THE LIABILITY OF PARTNERS IN AN ISLAMIC S̱ H̱IRKAH

Author(s): S.M. HASANUZZAMAN

Source: Islamic Studies , DECEMBER 1971, Vol. 10, No. 4 (DECEMBER 1971), pp. 319-341
Published by: Islamic Research Institute, International Islamic University, Islamabad

Stable URL: https://www.jstor.org/stable/20833042

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 THE LIABILITY OF PARTNERS IN AN
ISLAMIC SHIRKAH
S.M. HASANUZZAMAN*

Before touching upon the subject of the liability of partners it would

be worthwhile to define Shirkah as a form of partnership where two
or more persons combine either their capital or labour or credit
worthiness together, to share the profits, enjoying similar rights and
liabilities. It implies a number of forms of partnership which are govern
ed by different sets of rules. Some of the most known and practised
forms are ShirkahAnaan (partnership in traffic), Shirkah 'Amal (partner
ship in Arts), and Shirkah Wainh (partnership upon credit). The
MSliki doctors have also included a unique form of partnership which
they call as Shirkah Jabr (partnership by compulsion) which in the
modern law is known as partnership by estoppel or holding out. The
unique Hanafi contribution to this list is that of Shirkah mofawa4a (part
nership by reciprocity).

Shirkah Anaan or partnership in traffic is where any two persons

become partners in any particular traffic such as in clothes or wheat (for
instance) or where they become partners in all manner of commerce
indifferently. It is contracted by each party, respectively becoming the
agent of the other and not his surety.
Shirkah Sartaa or partnership in arts signifies where two persons of
a trade (or even of different trades) become partners by agreeing to work
and to share their earnings in partnership. It is also known , as Shirkah
'Amal or Shirkah Abdan.

Shirkah Wujooh or partnership upon personal credit is where two

persons not being possessed of any property become partners by agreeing
to purchase goods jointly, upon their personal credit (without immediately
paying in the price) and to sell them on their joint account. This is also
known as Shirkah Taqabbul.
Shirkah Jabr or partnership by compulsion exists if a purchaser
purchases goods in the presence of a person who is a bonafide dealer in
* The views expressed in the paper are the personal views of the author and do not
necessarily reflect the views of his institution.

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320 S.M. HASANUZZAMAN

that particular commodity and has reason to believe that the goods are
being purchased for him as usual. The bonafide dealer will be treated as
a partner of the purchaser provided that the purchaser deos not declare
in anticipation to have purchased it for himself.

Shirkah Mufawadah or partnership by reciprocity, according to

Hanafi doctors, is where two men, being the equal of each other in point
of property, privileges and religious persuasion enter into a contract of co
partnership This form of partnership is disapproved by all other schools
of Fiqh.
Mudarabah or co-pertnership in the profits of stock and labour has
been treated by some of the Fuqaha' as one of the forms of partnership,
but in its very essence it is absolutely different from Shirkah. The ques
tion of liability of partners, therefore, as dicussed in this article does not
cover the liability of the partner in Mudarabah.

In the case of partnership by traffic (Anaan) or the normally pre

valent form of partnership, agency is the most important element. The
other partner or partners are bound by the act of any of them only on the
principle of agency. Agency, is, in this way, the foundation of a partner's
liability. Each partner is a principal to the extent of his own share as well
as an agent to the extent of his partner's share. In this way all the partners
are internally bound by an act of any of the co-partners and each partner
is bound by each other's acts whether or not all of them take part in
business. This is mostly in line with the existing law of partnership in
Pakistan. It seems, therefore, appropriate to first briefly state the existing
provision in respect of the liabilities of partners and then find out the points
of their departure from the Islamic law (if any) and the possibilities of
reconciliation between the two.

It has been laid down in English, Indian and Pakistani lawl that
every partner is liable for all debts and obligations incurred while he is a
partner in the usual course of the business by or on behalf of the partnership.
The liability of partners in India and in Pakistan is both joint and several
for all acts of the firm done while he is a partner. In English law the
liability is only joint. The meaning of this rule is that if a debt is due from
a partnership firm made up of, say A, B and C, all the partners A, B and C
must be sued in order to make them all liable for their debts. In India
and Pakistan, the liability being joint and several the creditor can sue at
his option either all jointly or each one of them separately.

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 THE LIABILITY OF PARTNERS 321

Where, by the wrongful act or omission of a partner acting in the

the ordinary course of business of the firm, or with the authority of his
partners, loss or injury is caused to any third party, or any penalty is in
curred, the firm is liable to the same extent as the partner. The principle
on which this rule is based is that every partner is an accredited agent of
the firm to carry on the business of partnership and that as the principal
would be responsible for the neglect or fraud of his agent committed in the
course of his employment, the firm is here liable for the neglect or fraud of
one of its partners committed during the management of the business of
the firm. It would be no defence for the other partners to say that they did
not know of the fraud or did not participate in it. If, for example, one of
the partners receives money in the course of the business of the firm and
disappears with it or misappropriates it for his own use and then becomes
insolvent, the firm has to make good that money. Every partner shall
indemnify the firm for any loss caused to it by his fraud or wilful neglect
in the conduct of the business of the firm. The law does not give a part
ner power to contract himself out of his liability for fraud.

In the same way the firm shall indemnify a partner in respect of

payments made and liabilities incurred by him

(i) in the ordinary and proper conduct of the business; and

(//) in doing such act, in emergency, for the purpose of protecting
the firm from loss, as would be done by a person of ordinary
prudence, in his own case, under similar circumstances.

