The Concept of Limited Liability – Part One

(1) WAQF

Presenting his daleel (evidence/proof/basis), Hadhrat Mufti Sahib states:

“The first precedent is that of a Waqf. The Waqf is a legal and religious institution wherein a person dedicates some of his properties for a religious or a charitable purpose. The properties after being declared as Waqf, 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. Its ownership vests in Allah Almighty alone.”

After presenting the definition of a Waqf in terms of the Shariah, Hadhrat Mufti Taqi Saheb lapses into the following incongruous averment:

“It seems that the Muslim jurists have treated the Waqf as a separate legal entity and have ascribed to it some characteristics similar to those of a natural person.”

 In substantiation of this incongruity, the Mufti Saheb presents the following argument:

“This will be clear from two rulings given by the fuqaha (Muslim jurists) in respect of Waqf. Firstly, if a property is purchased with the income of a Waqf, the purchased property cannot become a part of the Waqf automatically. Rather, the jurists say, the property so purchased shall be treated as a property owned by the Waqf. It clearly means that a Waqf, like a natural person, can own a property.” Secondly, the jurists have clearly mentioned that the money given to a mosque as a donation does not form part of the Waqf, but it becomes in the ownership 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 become Waqf there has to be a Waaqif (a human being who dedicates the asset in the Path of Allah as Waqf). In this case, the purchased asset has no Waaqif. The Waaqif of the Waqf property specifically and expressly made the property Waqf so that it could be employed to generate income for distribution to whatever charitable cause he (the Waaqif) had designated. If the income of the Waqf too has to become Waqf automatically, the very aim and purpose of the Waqf will be defeated and it will be devoid of utility.

For his claim that the property purchased with the income of the Waqf will be a property owned by the Waqf, Mufti Taqi Saheb cites ‘Al- Fatawa al-Hindiyyah, ch.5, v.2, p.417’. For better understanding of this issue, we cite the relevant text to which Mufti Taqi Saheb has referred:

“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, Does the house or shop purchased by the mutawalli with the income of the Musjid become consolidated with the property which were made Waqf for (the expenditure) of the Musjid? In other words, does it become Waqf? The Mashaaikh (Fuqaha) – Rahmatullah alayhim—differ in this regard. Sadrus Shaheed said that the preferred view is that it will not be consolidated (with the original Waqf property), but will become income for the Musjid. So is it expressed in Al-Mudhmaraat.”

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 property bought with the income of the Waqf does not become Waqf. It forms part of the income which has to be expended in accordance with the directive of the Waaqif. The issue of ownership does not arise at all.

The statement of the Fuqaha , namely, ‘At-tamleek lil Musjid’ which appears in I’laaus Sunan and other Kitaabs does not have the meaning of a ‘juridical person’ or a fictitious person as the capitalist concept propounds. Ownership of the Musjid in this context means ownership of the Owner of the Musjid. He Who is the true owner of the Musjid becomes likewise the owner of all assets made Waqf for the expenditure of the Musjid, and of all income generated by these Waqf assets.

Who is the owner of the Musjid? Hadhrat Mufti Taqi Saheb himself makes explicit reference to the owner of the Musjid, in fact to the owner of all Waqf property of any kind whatsoever. Thus, 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 existence is REAL. His Reality is true Reality, greater than all other realities created by Him. Let us see what the Fuqaha (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 it being in the ownership of Allah Ta’ala 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’ala. It is therefore absolute. It cannot be sold, nor pawned, nor inherited.” (Al-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 elimination of ownership (of the owner) without tamleek.” (Hidaayah, Volume 1)

In other words, when the Waaqif’s ownership is terminated by virtue of Waqf, there is no logical necessity for the Waqf asset to enter into the ownership of another human being as some Fuqaha aver. The ownership 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 reality whatsoever.

(4) “Verily, there is the need for the Waqf of the Waaqif to become absolute so that its thawaab accrues to him perpetually. And, this need can be fulfilled (by the Waaqif) terminating his ownership 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 effected 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 need to elaborate this point here because it is beyond the scope of our discussion.

It will suffice to say that our Fuqaha do not assert that the Waqf has no owner. They are explicit in stating that Allah Ta’ala is the owner. The meaning of the averment of some Fuqaha that the Waqf property after leaving the ownership of the Waaqif does not enter into the ownership of anyone, is that it does not become the property of any human being. The Waqf asset will be used according to the directive of the Waaqif for the beneficiaries of the Waqf. However, it does not follow from the termination of the Waaqif’s ownership that the Waqf asset has absolutely no owner. Neither is this a Shar’i conclusion nor a logical consequence 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 fictitious entity/person like the western kuffaar concept of ‘juridical person’. 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 person 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 person’?

