Istisnaa and Parallel Istisnaa - Appendix B (The Shariah Basis for the Standard)

Transcription

1. Shari ’ah Standard No. (11): Istisna’a and Parallel Istisna’a Appendix (B) The Shari’ah Basis for the Standard Legitimacy of Istisna’a Contract The legitimacy of Istisna’a is based on the request of the Prophet (peace be upon him) that a pulpit (a platform) for preaching and a finger ring be manufactured for him.(2) An Istisna’a contract is also permissible on the basis of the principle of Istihsan (Shari’ah approbation), the general principles of contracts and transactions and the objectives of Shari’ah. The Istisna’a is a binding contract and not a mere promise. The International Islamic Fiqh Academy has issued a resolution in support of the legitimacy of Istisna’a.(3) Istisna’a Contract ■ The basis for it not being permissible that the role of the Institution remain as a mere financier for a deal concluded between the supplier and the ultimate purchaser is that this would lead to involvement in a Riba transaction which makes the Istisna’a contract a mere cover-up and not a real Istisna’a. ■ The basis for stating that an Istisna’a contract is binding is the view of Imam Abu Yusuf, as stated in the “Majjalat Al-Ahkam Al-’Adliyyah” Al-’Adliyyah”,, (known in English by the name the Mejelle), that the manufacturer has spent money in order to manufacture and to deliver according to specification. If the ultimate purchaser has a right to refuse the manufactured goods, then the manufacturer will incur losses. (2) The Hadith in which the Prophet (peace be upon him) requested the manufacture of finger ring has been related by Al-Bukahri and Muslim: “Sahih Al-Bukhari” [5: 220]; and “Sahih Muslim” [3: 1655]). The Hadith in which the Prophet (peace be upon him) requested the manufacture of a pulpit for preaching has been related by Al-Bukhari in his “Sahih” [2: 908]. (3) International Islamic Fiqh Academy Resolution No. 65 (3/7). 313
2. Shari ’ah Standard No. (11): Istisna’a and Parallel Istisna’a ■ The basis for the impermissibility of the manufacturer including a defect exclusion clause in an Istisna’a contract is that a valid Istisna’a is a sale of specified goods to be delivered in the future and exclusion of liability as to defects is valid only in the sale of particular identified goods. This prohibition of excluding liability as to defects in Istisna’a is one feature that makes it different from an ordinary sale. ■ The basis for the impermissibility of drawing up Istisna’a contracts or procedures in a way that appears to be a mere interest-based financing is the need to avoid involvement in a Riba transaction, a potential Riba or ’Inah sales. Subject Matter of, and Guarantees in, an Istisna’a Contract ■ The basis for the impermissibility of concluding an Istisna’a contract for items that are not manufactured or constructed is that items that are not the subject of transformation by manufacture or construction by man, that is natural things such as animals, fruits and vegetables, are not by definition covered by the term Istisna’a which means a sale of materials on condition that they be subjected to transformation by a manufacturing or construction process. ■ The basis for the permissibility of concluding an Istisna’a for manufactured items that either have or do not have equivalents in the market is because it is normal for people to deal in these kinds of item. As a principle, rules that are based on customary practice will change whenever such customary practice is changed. Therefore, any customary transaction that is subject to specifications may be a subject-matter of Istisna’a, regardless of whether it is for use or consumption. ■ The basis for not allowing the subject-matter of Istisna’a to be a specific identified item is that an Istisna’a contract involves a sale for future delivery based on a specification. Therefore, if the items to be sold are specific identified items, the transaction involves selling identified items that the seller does not own, which is prohibited by the saying of the Prophet (peace be upon him): “Do not sell what you own not” not”.(4) (4) The Hadith has been related by Al-Tirmidhi in his “Sunan ” [3: 534], edited by Ahmad Shakir; and Al-Albani, “Irwa’ Al-Ghalil” [5: 132]. 314
3. Shari ’ah Standard No. (11): Istisna’a and Parallel Istisna’a ■ ■ ■ ■ ■ Again, items to be manufactured or constructed do not yet exist and thus cannot be specific and identified. The non-existent item is to be produced and delivered later and this constitutes a non-monetary obligation of the supplier.(5) The basis for the permissibility of a stipulation by the ultimate purchaser that the manufacture be carried out by the Institution itself is because this stipulation does affect the purpose of the contract. Rather, this condition is relevant in this contract because the ultimate purchaser may be interested in the items that are produced by a particular supplier due to this supplier’s distinguished competence in manufacturing or construction and the quality of the items manufactured or constructed by this supplier. The basis for the permissibility of the manufacturer presenting to the ultimate purchaser either what he has produced or what other parties have produced, if the ultimate purchaser did not stipulate to the contrary, is because this satisfies the purpose of the contract. This is the case because the items are being delivered according to the specifications that are laid down in the contract. The basis for the permissibility of stipulating a time-period during which manufacturer remains liable for any manufacturing or construction defects is that such a stipulation serves the purpose of the contract. This is because the ultimate purchaser wants to use the subject-matter and this is not possible unless the subject-matter is free from defects. The basis for the requirement that the price be known is to remove any lack of knowledge and uncertainty that may lead to dispute. The basis for the permissibility in Istisna’a of payment on deferred terms or on an instalment basis is that labour (i.e. transformation and added value) is an important part of the items to be sold and this makes the transaction similar to a leasing contract in which it is permissible for the rentals to be paid on a deferred or instalment basis without this being considered as a sale of debt for debt which is prohibited. The same ruling applies to Istisna’a. (5) See: “Majallat Al-Ahkam Al-’Adliyyah”, article (158). 315