It frequently happens that when a firm is being dissolved particularly

in an insolvent condition, there is not enough money to go round to the
creditors of the firm on the one hand and to the separate outside creditors
of each partner on the other. In such a case the joint debts of the firm
have to be first met from the property of the firm and the outside and private
debts of each partner have to be paid in the first instance, from the separate
property of each partner concerned. If there is any surplus either way,
it is transferred into the payment of either the firm's debt or the individual
partner's debts as the case may be.

Where there are joint debts due from the partnership and also
separate debts due from any partner,the partnership property must be
applied in the first instance in payment of debts of the firm, and if there
is any surplus then the share of each partner must be applied in payment
of his separate debts or paid to him. The separate property of any partner

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322 S.M. HASANUZZAMAN

must be applied first in the payment of his separate debts, and the surplus
(if any) in the payment of the debts of the firm.

It transpires from the above lines that under the law in force in
India and Pakistan;

(a) The liability of the partners is unlimited.

(b) The partners are liable jointly as well as severally.

It can be insisted here that a partnership firm has no distinct entity

like that of a joint stock company which is independent of the members
composing it. In partnership, for the purpose of determining legal rights,
there is no such things as 'a firm', known to the law. The rights and
obligations which are known to be enjoyed by the partnership firm are
those which are in fact enjoyed by the partners. In this way a firm cannot
be a debtor or creditor. It is the members who jointly or severally are
debtors or creditors.

The above lines should be sufficient to give an idea about the

present position of the liability of the partners. It should now be easier
to judge on these lines the Islamic position of the liability of the partners.

Unfortunately there are a few major handicaps which make it

difficult to reproduce outright the Islamic outlook, as compared with the
contents of the first three parts.

In the chapters on partnership the author could hardly find any

discussion on the indebtedness of partnership. In the books of Islamic
law the concept of joint funds possessed and operated by the partnership
firm is not generally taken into consideration. All the expenditure that
have to be made by the partners in the course of their partnership business
are treated to have generally been made out of their own resources. The
other partners are treated to share all the expenditure among themselves
later on by way of indemnity.

The concept of firm as an organisation of business to be known

by its name and to be represented by its partners is also not to be found
in the books on Islamic law. In the existing law too a partner is not
different from a firm. A firm is neither a debtor nor a creditor. It
is the partners who are debtors or creditors.

The case of the indebtedness of the partners in the normal course

of business has generally been treated as improbable; the partners are

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 THE LIABILITY OF PARTNERS 323

always treated as creditors. The same difficulty is to be found in the

discussion on the laws of agency, surety, debts and joint debts, inhibition,
compulsion, reconciliation and partition. In all these chapters of laws
the case of the indebtedness of a partner is rarely discussed. What at
the most can be found in all these early sources is a partner's position
as a purchaser on credit. This case has been taken up in this study for
further analogy. In Mudarabah, no doubt, some such examples are quoted
where the working partner enters into a contract which makes the Mudara
bah business liable for debts but the case in Mudarabah cannot be made
a point of analogy because, contrary to partnership, it is a contract under
which one of the partners is responsible for the conduct of the business
while the other partner is liable for losses. In other words, the rights and
liabilities of partners in Mudarabah contract are not similar.

It should also be noted that the study of the compilations of Islamic

Law impresses upon us the fact that the legal liability of the partner did
not bear as much significance in those days as it does now. One cannot
believe that the earlier scholars were unaware of the concept of indebted
partner. The only interpretation that can be made of this lack of discussion
of this position is that the question would not have been very much signi
ficant in the case of a partnership business. It is quite comprehensible in
view of the then prevalent loose form of business organizations.

As already discussed in the previous chapters there are different

forms of partnership in Islam. The nature of liability in respect of the
different forms of partnership (other than the most prevalent forms,
viz, partnerships in traffic) and in credit is not difficult to determine and will
be disposed of here before a thorough discussion on the controversial
points is made.
Liability of Partners in Reciprocity

In case of the Hanafi partnership by reciprocity a debt incurred

by either partner is obligatory upon the other provided it is for a thing in
which partnership holds, for example; sale, purchase, hire or wages.

This is so adjudicated because it embraces agency and suretyship

and also in order that equality may be established.^

Liability of Partners in Arts

Partnership in arts is approved by IJanafi, Mlliki and IJanbali

Fuqaha'. In the well known IJanafi compilation it is provided that 'in

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 324 S.M. HASANUZZAMAN

a partnership in arts whatever work one partner agrees to undertake is

incumbent upon him and also upon the other partner, in so much that the
employer may require the performance of it from either and (similarly)
each of them is entitled to demand payment from the employer for the
business performed'3. This view is held by 'Alamgiri too.

At another place in Al Hidaya it is provided that in partnership by

arts completion of the work is binding on both the partners. In case
of any defect in workmanship or in case of destruction of the goods both
the partners are liable for indemnifying the suffering party which may
involve both the partners4. Both will similarly share the responsibility
of loss. Al Majallah, the latest compilation on Hanafi law, provides
that 'each one of the partners in arts is an agent to all the other partners
in accepting the contract of work. When one of the partners has accepted
the contract, the discharge of the work will be binding upon the stipulating
partner as well as his other partners. In this respect inequality in partner's
interests will (not be considered but it will) be treated as partnership in
raciprocity in as far as the liability for the stipulated work is concerned'6
The same view is upheld by the Maliki6 and Hanbali7 Fuqaha'.