The Fuqaha are the Jurists of Islam and their preserve is Fiqh or Islamic Jurisprudence. They did not deal in allegory. They do not present metaphorical and figurative interpretations and arguments. Their arguments are cold, logical and rational facts based on the Qur’aan and Sunnah. So when they aver that ownership of a property reverts to Allah Ta’ala, their averment is in the literal and legal sense. It is therefore baseless to conclude from the termination of the Waaqif’s ownership that some fictitious person assumes ownership like the fiction fabricated by the kuffaar economists.

There is not an iota of Shar’i evidence to substantiate the assertion that “it seems that the Muslim jurists have treated the Waqf as a separate legal entity and have ascribed to it some characteristics similar to those of a natural person”. What exactly are these characteristics which the Fuqaha have ascribed to a Waqf to justify dubbing it a ‘juridical or legal entity’? We have already shown that a Waqf is not a separate legal entity in the way the capitalist system regards its fictitious ‘juridical man’. Allah Ta’ala is the Owner. This indisputable Shar’i fact and reality utterly negate the claim of a Waqf being a fictitious person having rights and powers similar to a natural person.

OWNING PROPERTY

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 even the concept of juridical person because according to this fiction of the capitalists, the ‘juridical person’ or the separate legal entity is not the tangible asset or the property or the capital invested. All these items are the assets of the juridical person. Who is this phantom described as the ‘juridical person’? It is the legal document which has been registered with the authorities of the land. This piece of paper which has been legally transformed into a ‘juridical person’ owns the assets of the company. The assets are not the juridical company.

But in the Islamic concept of Waqf, there is no such document which the Shariah elevates to the pedestal of an Aaqil (sane human being) and Baaligh (an adult natural human being —Insaan). A Waqf document in the first place is not a requisite for the validity of Waqf. Even if a document (Waqf Naamah) is drawn up, it (the document) is never regarded in Islam as an entity with contractual powers, rights, obligations and abilities. Even a natural human being lacking in the two imperative conditions of aql (sanity) and buloogh (adulthood) is estopped by the Shariah from contracting and transacting. Thus a minor and an insane person are not permitted to transact, contract and deal in commerce and trade.

If it is argued that since a lawful guardian or an appointed curator can act, transact and contract on behalf of a minor and an insane person, we can apply the same rule to a juridical person who can be represented by the directors of the company, we shall refute this argument. In the former instance, the guardian/ curator represents a real and a natural human being while in the latter case the directors represent a fiction—an imaginary chap—a phantom, a piece of paper. In terms of the Shariah such fictitious representation is baseless. Islam does not condone falsehood, especially falsehood and fiction conjured for usurping the huqooq (rights) of the creditors.

Representation, that is, to be an agent of another, for its validity requires two fundamental conditions.

(1) That the Muakkil (the principal) and the Wakeel (the agent) should be sane and adult human beings.

(2) That the Wakeel assumes agency in a matter which the Muakkil himself is capable of executing.

Both these conditions are lacking in the representation of the juridical person who is supposedly the Muakkil by the directors who are the agents of the fictitious Muakkil.

There is no similarity of characteristics between the fictitious ‘juridical’ creation of the capitalist economic system and a Shar’i Waqf. While the fictitious legal ‘person’ is a document, Waqf is a tangible asset. Without the asset, there is no Waqf. But without assets, this figment of man’s imagination has been given legal sanction and elevated to the pedestal of a natural man in several aspects. The existence of Waqf hinges on a tangible asset while the ‘juridical person’ can exist without assets.

The ‘juridical’ paper-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 constitutes the Waqf, cannot dispose of it in any way whatsoever. The Shariah declares: “The Waqf asset cannot be sold nor given away, nor pawned, nor inherited.” The ‘juridical person’ can be annihilated, not so the Waqf property. The Waqf remains until the Day of Qiyaamah.

