL and a Muslim is not allowed to formulate laws, theories, etc. in isolation from these REAL Entities.
Hadhrat Mufti Taqi Saheb presents the foll o wing Shar'i masaa - il in substantiation of the western concept of the fiction called ‘juridical person' which is a legal entit y supposedly possessing all contractual powers and abilities which a real human being is capable of in Islam:
(1 ) Waqf
(2 ) Baitul Maal
(3 ) Joint Stock(4 ) Inheritance under debt
(5 ) A l - Abd - ul Ma'zoon
Insha'Allah we shall proceed to discuss each one of these examples which t he venerable Mufti Saheb presents as his basis for the validity and Shar'i acceptability of the capitalist system of ‘juridica l person' with its consequence of limited liability and arbitrary absolution of debt.
(1) WAQF
Presenting hi s dalee l (eviden c e/proof/basis), Hadhrat Mufti Sahib states :
“The first precedent is that of a Waqf. The Waqf is a legal and re l i- gious institution wherein a person dedicates some of his properties for a religious or a charitable purpose. The properties after being d e- clared as Waqf, no longer remain in the ownership of the donor. The beneficiaries of a Waqf can benefit from the corpus or the p roceeds of the dedicated property, but they are not its owners. Its ownership vests in Allah Almighty alone.”
After presentin g the definition of a Waqf in terms of the Shariah, Hadhrat Mufti Taqi Saheb lapses into the following incongruous av er- ment:
“It seems that the Muslim jurists have treated the Waqf as a separate legal entity and have ascribed to it some characteri s- tics similar to those of a natural person.”
In substantiation of this incongruity, the Mufti Saheb presents the f o l- lowing argument:
“This will be clear from two rulings given by the fuqaha (Muslim jurists) in respect of Waqf. Firstly, if a property is p u r- chased with the income of a Waqf, the purchased property c a n- not become a part of the Waqf automatically. Rather, the j u-rists say, the property so purchased shall be treated as a pr o p- erty owned by the Waqf. It clearly means that a Waqf, like a natural person, can own a property.” Secondly, the jurists have c learly mentioned that the money given to a mosque as a donation does not form part of the Waqf, but it becomes in the ownersh i p of the mosque.”
SUBHAANALLAAH!
Assets purchased with the income of a Waqf do not become part of the original Waqf property for the simple reason that for anything to b e - come Waqf there has to be a Waaqi f (a human being who dedicates the asset in the Path of Allah as Waqf). In this case, the purc h ased asset has n o Waaqi f . Th e Waaqi f of the Waqf property specifically and e x- pressly made the property Waqf so that it could be employed to gen er- ate income for distribution to whatever charitable cause he (the Waaqif) had designated. If the income of the Waqf too has to be come Waqf automatically, the very aim and purpose of the Waqf will be d e - feated and it will be devoid of utility.
For his claim that the property purchased with the income of the Waqf will be a prop e rty owned by the Waqf, Mufti Taqi Saheb cite s ‘Al - Fatawa a l- Hindiyyah, ch.5, v.2, p.417' . For better understanding of this issue, we cite the relevant text to which Mufti Taqi Saheb has r e- ferred:
“When the mutawalli (trustee) of a Musjid purchases a shop or a house with the money of the Musjid, then sells it, it (the sale) is permissible if he has the authority of purchasing. This mas'alah is actually based on another ma'alah, namely, D o es the house or shop purchased by the mutawalli with the income of the M u s- jid become consolidated with the propert y which were made Waqf for (the expenditure) of the Musjid? In other words, does it b e come Waqf? The Mashaaikh (Fuqaha ) - Rahmatullah alayhi m — differ in this regard. Sadrus Shaheed said that the p r e- ferred view is that it will not be consolidated (with the original Waqf property), but will become income for the Musjid. So i s it expressed in Al - Mudhmaraa t .”
In this reference there is no mention made of the purchased property being owned by the Waqf. The Shar'i law simply states that the pr o p- erty bought with the income of the Waqf does not become Waqf. It forms part of the income which has to be expended in accordan c e with the directive of th e Waaqif . The issue of ownership does not arise at all.
The statement of the Fuqaha , namely , ‘At - ta m leek lil Musjid' which appears in I'laaus Sunan and other Kitaabs does not have the meaning of a ‘juridical person' or a fictit i ous person as the capitalist concept propounds. Ownership of the Musjid in this context mean s ownership of the Owner of the Mu s jid . He Who is the true owner of the Musjid becomes likewise the owner of all assets made Waqf for the expend i- ture of the Musjid, and of all income generated by these Waqf assets.
Who is the owner of the Musjid? Hadhrat Mufti Taqi Sahe b himself makes explicit reference to the owner of the Musjid, in fact to the owner of all Waqf property of any kind whatsoever. T hus, Mufti Saheb states in his book:
“ ITS OWNERSHIP VESTS IN ALLAH ALONE.”
This is not a fictitious being. Allah Ta'ala is the only Being Whose e x- istence is REAL. His Reality is true Reality, greater than all other r e - a l i ties created by Him. Let us see what th e Fuqah a (Jurists of Islam) say about the ownership of a Musjid and of Waqf property.
( 1 ) “Abu Yusuf and Muhammad said that Waqf in the Shariah is the retention of an object (or property) in the legal category of i t being in the ownership of Allah Ta'ala in such a way that the benefit (of the Waqf asset) reaches the servants (of Allah). Thu s the ownership of the Waaqi f terminates and passes to Allah Ta'ala. It is therefore absolute. It cannot be sold, nor pawned, n or inherited.”
(A l - Jauharatun Nayyirah, page 21, Part 2)
(2) The same definition as above. However, in the consequence of
the Waqf its is said: “It cannot be sold nor gifted away nor inherited.”
(3 ) According to one opinion of Imaam Muhammad and Imaam
Abu Hanifah, the issue of ownership is described as follows
“Verily, the demand (effect) of Waqf is the elimin a-tion of ownership (of the owner) withou t tamlee k .”(Hidaayah, Volume 1)
In oth e r words, when th e Waaqif' s ownership is terminated by virtue of Waqf, there is no logical necessity for the Waqf asset to ente r into the ownership of another human being as some Fuqaha aver. The o w n- ership of Allah Ta'ala is Real, legal and adequate. It is not a stratagem of fiction as the western concept of ‘juridical person' which has no r e- a lity whatsoever.
(4) Verily, there is the need for the Waqf of th e Waaqi f to become a b- solute so that its thawaab accrues to him perpetually. And, this need can be fulfilled (by th e Waaqi f ) terminating his ownershi p and making over ownership to Allah Ta'ala. For this there is a precedent in the Shariah, namely, the Musjid. Hence, it (the Waqf) shall simply be e f- fected in this way.” (i.e. There being no need for any human being to assume ownership).(Hidaayah , Vol.1, page 617)
(5 ) “The (Waqf) property is the haqq of Allah Ta'ala.”(Hidaayah, Vol.1, page 622)
Our Fuqaha unanimously proclaim that when the Waqf is validated, ownership passes to the Original and True Owner, namely, Allah Ta'ala. Validation of the Waqf takes place in different ways according to the different Fuqaha. There is no n eed to elaborate this point here because it is beyond the scope of our discussion.
It will suffice to say that our Fuqaha do n o t assert that the Waqf has no owner. They are explicit in stating that Allah Ta'ala is the owner. The meaning of the averment o f some Fuqaha that the Waqf property after leaving the ownership of th e Waaqi f does not enter into the ownership of anyone, is t h at it does not become the property of any human being. The Waqf asset will be used according to the directive of th e Waaqif for the beneficiaries of the Waqf. However, it does not follow from the termination of th e Waaqif' s ownership that the Waqf asset has ab s o- lutely no owner. Neither is this a Shar'i conclusion nor a logical con s e - quence of Waqf. On the contrary the Shariah is explicit in its ruling that Allah Ta'ala is the Owner of the Waqf.
This Shar'i ruling effectively negates the idea of the Waqf being a f i c - t i tious entity/person like the western kuffaar concept of ‘juridical p er- son'. By what stretch of Shar'i reasoning can it be claimed that Waqf is similar or almost identical to the western concept of a fictitious p er- son when the Shariah emphasises the real ownership of the Waqf? Is it Islamic to negate Allah's Ownership for relegating Waqf to the limbo of fiction merely for substantiating the kuffaar concept of ‘juridical p er son'?
The Fuqaha are the Jurists of Islam and their preserve is Fiqh or I s - lamic Jurisprudence. They did not deal in allegory. They do not present metaphorical and figurative interpretations and arguments. Their ar g u- ments are cold, logical and rational facts based on the Qur'aan and Su n nah. So when they aver that ownership of a property reverts to A l- lah Ta'ala, their averment is in the literal and legal sense. It is therefore baseless to conclude from the termination of th e W aaqif' s ownership that some fictitious person assumes ownership like the fiction fab r i- cated by the kuffaar economists.
There is not an iota of Shar'i evidence to substantiate the assertion that “i t seems that th e Muslim jurists have treated the Waqf as a separate legal entit y and have ascribed to it some characteristics similar to those of a natural p e r- son” .
What exactly are these characteristics which the Fuqaha have ascribed to a Waqf to justify dubbing it a ‘juridical or l egal entity'? We have already show n that a Waqf is not a separate legal entity in the way the capitalist system r e - gards its fictitious ‘juridical man'. Allah Ta'ala is the Owner. This indisp u t - able Shar'i fact and reality utterly negate the claim of a Waqf being a fic t i- tious person having rights and powers similar to a natural person .
How can one Waqf asset or property own another property when Allah Ta'ala is the owner of the Waqf asset? In fact, this conclusion militates against eve n the concept of juridical person because according to this fiction of the capit a l- ists, the ‘juridical person' or the separate legal entity is not the tangible asse t or the property or the capital invested. All these items are the assets of the j u - ridical person. Who is this phantom described as the ‘juridical person'? It i s the legal document which has been registered wit h the authorities of the land . This piece of paper which has been legally transformed into a ‘juridical p e r- son' owns the assets of the company. The assets are not the juridical c o m- pany .
