Procrastinating Debtor - Appendix B

Transcription

1. Shari ’ah Standard No. (3): Procrastinating Debtor Appendix (B) The Shari’ah Basis for the Standard Default on the Part of a Debtor The debtor must settle his debt when it is due. Default in payment by a debtor who is able to settle the debt is prohibited. The Prophet (peace be upon him) says: “Default in payment on the part of a solvent debtor is unjust.”(2) He (peace be upon him) also says: “Delay in payment by a solvent debtor would be a legal ground for his being publicly dishonoured and punished..”(3) Moreover, he (peace be upon him) approved the statement punished of Salman Al-Farisi to Abu Al-Darda` saying: “Give everyone his right.”(4) Muslim scholars have agreed on the permissibility of a debtor being punished in such circumstances.(5) However, an insolvent debtor should be granted a grace period. (2) Related by Al-Bukhari in his “Sahih” [2: 999], Dar Al-Qalam edition, Damascus, 1401 A.H./1981 A.D.; Muslim in his “Sahih” [10: 288], Al-Maktabah Al-Misriyyah edition with the commentary of Al-Nawawi, Cairo, 1349 A.H./1930 A.D.; and Ahmad in his “Musnad” [2: 71 and 345], Al-Maktab Al-Islami edition, Damascus. (3) Related by Ahmad in his “Musnad” [4: 388-399], and all relators of Hadith except Al-Tirmidhi, Al-Bayhaqi, Al-Hakim and Ibn Hibban who deemed it authentic. AlBukhari deemed it ‘suspended’. In his “Fath Al-Bari”, Al-Bari”, Ibn Hajar has said: “Its chain of transmission is good”: “Nayl Al-Awtar” [5: 240], Mustafa Al-Babi Al-Halabi edition, Cairo, 1378 A.H./1951 A.D.; and “Fayd Al-Qadir” [5: 400], Mustafa Muhammad edition. Cairo, 1371 A.H./1938 A.D. (4) Related by Al-Tirmidhi from Abu Juhayfah quoting the statement of Salman (may Allah be pleased with him) which the Prophet (peace be upon him) approved when mentioned to him saying: “Salman has said the truth.” Al-Tirmidhi said: “It is an authentic Hadith”: “Sunan “Sunan Al-Tirmidhi” [2: 66], Bulaq Edition. (5) “Bada`i’ Al-Sana`i’” [7: 173], Dar Al-Kitab Al-Arabi, Beirut, 1982 A.D.; “Al-Muhadhdhab” [3: 245], Dar Al-Qalam edition, Damascus, 1417 A.H./1996 A.D.; “Al-Mughni” [4: 501], Maktabat Riyad Al-Hadithah, Riyadh; “Hashiyat Qalyubi” [2: 288], Dar Al-Fikr edition, Beirut, no date; “Mu’jam Al-Mustalahat Al-Iqtisadiyyah”, Al-Iqtisadiyyah”, (P. 314); The International Institute of Islamic Thought edition, Virginia, USA, 1415 A.H./1995 A.D.; and “Dalil Al-Mustalahat Al-Fiqhiyyah Al-Iqtisadiyyah”, Al-Iqtisadiyyah”, (P. 274), Kuwait Finance House edition, Kuwait, 1412 A.H./1992A.D. 94
2. Shari ’ah Standard No. (3): Procrastinating Debtor Stipulation of, or Legal Claim for, Compensation for Late Payment of the Debt It is not permitted to stipulate as a condition of a contract involving indebtedness that in case of default the debtor should pay compensation, or to have a legal claim for compensation against a defaulting debtor, whether such arrangements are made at the beginning of the contract or on its maturity, since this would constitute Riba and any such stipulation or arrangement is null and void. This is because the Prophet (peace be upon him) says: “Muslims are bound by their contractual conditions, except those that render impermissible what is permissible or render permissible what is impermissible.”(6) There is also the reason that, during the preIslamic period, lenders who charged interest used to say to their debtors: “Do you want to settle now or to pay an additional amount for a further period of credit?”. The prohibition of any loan which requires a payment in excess of the amount lent has also been reported on the authority of many companions from the Prophet (peace be upon him). On this basis, a decision was reached by the International Islamic Fiqh Academy which reads as follows: “It is impermissible from the Shari’ah perspective to stipulate a condition of compensation in the case of delay in the settlement of a debt”.