Like an animal cannot own money, so too can a stone not own money. Only Insaan (the human being) can own money The conditions for ownership according to the Shariah do not exist in animals and stones and all lifeless objects. Thus, the Musjid property does not have the capacity of ownership in the meaning of ownership as related to insaan (man). That ownership of a Musjid is vested in Allah Ta’ala Alone, is irrefutable. Hence when it is said that the carpets belong to the Musjid, the money belongs to the Musjid, etc., it is meant thereby that all such assets are in the ownership of the Owner of the Musjid and have to be utilized exclusively for that particular Musjid. This obvious and logical conclusion is corroborated by the explicit declaration of the Fuqaha that Allah Ta’ala Alone is the Owner of the Musjid. Even Mufti Taqi Saheb concedes this fact. It is therefore a self contradiction to claim that ownership of the Waqf vests with Allah Ta’ala, and the income generated by the Musjid’s Waqf properties belong to the Musjid. The absurdity of this claim is self-evident.

The very same jurists who say that a Musjid can own assets, affirm that ownership of the Musjid is vested in Allah Ta’ala. From this averment it should be clear that their statement is not in negation of Allah’s Ownership. Most certainly, they do not propound the theory of partnership between Allah Ta’ala and the Musjid property. They do not ascribe the Shariah’s concept of ownership as related to insaan (man), to inanimate structures.

BEQUESTS FOR MUSJIDS

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 can own properties.”

We fail to understand why Hadhrat Mufti Taqi Saheb who is a Hanafi had to cite “another Maaliki jurist” when even the Ahnaaf validate bequests for a Musjid. A wasiyyat made for a Musjid is simply a directive by the moosi (the one who makes the bequest) to spend a certain sum of his money for the upkeep of the Musjid. There is no need to fabricate concepts of fiction for the execution of this simple directive. A mutawalli simply keeps in trust the bequeathed amount and utilizes it for the maintenance of the Musjid. What this has to do with the fiction of a juridical man defies imagination. Support for 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 contributions made by a living person. All such contributions are for the upkeep of the Musjid. The issue of ownership plays no role in obtainal of the discharge of the bequest.

Mufti Saheb makes the following conclusion:

“It is clear from these examples that the Muslim jurists have accepted 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 matter of ownership.”

 What Mufti Taqi Saheb claims is not at all clear from the examples he has tendered. From the examples he has cited there does not emerge the consequence that the Musjid building becomes an owner of wealth in the same way as a human being. The wealth and assets of the Waqf are held in trust by Mutawallis on behalf of the True Owner, Allah Ta’ala.

It is also the contention of the venerable Mufti Saheb that the principle of limited liability is a logical consequence of the juridical person concept. If juridical person is accepted, then limited liability has to be necessarily and logically accepted. Now in Mufti Taqi’s view, the Musjid or any other Waqf property is a ‘juridical’ person. Thus should follow the limited liability effect. How will limited liability apply to the Waqf property? The Waqf property (which is a tangible asset, not a piece of paper), 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.

If the Mutawalli was constrained to incur debt for the upkeep of the property, the creditor is not encumbered by any limited liability device in favour of the Waqf asset nor by the arbitrary absolution of debt rule. The Owner of the  Musjid/Waqf permits the creditor to receive full payment from the income generated by the Waqf. The debt cannot be arbitrarily written off by declaring the Waqf asset insolvent.

Arguing in favour of the western concept of the fictitious person, Mufti Taqi Saheb states: :

“Once its ownership is established, it will logically follow that it can sell and purchase, may become a debtor and a creditor and can sue and be sued, and thus all the characteristics of a ‘juridical person’ can be attributed to it.”

Undoubtedly, ownership of the Waqf is established. It is established by the Shariah as we have explained in the aforegoing pages, that Allah Ta’ala is The Owner — the Real Owner of the Musjid or of the Waqf property. Therefore, the conclusion that the Waqf property itself can transact and contract is absurd. The inanimate stone building cannot act, contract and transact. The Mutawalli buys and sells for the upkeep of the Waqf property. He does not buy and sell on behalf of the inanimate stone structure. He is not the wakeel (agent) of the property. He simply uses the income of the Waqf for the we lfare and upkeep of the building and its administration. These acts and transactions by the Mutawalli have no relationship with any ‘juridical person’ who is devoid of reality. The Owner of the Waqf Property has empowered the Mutawalli through the medium of His Shariah to act in the best interests of the Waqf property.