But in the Islamic concept of Waqf, there is no such document which the Shariah elevates to the pedestal of a n Aaqil (sa n e human being) and Baaligh (an adult natural human bein g — Insaan) . A Waqf document in the firs t place is not a requisite for t he validity of Waqf. Even if a document (Waq f Naamah) is drawn up, it (the document) is never regarded in Islam as an entit y with contractual powers, rights, obligations and abilities. Even a natural h u - man being lacking in the two imperative conditions o f aql (sanity) and b u - loogh (adulthood ) is estopped by the Shariah from contracting and transa c t - ing. Thus a minor and an insane person are not permitted to transact, contrac t and deal in commerce and trade .
If it is argue d that since a lawful guardian or an appointed curator can act , transact and contract on behalf of a minor and an insane person, w e can appl y the same rule to a juridical person who can be represented by the directors o f the company, we shall refute this argument. In the former instance, the gua r d - ian/curator represents a real and a natural human being while in the latter cas e the directors represent a fictio n— an imaginar y cha p— a phantom, a piece o f paper. In terms of the Shariah such fictitious representation is baseless. Isla m does not condone fa l sehood, especially falsehood and fiction conjured fo r usurping th e huqoo q (rights) of the creditors .
Representation, that is , to be an agent of another, for its validity requires tw o fundamental conditions .
(1 ) That th e Muakki l (the principal) and th e Wakee l (the agent) should b e sane and adult human beings .
(2 ) That th e Wakee l assumes agency in a matter which th e Muakki l h i m- self is capable of executing .
Both these conditions are lacking in the representation of the juridical perso n who is supposedly th e Muakki l by the directors who are the agents of the fic t i- tiou s Muakkil .
The ‘juridical' pape r - man can dispose of all its assets, but not so with Waqf . The Mutawallis (trustees) of the Waqf asset, i.e. the original asset which c o n - stitutes the Waqf, cannot dispose of it in any way whatsoever. The Sharia h declares: “The Waqf asset cannot be sold nor given a w ay, nor pawned, no r inherited.” The ‘juridical person' can be annihilated, not so the Waqf pr o p - erty. The Waqf remains until the Day of Qiyaamah .
Like an animal cannot own money, so too can a stone not own money. Onl y Insaa n (the human being) can own money The conditions for ownership a c - cording to the Shariah do not exist in animals and stones and all lifeless o b - jects. Thus, the Musjid property does not have the capacity of ownership i n the meaning of ownership as related t o insaa n (man) . That ownership of a Musjid is vested in Allah Ta'ala Alone, is irrefutable. Hence when it is sai d that the carpets belong to t h e Musjid, the money belongs to the Musjid, etc., i t is meant thereby that all such assets are in the ownership of the Owner of t he Musjid and have to be utilized exclusively for that particular Musjid. This o b - vious and logical conclusion is corroborated by the explicit declaration of th e Fuqaha that Allah Ta'ala Alone is the Owner of t he Musjid. Even Mufti Taq i Saheb concedes this fact. It is therefore a self contradiction to claim that o w n - ership of the Waqf vests with Allah Ta'ala, and the income generated by th e Musjid's Waqf properties belong to the Musjid. The a bsurdity of this claim i s self - evident .
The very same jurists who say that a Musjid can own assets, affirm that o w n - e r ship of the Musjid is vested in Allah Ta'ala. From this averment it should b e clear that their statement is not in negation of Allah's Ownership. Most c e r- tainly, they do not propound the theory of partnership between Allah Ta'al a and the Musjid property. They do not ascribe the Shariah's concept of own e r- ship as related t o insaa n (man), to inanimate structures .
Mufti Taqi Saheb says :
“Another Maliki jurist , namely, Ahmed Dardir, validates a bequest made in favour of a mosque, and gives the reason that a mosque ca n own properties. ”
We fail to understand why Hadhrat Mufti T a qi Saheb who is a Hanafi had t o cite “another Maaliki jurist” when even the Ahnaaf validate bequests for a Musjid. A wasiyya t m a de for a Musjid is simply a directive by th e moos i (the one who makes the bequest) to spend a certain sum of his money for the u p - keep of the Musjid. There is no need to fabricate concepts of fiction for th e execution of this simple directive. A mutawalli simply keeps in trust the b e - queathed amount and utilizes it for the maintenance of the Musjid. What thi s has to do with the fiction of a juridical man defi e s imagination. Support fo r the creation of a phantom cannot be eked from the validity of a bequest for a Musjid. Monetary contributions bequeathed for a Musjid are like the contri b u - tions made by a living person. All such contributions are for the upkeep o f the Musjid. The issue of ownership plays no role i n obtainal of the discharg e of the bequest .
Mufti Saheb makes the following conclusion :“It is clear from these examples that the Muslim jurists have a c - cepted that a Waqf can own properties. Obviously, a Waqf is not a human being, yet they have treated it as a human being in the m a t - ter of ownership. ”
What Mufti Taqi Saheb claims is not at all clear from the examples he ha s tendered. From the examples he has cited there does not emerge the con s e - quence that the Musjid building becomes an owner of wealth in the same wa y as a human being. The wealth and assets of the Waqf a re held in trust b y Mutawallis on behalf of the True Owner, Allah Ta'ala .
It is also the contention of the venerable Mufti Saheb that the principle of l i m- ited liability is a logical consequence of the juridical person concept. If juri d i- cal person is accepted, then limited liability has to be necessarily and logicall y accepted. Now in Mufti Taqi's view, the Musj i d or any other Waqf property i s a ‘juridical' person. Thus should follow the limited liability effect. How wil l limited liabilit y apply to the Waqf property? The Waqf property (which is a tangible asset, not a piece of paper), does not have shareholders f r om whom i t has borrowed money which constitutes its capital nor does it have creditor s who could be thwarted by some limited li a bility principle .
If the Mutawalli was constrained to incur debt for the upkeep of the property , the creditor is not encumbere d by any limited liability device in favour of th e Waqf asset nor by the arbitrary absolution of debt rule. The Owner of th e
M usjid/Waqf permits the creditor to receive full payment from the incom e generated by the Waqf. The debt cannot be arbitrarily wri t ten off by declarin g the Waqf asset insolvent .
Arguing in favour of the western concept of the fictitious person, Mufti Taq iSaheb states : :“Once its ownership is established, it will logically f o l - low that it can sell and purchase, may become a debto r and a creditor and can sue and be sued, and thus all th e characteristic s of a ‘juridical person' can be attribute d to it. ”
Undoubtedly, ownership of the Waqf is established. It is established by th e Shariah as we have explained in the aforegoing pages, that Allah Ta'ala is Th e Owne r — the Real Owner of the Musjid or of the W aqf property. Therefore , the conclusion that the Waqf property itself can transact and contract is a b - surd. The inanimate stone building cannot act, contract and transact. Th e Mutawalli buys and sells for the upkeep of the Waqf p r operty. He does not buy and sell on behalf of the inanimate stone structure. He is not th e wakeel
(agent) of the property. He simply uses the income of the Waqf for the w e l- fare and upkeep of the building and its administration. These acts and trans a c - tions by the Mutawalli have no relationship with any ‘juridical person' who i s devoid of reality. The Owner of the Waqf Propert y has empowered th e Mutawalli through the medium of His Shariah to act in the best interests of th e Waqf property .
If the owne r instructs a painter to paint his property, there is no need for th e superfluity of saying that the stone building is a ‘juridic a l person' who ha s instructed the painter via the agency of the owner to paint the house. This i s preciscely what Hadhrat Mufti T aqi Saheb avers inspite of his awareness tha t Allah Ta'ala is the Real owner of the Musjid property and that it is not th e Musjid property (the stone structure) which acts and transacts, but it is th e Mutawalli (Trustee) who deals with the affairs of the Waqf properties in a c - c o r dance with the Commands of Allah Ta'ala. A real, natural human being (the mutawalli) acts on behalf of The Real Being, Allah Ta ' ala Who is th e Owner of the Waqf property. Thus, there is no resemblance between a Waq f and the fiction of ‘juridical person' .
Mufti Taqi Saheb further claims : “The liquidation of a company corresponds to the death of a person ,because a company after its liquidation, cannot exist any more. If the cre d i - tors of a real person can suffer, when he dies insolvent, the creditors of a juridical person may suffer too, when its legal life comes to an end by its l i q - uidation. ”
In this analogy, the venerable Mufti Saheb seeks to gain a Shar'i ruling o n no n - existing basis postulated as a Shar ' i Mas'ala, hence Hadhrat Mufti Taq i Saheb says :“ If the creditors of a real person can suffer, when he dies insolvent, the cre d i - tors of a juridical person may suffer too, when its legal life comes to an en d by its liquidation . ”
What is the basis for th e claim that if the creditors of a real person can suffe r then likewise the creditors of a juridical person should suffer. There is ab s o - lutely no link between the two. By the terms “ can suffe r ” the inference i s automatic absolution of debt. But there is no suc h a Mas'ala in the Sharia h hence it cannot be cited as a primary premiss ( Asl or Maqees alayh ) for th e extension of a Shar'i Huk m to a new contingency which in this case is the a b - solution of debt in relation to the fictitious person .
There is absolutely no evidence in the Shariah for justifying the argum e nt tha t the legal liquidation of a company in terms of kuffaar law is akin to natura l death of a natural human being. If a Musj i d is demolished, it cannot by an y stretch of Shar'i argument be compared to the death of a human being. To a far greater degre e will the laws applicable to the death of a human being no t apply to the demolition of a Waqf property or the dissolution of a Shar'i pa r t - nership ( Shirka t ) enterprise .