It will be seen from the above lines that liability in both forms
of partnership is unlimited and is joint and several by virtue of the partners
standing surety to each other. But in partnership on credit and partner
ship in traffic the partners are not sureties to each other and yet the Hanafi
view on the question of liability of partners differs from the views of other
doctors. This calls for the consideration of some issues which are the
bases of such differences.

Liability may arise mainly due to credit purchases or borrowings.

In the early works on Islamic law the problems arising out of borrowings
have been dealt with summarily due perhaps to the fact that credit borrow
ings by a partner are not generally treated as permissible. It is, therefore,
an embarassing task to stick to these sources. Under the modern law
a partner enjoys the implied authority to lend or borrow in the firm name.
Under the Islamic law no such authority is implied. It is, however,
provided that a partner can, under implied authority, purchase or sell
on credit^. The Hanafi, Maliki9 and the HanbalilO doctors have res
tricted even this much authority to the extent of the capital of partnership.
Contrary to this general approach, Section 1380 of the Hanafi Al Majallah
provides that although a partner cannot lend without the express consent

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 THE LIABILITY OF PARTNERS 325

of other partners, he has the authority to borrow for the partnership

business and the loan would be binding jointly on all the partners.il
Similarly Ibne Nujaim contends that as giving (partnership goods) on
hire is not lawful on the basis of analogy but is made lawful on the basis
of Istihsan, it, therefore, seems justifiable to legalise lending from part
nership property!2 Apparently this view involves the justification to
provide for implied authority to lend.

The last two views seem to be a deviation from the general opinion
according to which express permission is necessary even for borrowings,
let alone lending from partnership which is generally known to be a risky
practice.

Anyhow, because credit sale and credit purchase are allowed

under the implied authority of the partners this in itself is a situation
which may lead to indebtedness of the partnership. This is a very
important question in view of the present day conditions under which
business, as is generally observed, is run on credit. This sort of indebted
ness may sometime increase higher than the amount of partnership funds.
The question of liability in this way requires careful thinking and reconsi
deration. To make it clearer an example may be supposed as a case study.

Suppose A and B combine Rs. 10,000 and Rs. 20,000 respectively

and form a partnership to deal in clothes. The total share capital is
Rs. 30,000. The doctors allow them to sell the goods and make purchases
on credit. Both sell on credit worth Rs. 5,000 and hold a balance of goods
valuing Rs. 25,000. Adhering to the condition of purchasing only to the
extent of capital, they purchase on credit goods valuing not more than
Rs. 25,000. They thus have a stock worth Rs. 50,000 which, let us suppose,
is lost in fire alongwith the entire partnership goods. Or suppose, having
a balance of Rs. 25,000. each of them, unaware of each other's commit
ments, purchases on credit for Rs. 25,000. Thus they jointly become
indebted to Rs. 25,000.00 which is double the partnership fund. The
questions that arise are:?
(a) Who is liable for the credits supposing that
(1) both have contracted credit purchase separately, or
(2) only one of the partners has contracted all the purchases?
(b) To what extent are they liable separately? Or, in other words, the
question arises as to whether they will be declared insolvent and

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326 S.M. HASANUZZAMAN

the creditors will be paid nothing or their personal properties

will be involved in order to discharge their liabilities? On
these questions depends the legal position of the liability of
partners. If in the above example all the partners are liable to
jointly discharge the debts or credits the liability will be joint.
If every partner is separately liable for his part of contracts the
liability will be treated as personal. If any of the partners can
be sued upon for the entire amount of credit the liability will
be treated as several. Similarly, if the partners are held liable
only for as much amount of their debts or loans as their share
capital, the liability will be treated as limited. But if the
obligation of the discharge of debts involves even their personal
properties the liability will be known to be unlimited.
The author of these lines could not find any satisfacotry answer
to these questions in the sources which could be available to him. There
is nowhere any indication in any of these sources that the partners are
liable only to the extent of the capital they have invested in business. Con
trary to it Al Majallah provides that if any of the partners purchases any
article for partnership business and dies or absconds with the purchased
article, the share of the partner will be made good out of his bequeathed
property. It means that he is not only liable to unlimited extent to his
own creditors but also for the loss of his partners {op. cit, Section 1355)
arising out of his death or absence. The Hanbali doctors argue that if there
is a loan against a deceased person, in respect of his inherited property
a successor is not allowed to continue partnership unless he disposes of
the loans. If the loans are paid out of any other property than that of
partnership, it is all with him. But if these are paid out of partnership
property, partnership to this extent would become dissolved. 13 The Shi'a
view is that a deferred debt is receivable out of the deceased's bequeathed
property. Here also, throughout the chapter of loan and credit no
exception is made to partnership debts and liabilities. 14 Sahnun, the
the narrator of ImSm MSlik's opinion, has dealt with the question more
clearly. He was asked about the legal position of survivor's claim in case
his partner, in partnership account had 100 dinars which were not trace
able immediately after his death. The answer to this question was that
'the partner would be entitled to his share in the deceased partner's pro
perty if the amount was proved to have been gained by the latter shortly
before his death but if the amount had been with him for a period, say
since an year, the claimant partner will not be deemed to be the sharer

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 THE LIABILITY OF PARTNERS 327

because both have been paying for each other and purchasing and selling
for each other' (and it is not certain if the amount had not been adjusted
somewhere earlier (parenthesis ours)15.