If the owner instructs a painter to paint his property, there is no need for the superfluity of saying that the stone building is a ‘juridical person’ who has instructed the painter via the agency of the owner to paint the house. This is preciscely what Hadhrat Mufti Taqi Saheb avers inspite of his awareness that Allah Ta’ala is the Real owner of the Musjid property and that it is not the Musjid property (the stone structure) which acts and transacts, but it is the Mutawalli (Trustee) who deals with the affairs of the Waqf properties in accordance 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 the Owner of the Waqf property. Thus, there is no resemblance between a Waqf 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 creditors 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 liquidation.”

 In this analogy, the venerable Mufti Saheb seeks to gain a Shar’i ruling on non-existing basis postulated as a Shar’i Mas’ala, hence Hadhrat Mufti Taqi Saheb says :

If the creditors 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 liquidation.

What is the basis for the claim that if the creditors of a real person can suffer then likewise the creditors of a juridical person should suffer. There is absolutely no link between the two. By the terms “can suffer” the inference is automatic absolution of debt. But there is no such a Mas’ala in the Shariah hence it cannot be cited as a primary premise (Asl or Maqees alayh) for the extension of a Shar’i Hukm to a new contingency which in this case is the absolution of debt in relation to the fictitious person.

There is absolutely no evidence in the Shariah for justifying the argument that the legal liquidation of a company in terms of kuffaar law is akin to natural death of a natural human being. If a Musjid is demolished, it cannot by any stretch of Shar’i argument be compared to the death of a human being. To a far greater degree will the laws applicable to the death of a human being not apply to the demolition of a Waqf property or the dissolution of a Shar’i partnership (Shirkat) enterprise.

Shirkat and Mudhaarabah (Partnership enterprises) are valid Shar’i forms and systems of trade. By some crooked type of reasoning and reckless interpretation, it may be argued that a Western company resembles Shirkat. Many Ulama too are confused on this issue and accept that a company owned by the fictitious juridical fellow is a valid Shar’i Shirkat enterprise. Hence they apply all laws of Shirkat to the juridical phantom except debt.

As far as debt is concerned they introduce the kuffaar principle of limited liability which is not an effect of Shar’i Shirkat. Therefore, if Hadhrat Mufti Saheb had rather claimed that the liquidation of a company corresponds to the liquidation of the Shirkat enterprise, then there would have been some superrficial façade of a seemingly ‘valid’ argument. But the averment that “the liquidation of a company corresponds to the death of a person”, is absurd. It is utterly devoid of substance.

There is also no grounds in the Shariah for the claim:

“If the creditors of a real person can suffer when he 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 concept as a ‘juridical person’ in Islam, it is ludicrous to extend the consequences of the death of a real person to a fictitious person. On the otherhand, if the Shariah validates the concept of a fictitious person having contractual and other powers of a human being, such a concept would have been known to the Fuqaha from the very initial stage of Islam. But there is not the slightest and flimsiest shred of evidence to back up the concept of the ‘juridical person’.

This concept is particularly vulgar and fraudulent in view of the fact that the effect of absolution of debt attributed to it is designed to circumvent and deny payment of debt. This is a vile denial having grave and painful consequences in the Aakhirah. The attitude of Islam towards payment of debt and denial of the rights of others is too well known to require elucidation.

If creditors are constrained to suffer on account of the death of a person, what logical and Shar’i need is there for them to suffer when all the contractors, partners and shareholders of the liquidated company are living and enjoying their wealth and properties?

It is important to understand that the ‘suffering’ caused to creditors when the estate of the deceased is insolvent is temporary. Insolvency in Islam does not give rise to absolution of debt. The debtor remains liable his entire life. He has to work and pay. If he fails to settle his debts, the claim of the creditors is not arbitrarily waived. Their claims will extend into Qiyaamah where they will have the right and the ability to apprehend the debtor and haul him into the Divine Court where he will have to pay with the currency of the Aakhirah.

While the Belief or Concept of Aakhirah may seem remote to those anchored in materialism and the pleasures of this world, it is not a fiction like the phantom they dub ‘juridical person’ manufactured to rob the creditors. If the fiction of the ‘juridical person’ is rational, intelligent, beneficial and acceptable to the minds of the liberalists, then the concept of the extension of creditors’ claims into the Aakhirah should pose no difficulty for their comprehension. This is so because after all, inspite of being liberal, they do have yaqeen in the Aakhirah and in all the pronouncements of Rasulullah (sallallahu alayhi wasallam). Among the teachings of the Rasool is the tenet that there is no automatic or arbitrary absolution from debt and that the creditors will enjoy the right of demanding their huqooq in the Court of Allah Ta’ala.