Shirka t an d Mudhaaraba h (Partnership enterprises) are valid Shar'i forms an d systems of trade. By some crooked type of reasoning and reckless interpre t a - tion, it may be argued that a Western company resemble s Shirkat . Many Ulama too are confused on this issue and accept that a co m pany owned by th e fictitious juridical fellow is a valid Shar'i Shirkat enterprise. Hence they appl y all laws o f Shirka t to the juridical phantom except debt. As far as debt is c o n - cerned they introduce the kuffaar principle of limited liability which is not a n effect of Shar'i Shirkat . Therefore, if Hadhra t Mufti Saheb had rather claime d that the liquidation of a company corresponds to the liquidation of th e Shirka t enterprise, then there would have been some superrficial façade of a se e m- ingly ‘valid' argument. But the averment tha t “the liquidation of a compan y corresponds to the death of a person” , is absurd. It is utterly devoid of s u b - stance .
There is also no grounds in the Shariah for the claim :
“If the creditors of a real perso n can suffer when h e dies insolvent, the creditors of the juridical person may suffer too when its legal life comes to an end by its liquidation. ”
On what Shar'i grounds is this hypothesis based? When there is no such c o n - cept as a ‘juridical person' in Islam, it is ludicrous to extend the consequence s of the death of a real person to a fictitiou s person. On the otherhand, if th e Shariah validates the concept of a fictitious person having contractual an d other powers of a h uman being, such a concept would have been known to th e Fuqaha from the very initial stage of Islam. But there is not the sligh t est and flimsiest shred of evidence to back up the concept of the ‘juridical person' .
This concept is particularly vulgar and f raudulent in view of the fact that th e effect of absolution of debt attributed to it is designed to circumvent and den y paymen t of debt. This is a vile denial having grave and painful consequence s in the Aakhirah. The attitude of Islam towards payment o f debt and denial o f the rights of others is too well known to require elucidation .
If creditors are constrained to suffer on a c count of the death of a person, wha t logical and Shar'i need is there for them to suffer when all the contractors , partners an d shareholders of the liquidated company are living and enjoyin g their wealth and properties ?
It is important to understand tha t the ‘suffering' caused to creditors when th e estate of the deceased is insolvent is temporary. Insolvency in Islam does no t giv e rise to absolution of debt. The debtor remains liable his entire life. He ha s to work and pay. If he fails to settle his debts , the claim of the creditors is no t arbitrarily waived. Their claims will extend into Qiyaamah where they wil l have the right an d the ability to apprehend the debtor and haul him into th e Divine Court where he will have to pay with the currency of the Aakh i rah .
While the Belief or Concept of Aakhirah may seem remote to those anchore d in materialism and the pleasures of this world, it is not a fiction like the ph a n - tom they dub ‘juridical person' manufactured to rob the creditors. If the f i c - tion of the ‘juridical person' is rational, intelligent, beneficial and acceptabl e to the minds of the liberalists, then the c o ncept of the extension of creditors ' claims into the Aakhirah should pose no difficulty for their comprehension . This is so bec a use after all, inspite of being liberal, they do hav e yaqee n in the Aakhirah and in all the pronouncements of Rasulullah (sallallahu alayhi w a - s a l lam). Among the teachings of the Rasool is the tenet that there is no au t o - matic or arbitrary absolution from debt and that the creditors will enjoy th e right of demanding thei r huqooq in the Court of A l lah Ta'ala .
It is therefore erroneous for Mufti Taqi Saheb to say that if the creditors of a person can suffer then the credit o rs of the fictitious person can also suffer . Firstly, the ‘suffering' of the creditors is temporary and depending on the d e - gree of their Sabr, it is wonderfully rewarded. Secondly, the creditors are e n - couraged by the moral code of Islam to wholeheartedly waive the debt. If the y choose this option, the ‘suffering' is completel y eliminated and substitute d with the pleasure of the awareness of enormou s thawaa b in the Aakhirah an d barka t in this world .
T h e creditors therefore will not suffer any loss irrespective of the deceased' s estate being insolvent. What happens when a pers o n is declared insolvent , whether he remains alive or has died, is that payment of debt is deferred to a later time. It is not wa ived. But in terms of the kuffaar concept of juridica l person, the debts are written off and creditors are deprived of their rights. I s - lam regards this set up with repugnance. The Qur'aan and Ahaadith bear a m- ple testimony to the evil of usurping th e huqoo q of others, and to the dire c o n - sequences which ensue in the wake of such usurpation .
(2 ) BAITUL MAA L
Hadhrat Mufti Saheb's second example for justifying and pr o viding Shar' i validity for the juridical person and limited liability ideas is the Baitul Maal o r the state treasury or the vau l ts and safes and boxes in which the governmen t stores the funds which have to be utilized for state expenditure. In the ende a v - our to justify the ‘juridical person', Mufti Saheb avers :
“ Another example of juridical person foun d in our
classic literature of Fiqh is that of the Baitu l - mal
(the exchequer o f an Islamic state). Being public
property, all the citizens of an Islamic state have
some beneficial right in the Baitu l - mal, yet, nobody
can claim to be it s owner. ”
The Baitul Maal simply consists of the state vaults in which the revenue c o l- lected by the state is stored. The funds kept in the boxes have to be distribute d and spent in accordance of the Shariah by the Islamic Ruler who is the gua r d - ian of the funds. In his capacity as the representative of Allah Ta'ala h e spends the money according to the instructions of Allah's Shariah. The ques -tion of ‘juridical person' for achieving fulfilment of the Shariah's instruction s pertaining to these funds does not arise. In f act it is absurd .
The funds in the Baitul Maal are of a variety of categories. Some funds a c - co r d ing to the Shariah have to be distributed in some specific avenues an d may not be utilized for a different expenditure. To achi e ve this, a ‘juridica l person;' is not needed. The Khalifah who is the Guardian of the funds has th e duty and obligation to ensu r e correct Shar'i disbursement of the money, etc . The Shariah empowers the Khalifah to take funds of a particular designatio n to spend it in another avenue if the need arises. This is the right conferred t o the Khalifah, not to the inanimate money kep t in the vaults .
Mufti Saheb cites the following statement :“If the head of an Islamic state needs money t o give salaries to his army, but he finds no mone y in the Kharaj department of t h e Baitu l - mal (wherefrom the salaries are generally given ) he can giv e salaries from the sadqah department , but the amount so taken from the sadqah departmen t shall be deemed to be a debt on the Kharaj depa r t - ment.”
The Shariah has ordained different classes of wealth such as Zakaat, Kharaaj , Sadqah Naafilah, Khums, etc., etc. These funds have to be expended in diff e r- ent avenues or for different purposes. If, for example, Zakaat money is used t o construct a Musjid, the obligation of Zakaat wi l l not be discharged. If Zakaa t money is thus spent in a category of expenditure which does not result in th e discharge of the Z a kaat obligation, it (Zakaat) will have to be made good b y person who had used the funds for another purpose. This is not exclus i ve wit h the Baitul Maal. This law applies to everyone .
The Khalifah is empowered by the Shariah to take money from one categor y of funds and utilize it for a different purpose other than for what the mone y has to be used for according to the Shariah. Bu t in relation to the Khalifa h such use is not misappropriation because the Shariah permits this. However , when later funds of the particular kind are received, the Khalifah has to r e - place it to ensure that correct distribution is achieved. It is simply an issue o f replacing the funds which the Khalifah had b orrowed by virtue of the right th e Shariah has given him. The inanimate vaults in which are kept the funds d o not lend. It can n ot lend. It is not a n aaqil, baaligh insaa n who has the capacit y and ability to transact and contract .
The statement that the amount which the Khalifah took from the Zakaat vault , for example, is a ‘ dai n ' (debt) on the Kharaaj va u lt does not mean ‘debt' i n the legal and technical sense of the Shariah. For the validity of such debt th e essential condition s are aql (sanity) and buloogh (adulthood) . Furthermore, the substratum of these two essential conditions i s insaan (the human b e ing). An animal cannot transact, contract, lend, borrow, etc., notwithstanding th e existence of these two conditions in it. To a greater degree will this ruling a p - ply to an inanimate object such as money or the vaults in which the money i s stored .
For the execution of his obligations and a cting according in accordance of hi s rights, the Khalifah of the Islamic state is not in need of any ‘juridical' or f i c - t i tious person. The Shariah does not need to present such a phantom for th e simple reason that the Khalifah is empowered to utilize the state funds acco r d - ing to his discretion within the bounds prescribed by the Shariah. By Baitu l Maal is meant the material building where the fund s are stored. It does no t mean anything else. It is therefore ludicrous to force the Baitul Maal into th e meaning of the wester n idea of ‘juridical person' .
The inanimate vaults and boxes and the building in which these items ar e housed have no contractua l power and ability. These inanimate objects canno t trade, sue and get sued. If the Khalifah does not replace the funds from th e vault from where he acquired it or he is unable to replace the borrowe d money, the Baitul Maal cannot sue him. If the ruler misappropriated so m e - one's wealth and unlawfully deposits it into the saf e - boxes stored in th e buil d ing, there is no ‘juridical person' to be sued. Th e mazloo m (oppresse d one) can petition the Islamic court to compel the ruler t o return his property . The action will be against the ruler, not against the building where the rule r happens to have stored th e misappropriated wealth .
It is an irrefutable Shar'i fact that Islam does not accept the arbitrary or au t o - matic absolution of debt idea as conceived by the insolvensy law of the k u f- faar. Islam clearly states that the debtor remains liable for his debt for al l time. If he is unable to pay his debtors here o n earth, he will have to satisf y them with the currency of the Aakhirah in Qiyaamah where he will stand tria l in the Divine Cou r t. A necessary attribute of debt is its perpetuity until th e debtor is absolved either by payment or voluntary absolution by th e creditor. But this rule of debt does not apply to the Khalifah who ‘borrowed' from on e vault to use in another avenue of expe n diture. If funds to make good th e amount taken are not available, the Khalifah will not be held liable in the D i- vine Court nor can he be held liable on earth. Inspite of the ‘debt' he is not liable because he is no the debtor. The ‘debt' thus taken is not a true debt i n the sense defined by the Shariah .
