TEST 1

QUESTIONS:

IDENTIFY THE SYARIAH RULING FOR:

1. T+2 BASED ON ‘URF TIJARI

2. QABAD AL-HUKMI

PREPARED BY:

NAME: MD ASHIQUER RAHMAN

COURSE: GLOBAL ISLAMIC JURISPRUDENCE (ISG501)

LECTURER: DR. MUHAMAD AMIR WAN HARUN

METRIC NO: P-EM0789/22

Answer of Q#1:

In a contract session or contract assembly where two parties or more can sit together in order to

negotiate and agree on the terms and conditions of a contract (aqd) or transaction. This Majlis al-

aqd can be anywhere, physical or virtual, where the parties can discuss and agree on how to draft

a contract or finalize a transaction. At majlis al-aqd, contracting parties exchange ijab(offer) and

qabul (acceptance). This Majlis al-aqd constitutes both the time and place of entering into the

contract.

Whenever a contract has been made to buy or sell a stock, bond, exchange traded fund, or mutual

fund, there are two important dates to understand: the transaction date and the settlement date. 'T'

is the transaction date. The abbreviations T+2 refer to the settlement dates of security transactions

that occur on a transaction date plus two business days.

As its name implies, the transaction date represents the date on which the actual trade occurs. For

example, if you buy 100 shares of a stock today, then today is the transaction date. This date doesn't

change whatsoever, as it will always be the date on which you made the transaction. And the

settlement date always varies depending on the type of security. In general, it represents the

transaction date plus two business days. For example: if a stock is purchased on Friday at any time

before the close of trade on that day, Saturday, Sunday and public holidays are not considered

business days, so the two-day clock starts running on the next business day. A payment or cheque

must arrive at the broker's office by the close of business on Tuesday, unless a public holiday

delays the settlement day. Therefore, in financial markets T+2 is the standard settlement period for

normal trades on a stock exchange.

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In terms of Syariah, ‘Urf or Customary law is one of the most important supporting sources in

Islamic law. This can be seen through many legal rulings (ahkam) in Islamic law, which was based

on ‘urf in which most of these ahkam will change according to the change of circumstances, place

and time. Habit or custom in the eyes of the Shariah can be basis for deriving Shariah rules

pertaining to people’s behavior. These Shariah rules are legalized based on customary practices of

the society, given that there is no clear text from Shariah sources that goes against such custom.

The significance of an opinion at a particular time is based upon specifically related evidence, ‘urf,

as well as the situation itself. Islam gives weightage to ‘urf, set among the matters to be considered

when deriving Shariah rulings.

Now to identify the Syariah ruling for T+2 based on ‘Urf tijari, we have to know about ‘urf tijari.

‘Urf tijari refers to common business practice which is accepted by the community and does not

contradict Shariah rulings. Allah (s.w.t) says: “Show forgiveness, enjoin what is good, and turn

away from the foolish i.e. do not punish them”(al-A’raf, 7:199). ‘Abd Allah ibn Mas’ud said:

“What the Muslims determine to be good is good with Allah”. One of the maxims in this context

says: “A matter recognized by custom is regarded as if stipulated by agreement”. It means that

the customary practice is to be considered without the need of its stipulation in the contracts and

dealings. Hence, staying at hotels, eating in restaurants, riding on taxicabs etc. all of these require

payment as the custom judges so, albeit it is not mentioned by the contracting parties.

Therefore, during the contract session the practice of the delivery of money for instance on day

two after transaction date (T+2) is construed to have taken place after the contract session.

However, this practice may be allowed due to established customary business practice (‘urf tijari)

arising from operational constraints. In addition, the delivery of money beyond the contract session

may also be allowed in the event of unexpected disruptions.

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Answer of Q#2:

Possession of subject matter is one of the important elements of the sale contract. Anything which

prevents the possession, such as excessive ambiguity (gharar), ignorance, etc. makes the sale null

and void. Possession could be valid and could also be invalid. In turn, it has an effect on the

conclusion and completion of the contract. Possession has several modes which vary according to

the nature of the subject matter of the contract. In addition, possession of the buyer restricts the

rights of the seller in the subject matter.

In a sale contract, after a valid possession, the purchaser obtains the authority to exercise all of his

lawful rights in the subject matter without any obstruction thereof. In addition, among the

important effects of possession is the obligation of payment on the party that possesses the

commodity. So, once the purchaser possesses the goods, he has to settle the payment immediately,

unless there is any prearranged agreement on the delayed payment.

In terminological sense qabd means to receive and possess the thing, either physically or legally.

Possessing something legally means to relinquish to the beneficiary, his right. Our Prophet

prohibited for one, who buys food after measuring with volume, to resell it until he receives it

completely (al-Sajistani, 3495). In a situation, Hakim ibn Hizam told the Prophet, “O Messenger

of Allah, I used to do business and involve in sale and purchase, so what would be legal and illegal

for me?” The Prophet replied: “when you purchase something, do not resell it until you receive it

properly”. (Ibn Hanbal, 15390; al-Dar Qutni, 2796)

In terms of Shariah, Qabd is classified into qabd haqiqi, i.e. real or physical possession, and qabd

hukmi, i.e. constructive or legal possession. All the Schools of Islamic law have agreed that in the

case of immovable properties the possession is relinquishing (takhliyah). In the case of movables,

the possession is subject to the nature of the sold object, and basically it will be through physical

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corporeal delivery. In this case, the custom (urf) has a big role to determine the mode of possession

regarding the thing sold.

Table:1: Views of Different School of law on modes of possession

SCHOOLS OF ISLAM MODES OF POSSESSION
LAW
Hanafi School Relinquish (takhliyah) for both real estate and movable items
Maliki and Shafi’i Schools For real estate is relinquishing and for movable items is transferring and
transmission
Hanbali School Mode of qabd varies according to the commodity and it mostly relies
on customary practice

Now to identify the Syariah ruling for T+2 based on Qabad Al-Hukmi, the delay in banking credit

for a period recognized in the market will be overlooked, which enables the beneficiary to receive

it actually. However, during this known period the beneficiary is not allowed to dispose of the

currency until he obtains the confirmation on bank credit so that he can make an actual receipt.

It means that when you buy a security in a cash account that lacks sufficient settled funds and then

sell the same security before depositing funds to pay for its purchase. The violation can occur

whether the purchase and sale occur on the same day or on different days. For Example:

Mr. Smith starts the day with $100 of settled cash in his account, and buys $1,000 of XYZ stock.

The remaining $900 needed to cover the trade is due by the settlement date on T+2.

The next day, Mr. Smith still hasn't deposited the outstanding $900 he owes, but sells his XYZ

shares for $1,500 on that basis of Qabd hukmi(constructive possession). In terms of Syariah ruling,

it is a violation in which Mr. Smith sold stock before paying for its purchase. This is also supported

by Hadith of the Prophet (PBUH) which means: “Do not trade what you do not own.”

(al-Tarmidhi, n.d; al-Qazwayni, n.d).

So, we can conclude that the custom has a big role in determining the mode of delivery and

possession, as long as it does not contradict any of the fundamentals of the Shariah.