It is therefore erroneous for Mufti Taqi Saheb to say that if the creditors of a person can suffer then the creditors of the fictitious person can also suffer. Firstly, the ‘suffering’ of the creditors is temporary and depending on the degree of their Sabr, it is wonderfully rewarded. Secondly, the creditors are encouraged by the moral code of Islam to wholeheartedly waive the debt. If they choose this option, the ‘suffering’ is completely eliminated and substituted with the pleasure of the awareness of enormous thawaab in the Aakhirah and barkat in this world.

The creditors therefore will not suffer any loss irrespective of the deceased’s estate being insolvent. What happens when a person is declared insolvent, whether he remains alive or has died, is that payment of debt is deferred to a later time. It is not waived. But in terms of the kuffaar concept of juridical person, the debts are written off and creditors are deprived of their rights. Islam regards this set up with repugnance. The Qur’aan and Ahaadith bear ample testimony to the evil of usurping the huqooq of others, and to the dire consequences which ensue in the wake of such usurpation.

(2) BAITUL MAAL

Hadhrat Mufti Saheb’s second example for justifying and providing Shar’i validity for the juridical person and limited liability ideas is the Baitul Maal or the state treasury or the vaults and safes and boxes in which the government stores the funds which have to be utilized for state expenditure. In the endeavour to justify the ‘juridical person’, Mufti Saheb avers:

Another example of juridical person found in our classic literature of Fiqh is that of the Baitul-mal (the exchequer of an Islamic state). Being public property, all the citizens of an Islamic state have some beneficial right in the Baitul-mal, yet, nobody can claim to be its owner.”

The Baitul Maal simply consists of the state vaults in which the revenue collected by the state is stored. The funds kept in the boxes have to be distributed and spent in accordance of the Shariah by the Islamic Ruler who is the guardian of the funds. In his capacity as the representative of Allah Ta’ala he spends the money according to the instructions of Allah’s Shariah. The ques tion of ‘juridical person’ for achieving fulfilment of the Shariah’s instructions pertaining to these funds does not arise. In fact it is absurd.

The funds in the Baitul Maal are of a variety of categories. Some funds according to the Shariah have to be distributed in some specific avenues and may not be utilized for a different expenditure. To achieve this, a ‘juridical person;’ is not needed. The Khalifah who is the Guardian of the funds has the duty and obligation to ensure correct Shar’i disbursement of the money, etc. The Shariah empowers the Khalifah to take funds of a particular designation to spend it in another avenue if the need arises. This is the right conferred to the Khalifah, not to the inanimate money kept in the vaults.

Mufti Saheb cites the following statement:

“If the head of an Islamic state needs money to give salaries to his army, but he finds no money in the Kharaj department of the Baitul-mal (wherefrom the salaries are generally given) he can give salaries from the sadqah department, but the amount so taken from the sadqah department shall be deemed to be a debt on the Kharaj department.”

The Shariah has ordained different classes of wealth such as Zakaat, Kharaaj, Sadqah Naafilah, Khums, etc., etc. These funds have to be expended in different avenues or for different purposes. If, for example, Zakaat money is used to construct a Musjid, the obligation of Zakaat will not be discharged. If Zakaat money is thus spent in a category of expenditure which does not result in the discharge of the Zakaat obligation, it (Zakaat) will have to be made good by person who had used the funds for another purpose. This is not exclusive with the Baitul Maal. This law applies to everyone.

The Khalifah is empowered by the Shariah to take money from one category of funds and utilize it for a different purpose other than for what the money has to be used for according to the Shariah. But in relation to the Khalifah such use is not misappropriation because the Shariah permits this. However, when later funds of the particular kind are received, the Khalifah has to replace it to ensure that correct distribution is achieved. It is simply an issue of replacing the funds which the Khalifah had borrowed by virtue of the right the Shariah has given him. The inanimate vaults in which are kept the funds do not lend. It cannot lend. It is not an aaqil, baaligh insaan who has the capacity and ability to transact and contract.

The statement that the amount which the Khalifah took from the Zakaat vault, for example, is a ‘dain’ (debt) on the Kharaaj vault does not mean ‘debt’ in the legal and technical sense of the Shariah. For the validity of such debt the essential conditions are aql (sanity) and buloogh (adulthood). Furthermore, the substratum of these two essential conditions is insaan (the human being). An animal cannot transact, contract, lend, borrow, etc., notwithstanding the existence of these two conditions in it. To a greater degree will this ruling apply to an inanimate object such as money or the vaults in which the money is stored.