How will one department of the Baitul Maal sue another one of its own d e - pa r t ments (boxes/vaults)? Who will do the suing? If the Khalifah cannot fin d funds to replenish the money he had appropriated and the s o - called depa r t - ment in the Baitul Maal is bankrupt, will the specific department or the entir e Baitul Maal be declared legally insolvent and l egally dead, thus compellin g the Khalifah to close shop and put the Baitul Maal into extinction? The inc o n - gruity of the endeavour to create a hybrid system (an admixture of the kuffaa r system with the Islamic system) is a miserable a b surdity .
The Baitul Maal in terms of the explanation proffered by Hadhrat Mufti Taq i Saheb is supposed to be a separate legal e n tity or a juridical person like a c o m pany. But can a company sue its own assets or any of its own depa r t - ments? The claim that one department of the Baitul Maal (the supposed j u - ri d i cal person) is indebted to the other department in the way in which debtor s are indebted to a company, leads to the absurd conc l usion that some assets o f a company can sue other assets of itself. In other words the juridical person i s indebted to itself a nd can sue itself. In short it can commit suicide .
The Khalifah does not represent the Baitul Maal. He does not contract on b e - half of the Baitul Maal which has no such capacity. He represents Alla h Ta'ala and acts in terms of the mandate assigned to hi m by Allah Ta'ala. Th e Khalifah is not in need of a concept such as ‘juridical person' to carry out hi s mandate. The juridical pe r son is a creation of the west, and it has specifi c aims as its object. In the mind of the western man some legality has to be a c - corded to denial of execution of the liability of debts in order to attract capital . For achieving this aim, the fictitious per s on was brought into being. When thi s juridical phantom is legally killed, the rights of the creditors are extinguished .
Muslim s who are conscious of the need to submit to the Shariah are not i n need of any fictitious person to enable them to trade and at t end to all affair s related to trade and commerce. The Shariah has made ample provision fo r this, and there is no need to introd u ce a concept/system of the kuffaar. Abov e all, there is no basis in the Shariah for granting it Shar'i acceptance .
(3) JOIN T STOC K
Hadhrat Mufti Taqi Saheb states :“Another example very much close to the concept of juridical person in a joint stock c o m- pany is found in the Fiqh of Imam Shafi'i. A c - cording to a settled principle of Shafi'i School, i f more than one person run their business in pa r t - nership, where their assets are mixed with eac h other, the Zakah will be levied on each of the m individually but it will be pa y able on their join t - stock as a whole, so much so that even if one o f them does not own the amount of the nisab, bu t the combin e d value of the total assets exceeds th e prescribed limit of the nisab, Zakah will be p a y - able on the whole join t - stock including the shar e of the former, and thus the person whose share i s less than the nisab shall a lso contribute to th e levy in proportion to his ownership in the tota l assets, whereas he was not subject to the levy o f Zakah h ad it been levied on each person in hi s individual capacity . The same principle which is called khulta h - a l - shuyu' is more for c efully applied to the levy o f Zakah on livestock. Consequently, a person so m e - times has to pay more Zakah than he was liable t o in his individual capacity, and sometimes he ha s to pay less than that. “Thi s principle of Khulta h - a l - Shuyu' has a basic concept of a juridical p e r- son underlying it. It is not the individual, acco r d - ing to this principle, who is liable to Zakah. It i s the join t - stock which has been made subject to th e levy. It means that th e join t - stock has bee n treated a separate entity, and the obligation o f Zakah has been diverted towards this entity whic h i s very close to the concept of a juridical person , though it is not exactly the same. ”
According to the reasoning presented in the aforegoing explanation, “ the ob l i - gation of Zakah has been diverted towards this entity ” , i.e. to the joint stoc k which has been termed the juridical person. Pri o r to the admixture of th e stocks, the obligation of Zakaat was the responsibility of the individual, i.e . the person who is th e owner of the assets. After the stock of two persons ha s been mixed, the obligation of Zakaat according to Hadhrat Mufti Taqi's r e a - soning is diverted fro m insaa n (the human being) to the inanimate stock, be it wheat, rice, sugar, money, etc., etc. When the incidence of mixture of two a s - sets takes place, the human beings who are the actual and true owners of th e stock are no longer responsible for the Zakaat obl i gation since a diversion o f obligation has been effected. After the admixture, the Zakaat obligation i s transferred to the join t inanimate stock. Truly, this reasoning is weird to sa y the least. SUBHAANALLAH !
Everyone knows that Zakaat i s one of th e Arkaa n (Fundamentals) of Islam. The obligation of this Fardh injunction devolves on Muslim s — Muslim h u - man beings, not on kuffaar, least of all on inanimate objects such as wheat an d rice. Mufti Taqi Saheb has cited th e mas'ala h o f khulta h (the admixture o f two assets) which is a ruling of the Shaafi Mat h - hab as well as of some Jurist s of the Maaliki an d Hambali Mat h - habs. However, Mufti Saheb has omitted t o mention that regardless of the incidence of admixture of rice and barl e y o r the money of two human beings, Zakaat on the combined stock will be obli g a - tory only if the human beings are free Muslims .
In view of the imperative condition of being a Muslim for the obligation o f Zakaat, Zakaat will not be Waajib according to the Shaafi Mat h - hab on th e joint stock owned by a Muslim and a kaafir. If the s t ock of a kaafir and th e stock of a Muslim are combined , khulta h has taken place. No one can den y this. Now if the obligation o f Zakaat devolves on the joint inanimate rice an d barley which were mixed or on any other combined stock, it would logicall y follow that Zakaat will have to be paid regardless of one partner being a M u s - lim and one a kaafir. Only the Muslim will pay Zakaat on his share of th e m i x ture. The kaafir will not pay Zakaat on his share of the admixture rega r d - less of the incidence o f khultah .
If the joint stock was truly a separate entity or a juridical person in the wester n concept i on of the term, then Zakaat should have been obligatory on the stoc k by virtue of the principle o f khulta h regardless of the fa i ths of the owners o f the joint stock. Faith does not apply to the inanimate ‘juridical person'. It i s therefore meaningless to portray the joint stock as a juridical person and d i- vert the obligation of Zakaat from the joint stock to only the Muslim .
This should make it abundantly clear that it is not th e inanimate joint stock which is liable for Zakaat payment and obligation. The obligation is squarel y the responsibility of the M uslim human being, not of the inanimate join t stock. Hence, Zakaat is not payable on such ‘join t - stock' if both partners ar e kaafirs or if one partner is a Muslim and the other a kaafir. In this case, the ‘khultah ' has absolutely no effect. Only the Muslim will pay Zakaat on hi s share of the stock, and that too, if it amounts to n isaab or more. The crucia l determinant for the obligation of Zakaat is th e nisaa b value owned by Musli m human beings. This i s the unanimous verdict of all the Fuqahaa of Islaam . The difference is only in the manner in which the nisaab is attained. Whi le the Shaafi Fuqahaa accept the validity of a nisaa b achieved by admixture o f assets ( khulta h ), the Hanafi Fuqahaa reject thi s principle.
To gain a better understanding, it is necessary to explain what exactly is th e meaning o f Khulta tush Shuyoo ' . Khulta h simply means an admixture of d i f- ferent substances or things. An admixture of heterogeneous things produces a homologeous whole, for example, different metals mixed after melting pro - duce one whole alloy .
Shuyoo ' means permeation or spreading throughout in every particle of th e whole combination of things. I n the context of Zakaat , Khulta tush Shuyoo ' means the amalgamation of assets belonging to more than one person , whether two or a hundred, etc. For the obligation of Zakaat, a minimu m amount termed th e Nisaa b is necessary. If a person is the owner of the n i saab value, he has to pay Zakaat. If a man owns several Zakaa t - taxable assets, eac h being less than nisaab, the variety of asse t s will be figuritively amalgamate d to see if they collectively amount to nisaab. Thus, a man's little cash, littl e stoc k - i n - tr a de and a little silver he owns will all be added up and Zakaat wil l be paid on the combined value of his stock if it amounts t o nisaa b or more.
When the little assets of a variety of kinds, each less than th e nisaa b , belo n g - ing to a single person have a combined value o f Nisaa b , then Zakaat become s Waajib on him. Since the owner of the variety of l i ttle assets of differen t kinds' is one person, th e khulta h (amalgamation) of values suffices for th e production of th e nisaab . O n the other hand, according to the Shaafi Mat h - hab, if a physica l khulta h (amalgamation) of assets belonged to severa l Mu s - li m persons has transpired, then this physical whole will be treated as a h o - mologeous whole of one person only for the purpose of assessing Zakaat, no t for any other purpose whatsoever. Confirming this , I maam Nawawi (rahmatullah alayh) says in Raudhatut Taalibeen, Volume 2, page 170 :
“Thus, the maal (stock/assets) of two or mor e persons will be regarded as th e maa l of on e person. Then Z a kaat will become obligatory. ”
For the purpose of levying Zakaat only, and for no other purpose whatsoever , the Shaafi Mat h - hab rules that the amalgamated stock be treated as a h o - mologeous whole for the production o f nisaab . There is nothing more to thi s amalgamation. For the obligation of Zakaat in this c ase, a juridical man is no t necessary nor does amalgamation of assets give rise to a juridical person . Only th e nisaab value is required. And, this requirement is acquired by tre a t - ing the combined assets as a whole . If the amount of the amalgamated stock i s less tha n nisaa b , th e khulta h has no effect whats o ever even in the extremel y limited scope the Shaafi Mat h - hab allows it to operate, namely, only for a s - sessing Zakaat .
