Contradiction Between Modern Corporation with Following the Riba Rules

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and their features are somewhat distant from those of business-oriented corporations. An example from the Shafi’i school close to the concept of a legal person is a joint stock company. According to this school, in the case where more than one person runs a business in common with others and mixes his/her property with those of others, Zakah is not levied on each business partner individually, and instead is payable on their joint stock.

In Islamic system of state, corporations operate in pre-determined spheres of the economy because any utility designated by Islam regarded as indispensable for the community. The utilities are regarded as public goods and therefore the revenue generated from utilities should be administered for the benefit of all citizens. The hadith of the Prophet (PBUH)"Muslims are partners in three things: in water, pastures and fire" is regarded as a foundation-principle of utilities and public goods, whereas the ownership of key utilities always remain with the state. The prophet (SAWS) accorded his ascent to the practice of Shirkah as He said “I am the third with the two partners as long as they do not cheat one another but when one of the cheats, I leave them”. He also said that “Allah is with the two partners unless they defraud each other.” However, the extraction, development, refining or constructions are undertaken by corporations who will be paid for such a contract.

4.1 Concept of Corporation & Islamic Injunction

The concept of a corporation does not appear to be against the Injunctions of Islam. The formation and incorporation of a corporation under any legislative procedure of the state has a legal status of artificial person having legal entity rather a natural person with some rights and obligations. For instance, a corporation can acquire any property in any capacity (i.e. as an Owner, Lessee, Pawnee and Mortgagee etc.), alienate its property, sue and be sued on its own name, manage its property or affairs according to its constitution, incur financial liabilities and acquire financial rights. In Islamic system, examples relating to incorporation and formation of legal persons i.e. Bait-ul-Mal, Waqf and Masjid can be found.

The concept of corporation by shares prevailed in modern corporate scenario is not repugnant to the Injunctions of Islam because the status of an institution as a legal person is not prohibited by Islamic system. A corporation by share is incorporated by group of natural or artificial persons. They subscribe different number of shares with equal denomination and therefore their liability is limited to the extent of their shares’ subscription. However, a corporation as a legal personality has unlimited liabilities to its creditors which is not against the Shari’ah or Islamic injunctions, as laid down in the Holy Qur’an and Sunnah of the Holy Prophet (PBUH). The principles of Islamic law of contract and partnership provide comprehensive framework for commercial practices and concept of liability which were adopted by the early jurists. The terms of contractual arrangements are binding on the contracting parties because it is considered that these are not repugnant to any injunction of the Holy Qur’an and Sunnah. For instance, the Islamic principle of "Istihsan" and "Umoom-ul-Balwa" are modes to come out from difficulties and hardship. Similarly, the principle of "Musalahah" is exercised through taking step, action, policy- matter for the best interest of the people. Anything leading to or seeming to lead to some difficulty, hardship or injury or any offence, immorality or injustice shall be prohibited under the principle of "Saddu zari’ah" and "Fathu zari’ah". The repugnancy of any act or omission and its merits and demerits are examined on the principle of "Ibahah".

However, it is well settled principle of law and Islamic Jurisprudence that an action, deed or thing which is not specifically prohibited by Injunctions of Islam (Qur’an and Sunnah) is considered to be permitted/allowed in Islamic system.

4.2 Shariah Compliance of Corporation from Islamic View

An incorporation of company or company limited by shares being an artificial and legal person can do any business that is not prohibited by Islam and nothing exists in Qur’anic injunctions or Sunnah should not be considered un-Islamic and against the Shari’ah because the company is a modern form of partnership business which is permitted by Islamic law. The partnership is a contract in which a few individuals join together for the purpose of doing business, with property, skills and goodwill. The three kinds of partnership as "Shirkat-ul-Amwal", "Shirkat-ul-Mal" and "Shirkat-ul-Wujuh" respectively have similarity with modern form of corporate activities. Therefore, it might be argued that the incorporation of company as a legal person with limited liability of its members is not against the injunctions of Islam. The registration of an association, partnership and incorporation of company as a legal person and juristic person is allowed in Islam as in the case of State treasury, Waqf, hospital, etc. It is admitted that Mudarabah Company (Profit-sharing) was an antiquarian institution of pre-Islamic times which was suitable for distant trade journeys and even this mode of corporate business is considered an ideal form of corporation in Islamic world.

On the other hand, it is argued that Shares in Shirkah As the original rule in Mua’malat is permissibility, the formation of Shirkah Musahamah having lawful objectives and activities, is lawful. There is no disagreement about the prohibition of the shares of Shirkah whose primary objective is prohibited, like transactions in Riba or which produces and deals in prohibited products. The rule of prohibition applies to the shares of Shirkah that deal at times in prohibited things like riba, even when their primary activity is permissible. Shares with Respect to their Bearer: The share certificate is the instrument that is proof of his right in the share. There is, therefore, no legal obstacle to the issuance of shares in this way and to transactions in them.

5.0 Riba Discussion

Riba is an Arabic word, derived from the verb raba that literally means ‘to grow’ or ‘expand’ or ‘increase’ or ‘inflate’ or ‘excess’. The same literary meaning has occurred in many places of AL Qur’an as well. It is, however, not every growth or increase, which falls in the category of riba prohibited in Islam. It is generally translated into English as “usury” or “interest”, but in fact it has a much broader sense in the Shari`ah. Riba in the Shari`ah, technically refers to the ‘premium’