For the execution of his obligations and acting according in accordance of his rights, the Khalifah of the Islamic state is not in need of any ‘juridical’ or fictitious person. The Shariah does not need to present such a phantom for the simple reason that the Khalifah is empowered to utilize the state funds according to his discretion within the bounds prescribed by the Shariah. By Baitul Maal is meant the material building where the funds are stored. It does not mean anything else. It is therefore ludicrous to force the Baitul Maal into the meaning of the western idea of ‘juridical person’.

The inanimate vaults and boxes and the building in which these items are housed have no contractual power and ability. These inanimate objects cannot trade, sue and get sued. If the Khalifah does not replace the funds from the vault from where he acquired it or he is unable to replace the borrowed money, the Baitul Maal cannot sue him. If the ruler misappropriated someone’s wealth and unlawfully deposits it into the safe-boxes stored in the building, there is no ‘juridical person’ to be sued. The mazloom (oppressed one) can petition the Islamic court to compel the ruler to return his property. The action will be against the ruler, not against the building where the ruler happens to have stored the misappropriated wealth.

It is an irrefutable Shar’i fact that Islam does not accept the arbitrary or automatic absolution of debt idea as conceived by the insolvensy law of the kuffaar. Islam clearly states that the debtor remains liable for his debt for all time. If he is unable to pay his debtors here on earth, he will have to satisfy them with the currency of the Aakhirah in Qiyaamah where he will stand trial in the Divine Court. A necessary attribute of debt is its perpetuity until the debtor is absolved either by payment or voluntary absolution by the creditor. But this rule of debt does not apply to the Khalifah who ‘borrowed’ from one vault to use in another avenue of expenditure. If funds to make good the amount taken are not available, the Khalifah will not be held liable in the Divine 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 in the sense defined by the Shariah.

How will one department of the Baitul Maal sue another one of its own departments (boxes/vaults)? Who will do the suing? If the Khalifah cannot find funds to replenish the money he had appropriated and the so-called department in the Baitul Maal is bankrupt, will the specific department or the entire Baitul Maal be declared legally insolvent and legally dead, thus compelling the Khalifah to close shop and put the Baitul Maal into extinction? The incongruity of the endeavour to create a hybrid system (an admixture of the kuffaar system with the Islamic system) is a miserable absurdity.

The Baitul Maal in terms of the explanation proffered by Hadhrat Mufti Taqi Saheb is supposed to be a separate legal entity or a juridical person like a company. But can a company sue its own assets or any of its own departments? The claim that one department of the Baitul Maal (the supposed jurid ical person) is indebted to the other department in the way in which debtors are indebted to a company, leads to the absurd conclusion that some assets of a company can sue other assets of itself. In other words the juridical person is indebted to itself and can sue itself. In short it can commit suicide.

The Khalifah does not represent the Baitul Maal. He does not contract on behalf of the Baitul Maal which has no such capacity. He represents Allah Ta’ala and acts in terms of the mandate assigned to him by Allah Ta’ala. The Khalifah is not in need of a concept such as ‘juridical person’ to carry out his mandate. The juridical person is a creation of the west, and it has specific aims as its object. In the mind of the western man some legality has to be accorded to denial of execution of the liability of debts in order to attract capital. For achieving this aim, the fictitious person was brought into being. When this juridical phantom is legally killed, the rights of the creditors are extinguished.

Muslims who are conscious of the need to submit to the Shariah are not in need of any fictitious person to enable them to trade and attend to all affairs related to trade and commerce. The Shariah has made ample provision for this, and there is no need to introduce a concept/system of the kuffaar. Above all, there is no basis in the Shariah for granting it Shar’i acceptance.

(3) JOINT STOCK

Hadhrat Mufti Taqi Saheb states:

“Another example very much close to the concept of juridical person in a joint stock company is found in the Fiqh of Imam Shafi’i. According to a settled principle of Shafi’i School, if more than one person run their business in partnership, where their assets are mixed with each other, the Zakah will be levied on each of them individually but it will be payable on their jointstock as a whole, so much so that even if one of them does not own the amount of the nisab, but the combined value of the total assets exceeds the prescribed limit of the nisab, Zakah will be payable on the whole joint-stock including the share of the former, and thus the person whose share is less than the nisab shall also contribute to the levy in proportion to his ownership in the total assets, whereas he was not subject to the levy of Zakah had it been levied on each person in his individual capacity.