This passage also suggests that if it is proved that the deceased

partner had in his possession the partnership funds, the other partners
would take away their share from his bequeathed property. Analogy can
be made to the deceased partner's liability to third party. Moreover,
the laws relating to loans and inhibition suggest that an indebted person
has unlimited liability. No exception has been made to indebted partners.
The lack of exception suggests that indebted partners should also be treated
like ordinary debtors. The concept of limited liability is in fact the pro
duct of the existence of joint stock comapnies which, according to the
existing law, enjoy the status of a legal person and which due to a number
of factors, are not to be treated as Shirkah in the Islamic sense of the
term. Reason also justifies the opinion that the partners should have
unlimited liability. In countries, like, India, Pakistan and U.K. partners
have unlimited liability. In countries like Germany and France at least
one of the partners must have unlimited liability. But the last situation
cannot be valid in Islamic law because the condition of having similar
rights and obligations as laid down in the definition of Shirkah will be
contravened and it will be a major departure from the basic conditions of
Shirkah. Apart from this universal prevalence of the provision of un
limited liability there are strong reasons to believe that in all types of
business organisations which are run by individuals or by a few persons
joining as business partners the liability for the discharge of debts should
not be confined to the share capital alone. Moreover, the share capital
in partnership on credit is nil and the principle of limited liability in such
a partnership would mean no liability at least under the Hanafi inerpret
ation of the condition. This is supported by the overall study of the spirit
of the Islamic law. Thus it can safely be said that the liability of the
partners is as unlimited as that of an individual businessman. The ques
tion now required to be studied is whether the liability is joint, several or
personal. This involves some difference of opinion beetween the Hanafi
school and the others. The basis of difference is the law of agency as
viewed by the respective doctors.

As discussed above, agency is the most important element of the

law of partnership. Every partner is a principal to the extent of his
own share in the business and an agent ot other partners to the extent

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328 S.M. HASANUZZAMAN

of their shares. The juristic differences of opinion on the question of

rights and liabilities of partners emerge also due to the doctors' differences
in respect of the legal position of an agent.

According to the M2liki, S^afii and Hanbali doctors the principal

is bound by all acts of the agent done within the scope of his authority.
This extends not only to acts actually authorised by the principal but
to such acts of the agents as are necessary for the proper execution of
such authority. Again where a principal gives general authority to con
duct any business he will be bound by every act of the agent incidental to
such business, or which falls within the apparent scope of the agent's
authority as it is presently called the ostensible authority of the agent.
The Hanbali source lays down that if an agent purchases some thing for
the principal with his permission, the owenership of the goods will be trans
ferred from the seller directly to the principal and not to the agent.17
Similarly a seller has a right to claim for price from either of the two parties;
the agent or the principal.18 This is what is held by Shaf'il doctors.19
Malikis, however, leave it on business conventions.20 But the Hanafi
doctors argue that in the case under study the ownership of the goods will
be transferred to the agent and then, through him, to the principal.21
They believe that the rights of a contract which arise due to the agent's
reference to himself in a contract like that of sale or hire are to be enjoyed
by him and not by the principal.22 They argue that the principal is stranger
to the contract and the rights and obligations arising out of the contract
are to be referred to the party who is directly involved in it. This principle
has been applied in partnership too. Al Hiddya, for example lays down:
"Where one of the two partners in traffic makes a purchase the
demand for the price has to be made from him and not from the
other partner. This is because the contracts of partnership in
question comprehend agency and not suretyship and the agent
is the principal with respect to rights."23

Section 1422 of Al-Majallah provides that in the matter of rights

an agent for sale is as good as a principal.24 According to Sarakhsi
each of the two partners is an agent to the other in purchase. If an agent
in a transaction of purchase has not paid the price and contends that
he had purchased some article which had been spoiled while in his posses
sion the principal would not be held responsible,25 The controversy
has led to differences of opinions in the case of legal liability of the partners
too. According to Maliki, Hanbali and Shaf 4il doctors, as discussed above,

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 THE LIABILITY OF PARTNERS 329

the agent is not legally liable for the obligations made on behalf of the
principal. A partner, by virtue of his being a principal too, is, however,
liable in proportion to his share in business. In this way the liability of
the partners become joint. In other words a creditor will have the right
to sue on all the partners jointly to receive back his loans.

But the Hanafi insistence on the authority and powers of the agent
does not absolve the principal of the responsibility for indemnifying
the agent. The partner who has incurred the liability has a right to hold
the principal interse liable for the payment which he had to make, because
the agent is partly a principal too, the credit obligations are to be shared
in proportion to their respective interest in business . It means a partner,
being personally liable for a credit due upon partnership business, will
be required to discharge his liabiity himself and then will claim the other
partners to indemnify him to the extent of their respective shares in the
business. In other words, according to the three doctors, all the partners
are jointly liable while according to Hanafi doctors a partner is personally
and not jointly (not severally) liable to the creditor or lender for his part
of transactions, while his partners are liable to him for their portion of the
partnership liability. The partner is, in this way, indemnified by his part
ners, Sarakhsi opines:

"If his credit purchase is affected in partnership business the owner

(partner) will be indebted and not the (other) partner. A partner
in traffic and a partner in Mudarabah do not enjoy the authority of
borrowing for other partners simply by virtue of contract."26