(7) No penalty clause may be applied in the case of a delay in settling a debt, as any increase in the amount of the debt is Riba; this is in contrast to the application of a penalty clause to other cases of delay, such as delay in fulfilling construction or Istisna’a contracts. As the judgement on this issue by the court is binding, it is therefore not permitted to stipulate such a condition directly in the contract creating a debt or to enforce it subsequently by recourse to the judiciary. (6) This Hadith has been narrated by a number of the companions and it was related by Ahmad in his “Musnad” [1: 312]; Ibn Majah through a good chain of transmission [2: 783], Mustafa Al-Babi Al-Halabi edition, Cairo, 1372 A.H./1952 A.D.; Al-Hakim in his “Mustadrak” “Mustadrak”,, Hyderabad edition, India, 1355 A.H.); Al-Bayhaqi in his “Sunan” [6: 70 and 156] and [1: 133], Hyderabad edition, India, 1355 A.H.; and Al-Darqutni in his “Sunan” [4: 228] and [3: 77], Dar Al-Mahasin Lil-Tiba’ah edition, Cairo, 1372 A.H./1952 A.D. (7) International Islamic Fiqh Academy Resolution No. (51); and “Majallat Majma’ Al-Fiqh Al-Islami”,, No. 6 [1: 193]; and No. 6 [2: 9]. Al-Islami” 95
3. Shari ’ah Standard No. (3): Procrastinating Debtor Litigation Expenses A defaulting debtor must bear the litigation expenses and other expenses relating to his default in payment as he is the cause of the expenses.(8) Disposal of a Mortgaged Asset It is permissible for the creditor to demand the selling of a mortgaged asset and other properties belonging to a debtor which are in his possession for the purpose of liquidation and recovery of the debt. Furthermore, it is permissible for the creditor to obtain a mandate from the debtor to sell the mortgaged assets or other properties of the debtor, because such disposal is permissible for the creditor, and such a practice would speed up the procedures for disposing of the charged asset.(9) Maturity of Instalments in the Case of Instalment Credit It is permissible for the creditor to impose the condition that, if the debtor is late in paying one instalment, all the instalments become due. To this effect, there is a decision by the International Islamic Academy of Fiqh, the text of which reads as follows: “It is permissible for a seller on deferred credit terms sale to impose the condition that instalments become due before their original due date in case of the delay of the debtor in paying some of the instalments, so long as the debtor consented to this condition when the contract was agreed”.(10) Such a condition would be valid, as there is no Shari’ah text to the contrary, and it serves a lawful interest of the creditor.(11) Giving prior notice to the debtor before giving effect to such (8) Some of the jurists have stated this such as Ibn Taymiyyah in “Al-Ikhtiyarat” and in “Mukhtasar Mukhtasar Al-Fatawa” (P. 346), Al-Mawardi in “Al-Insaf ” and Sheikh Muhammad Ibn Ibrahim Al Al-Shaykh (see: Paper by Sheikh Ibn Mani’ in the Fourth Fiqh Conference (pp. 226-227), organized by Kuwait Finance House 1416 A.H./1995 A.D. (9) “Al-Rawd Al-Murbi’” Al-Murbi’”,, (P. 74), 2nd edition, Dar Al-Turath, Cairo. (10) International Islamic Fiqh Academy Resolution No. (51); “Majallat Majma’ Al-Fiqh AlIslami” No. 6 [1: 193] and No. 7 [2: 9]. This has been reinforced by the Resolution No. 64 (2/7); see: “Majallat Jami’at Al-Malik ’Abd Al-’Aziz” Al-’Aziz”,, Al-Iqtisad Al-Islami, (P. 89). (11) Ibn Abidin says; “If one says, I have invalidated the deferred period and I have abandoned it, the debt becomes due on the spot”: “Hashiyat Ibn Abidin” [5: 157], Dar Al-Fikr edition, Beirut, 1399 A.H./1979 A.D. The Shari’ah Supervisory Council of the Kuwait Finance House has supported this in its Fatwa No. (542). “Al-Fatawa AlShar’iyyah Fi Al-Masa’il Al-Iqtisadiyyah”, Al-Iqtisadiyyah”, Kuwait Finance House, [4: 18]. 96
