Before explaining the concept of limited liability in Islamic law its important to explain what is the meaning of Liability itself? Liability in law means the responsibility of a person toward others in case of loss due to negligence or will-full destruction of the property held in possession.<\/p>\n\n\n\n
Now, what is limited liability? To understand the limited liability<\/strong>, you must familiarize yourself with the concept of a separate legal entity (personality)<\/strong>. Before you comprehend the underlying concept of limited liability in Islamic law. Both concepts derive their roots from western jurisprudence, developed in the 18th century.<\/p>\n\n\n\n Read also:<\/strong> Is Court Marriage Allowed In Islam \u2013 Legality of Court Wedding in Islamic Law<\/a><\/p>\n\n\n\n Our Fiqh (known as the understanding of Islamic law) is greatly influenced by modern corporations due to their significant worldwide role. In our classical Fiqh literature, these concepts were unknown and no research was carried out.<\/p>\n\n\n\n But the legal needs of today demands that such new concepts should be examined in the light of sharia. So that we can conclude, whether the concept limited liability in Islamic law affirms with the basic principles of Sharia not.<\/p>\n\n\n\n Two groups hold a different opinion<\/strong> on the concept of limited liability. <\/p>\n\n\n\n In this post, I had tried to explain the opinion of the group who does not recognize this concept of limited liability in Islamic law and I had to explain the arguments to establish my claim. There is a verse in the Quran based on ijma (consensus of Islamic jurist) which relates to this topic which is as under:<\/p>\n\n\n\n \u201cVerily, Maut (Death) does not absolve the debtor from debt. It is for this reason that the debt will be demanded from him in the Aakhirah”.[1]<\/p><\/blockquote>\n\n\n\n Now I will proceed with my topic.<\/p>\n\n\n\n I have consulted some books and read many articles on this topic to get a clear picture of this concept. Unfortunately, I was unable to get a hold on a proper book which can give me an answer so that I can write this research paper, one reason is that most of the material is in Arabic. Some of the books are as under;<\/p>\n\n\n\n This book is written by Mufti Taqi Usmani in the year 2007. He is currently working in a bank as a sharia adviser. In his book he has discussed many topics like musharaka, Mudarba, Ijarah, etc. and especially he has discussed the idea of limited liability in Islamic law in a whole chapter.<\/p>\n\n\n\n In his book he has given the example of Waqf Bait ul Maal etc. to give strength to his claim that such idea was already recognized in Islamic law, however, direct evidence cannot be found on it only evidence he has given are examples, and he concludes that after giving these examples that limited liability in Islamic law is accepted by the classical jurist.<\/p>\n\n\n\n This book is written by the famous intellectual named Imran Ehsan Khan Nyazee in 1997. This book was the first of its kind which has given much information regarding the partnership in Islam. He has discussed various types of partnership as exercised in Islam and then he has given an opinion of different schools of thought regarding the issues involved in the partnership.<\/p>\n\n\n\n At the end of this book, he has discussed the Islamic Forms of Partnership for the Modem World. Where the author attempts to identify issues of contemporary concern in corporate law and finance with special reference to Pakistan.<\/p>\n\n\n\n The main highlighted issues were “Islamization of the modem business corporation” and issues about a partnership, such as the question of a legal or fictitious personality for partnership and the limited partnership in which one or more partners may have limited liability while sharing the profit of the partnership.<\/p>\n\n\n\n Now I will try to elaborate on these issues one by one in detail so that we can understand the reality of this concept.<\/p>\n\n\n\n In Islamic law the liability of a free Muslim is unlimited. If a Muslim is under debt. And this debt is so huge that he cannot pay it. Then the creditors have the right to claim their money by taking away all of his property. Except for the house where he resides.<\/p>\n\n\n\n The creditor has a right over all of his belonging even on warm clothes.[2] The reason behind such a stance is that payment of debt is considered a sacred obligation in Islam. It is narrated that, “once Prophet (SAW) refused to offer a funeral prayer of a person who was under debt. One companion stood up and undertook the debt of deceased companion and then holy Prophet (SAW) offered funeral prayer”.[3]<\/p>\n\n\n\n There is also a hadith that says that \u201cthe greatest sin after the major sin Allah prohibited, with which a servant of Allah will meet is that a man dies saddled with debt for which he has not left the assets to pay for\u201d.[4] The theory of absolution of debt which represents the idea of limited liability is wrong. According to which when a person becomes insolvent then the creditors have right over his property.<\/p>\n\n\n\n If his property cannot satisfy the total claim of creditors, he is free from liabilities. So, he can start again and fooled more people but Islam does not recognize this idea. Islam declares that the concept of limited liability is alien which is forcefully incorporated into the Islamic legal system[5].<\/p>\n\n\n\n The modern jurist who favors the idea of separate legal personality<\/a> strongly contends that these two concepts are connected, or we can say that these are the two faces of the same coin. To disprove one concept results in automatic denial of the other concept.<\/p>\n\n\n\n According to a famous scholar, he says that limited liability is the logical consequence if we accept the idea of a separate legal personality.