But it will be found that under Hanafi law the indemnifier does not
become liable unless the indemnified has incurred an actual loss. The
question is if the indemnified may compel the indemnifier to place him in
a position to meet the liability that may be cast upon him without waiting
until the indemnity holder has actually discharged it. In cases where
the partner is only an agent and not a surety, and indemnified, according
to Hanafi view, cannot enforce his indemnity untill he had actually paid
off the loan. For example, it is provided that if a suit is filed against him
he is actually to wait till a judgement is pronounced and it is only after
he has satisfied the judgement that he can sue on his indemnity. This
may under some conditions throw intolerable burden upon the indemnity
holder. According to the present day equitable principles which now
prevail, to indemnify does not really mean to reimburse in respcet of money
paid, but (in accordance with its derivation) to save from loss in respect

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330 S.M. HASANUZZAMAN

of the liability against which the indemnity has been given. If it is held,
as is done by some doctors, that payment is a pre-condition to recovery,
the contact may be of little value to the person to be indemnified who
may be unable even to meet the claim in the first instance. This should
not be, therefore, objected to, if the indemnified should be empowered to call
upon the indemnifier to share in his liability in case the former incurs it.
This may also avoid any legal proceedings between a third party and a
partner and then between one partner and another which may often be
deterimental to the interests of business. Another way of introducing this
change may be the adoption, in this respect, of the other doctor's view
by treating the liability of partners as joint. It seems to be compatible
with the requirements of present day law and would practically remove
the Hanafi singularity, and unify all the views without opposing the
Hanafi principle of personal liability. The personal liability will in this
way practically become joint liability as is provided for by the other
doctors as also in modern law. It will not be out of place to reproduce
the Shafi'i approach to the question of suretyship which on the basis of
analogy, is hospitable to the idea that the indemnifier may be called upon
to share the liability of the partner in case the latter so desires:

The Shafi'i doctors have discussed if mere suretyship can prove a

right for the surety upon the principal debtor and establish such
relationship between them and opined that in one respect it is
binding because the surety has furnished guarantee for right as
soon as he gave such a guarantee. In another respect he is not
entitled to any thing because he has not lost anything unless he
enforced his suretyship27.

The above discussion was mostly confined to the cases where

a partnership is invloved in a credit transaction and not in straight borrow
ing. It has been mentioned above that the doctors are not inclined to
permit borrowings by partnership as an implied authority. They, however,
permit lending and borrowing subject to the condition that express per
mission is given by the. other partners. The following passage may be
helpful in determining the Hanafi approach.

"The partners are not allowed to do such acts which result in

destruction or transfer of the ownership of partnership goods
by way of, for instance, donation or lending. This condition
will exist unless the (other) partner expressly allows for it. "28

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 THE LIABILITY OF PARTNERS 331

"If both the partners allow each other to borrow, the lender will
not claim for his loans from the non-borrowing partner because
borrowing does not allow for agency.29

It transpires that in matters of indebtedness a partner is treated

as a trust and not as an agent because an agent is not authorised to con
tract a transaction involving a debt. In this way indebted partner is
himself liable for a debt even if he has transacted it for partnership. Simi
larly he has no power to transact a Joan on behalf of a partner, because
no such authority rests in him in matters of loan.

The Hanabli doctors also hold similar view on the powers to borrow.
Al Maqdlsl opines:

"A partner is not allowed to borrow against partnership if he

does so he (alone) will be liable. Its profits will also be (wholly)
for him. This is so unless he is allowed by his partner (to
borrow)."30

Similarly the fact that Hanbali doctors allow for combining the
different forms of ghirkah including the one on credit implies a state of
of indebtedness of the partnership by virtue of credit purchases as well
as borrowings.31

The same view is discernible from the Ja'fari law sources in which
it is laid down that 'if a partner pays off the price for credit purchase
the other partner will also share in it as happens in case of all the joint
creditors.32 it seems that in case the partners are given the authority to
borrow, the approach as made in the Hanafi code Al-Majallah would be
in line with other schools of law.33 The basic difference in credit purchases
and in borrowings is that in the former case a partner has the authority
to transact such a credit purchase as an agent and bears personally or
jointly all the obligations arising out of ft but in the latter case viz straight
borrowings, agency is not admitted by the Hanafi doctors. Instead, the
Hanafi doctors treat the agent as a principal and therefore, a debt transacted
by an agent is legally binding upon himself. Ibne Nujaim opines:
"If both the partners allow each other to take loans the lender
will not claim for his loans the partner who has not actually taken
the loan because agency in this respect (borrowing) is not valid."34

The fact does not imply that the other partner is not liable for
debts. This is simply a statement of the borrowing partner's legal posi

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332 S.M. HASANUZZAMAN

tion vis-a-vis the creditor. The non-borrowing partner is however,

inter-se liable to debt as has been stated by Article 1380 of Al-Majallah
and as referred to in the preceding lines. This is what Alamgirl has
laid down in the following words: "If a partner borrows for (partnership)
business, it will not be binding on both".35 This is true even when a
partner, by virtue of acknowledging a partnership debt on himself is
personally involved.36 But as argued earlier, the liability of the partner
to indemnify the liable partner should be made concurrent with the claim
on the latter. Thus it will become, for all practical purposes, a joint
liability of the partners. Or in order to avoid this much inconvenience,
the liability of the partners should be treated as joint, as is opined by all
the other doctors

The above discussion drives at the following conclusions:?