The following example in Raudhatut Taalibeen also confirms that the obli g a - tion of Zakaat is the liability and responsibility of the two human Musli m pa r t ners of the amalgamated stock. It is NOT the obligation of the inanimate ‘joint stock' as has been averred by Hadhrat Mufti Sa h eb .
“...like two men who amalgamate forty (goats) wit h
forty (goats) . One goat is Waajib on both of them. ” (Volume 2, page 170 )
The ruling is clea r — Zakaat is Waajib on bot h human being s whose stoc k has been amalgamated. Zakaat is not Waajib on the inanimate amal g amate d stock. It is simple to understand that just as Zakaat is Waajib on one owne r when his Zakaa t - stock is equal t o nisaa b o r more, so too in exactly the sam e way is Zakaat compulsory on two owners according to the Shaafi Mat h - ha b when their combined s t ock equal s nisaa b or more. There is no intermediary o f a ‘juridical person' here, nor is there a need for such a fictitious per s on. Th e Western kuffaar had a specific need for inventing the paper man they term ‘juridical person'. We have no need for such a fiction. Islam has ample s y s - tems, devices and apparatus for all exigencies and times .
While the condition for the obligation of Zakaat is related to wealth, the ob l i- gation of discharge or payment of Zakaat is the liability of th e Muslim h u- man being, not of the inanimate stock . Khultatush Shuyu ' or amalgamatio n produced by permeation or diffusion of the stocks of m o re than one perso n results in a homologeous whole akin to the homologeous whole of one owner . This factor has been taken by th e Shawaafe fuqaha to hold the two or mor e owners of the amalgamated stock responsible for Zakaat payment. There i s nothing furthe r to read in this principle. It presents no substantiation for th e western concept of juridical person .
Khulta h itself cannot a ssume any liability. The liability of Zakaat remains th e responsibility of the Muslim owners. Imaam Nawawi states in his Raudhatut Taalibeen, page 171, Vol.2 :
“(Among the conditions) is that both th e (human) amalgamators should be of those o n whom Za k aat is Waajib. Therefore, if one of th e two (owners of the amalgamated stock) is a zimmi (no n - Muslim citizen of a Muslim sta t e) o r a Mukaatab (a category of slaves), then khulta h will have no consequence. If the share (of th e amalgamated stock) of th e free Muslim is nisaab , he (the Muslim) will pay Zakaat on it, the Zakaa t of one person (the Muslim owner). If not (i.e. i f his share is less than nisaab), there is nothing (o f Zakaat) on him. ”
This ruling clearly negates the suggestion that the amalgamated stock has b e - come a juridical person who has liability and who has become liable for Z a - kaat. Zakaat remains the obligation of only the Muslim person. It is never d i- verted from the Muslim owner to anyone or anything else . There are also other examples in the Shaafi books of Fiqh to negate t h e clai m that amalgamated stock called ‘joint stock' is a juridical person having right s and obligations lik e insaa n (a human be i ng) .
(4) INHERITANCE UNDER DEB T
Regarding the insolvent estate of a deceased, Hadhrat Mufti Taqi Saheb says :
“According t o the jurists, this property is neithe r owned by the deceased, because he is no mor e alive, nor is it owned by hi s heirs, for the debt s on the deceased have a preferential right ove r the property as compared to the rights o f the heirs. It is not even owned by the creditors, b e - cause the settlement has not yet taken place. B e - ing property of nobody, it has its own existenc e and it can be termed a legal entity. ”
The aforementioned averments are not e n tirely correct. The following claim s are incorrect :
. The property of the deceased, according to the Jurists, is neither ow n e d by the deceased nor the heirs .
Hadhrat Mufti Taqi Saheb arbitrarily without Fiqhi or Shar'i basis makes th e following erro n eous conclusion : “Being property of nobody, it has its own ex i s- tence and it can be termed a legal entity. Th e heirs of the deceased or his nominated executo r will look after the property as m anagers, but the y are not the owners. ”
The only statement which is correct here is tha t “his nominated executor wil l look aft e r the property as manager. ” The heirs of the deceased while they to o can look after the affairs of the estate, are not in the same capacity as the e x- ecutor .
Regarding the ownership of the deceased's estate, there are two views p r o - pounded by the Fuqaha. None of these corroborate the claim that ‘ nobody i s the owner of the deceased's insolvent estate' .
The o ne view is that the estate of a person after his death and prior to divisio n legally remains the property of the deceased .
Thi s view is stated as follows i n A l - Mabsoot of Sarakhsi, page 111, Vol.28 : “The estate after death, prior to division , remain s in the ‘hukm' of the property of the murith (th e deceased from whom the heirs inherit). ”
Recording th e same view, Hidaayah states in Vol.2, page 638 :
“Th e ownership (of the deceased) remains after death i n view of the need……. ”
The other view is that the ownership of the heirs is e s tablished and confirme d simultaneously with the death of th e murit h . Hidaayah states :
“The right of the heirs is confirmed in t h e assets of th e murith from the inception of the (deceased's) illnes s (maradhul maut), hence he (the deceased is estoppe d from acting in two thirds (of his estate). ” (Vol.2 page 639 )
According to the Fuqaha these are then the two views, namely, (1) The o w n - e r ship of the deceased remains after his death and continues until division ha s taken place. (2) Ownership is confirmed at the ti m e of death .
The Fuqaha do not propound the view that nobody is the owner of the d e - ceased's estate. Regardless of the liabilities exceeding the assets, ownershi p passes to the heirs since their right of ownership is established during th e m a - radhul mau t (the last sickness) of th e murith . Thus, at the time of his death i t is not a question of their right or claim bein g established and confirmed. Thi s right came into existence during the last illness of the deceased. On his death , they automatic ally become the owners of the estate .
This is not the same for the creditors. Their claim over the assets of the d e - ceased existed from the very time he had incurred the debt. Their claim an d right remain even after his death because Islam does not recognize the c o n - cepts o f limited liabilit y an d automatic absolution of debt .
On the death of th e murit h , the heirs become the owners automatic a lly. Hence, if the heirs distributed the assets without paying the creditors of th e deceased, the distribution will be valid, no t baatil . The creditors will nev e r- theless have the right of pursuing them to demand their rights which the heir s had usurped. Assuming that after the distributio n of the assets to the heirs, th e creditors waive their claim, the distribution remains valid because they ha d distributed what w as in their ownership .
The heirs need not procrastinate the division of the estate. It is quite possibl e that considerable time will lapse before the rights of the various creditors ar e proven. It is also possible that some creditors may be absent. It i s also possibl e that at the time of the death of th e murit h the financial state of the estate is no t known. The debts may surfac e later. Some creditors may not even be aware o f the death of their debtor. In view of these possibilities, the heirs will procee d with the division of the estate and take possession of their respective shares o f the assets. Later when the rights and claim s of the creditors are proven, th e heirs will have to pay, not because the assets were in the ownership of th e creditors, but o n account of their rightful claims .
If it should be assumed that indeed nobody is the owner of the insolvent estat e of the deceased, then too there is no compellin g reason to create a ‘juridica l phantom' to assume ‘ownership'. The division and the fulfillment of right s can proceed without o wnership having passed to anyone. In this case it will b e said that ownership passes to the heirs and creditors after division , and for th e presentation of a rationale, it will be said that the need occasions the view o f ownership remaining with the decea s ed until division takes place. This is i n fact the view stated in A l - Mabsoot .
If anyone is surprised at the claim of a dead pe r son being an owner, then w e must say that the surprise should be greater for the silly concept of a piece o f paper or an abstra c t idea being an owner such as the fictitious creature of th e western kuffaar, namely, the ‘juridical person'. At least the dece a sed at one stage in the very recent past was a true owner. He was an honourabl e insaan who i s Ashraful Makhlooqaa t (Allah's nob l est creation). Thus, the surpris e will be totally misdirected and baseless .
There is therefore, absolutely no basis for presen t ing the insolvent estate o f the deceased as grounds for claiming validity for the concept of juridical p e r- son with its u n - Islamic consequence of absolution of debt or denial of th e rights of the creditors .
ABSOLUTION OF DEBT
With regard to the insolvent estate of the deceased, Hadhrat Mufti S a - heb states: “…..the liability of this juridical person (the estate of the deceased) is certainly limited to its existing asset s . If the assets do not suffice to settle all the debts, there is no remedy left with its creditors to sue anybody, including the heirs of the deceased, for the rest of their claims.”
The ability of the creditors to claim is restricted to th e material assets of the deceased. It is palpably erroneous to claim that there is no re m- edy left for the creditors. Yes, in terms of kuffaar laws, there is no re m- edy. But according to the Shariah, the claims of the creditors are not eliminated on account of the insolvency of the estate. The claims r e -main here and will remain in Qiyaamah.
The heirs cannot be pursued because they are not indebted to the cre d i- tors of the deceased. It is not that they are absolved of the debt in terms of some limited liability concept of the Shariah. In relation to the cre d i- tors of the deceased, the heirs are outsiders just as non - heirs are. The introduction of the limited liability claim here is thu s superfluous and baseless.
Perhaps Hadhrat Mufti Saheb had not reflected deeply regarding the consequences of absolution of d ebt and limited liability stemming from the western juridical person concept. If this concept is accepted, the implication is t hat the creditors will have no claim over their debtors in Qiyaamah. This is truly a dangerous theory because th e Nusoo s are categoric and emphatic in declaring that the creditors will be able to claim thei r huqoo q in Qiyaamah and receive payment there. In fact, even th e Shahee d (Martyr) will be held liable for debt notwithsta n d- ing the obtainal of forgiveness for all his sins. We are certain that Hadhrat Mufti Saheb will at this juncture appreciate th e danger of the concept of limited liability.
To cancel clear and categoric Nusoos simply to find validity and a c- ceptability for the western juridical person and its effect of limited l i- ability is indeed fraught with grave perils among which is the rejection or abrogation of clea r and Saheeh Ahaadith on the bas i s of extremely flims y ta'wee l (interpretation).