[6] We can say that the western scholars just to protect the stake of investors have invented that idea of separate legal personality.<\/p>\n\n\n\n So, if we destroy the foundations, the building will also collapse. It means if we disapprove the idea of separate legal personality in the light of Sharia than there remains no possibility to accept the concept of limited liability in Islamic law.<\/p>\n\n\n\n Those who are in favor of this concept produces the example of Waqf and proves limited liability. But what is Waqf? The Waqf is a legal and religious institution wherein a person dedicates some of his properties for a charitable purpose.<\/p>\n\n\n\n The properties after being declared as Waqf can no longer remain in the ownership of the donor. The beneficiaries of a Waqf can benefit from the corpus or the proceeds of the dedicated property. But they are not its owners as well. Its ownership vests in Allah Almighty alone.\u201d[7]<\/p>\n\n\n\n After giving the example of waqf the scholars assert that the waqf was treated as a legal entity the same as a natural person. They say that when a property is purchased with the income of waqf it does not become part of the waqf rather this property is owned by the waqf.[8]<\/p>\n\n\n\n In reality, there exists a person who is called waqif, he is the person who dedicates his income or property and also gives direction according to which the income of waqf is utilized. The sharia law is very simple on this issue, it says that the property purchased with the income of waqf does not become waqf itself rather it becomes part of the waqf which will be used as to the directions of the waqif.[9]<\/p>\n\n\n\n Now here arises a question that, if the waqf has a separate position then who is the owner of it. It is already stated that Allah is the owner of this institution and he is not some fictitious thing. He is the only reality in this world. There is some statement of fuqaha by which we can understand the ownership over waqf.<\/p>\n\n\n\n \u201cAbu Yusuf and Muhammad<\/strong> said that Waqf in the Shariah is the retention of an object (or property) in the legal category of it being in the ownership of Allah Ta\u2019ala in such a way that the benefit (of the Waqf asset) reaches the servants (of Allah). Thus, the ownership of the Waaqif terminates and passes to Allah Ta\u2019ala. It is therefore absolute. It cannot be sold, nor pawned, nor inherited.\u201d[10]<\/p>\n\n\n\n \u201cThe (Waqf) property is the haqq of Allah Ta\u2019ala.\u201d[11]<\/p><\/blockquote>\n\n\n\n So from the above statements, it can be construed that Allah is the owner of this waqf property and the human act as the guardian over it so that the income can be used in the best way. Now if we examine the waqf with the perspective that it also has limited liability then again it is wrong.<\/p>\n\n\n\n Because the Waqf property is a tangible asset, not a piece of paper, it does not have shareholders from whom it has borrowed money which constitutes its capital nor does it have creditors who could be thwarted by some limited liability principle.<\/p>\n\n\n\n If the manager of the waqf takes debt from others for up keeping of the waqf property then the creditors are not restricted under the veil of limited liability. Instead, the owner has permitted the creditors that they can recover their debt from the incomes of Waqf[12].<\/p>\n\n\n\n So from the above discussion, it is understood that the example of waqf does not prove that it has limited liability in Islamic law.<\/p>\n\n\n\n The second example that is given by those who argue that such a concept does exist is of Bait ul Maal. This is a legal institution<\/a>, is also called state treasury, there are boxes and vaults in which the government stores its various fund which has to be utilized for state expenditure. It is assumed by the modern scholar that everyone has a right over it but no one can claim its ownership.[13]<\/p>\n\n\n\n From this proposition, the scholars argue that the Bail ul Maal also has a legal entity but in reality, it is wrong because the Khalifa acts as the guardian over the Bait ul Maal<\/a> and spends that funds according to the commandment of Allah almighty.<\/p>\n\n\n\n Bait ul Maal has different types of funds which will be expended in various ways, but if funds are used fraudulently or erroneously than no one can sue the Khalifa. Instead, the individual has the right to go in court and enforce the directions that funds of Bait ul Maal should be used properly.<\/p>\n\n\n\n And if the Khalifa uses the fund in bad manners or for personal benefit than he is not free rather he can be sued in the court. The Bait ul Maal can take a loan from other people when the level of funds is very low in vaults now in this situation the creditors have the right to recover their money from Bait ul Maal, or from the government they can also demand it.<\/p>\n\n\n\n While giving this example one scholar of Pakistan says that;<\/p>\n\n\n\nDebate over Limited Liability In Muslim Scholars<\/h2>\n\n\n\n
Reviews of Books Relating to The Concept of Limited Liability in Islamic Law<\/h2>\n\n\n\n
An Introduction to Islamic Finance<\/h3>\n\n\n\n
Islamic Law of Business Organization: Partnerships<\/h3>\n\n\n\n
Issues Involved In The Concept of Limited Liability In Islamic Law<\/h2>\n\n\n\n
Analysis of the Issues:<\/h2>\n\n\n\n
1.Whether Islamic law recognizes the concept of limited liability?<\/h3>\n\n\n\n
2. Is there any relation between separate legal personality and limited liability?<\/h3>\n\n\n\n
3. Whether the example of Waqf given by the proponent shows that the concept of limited liability exists?<\/h3>\n\n\n\n
4. Whether the example of bait ul Mall also proves that limited liability concept?<\/h3>\n\n\n\n
5. Whether the example of inheritance under debt also proves this concept?<\/h2>\n\n\n\n