1. The liability of the partners is unlimited.

2. The liability of the partners is joint. If it is treated as personal,

the liable partner, in the interest of partnership should have
the right to call upon the other partners to share in his liability
before he actually incurs it. This will practically make the
liability joint

It is now possible on the basis of the above two principles to dispose

off the question of the liability of partners in the remaining two forms
of partnership on which difference among Hanafi and other doctors exist.

Liability of Partners in Credit

According to the Hanafi doctors the liability of the partners in credit

is several and joint if both have equal shares in the ownership of goods
and in profits, because in such a case the partnership would be treated as
the one in reciprocity under which the partners are also sureties to each
other. But in case the shares are not equal mutual surety would not exist
and in such a case only the partner responsible for a contract of business
would be liable to the third party for his part of commitments. This means
that he alone can be used by the third party because in case of inequality
of shares, partnership will be treated as partnership on the pattern of
traffic under which the partners are not sureties to each other. As against
it, the Maliki fuqaha' who allow a very restricted scope37 for this form of
business hold that surety is a necessary condition for the legality of this

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 THE LIABILITY OF PARTNERS 333

form of partnership. If this condition is not observed partnership is un

lawful. Al Mudawwanah states the condition in the following words:

"If they got together for a bargain and purchase a slave against
their creditworthiness, without having capital, it is permissible and
the slave is jointly owned by the two partners. This is what Imam
Malik, has said. The reason is that in the example in question both
the partners are together and stand sureties to each other before
the seller." (passage summarised)38

The Hanbali view is that the partnership will be treated as the

one in traffic which implies that liability of the partners will be joint.

Al Maqdlsi, for example, lays down:?

"If they say: whatever trade goods we purchase, or one of us pur
chases are common between us. partnership is correct. Both are
to be treated as partners in traffic in respect of their powers of
disposal, their rights and liabilities, their commitments and dis
putes etc."39

The above discussion on the liability of partners in credit suggests

that the doctors of the three schools have three different views. It is a
kind of partnership which has now gained much significance due to the in
creasing role of credit in the present day business. It is, therefore, worth
while that the different views are examined in a little more detail and
a more acceptable view is thrashed out.

As already stated the Hanbali doctors opine that the partners

are jointly liable. The Hanafi law provides that in case of equality (in
shares, rights, and powers), liability should be several and joint provided
they agree to stand surety to each other. In this respect Hanafi and
Maliki doctors agree on the joint and several liabilities of partners. But
the IJanafi difference of opinion arises in case of unequal share of the
partners. According to Malikis, mutual surety is one of the basic condi
tions for a lawful partnership on credit while according to the other
two doctors the partners are only agents to each other and not necessarily
sureties, because even in case of equal shares, a business can be run on
the basis of traffic under which the partners are simply agents and not
sureties to each other.

It comes out from the above that under Maliki law a creditor
can sue any of the partners for the entire amount of his debts. The liability

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334 S.M. HASANUZZAMAN

in this way becomes several. Under the Hanbali law liability will be
joint. Under the Jrjanafi law the matter of liability depends on the form
of partnership on credit. Liability of partners will be several if the part
ners have equal shares and stand surety to each other, otherwise it will
be personal. In no case it will be joint. As regards the inter-se liability,
the other partner has to indemnify the liable partner to the extent which
is determined by the proportion of their ownership in business.

The earlier sources do not discuss what will happen in case the
liable partner fails to discharge all his liabilities. But the law of inhibi
tion suggests that a failing debtor, on the request of creditors, may be
inhibited if his entire personal resources are not sufficient to meet the
liabilities. In case the partners are sureties to each other, as the Maliki
doctors or the Hanafi doctors (in case of equality) provide the other partner
can be involved and sued on for the debts. This provision makes the
inter-se liability a legal liability. But in the case of inter-se liability a
partner, on his part, has a right to claim the other partners for indemnify
ing him to the extent of his shares in liability. In this way it can be
supposed that a partner, even if he himself is legally liable to a creditor in
respect of partnership business can involve the other partners as his co
principals in discharging with him the liabilities to the extent of the latter
partners' share. It comes, out, therefore that whosoever is legally liable
for debts the incidence normally is to be borne by all the partners. The
matter is not very much significant if the partners are operating joint
account. But in case of partnership in credit the very existence of any
fund is doubtful. All the partners conduct business on the basis of their
credit-worthiness. And because the partners have unlimited liability,
this discharge of debts can only be made effective only against their
private properties. If this unlimited liability is personal, it is quite pos
sible that the private property of partner may not be sufficient to meet
the obligations of the liability. Thus it will be injustice to the creditor to
treat the liability as personal. It therefore, seems more reasonable and in
the interest of the creditor to accept the Hanbali principle of holding all
the partners jointly liable for the debts of partnership. The same prin
ciple should apply in case partnership in credit is combined with that in
traffic.

Liability of Partners in Traffic

It has already been discussed in the preceding pages that credit

and loans can be contracted by a partner only if express permission to

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 THE LIABILITY OF PARTNERS 335

this effect is given to him. But there is a difference of opinion between

the Hanafi doctors and others in case of determining the liability of part
ners to debts even in case of traffic. The IJanafi approach is exactly
the same as it was in the case of partners in credit with unequal shares.