Hadhrat Mufti Taqi Saheb avers: “If a juridical person can be treated a na t u - ral person in its rights and obligations, then every person is liabl e only to the limit of the assets he owns……”
There is a con tradiction here. If every person is liable to the limit of the assets he owns, then it conflicts with the limited liability con c ept Mufti Saheb propounds because in terms of this principle every person (shareholder) is absolved of the debt incurred in the name of the juri d i-cal person. Only the assets of the company can be claimed by the cre d i tors, not the assets the shareholders own in their own names.
Perhaps Mufti Saheb has phrased it wrongly. In view of the princ i ple of limited liability he advocates, he refers to the assets or amount of capital which the shareholder has invested in the c o mpany. While he will lose these assets, his other assets unrelated to the company will remain unaffected and he will be absolve d of the debt.
How will Mufti Taqi Saheb reconcile this automatic absolution of debt acquired from kuffaar law with the many Ah a dith which clearly negate absolution and on the contrary confirm the claim and right of the cre d i- tor to continue into the Aakhirah?
Hadhrat Mufti Taqi Saheb further propounding the limited liability principle states:“...an d in case he dies insolvent, no other person can bear the burden of his remaining liabilities, however closely related to him he may be. On this analogy the limited liability of a joint stock company may be justified.”
This analogy is fallacious. Th e venerable Mufti Saheb has simply stated what is so obvious. Relationship and family ties do not produce liability. The one who h as liabilities is responsible for discharge of his obligations. As mentioned earlier, the heirs are not liable for the debts of the deceased for the simple reason that the debts are not their liabi l- ity. The question of limited liability and absolution of debt is thus not directed to them. There is therefore no analogy whats o ever on which to base the limited liability principle of the kuffaar.
(5) ABD - e - MA'THOON
Hadhrat Mufti Taqi Saheb presenti n g another example to substantiate limited liability, states: “ Here I would like to cite another example with advan tage, which is the closest example to the limited liability of a joint stock company. …...The slaves of those days were of two kinds……...There was another kind of slaves who were allowed by their masters to trade. A slave of this kind was called ab d - e- ma'thoon. The initial capital for the purpose of trade was given to such a slave by his master, but he w as free to enter into all commercial transactions. The capital invested by him totally belongs to his master. The i n - come would also vest in him, and whatever the slave earned would go to the master as his exclusive property. If in the course o f trade, the slave incurred debts, the same would be set off by the cash and stock present in the hands of the slave. But if the amount of such cash and stock would not be suf f i- cient to set off all the debts, the creditor had a right to sell the slave and settle their claims out of his price. However, if their claims would not be satisfied even after selling the slave, and the slave would die in that state of indebt e d - ness, the creditors could not approach his master for the rest of their claims. Here the master was actually the owner of the whole business, the slave being merely an intermediary tool to carry out the business transactions. The slave owned not h ing from the business. Still, the liability of the master was limited to the capital he had invested including the value of t h e slave.”
In this example, there is no substantiation for either the juridical person or for the principle of limited liabilit y in the meaning of the concept of the capitalist economists. Sight should not be lost from the fact that Hadhrat Mufti Taqi Saheb has presented the principle of limited liab i l- ity with its consequence of automatic absolution of debt as the logical effect of the acceptance of the juridical person. Withou t the existence of a ‘juridical person' there is no basis for the principle of ‘limited l i- ability'. In fact, the creature known as ‘juridical person' was spawned specifically for the principle of limited liability.
But, in the example o f Al - Ab d- ul Ma'thoo n (the slave who is permitted by his master to trade), the question of juridical person does not fe a- ture. The slave is not a juridical person. His master is not a juridical person. In this example are only real human beings.
With regard to limited liability, it does not apply at all to the actual trader, namely , the Ab d -e - Ma'thoon . The actual trader, dealer, transa c- tor and contractor is the Abd - e - Ma'thoon, not the master. Hence , Ab d - e- Ma'thoo n is not absolved automatically of the debts he h a s incurred. He has to pay the debt he has incurred even if it takes him a lifetime. If at the end of his lifetime, the debt is n ot paid, the right of the creditors will extend into Qiyaamah where they will have the right to pursue him and demand payment.
If th e Abd - e - Ma'thoo n is unable to pay his debts, whatever wealth and stock he has in his possession will be possessed by the c r editors. After this, if the debts are not fully discharged, the creditors have two o p- tions :
(1 ) To compel him to work and pay his debts.
(2 ) To sell him and take the proceeds of the sale as payment on his debt account.
If after selling him, the debts are not fully paid, the creditors can still pursue him after he has been emancipated. The bett e r option, ofcourse, is to induce him to work and pay. He is not absolved of the debt. L i m- ited liability does not apply to the slave, the slave, who is the actual trader and transactor.
The master is responsible for o nly the amount which he had initially invested and the price of the slave. But this is not due to any limited liability princip l e as advocated by Western theory. This ruling of the Shariah is based on another principle, namely, the principle o f Taukeel (the Shariah's system of Agency) is the principle which governs the relationship, rights and obligations of the parties to a trans a ction. The liability and obligation of payment devolve on the actual transactor/ contractor who had incurred the debt. In relati o n to the creditor/seller, the obligation of payment is not the responsibility of th e Muakkil (the Principal) who had appointed t h e Wakee l (Agent). The Shariah states this principle as follows:
“He (the Wakeel) is the transactor (or co n - tractor), hence, the huqooq (the obligations) relate to him.” (Hidaayah, page 505, Vol.2)
“Verily, the huqooq (rig h ts and obligations) of a transaction relate to the Aaqid (the tra nsactor).”(Hidaayah, page 163, Vol.2)
“The huqooq (rights and obligations) of every transaction the Wakeel relates to h i m- self, e.g. selling, leasing, relate to the Wakeel not with the Muakkil (Principal)………The Wakeel is the actual transactor (Aaqid ) in reality…...Since he is the actual transactor the huqooq of the transaction apply to him.” (Hidaayah , page 163, Vol.2)
“If the Muakkil (Principal) demands pa y - ment from the buyer (to whom the Agent sold the item), he (the buyer) has the right to deny payment because in regard to the tr a nsaction (aqd) and the rights of the aqd, he (the Mua k kil) is a stranger in view of the fact that the huqooq relate to the aaqid (the transactor) (Hidaayah, V ol.2)
This makes it abundantly clear that in terms of the Shariah, the cre d i- tors can demand payment from only th e Aaqi d (the one who incurred the debt). In this case it is th e Ab d - e- Ma'thoo n (the slave w h om the master permitted to trade). Furthermore, while the creditors cannot d e - mand payment of the debts from the owner of th e Ab d - e - Ma'thoon , the latter is not protected by any limited liability principle w hich absolves him from the debts. He has to pay with whatever stock and cash he has on hand. Then he has to work and pay the ba l ance of the debts. In fact, if the creditors decide, they can sell him and divert the proceeds t o-wards payment of his debt. Should the master emancipate the slave, he (the slave) will be pursued by the creditors for any outst anding debt and he will be compelled to pay. And, if he dies insolvent, the claims of the creditors will apprehend him in the D i vine Court in Qiyaamah.
This should be sufficient to convince any impartial student of the Deen that the principle of limited l iability does not pertain at all to th e Ab d - e- Ma'thoon. In so far as the master is concerned, limited liability a p- plies in its literal meaning, not in the technical meaning of the kuffaar concept which gives rise to absolution of debt and to the fictitious p er- son.
The master's liability is limited to the initial stock and the price of the Ab d - e - Ma'thoo n because he (the master) undertook liability to this e x- tent. In other words, the master was th e Kafee l (guarantor) of this amount. Thus, on the basis of the Shar'i principle o f Wikaa l a t , the creditors have the right to demand full payment (not limited payment) from th e Ab d - e- Ma'thoon , and not from the maste r who happens to be th e Muakkil . And, in terms of the principle o f Kafaalah (Suretyship), the creditors can demand from the master the amount which he had u n- dertaken to pay.
This then is the explanation for the limited liability of the master. The limited liability in this case is not the product of the concept of a juri d i- cal person, for there is no such fictitious person involved in the c o n- tract between th e Ab d - e - Ma'thoo n and the creditors nor in relation to the master who is th e Muakkil.
The principle o f Taukeel (Agency ) is not confined to the specific ex a m- ple of th e Ab d - e - Ma'thoon . The same principle governs a Shirkat (Partnership) enterprise as well. In partnership businesses suc h as Shirka t -e- Anaan and Shirka t - e- Wujooh , the creditors can demand p a y- ment and pursue only the actual partner who had transacted and had incurred the debt. In these types o f Shirkat ventures, eac h partner is th e Wakee l of the other partner, not th e Kafeel . Hence the huqooq of th e aq d apply to only the transacting partner. Yes, th e Wakee l can d e- mand payment from his partner and pursue him until the end of his life and if necessary, into Qiyaamah.
The master cannot be compelled to settle the debt s because he was not the transactor and he had declared the amount which he guarantees, hence the excess debt is not his liabil i ty. The Hanafi Fuqaha state in this regard: “If after the Abd has been sold (by the cre d i- tors), there remains unsettled debt, this ca n - not be demanded from the master because there is no debt on him. The slave has to be pursued after his emancipation to settle th e debt because the whole of the debt is his liability.” (Badaaius Sanaai', page 197, Vol.7)
The aforegoing explanation should be adequate to dismiss the claim of juridical person, limited liability and absolution of debt read into the relationsh i p which th e Ab d - e - Ma'thoon and the master have with the creditors.