The same principle which is called khultah-alshuyu’ is more forcefully applied to the levy of Zakah on livestock. Consequently, a person sometimes has to pay more Zakah than he was liable to in his individual capacity, and sometimes he has to pay less than that. “This principle of Khultahal- Shuyu’ has a basic concept of a juridical person underlying it. It is not the individual, according to this principle, who is liable to Zakah. It is the joint-stock which has been made subject to the levy. It means that the joint-stock has been treated a separate entity, and the obligation of Zakah has been diverted towards this entity which is 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 obligation of Zakah has been diverted towards this entity”, i.e. to the joint stock which has been termed the juridical person. Prior to the admixture of the stocks, the obligation of Zakaat was the responsibility of the individual, i.e. the person who is the owner of the assets. After the stock of two persons has been mixed, the obligation of Zakaat according to Hadhrat Mufti Taqi’s reasoning is diverted from insaan (the human being) to the inanimate stock, be it wheat, rice, sugar, money, etc., etc. When the incidence of mixture of two assets takes place, the human beings who are the actual and true owners of the stock are no longer responsible for the Zakaat obligation since a diversion of obligation has been effected. After the admixture, the Zakaat obligation is transferred to the joint inanimate stock. Truly, this reasoning is weird to say the least. SUBHAANALLAH!

WHAT IS ZAKAAT?

Everyone knows that Zakaat is one of the Arkaan (Fundamentals) of Islam. The obligation of this Fardh injunction devolves on Muslims —Muslim human beings, not on kuffaar, least of all on inanimate objects such as wheat and rice. Mufti Taqi Saheb has cited the mas’alah of khultah (the admixture of two assets) which is a ruling of the Shaafi Math-hab as well as of some Jurists of the Maaliki and Hambali Math-habs. However, Mufti Saheb has omitted to mention that regardless of the incidence of admixture of rice and barley or the money of two human beings, Zakaat on the combined stock will be obligatory only if the human beings are free Muslims.

In view of the imperative condition of being a Muslim for the obligation of Zakaat, Zakaat will not be Waajib according to the Shaafi Math-hab on the joint stock owned by a Muslim and a kaafir. If the stock of a kaafir and the stock of a Muslim are combined, khultah has taken place. No one can deny this. Now if the obligation of Zakaat devolves on the joint inanimate rice and barley which were mixed or on any other combined stock, it would logically follow that Zakaat will have to be paid regardless of one partner being a Muslim and one a kaafir. Only the Muslim will pay Zakaat on his share of the mixture. The kaafir will not pay Zakaat on his share of the admixture regardless of the incidence of khultah.

If the joint stock was truly a separate entity or a juridical person in the western conception of the term, then Zakaat should have been obligatory on the stock by virtue of the principle of khultah regardless of the faiths of the owners of the joint stock. Faith does not apply to the inanimate ‘juridical person’. It is therefore meaningless to portray the joint stock as a juridical person and divert the obligation of Zakaat from the joint stock to only the Muslim.

This should make it abundantly clear that it is not the inanimate joint stock which is liable for Zakaat payment and obligation. The obligation is squarely the responsibility of the Muslim human being, not of the inanimate joint stock. Hence, Zakaat is not payable on such ‘joint-stock’ if both partners are 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 his share of the stock, and that too, if it amounts to nisaab or more. The crucial determinant for the obligation of Zakaat is the nisaab value owned by Muslim human beings. This is the unanimous verdict of all the Fuqahaa of Islaam. The difference is only in the manner in which the nisaab is attained. While the Shaafi Fuqahaa accept the validity of a nisaab achieved by admixture of assets (khultah), the Hanafi Fuqahaa reject this principle.

WHAT IS KHULTAH?

To gain a better understanding, it is necessary to explain what exactly is the meaning of Khulta tush Shuyoo’. Khultah simply means an admixture of different substances or things. An admixture of heterogeneous things produces a homologeous whole, for example, different metals mixed after melting produce one whole alloy.