Hidaya lays down:

"Where one of the two partners in traffic makes a purchase the

demand for the price lies against him and not against the other
partner (because as has been argued the contract of partnership
in question comprehends agency, but not suretyship; and the
agent is original with respect to rights). This partner, has re
course to the other for his portion."40

Section 1113 of AI Majallah provides that if a person sells goods

to two persons the price of the goods will be claimed from the two in
proportion to their respective shares (of purchase) separately.41 Section
1377 provides the following more clearly:

"The rights which arise due to contracting any business are re

levant only to the person who contracts it. If a partner purchases
something and...takes possession of it, the claim of prices will
be made on him but not on his partner."42

It comes out in this way that the liability in case of credit purchase
will fall on the purchaser partner. But it is not so in case of borrowings.

A partner, while borrowing for the partnership is, according to

Hanafi doctors, not treated as an agent to other partners, for the purposes
of repayment. It is held that there is no agency in loan.43 The borrowing
igent is to be treated as a messenger of the principal debtor and the prin
cipal debtor is liable for the debts, and because both partners are principals
to the extent of their shares, the loan will be binding on both. But in
case of partnership a partner can borrow on his own authority even without
referring the loan to his partner. In such a case the partner who is res
ponsible for causing debt will be personally liable for it while the other
partners would be liable to indemnify him to the extent of their respective
shares. Hence the difference between the legal liability of the partners and
their inter-se liabilities.

The Hanbali and Maliki views seem to summarise the procedure

by holding all the partners jointly liable for credits and debts.

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336 S.M. HASANUZZAMAN

In the Hanbali source Al Mughni we find that a partner is not

normally empowered to borrow. The following passages have important
bearing on the discussion.

"It is not for him to lend or to donate because it is a virtue which

he is not supposed to do. He cannot give or take goods against a
bill of exchange because it involves risk."

"He has no right to borrow against partnership goods (this is

supported by Imam Ahmad's opinion) otherwise he alone will be
liable for it and also will solely be entitled to the profits arising
out of it. This is against Kazi's view who opines that if a partner
borrows anything it is binding on both and the profits of this borrow
ing are for both of them.44

But another Hanbali source opines that borrowings can be made

if the partners allow each other to do so. Ibne Qudama Al Maqdisi,
for example, gives the following opines:?
"It is not for him to borrow against partnership. If he does so
he is liable for it and is also entitled to the profits (earned out)
ofit."45

This implies that if borrowing enjoys the consent of other parnters

the liability is shifted from the individual partner to all the partners pro
vided that the loan is contracted on behalf of partnership. The question
as to who will be liable if a partner borrows for partnership without re
ferring to it is not discussed in any of the sources that were available to us.
But the law of agency suggests that the Hanbali doctors also do not approve
of agency in borrowings. This seems to be the case with all the doctors.
Moreover, the fact that the Hanbali doctors accept the combining of the
different forms of partnership including the one in credit46 shows that
the position of indebtedness of partners must be accepted as a normal
state of such a combined business. The only difference will be that if
the partners in traffic also undertake to practice credit the liability will
become joint.47

Ibn-e-Qudama lays down:?

"Whatever each of them purchases, subsequent to the contract of
partnership, is shared by them. And if some portion of the pur
chased goods is destroyed they are (jointly) liable for it. The loss
will be borne in proportion to their capital."48

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 THE LIABILITY OF PARTNERS 337

Mlaiki doctors also have the same view on credit purchases. They
opine:?
"It is not desirable to contract partnership to purchase goods
valuing more than the amount of business capital because part
nership is not valid in any other thing except goods. But if they
have done so (purchased on credit for more than the values of part
nership capital) it is common between the two."49
According to them a loan which falls due in connection with
business will be binding on the partners in proportion to their share of
capital. Similar is the case with loss.50

At another place in the same source it is provided that:?

"If they are partners in traffic (Maliki term reciprocity) both are
liable for whatever their partner purchases."
"If both separately purchase on credit both of them are respon
sible for each other at an equal ratio" (in case of equality in
shares).52
The Maliki doctors also do not absolve a partner of the liability
for a debt on partnership. Al-Mudawwanah lays down:?
"If a partner admits of a loan due to a third party (not related or
close to him) it will be binding on both the partners jointly pro
vided that the loan has arisen as a result of their business."53

The above lines suggest that doctors are generally in favour of

holding the partners in traffic as jointly liable. The only difference is
that of Hanafi doctors according to whom a partner is personally liable
to the third party for his acts in relation to partnership business. But as
has been observed in the context of discussion of indemnity, the rule should
not exclude the other partners to share the liability of the liable partner on
his request before he actually incurs it. This will practically make the
partners jointly liable and will not only bring the IJanafi principle in
line with other doctors' principle but will also bring it in line with the exist
ing law of the land without offending the Shara'il laws.
The above discussion also suggests an important point of departure
of the existing law from the early Islamic law in as far as it (the former)
holds the partners severally liable too. In Islamic law, it seems the liability
is joint only. This question may arise as to whether the liability of the
partners can also be made several. Section 1651 of Al Majallah lays down
a very important principle to repudiate the idea. It lays down:
"A single right cannot be received separately from two persons

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338 S.M. HASANUZZAMAN

in toto. Similarly a right which has fallen due because of a com

mon cause cannot be claimed from two persons separately. "54

This suggests that the liable persons ccannot be severally liable

for the liabilities arising out of partnership business.