4. Shari ’ah Standard No. (11): Istisna’a and Parallel Istisna’a ■ The basis for the permissibility of offering a difference in the price for an Istisna’a contract relating to a difference in the date of delivery is that Istisna’a is analogous to an Ijarah contract. The fuqaha have stated that it is permissible to give a labourer in Ijarah an option regarding wages depending on whether the worker finishes the work in one day or in two days. The hirer may say two dinars if the worker finishes in one day or one dinar if he finishes in two days. Istisna’a is similar to this. There is a resolution issued during the Al Baraka Annual Forum supporting this ruling.(6) ■ The basis for not allowing a contract of Istisna’a to be drawn up on the basis of a Murabahah sale, for example, by determining the price of Istisna’a on a cost- plus basis, is because the subject-matter of Murabahah should be something already in existence, the cost of which is known and which is owned prior to the conclusion of a Murabahah sale. An Istisna’a contract, on the other hand, is concluded prior to ownership of the subject-matter, because (I) it is a sale based on a specification giving rise to a future obligation, and (II) the actual cost will be known only after the completion of the work, and, (III) the price in a contract of Istisna’a should be known when the contract is concluded. ■ The basis for deciding that the Institution is not obliged to give a discount when the actual costs of the manufacture are substantially greater than the estimated costs or when it secures a discount from the manufacturer is because the Istisna’a contract and Parallel Istisna’a contract are independent in terms of obligation and effects. The Shari’ah Supervisory Board of the Kuwait Finance House has issued a Fatwa in this respect.(7) ■ The basis for the permissibility of the Institution acquiring all necessary guarantees is that these guarantees secure its rights and this request does affect the purpose of a contract. Changes to an Istisna’a Contract ■ The basis for the impermissibility of extending the date of payment in return for consideration is because that is Riba. (6) See: Resolution No. (13/7). (7) “Al-Fatawa Al-Shar’iyyah Fi Al-Masa’il Al-Iqtisadiyyah”, Al-Iqtisadiyyah”, Fatwa No. (447). 316
5. Shari ’ah Standard No. (11): Istisna’a and Parallel Istisna’a ■ The basis for the permissibility of discounting for unconditional earlier payment is the saying of the Prophet (peace be upon him) in the case of Ubay Ibn Ka’b (may Allah be pleased with him) and his debtor: “Write off a portion of your debt”. debt” (8) The International Islamic Fiqh Academy has issued a resolution in support of this rule.(9) ■ The ultimate purchaser (the owner of the land) is not entitled to acquire ownership of incomplete building structures or utilities that are already in place without giving consideration to the builder if the builder is unable to continue to discharge his obligation. The basis for this is that the construction was initiated by the builder at the request of the ultimate purchaser and such a request is stronger than a mere permission to build on the latter’s land. ■ The basis for the permissibility of a contract of Istisna’a including a clause that the manufacturer is not liable for extra expenses that result from additional conditions inserted into the contract at a later date as a result of directives of the relevant authorities, is because this condition is agreed upon by the parties and does not affect the purpose of Istisna’a contract. The Shari’ah Supervisory Board of Kuwait Finance House has issued a Fatwa in respect to this ruling.(10) ■ The basis for the permissibility of a penalty clause in an Istisna’a contract is that such a clause is in the interest of the contract and because it is laid down in respect to an obligation regarding items that must be produced and delivered in the future and not in respect to monetary debt. Supervision of the Execution of an Istisna’a Contract The basis for the permissibility for the Institution, when acting as the ultimate purchaser, to appoint a technically experienced consulting firm and the permissibility for the Institution, when acting as the manufacturer, to appoint the ultimate purchaser as an agent is because agency is permissible and there is nothing against it in an Istisna’a contract provided it is done with the agreement of the parties. (8) The Hadith has been related by Al-Bukhari in his “Sahih” [1: 179] and [2: 965]. (9) International Islamic Fiqh Academy Resolution No. 64 (7/2). (10) See: Fatwa No. (251). 317
6. Shari ’ah Standard No. (11): Istisna’a and Parallel Istisna’a Delivery and Disposal of the Subject-Matter The basis for the impermissibility of selling the items to be produced prior to taking either actual or constructive possession of them is that such an action is considered as selling a non-existent item. It is also considered as selling what one does not own because it is not available for the seller at the time of conclusion of the contract. Parallel Istisna’a The basis for the permissibility of the Institution entering into a contract with another party in order to sell, in the capacity of manufacturer, builder or supplier, items whose specification conforms to the wishes of that other party, on the basis of Parallel Istisna’a, is that in such a case there are two separate deals of Istisna’a. There is no link between the two contracts; hence, this is not an instance of two sales in one deal, which is impermissible. The separation of the two contracts also has the effect of making the transaction a type of non-Riba-based financing. 318