Shuyoo’ means permeation or spreading throughout in every particle of the whole combination of things. In 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 minimum amount termed the Nisaab is necessary. If a person is the owner of the nisaab value, he has to pay Zakaat. If a man owns several Zakaat-taxable assets, each being less than nisaab, the variety of assets will be figuritively amalgamated to see if they collectively amount to nisaab. Thus, a man’s little cash, little stock-in-trade and a little silver he owns will all be added up and Zakaat will be paid on the combined value of his stock if it amounts to nisaab or more.

When the little assets of a variety of kinds, each less than the nisaab, belonging to a single person have a combined value of Nisaab, then Zakaat becomes Waajib on him. Since the owner of the variety of little assets of different kinds’ is one person, the khultah (amalgamation) of values suffices for the production of the nisaab. On the other hand, according to the Shaafi Mathhab, if a physical khultah (amalgamation) of assets belonged to several Muslim persons has transpired, then this physical whole will be treated as a homologeous whole of one person only for the purpose of assessing Zakaat, not for any other purpose whatsoever. Confirming this, Imaam Nawawi (rahmatullah alayh) says in Raudhatut Taalibeen, Volume 2, page 170:

“Thus, the maal (stock/assets) of two or more persons will be regarded as the maal of one person. Then Zakaat will become obligatory.”

For the purpose of levying Zakaat only, and for no other purpose whatsoever, the Shaafi Math-hab rules that the amalgamated stock be treated as a homologeous whole for the production of nisaab. There is nothing more to this amalgamation. For the obligation of Zakaat in this case, a juridical man is not necessary nor does amalgamation of assets give rise to a juridical person. Only the nisaab value is required. And, this requirement is acquired by treating the combined assets as a whole. If the amount of the amalgamated stock is less than nisaab, the khultah has no effect whatsoever even in the extremely limited scope the Shaafi Math-hab allows it to operate, namely, only for assessing Zakaat.

The following example in Raudhatut Taalibeen also confirms that the obligation of Zakaat is the liability and responsibility of the two human Muslim partners of the amalgamated stock. It is NOT the obligation of the inanimate ‘joint stock’ as has been averred by Hadhrat Mufti Saheb.

“…like two men who amalgamate forty (goats) with forty (goats). One goat is Waajib on both of them.” (Volume 2, page 170)

The ruling is clear — Zakaat is Waajib on both human beings whose stock has been amalgamated. Zakaat is not Waajib on the inanimate amalgamated stock. It is simple to understand that just as Zakaat is Waajib on one owner when his Zakaat-stock is equal to nisaab or more, so too in exactly the same way is Zakaat compulsory on two owners according to the Shaafi Math-hab when their combined stock equals nisaab or more. There is no intermediary of a ‘juridical person’ here, nor is there a need for such a fictitious person. The 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 systems, devices and apparatus for all exigencies and times.

While the condition for the obligation of Zakaat is related to wealth, the obligation of discharge or payment of Zakaat is the liability of the Muslim human being, not of the inanimate stock. Khultatush Shuyu’ or amalgamation produced by permeation or diffusion of the stocks of mo re than one person results in a homologeous whole akin to the homologeous whole of one owner. This factor has been taken by the Shawaafe fuqaha to hold the two or more owners of the amalgamated stock responsible for Zakaat payment. There is nothing further to read in this principle. It presents no substantiation for the western concept of juridical person.

Khultah itself cannot assume any liability. The liability of Zakaat remains the responsibility of the Muslim owners. Imaam Nawawi states in his Raudhatut Taalibeen, page 171, Vol.2:

“(Among the conditions) is that both the (human) amalgamators should be of those on whom Zakaat is Waajib. Therefore, if one of the two (owners of the amalgamated stock) is a zimmi (non-Muslim citizen of a Muslim state) or a Mukaatab (a category of slaves), then khultah will have no consequence. If the share (of the amalgamated stock) of the free Muslim is nisaab, he (the Muslim) will pay Zakaat on it, the Zakaat of one person (the Muslim owner). If not (i.e. if his share is less than nisaab), there is nothing (of Zakaat) on him.”

This ruling clearly negates the suggestion that the amalgamated stock has become a juridical person who has liability and who has become liable for Zakaat. Zakaat remains the obligation of only the Muslim person. It is never diverted from the Muslim owner to anyone or anything else.

There are also other examples in the Shaafi books of Fiqh to negate the claim that amalgamated stock called ‘joint stock’ is a juridical person having rights and obligations like insaan (a human being).

Next: The Concept of Limited Liability – Part Two

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