The Shariah has made ample provision to initiate large business v e n- tures. The Islamic systems o f Shirka t and Mudhaaraba h are adequate. In a truly Islamic stat e — and there is none existing toda y — these sys -tems could be introduced and made to function correctly without the need to encumber it with th e baatil kuffaar concept of ‘juridical p er- son' which spawns the evil creatures of limited liability and automatic absolution of debt in stark conflict with the Ahadith o f Rasulullah (sallallahu alayhi wasallam).
It must be understood that a transaction in trade is valid only if the p ar- ties involved in the deal are human beings. This vital condition for the validity of transactions and contracts, effectively re futes and knocks out the bottom from the kuffaar concept of ‘juridical person' with its concomitant evil consequences. Just as a stone cannot be accepted as a god even if it is given legal acceptance by some religions and laws, so too, can a stone and a p i ece of paper not be accepted as a legal person with powers of transacting in the way a tru e insaa n (human being) c o n tracts .
CONTRADICTING THE CONCEPT
After presenting his case for the acceptance and validity of the fict i- tious person termed ‘juridical person', Hadhrat Mufi Taqi Saheb ob- serves:
“ But at the same time, it should be emphasised, that the c o n - cept of ‘limited liability' should not be allowed to work for cheating people and escaping the natural liabilities con s e - quent to a profitable trade.”
This conclusion presupposes that ‘ escaping the natural liabilities ' is acceptable if the trade i s not profitable. But Islam does not accept this hypothesis. Whether trade is profitable or not, there is no escape from natura l liabilities. It is wholly unjust and cruel to expect that Zaid has to pay the damages incurred by Bakr's unprofitable trade. Wh i le kuffar law accommodates such injustice and escape of natural liabilities, I s - lam allows no scope for accepting such incongruities.
Hadhrat Mufti Saheb has presented purely his opinion unbacked by any Sh a r'i evidence. His entire case has been structured on the kuffaar concept of ‘juridical person' for which there is absolutely not the slig h t est vestige of evidence and support in the Shariah. On the basis of an arbitrary assumption, further conclusions are made arbitr arily.
On the contrary, Islamic concepts and principles do not allow debtors to escape their liabilities whether the trade is profitable or not . In terms of the Islamic concept, the liabilities will hang on the necks of the de b tors even on the Day of Qiyaamah. This very concept of Payment in Qiyaamah knocks the bottom out from the argument of limited l i- abi l ity and absolution of debts presented by Hadhrat Mufti Saheb.
Hadhrat Mufti Saheb is too well aware of the massive scams and che a t ing, dishonesty and fraud which accompany the limited liability idea, hence he felt constrained to offer his advice. But the ku f r law does recognize this danger, hence it has instituted measures to check the anticipated fraud which is just natural for peop le who have no fear of Allah Ta'ala and no proper concept of the Aakhirah. Inspite of s e - vere penalties prescribed by kuffaar governments for mismanipulation of the poor ‘juridical' phantom, fraudsters are not deterre d. The scope of subverting the ‘juridical' fellow for dishonest personal gain is too wide.
Hadhrat Mufti Saheb suggests that t he fraud could be blocked in the following manner:“ So, the concept could be restricted to the public companies only who issue their shares to the g e n - eral public and the number of whose shareholders is so large that each one of them cannot be held r e - sponsible for the day - t o - day affairs of the business and for all its liabilities.”
Again this suggestion presupposes that pub l ic companies by far and large are honest and do not perpetrate fraud, hence only such comp a - nies should be rewarded with the “benefit” of the ‘juridical' man with ‘his' limited liability attribute. That public companie s perpetrate scams and fraud on massive scales is not a secret to those who are abreast with developments in this sphere. They com mit the worst acts of fraud. Thousands of small shareholders lose their life's savings. Huge com p a - nies and conglomerates suddenly collapse. Both the shareholders (the general public) and creditors suffer. Restricting the con cept to public companies does not solve the problem o f fraud and cheating. The bigger the company, the greater is the fraud an d the more difficult to curtail and detect. They are too clever for the stupid trustees which a court appoints as inquirers into the rotten a f- fairs of the collapsed company.
In the aforementioned conclusion made by Hadhrat Mufti Saheb, the following two items have been propounded:
(1 ) In view of the large number of shareholders, each one of them cannot be held responsible for the da y - to - day affairs of the bu s i- ness .
(2 ) In view of No.1, the shareholders cannot be held liable for the debts exceeding the assets.
In so far as averment No.1 i s concerned, the Shariah accepts this in even a small partnership of just two persons. The sleeping partner ca n- not be held responsible for the da y - to - day affairs of the business b e - cause he simply is not active in the business and is not aware thereof. But averment No.2 is not a necessary corollary of No.1 . According to the Shariah, even the dormant partner (shareholder) is liable for the debts in proportion to his percentage shareho lding.
However, the Shariah makes one concession. While not absolving the dormant partners of the liabilities of the business, the cre ditors cannot demand payment from them. The right of demanding is vested in the partners who had actually transacted and incurred the debts. The cre di- tors can demand from the transactors, and the latter can demand from the dormant partners. This is the effect of the operation o f only the pri n ciple o f Wikaala t (Agency) i n Shirka t (Partnership), not of Kafaala t (Suretyship).
In conflict with Shar'i principles, Hadhrat Mufti Saheb argues in f a - vour of total absolution of debt, and for this serious issue he presents a s dalee l only the fact of the large number of shareho lders. But the Shariah does not accept the number or large number of shareholders as a basis for absolution of debt and for esc a ping liabilities.
Commenting further on this issue, Hadhrat Mufti Saheb avers:
“As for the private companies or the partn e r - ships, the concept of limited liability should not be applied to them, because practically each one of their shareholders and p a rtners can easily acquire a knowledge of the day - t o - day affairs of the bus i- ness and should be held responsible for all its l i- abilities.”
It is acceptable according to the Shariah that the large number of shar e- holders who have no active role in the affairs of the business be exo n- er ated from the malpractices of the active culprits. But, the Shariah does not accept the hypothesis that they be absolved of th e liabilities which their agents had incurred. If anyone claims the contrary, it d e - volves on him to produce Shar'i evidence, not opinion, regardless of how rational and acceptable such opinion may appear on th e basis of the economic principles propounded by western or any other kufr s y s - tem of economics.
Pursuing his argument, Hadhrat Mufti Taqi Saheb states: “As for the private companies or the partn e r -ships, the concept of limited liability should not be applied to them, because, practically, each one of their shareholders an d partners can easily acquire a knowledge of the day - t o - day affairs of the bus i- ness and should be held responsible for all its l i- abilities.”
The concept of limited liability is a purely kuffaar concept for which attempts are being made to make it acceptable to the Shariah. After a c- cepting the validity of this concept, Hadhrat Mufti Saheb seeks to deny the full consequence of the ‘juridical person'. If the ‘ juridical person' concept which is alien to Islam, is accepted, then its effects should not be divorced from it. To apply the l imited liability principle to only pu b lic companies and to debar private companies from its ‘benefit' is in conflict with this concept for whose ‘Islamic' validity much ar g u- ment has been tendered, albeit fallacious.
Non - Muslims who had originated this concept apply it logically and uniformly to both public and private companies. To restrict it to only public companies is unintelligent and illogic after the validity of the ‘juridical man' has been accepted. This type of incongruity and c o n- flict develops when Muslims endeavour to give Shar'i legality and status to the ideas of the kuffaar. The concept in the wester n capitalist system is original, uniform and workable since it conforms to thei r n a f- saan i behests. But when it is introduced into Islam, it is artificial, i n- c o n gruous and unworkable because it has to be subjected to a process of abridgement since even in the opinion of the votaries of this c o n- cept, it is fraught with perils. But then the abridgement results in a h y- brid concept unacceptable to both the Shariah and the capitalist system
Hadhrat Mufti Saheb's averment that the ‘benefit' of li mited liability should be denied to private companies and partnerships, presupposes that all or most small companies or their s h areholders and partners are crooks and frauds while all or most of the directors and shareholders of large public companies are honest gentlemen. The reality is the op p o- site. Whatever the reality may be, the suggestion ventured by Mufti Saheb is illogic and untenable. He has no valid basis, neit h er logical nor Shar'i, for his suggestion.
The claim tha t ‘each one of the shareholders and partners ' o f small private companies and partnerships ‘ can easily acquire a knowledge of the day - t o - day affairs of the business ' cannot be a valid basis for creating a difference in the obligations of partners in a small partnership and a big or public partnership/c ompany. Besides personal opinion, there is no basis for this, neither in the Shariah nor in the western capitalist system.
Th e determinant in the duty of fulfilling obligations is th e haqq (right) of others. In this case th e huqooq (rights) of the credito r s are at stake. Denial of the rights of the creditors on the flimsy pr e text of ignorance of the da y - to - day affairs of the business is untenable, unacceptable and palpably unjust as well as in conflic t with Islam's declared principle of Payment in even the Aakhirah.
The directors of big companies and the active partners of s mall or private partnerships can easily pull wool over the eyes of the shareholders. It is only when the bubble bursts or is ab out to burst will the dormant partners realize the truth. In fact, the Shar'i rationale for the need to validate partnership ent e rprises is that while some people have money, they are ignorant of the ways of utilizing the money constructively to generate pr ofit. O n the otherhand, some people lacking money do have the expertise of using the capital to generate profit. But Islam does not va l i- date absolution of debt and shirking of obligations on the basis of such ignorance of the capitalists who advance the initial ca pital .
The clever one, if he is dishonest, has the ability to conceal the real state of affairs of the business whether the enterprise is a p u b lic or a private on e— a business with innumerable shareho l d- ers or a small business with just two partners. Honesty and d i s- honesty are not the attributes of quantity. It does not follow that a large company with numerous shareholders will operate h o n- estly, hence it should be privileged with ‘limited liability' while small partnerships are run by dishonest partners hence they should be deprived of this privilege. This proposition is unre a- so n able .