4. Shari ’ah Standard No. (3): Procrastinating Debtor a condition is merely of the nature of a reminder, so as to provide him with reasonable time for payment. The Right to Repossess a Sold Asset If an asset sold by Murabahah or another sales contract is still available to the seller, and the purchaser has defaulted in the payment of the price, and subsequently has become bankrupt, then the seller is entitled to repossess the sold asset instead of initiating legal proceedings to obtain a bankruptcy order. This judgement is based on the report of Abu Hurayrah (may Allah be pleased with him) that the Prophet (prayers and peace of Allah be upon him) said: If one party has sold an asset and the other party (the purchaser) has become bankrupt, and the former party has managed to retain the asset, then he is more qualified to take possession of the asset in preference to the other creditors.(12) A Commitment on the Part of the Debtor to Make a Donation in Case of Default The permissibility of stipulating a condition, whereby the debtor in case of default is obliged to donate a sum of money (in addition to the amount of the debt) to be spent by the creditor (the Institution) on charitable causes, is because this has been considered as an instance of the commitment to make a donation, which is well established in the Maliki school of law. This is the opinion of Abu Abdullah Ibn Nafi’ and Muhammad Ibn Ibrahim Ibn Dinar, two Maliki jurists.(13) Guarantor A guarantor is liable for anything for which the debtor whose debt is guaranteed is liable, because standing as a surety adds one obligation to another with respect to the liability. This is in line with the Quranic verse expressing the statement of Prophet Yusuf (peace be upon him) saying: {“... and I will be a guarantor to it”}. it”} (14) Also, the Prophet (peace be upon (12) This Hadith has been related by Al-Bukhari in his “Sahih” [2: 846]; and Muslim in his “Sahih” [10: 221]. Also, see: “Al-Muhadhdhab” by Al-Shirazi [3: 253], Dar AlQalam edition, Damascus 1417 A.H./1996 A.D. (13) See the book entitled: “Tahrir Al-Kalam Fi Masa’il Al-Iltizam” by Al-Hattab and the legal opinions of the Fourth Fiqh Conference organized by the Kuwait Finance House. (14) [Yusuf (Joseph): 72]. 97
5. Shari ’ah Standard No. (3): Procrastinating Debtor him) affirmed the suretyship of Abu Qatadah in respect of the debt of a deceased person, when Abu Qatadah said; “I take responsibility as surety for both (two dinars), O Messenger of Allah.”(15) It is a principle of law that the demand for payment from either the debtor or guarantor is permissible, as this is the very essence of suretyship, so long as there is no stipulation that the demand be in sequence; that is, it must start with the debtor and once he refuses to pay, payment will be demanded from the guarantor, because this sequence is a valid stipulation and believers are bound by their stipulations. Contractor or Concessionaire It is permissible to impose penalty clauses in contracts for constructions, Istisna’a and supply contracts, as such clauses are included in what may be validly stipulated as part of the contract. This does not render the impermissible permissible, or vice versa, and it complies with the Hadith of the Prophet (peace be upon him): “Muslims are bound by contractual conditions, except those that render impermissible what is permissible or render permissible what is impermissible.”(16) Also, this is based on the statement of Shurayh (may Allah confer mercy upon him) saying: “Whoever has bound himself by a contractual condition voluntarily without any coercion, is bound by that condition”. The International Islamic Fiqh Academy has also issued a decision which states: “It is permissible to include in an Istisna’a contract a penalty clause according to what is agreed upon by the two contracting parties provided that there are no unusual circumstances.(17) In addition, it is a juristic principle in the Hanbali school of law. This is also what has been decided by consensus of the Council of the Eminent Scholars of Saudi Arabia, in the following words: “The council has decided by consensus that a penalty clause that is stipulated in a contract is a valid and enforceable stipulation”.(18) It is well known that the stipulation of the penalty clause is permissible only for non-financial obligations. (15) Related by Al-Bukhari in his “Sahih” [2: 800-803]; Ahmad and others. (16) This Hadith has been previously explained under Note No. (5). (17) International Islamic Fiqh Academy Resolution No. 56 (3/7); see also the Journal of the Academy vol. 2, issue No. (7), (p. 223). (18) Research papers by the Eminent Scholars of the Kingdom of Saudi Arabia, vol. 1, the penalty clause, Maktabat Ibn Khuzaymah edition, Riyadh, 1412 A.H. 98
