Shariah compliance

Shariah law is a dynamic system if used correctly

Saifee Tarwala.
Saifee Tarwala.

In present times, most of the contracts, claims, and commercial managers etc working in Middle East and Gulf states are always seeking to have more awareness of Islamic Shariah and its implementation in the commercial contracts and transactions.

Shariah, which means ‘’path’’ in Arabic, is a wide ranging collection of ethical and legal principles based on Scriptures of the Holy Quran, Hadiths (words of Prophet Mohammad (PBUH)) and Fiqh (evidence found in the Shari’ah, and from consensus of Islamic scholars).

Islamic Shariah is the primary source of legislation and influences legal codes in almost all Gulf and Middle Eastern countries.

Major Shariah principles that forms the benchmark of Islamic economics includes Riba and Gharar. Riba means all forms of unearned income; a common example of which is earning interest on capital lent.

Gharar, literally means deceit, risk, fraud, uncertainty or hazard. It refers to any transaction of probable objects whose existence or descriptions are not certain. Further, every transaction in which gain and loss is obscure is known as Qimaar and Maisar in the Shariah terminology.

According to Shariah, contracting parties must maintain principles of fairness and equity in their dealings. Contracts where one party gains unjustly at the expense of another could be considered void.

‘When you measure give it an exact measure and weigh accurately with a proper scale. This is better for you with best results,’ (Chapter 17, verse 35 – Holy Quran) The above verse has much broader meaning, than just weights and scales.

Similarly, in common law we use the term Quantum Merit, which means ‘the amount he deserves’. It is an action for payment of the reasonable value for the services performed. Also the ‘Time is of essence’ clause in common law warrants for work to be done with due diligence and should be completed in reasonable time, thereby maintaining basic principles of Shariah law of fairness and equity.

In cases where the claimant (like the contractor) is seeking interest (for late payments by the client) they will not be entitled to such payments since Shariah prohibits financial transactions that involve interest, speculation, or gambling.

Islam considers interest-based loans taken for investment as not equitable because the profits which may not to be known beforehand and if there is a loss, the entrepreneur has to bear the entire loss.

Islamic law mostly advocates use of following Alternate Dispute Resolution (ADR) processes such as sulh (negotiation, mediation/conciliation) and tahkim (arbitration).

The emergence of ADR was because of the glaring demerits of litigation, which is a costly and wasteful affair.
One more common clause found in almost all supply chain and construction contracts is the use of the term Force Majeure, often referred to as an Act of God, whereby the performance of contract becomes almost impossible and onerous and the contract is rescinded.

Shariah law recognises force majeure as an implied term and provides that where performance of a contract has become impossible, then the contract may be terminated without the breaching party being liable for damages.

Further, Shariah law provides for what is known as the doctrine of Imprevision (an obligation which is not impossible to perform but which may result in a very difficult economic situation for the debtor or even bankruptcy).

Shariah is not something rigid or an immovable text meant for the people of the 6th or 7th century generation, but was revealed for mankind as a whole for the period to come thereafter. Hence, if understood and applied correctly is a flexible and dynamic jurisprudence system.

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