It is illogic and unintelligent to penalise a partnership if it is small or private, and to award it if it is large or p u blic Just a s par t ners of small partnerships cannot be exonerated from their liabilities, so too may the partners of large partnerships or c o m- p anies not be let off the hook. They enjoyed the profits of the business, so they are Islamically, legally and morally obligated t o share the burden of the liabilities proportionately.
The criterion of honesty is not the largeness or the smallness of the pa rtnership/company nor the numerical factor of its partners or shareholders. Neither does Islam accept this criterion nor does we stern or capitalist economics accept it. The argument of Hadhrat Mufti Saheb and the consequences ensuing in its wake thus hav e no validity.
Hadhrat Mufti Saheb worked himself into a tight corner in the endeavour to produce a hybrid concept of ‘limite d l iability' which does not satisfy either the Shariah or western economics, Hadhrat Mufti Saheb thus states:
“There may be an e xception for the sleeping partners or the shareholders of a private company who do not take part in the business practically and their liability may be limited as per agreement between the partners. If the sleeping partners have a limited liability under this agreement, it means, in terms of I s- lamic jurisprudence, that they have not allowed the working par tners to incur debts exceeding the value of the assets of the business. In this case, if the debts of the business increase fro m the specified limit, it will be the sole responsibility of the working partners who have exceeded the limit.”
Hadhrat Mufti S a heb has again lapsed into a sel f -contradiction in the idea of ‘limited liability' which he has posited. In this av e r- ment, Hadhrat Mufti Saheb has implied an analogy for securing the exoneration from liability of the sleeping partners of a sma l l partnership or private company. The analogical argumen t i m- plied is as follows:
. The numerous shareholders of a public company are slee p- ing partners.
. The sleeping partners in the public company are and should be exonerated from liability exceeding the assets of the company (which in reality are the assets of the shar e- holders).
. The determinant for this exoneration is dormancy (or being a sleeping partner).
Now it is seen that this same facto r of dormancy exists in the sleeping partners of a small partnership or private company. Thus, the logical consequence of exonera t ion from full liability should be extended to the sleeping partners of a small partn e r- ship or a private company as well.
So far the logic appears to be sound, i.e. if the determinant in the abovementioned syllogi s m is accepted as valid in the Shariah. In fact, it is not valid, but we have assumed its validity for a m o- ment in order to bring to the fore the incongruency of the whole argument.
In his averment, while Hadhrat Mufti Saheb exonerat es the slee p ing partners from full liability, whether such partners h a p-pen to be the partners/shareholders of a small business enterprise or of a big public company, he distinguishes between the act ive partners (who may be the directors) of a public company and the active partners of a small partnership or the active shareh o lders (who may be the directors) of a private company. In relation to the private company, Hadhrat Mufti Saheb states explicitl y that the debts will be the “sole responsibility of the working partners who have exceeded the limit”. But the venerable Muft i Sahe b does not pass this same fatw a for the working partners/ shareholders of public companies.
In so far as the working partners or shareholders of a public c o m- pany are concerned, Hadhrat Mufti Saheb applies the western concept of the ‘juridical person' fully thereby exonerating the working partners from their debts. But in relation to the private company, Hadhrat Mufti Saheb formulates an entirely new pr i n- c i ple which conflicts with the ‘juridical person' he is at pains to validate and offer Shar'i legality. And, this new and arbitra r y principle is that the same exoneration is not applicable o the a c- tive partners of a small partnership or private company.
There is no justification to apply the concept of ‘juridical pe r- son' partially to a private company when the natural, logical and legal (legal in kufr law) consequence of the application of t h is concept is identical for even a private company. The concept does not provide for differentiation between a public and a p r i- vate company. The shareholders of both are legally allowed to escape their liabilities. But Hadhrat Mufti Saheb selectively a p- plies the western concept of absolution of debt, described dece p- tively as ‘limited liability'. But, for this selection there is no b a- sis in either the Shariah or in the western system of economics. In fact, rationally the selective process adopted by Hadhrat M u fti Saheb is seriously flawed with the defect of incongruity. This is indeed not surprising. When an attempt is made to create a f u- sion of Haq q an d Baatil , the logical consequence is incongruity which the Shariah rejects.
With regard to the agreement between the sleeping and active partners of a small partnership which Hadhrat Mufti Saheb equates with a private company, the attempt has been made to show that the Shariah accepts the concept of l i mited liability. Let it be clearly understood that wherever in the Shariah the idea of ‘limited liability' appears, it is not the capitalist concept of abso- lution from debt. It never means that the debt is automatically wiped out with the creditors having no relief and no further c laim of demanding their rights. It simply means that a specific partner or partners is/are fully responsible for the debts to t h e creditors while the others are in turn liable to the active transactors for their share of the liabilities. It does not mean t hat the creditor's claim lapses or falls away as the kuffaar limited liability concept propounds.
The ‘limited liability' of a partner or partners in an Islamic pa r t- nership ( Shirka t ) business is not the same as the ‘limited liab i l- ity' concomitant to the western concept of the ‘juridical person'. In fact the term ‘limited liability' is foreign to Islamic jurisp r u- dence. In the Islamic sense it means th e full liabilit y for which the partner had assumed responsibility. Prior to the commen c e- ment of the business the partner stipulated with his active partner that he (the active partner) should not incur debts in exce s s o f x amount, and if he does, he is responsible. Thus, when the active partner incurred debts in excess to th e x amount, he h imself is liable since the excess is not the debt of the sleeping partner. The Shariah clearly stipulates that in a partnership, each partner while being th e Wakee l (agent) of the other partner is not hi s Kafeel (guarantor). The creditors can demand from o nly the one who had contracted and transacted with them, not from the other pa r t- ner whether he happens to be dormant or active.
However, the one partner can demand payment from the other partner since he had acted in the capacity of his agent. But he ca n not demand from his principal (his partner whose agent he is) more than the amount which was stipulated and agreed on. Thus, it is not the western concept of ‘limited liability' which operates here. It is full liability for the amount agreed on.
If t h e principal sends his agent to buy one loaf of bread, but he goes and buys two loaves, he cannot claim payment for two loaves. The principal will pay for only one loaf. It will be ba s e- less to argue that he pays for only one loaf by virtue of some ‘limited liability' concept. It is simply the principle of Wikaalat (Agency) which operates here.
In the argument presented by Hadhrat Mufti Saheb the terms partners and shareholders ar e used. He uses the term ‘shareholders' for the investors in a public company while the word ‘partners' is used for the investors in a private company. This implies that Hadhrat Mufti Saheb differentiates between a public and a private company. It was necessar y f or Hadhra t Mufti Saheb to imagine a differentiation. This differentiation is the effect of the partial acceptance of the conseq u ence of th e ‘juridical person' concept. Hadhrat Mufti Saheb applies it fully to the public company so that the ‘shareholders' m a y derive the full benefit of absolution of debt which ‘limited liability' means. On the other hand, Hadhrat Mufti Saheb strip s t he ‘juridical man' of this power of absolving debt in relation to the ‘shareholders' or partners of a private company. Yet there is no difference whatsoever in the partnership concept as it relates to a public company or to a private company, neither acco r ding to the western concept nor according to the Shariah.
The verdicts of both the Shariah and western kufr law are un i- form. The same rules apply to the shareholders (partners) of p u b- lic and private companies. Although the effects of the two s y s- tems are opposites, they nevertheless are uniform. The ‘juridical man' concept of the kuffaar absolves the shareholders of their liabilities whether they happen to be shareholders in a public o r private company. The Shariah on the contrary, holds all shar e- holders responsible for their liabilities — full liabilit y — whether they are shareholders of a public or private company.
However, Hadhrat Mufti Saheb has landed himself in the unenv i- able situation of having to borrow from both systems to produce a new concept which is unacceptable to both the Shariah and to the western economic system.
In the new concept which stems from Hadhrat Mufti Saheb's a r- guments, the limited liability principle of the ‘juridical person' applies fully as envisaged by its formulators to the public com p a- nies while it does not or should not apply to private companies or the partnerships. Thus Hadhrat Mufti Saheb states:
“As for the private companies or the partnerships, the concept of limited liability should not be applied to them…..”
ANOTHER ASP E C T
Another aspect apart from the limited liability discussion, is the ambiguous manner in which Hadhrat Mufti Saheb uses the ter ms private companies and partnerships. Does Hadhrat Mufti Saheb differentiate between private company and partnership (Shirkat ) ? Are the shareholders of a public company partners in an Islamic Shirkat enterprise? Or is a public company some other type of a venture? Does Mufti Saheb use the words shareholders and par t- ners synonymously in relation to a private company? Is a private company the same as an Islami c Shirka t enterprise? Islam has clear concepts on these issues. Perhaps Hadhrat Mufti Saheb has different concepts formulated by blending the two diametric o p- posite systems. If so, we would like to say that any such fusion produces greater confusion which cannot be substantiated with Shar'i evidence.
“ The upshot of the foregoing discussion is that the concept of limited liability can be just i- fied, from the Shariuah viewpoint, in the public join t - stock companies and those corporate bod ies only who issue their shares to the ge n- eral public.”
This sweeping statement is indeed the product of an arbitrary opinion. Neither is there justification for its ap p lication to the public companies nor to corporate bodies. To say that the Shariah permits this concept fo r ‘only ' the public co m panies is absolutel y baati l in the Shariah. It being baseless in terms of the western ‘juridical person' concept is glaring. Hadhrat Mufti S a- heb has not produced a single valid argument based on the Shar'i principles o f Qiyaas to substantiate his claim for the validi t y of the ‘juridical' mirage.
In conclusion, we can safely claim that this concept of the we s t- ern kuffaar is a conspicuous example of chicanery and legal d e- ception in the wake of which ensues massive fraud and denial of fulfilment of th e huqooq of the creditors.
And, Allah knows best.
BY :
Mujlisul Ulama of South Africa
P.O. Box 339 3
Port Elizabeth 6056
Rep. of South Africa