6. Shari ’ah Standard No. (3): Procrastinating Debtor Non-Material Penalties Applied to the Debtor in Case of Default The grounds for such penalties lie in the jurists’ decision which is based on their interpretation of the Hadith of the Prophet (peace be upon him): “Delay in payment by a solvent debtor would be a legal ground for his being publicly criticised and punished”.(19) A public complaint about his default in payment is not a prohibited slander; on the contrary, there is an obligation to warn other companies about his character, as this falls under the category of advice which it is a duty to give. General Provisions a) The monitoring of the affairs of the default debtor, is a kind of pursuing that has been established by the Shari’ah jurists. This pursuit is intended to make recovery from the defaulting debtor out of assets that he may have concealed from the knowledge of the creditor. In the circumstances, such pursuit does not constitute interference in the affairs of others. b) The debtor may, entirely at his own discretion without any condition or customary practice, pay an additional amount when settling the debt, and this is part of good settlement following the saying of Allah: {“...No ground (of complaint) can there be against the Muhsinun (good-doers)...”}.(20) Also, the prophetic Hadith says: “Verily the best of you is he who is the best in the settlement of debt.”(21) The Prophet (peace be upon him), occasionally used to pay an additional amount when settling a debt. The permissibility of this practice depends on the discretionary nature of this extra payment and the absence of any stipulation or customary practice of making such a payment, since the existence of such a customary practice would be inconsistent with the condition that the extra payment be entirely discretionary and not stipulated. c) It is permissible to accept the extra amount paid by the debtor following the proofs mentioned earlier. (19) This Hadith has been previously explained under Note No. (3). (20) [Al-Tawbah (Repentance): 91]. (21) Related by Al-Nasa`i on the authority of Al-’Irbad Ibn Sariyah: “Fayd Al-Qadir” [3: 497]. 99
7. Shari ’ah Standard No. (3): Procrastinating Debtor d) A stipulation by an Institution that it may recover amounts owing to it by a defaulting debtor by right of set-off from accounts of the debtor that are kept by the Institution is valid, since believers are bound by their stipulations. This right of set-off, even though it does not require the consent of the debtor, should preferably be documented in the contract that establishes the indebtedness, in order to shorten the procedures in case of dispute. This right is based on the amicable right of recovery that is based on Shari’ah evidence including the saying of the Prophet (peace be upon him) to the wife of Abu Sufyan: “Take (from his property) what would suffice you and your child amicably.”(22) (22) Related by Al-Bukhari and Muslim: “Al-Lu`lu` Wa Al-Marjan”, Al-Marjan”, No. (1115). 100
8. Shari ’ah Standard No. (3): Procrastinating Debtor Appendix (C) Definitions Default in payment Delay in the settlement of an obligation or in paying an amount due for payment, without any legitimate reason. Procrastinating debtor A debtor who is solvent but refuses to pay a debt that is due, without any legitimate reason, after receiving the normal demand for payment. Penalty clause An agreement between two parties to a contract stipulating a pre-determined amount of compensation that will be due to the obligee, should the obligor delayed carrying it out. 101