Mutual Liability of Partners

The essence of partnership is agency. The partners are agents to

each other in conduct of business while they are trust in holding and
disposing of partnership goods. It is by virtue of this consideration that
a partner is not liable to the firm or other partners if partnership property
is destroyed while in his possession provided that he is not guilty of wilful
neglect or what is known as culpable negligence. If otherwise, he is liable
for indemnifying his partner to the extent of his share. There is no difference
of opinion in the matter yet the underlined portions require consideration.
The principle can be valid if the business has no joint funds and all partners
are conducting business separately. Fund can be separated and combined;
it is simply a matter of calculation and accounting. Moreover, the part
ners may be using their own funds over and above the joint funds and
adjusting them in the firm's account later on. But there may be articles
which are inseparable in parts and indivisible, for example, machinery etc.
It is quite impossible that a partner, while he is found guilty of culpable
negligence may be required to compensate only the partner's portion of
loss while holding back his own share. In such case his partnership to the
extent of his share which he does not re-invest would cease to be operative.
Now supposing there are more than two partners in business. One of the
partners, is found guilty of culpable negligence and indemnifies in mone
tary terms only to the extent of other partners loss and severs his connec
tions from the business. The partners in this way may sometimes be un
unable to continue business due to his retirement unless they themselves
raise additional funds or find a suitable person to replace him. It seems
therefore, reasonable to press that the guilty partner should be required to
first indemnify the firm in such a way that the stipulated business can con
tinue. After that only should he be allowed to contract himself out of
business. This will not only require indemnifying the firm in toto (without
holding back his own share) but also a notice period before such a severance
is effected. It is a compensation which he, as an agent, must be required
to pay against betraying the principal by causing to dissolve partnership
before the stipulated period. This suggestion, it can be insisted, is not

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 THE LIABILITY OF PARTNERS 339

incompatible with the doctors' views who have formulated partnership law
in such a way that the partners are restrained from doing any act which is
harmful to other partners or to business. The example is that according
to doctors a partner cannot donate even his own share of partnership
goods (or funds), although donation is treated to be an act of virtue.
The rationale is that it causes diminution in partnership goods, harms the
the interest of the other partners' and weakens partnership capital.55
In this connection a reference can here be made to the law of partition
(Kismah) under which partition of usufruct cannot generally be made with
regard to productive articles.56 This is a condition under partnership by
ownership but not under contract. But in case where a partnership
business becomes the owner of inseparable properties, the liability of the
partner against the damages to such a property would have to be widened
to a reasonable extent.

It is generally agreed that a partner is liable for the damages if

if he violates his authority. Violation in this context means any of the
acts which he is not authorised to do under the contract. Details of the
rights and powers of partners as implied in the contract will be discussed
in another article . Similarly a partner is entitled to be indemnified by the
firm for all acts done by him in the course of the partnership business, for
all payments made by him in respect of partnership debts, or for expenditure
and disbursements made in an emergency for protecting the firm from loss.

Notes:
1. For reproducing the provisions of the modern law the following sources have been
freely used:
M.C. Shukla, A manual of Mercantile Law, seventh revised edition S. Chand and
Co., 1964, New Dehli. S.R. Davar, Elements of Indian Mercantile Law .., Bombay
1946.
2. Al-MarghinanT, Al-Hiddyah 1st two parts) published by Matba* Mujtabai Dehli
1329, A.H. p 605 chapter on Shirkah, (Hereinafter referred to as Al-Hidaya I)
Also Al Majallah compiled by a Board of scholars, pub: Noor Muhammad, Kar
khana Tijarat Kutub, Article 1356.
3. Al Hiddya (op, cit.,) p. 613 and passim.
4. ibid.
5. Op. cit., Article 1387.
6. Imam Malik Anas (as narrated by Imam Sahnun Ibn Sa'eed Al Tanukhi. Al
Mudawwanah Al Kubra vol. XII pub. Matba al Sa'adah 1323 A.H. Egypt (Herein
after referred to as Al Mudawwanah), p, 48.

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 340 S.M. HASANUZZAMAN

7. 'All Ibne Suleman Al Murdawl, Al-Insdf. .vol. V First edition pub 1956 Matba
Sunna Al Muhammandiya, Cairo (Hereinafter referred to as Al InsaT), p. 460..
8. 'Abdul Rahman Al Jaziri, Kitdbul Fiqh 'Ala Madhdib Al Arba'a (Hereinafter refer
red to as Al Jaziri)Vol III, fifth edition pub Al Maktabah Al Tijariya, Al Kubra
(Egypt) pp. 85-86.
9. Al-Mudwwanah, op cit., p. 71. But it is treated as a matter of preference. Over
purchases are also admitted. For Hanafi approach see Ibne Nujaim infra, VOi. V,
p 178, and A Sarakhsi, infra, Vol. XII, pp. 173-174.
10. Al-Insdf (op. cit. Vol. V, p. 249) lays down:?He has no right to purchase on
credit for more than the amount of capital. This is explicitly quoted by Imam
Ahmad. The view is adopted by majority of (his) companions.
11. op. cit.
12. Zainuddm Ibn Nujaim, Al-Bahr Al Rdiq Vol. V, Darul Kutub Al 'Arbiya Al Kubra
p. 178 (Hereinafter refferred to as Ibne Nujaim).

13. Al Mughni op. cit., Vol. V. p. 22.

14. Fiqh Ja'fari (Infra) vol. IV, p. 19.
15. Al-Mudawwanah op. cit. vol. XII p. 85.
16. Mahmood Shaltoot, Al-Fatdwa. Darul Qualam Cairo p. 349.
17. Al Mughni, op. cit(t Vol. V, p. 130.
18. Al Mughni, op. cit., Vol. p. 131.
19. ibid
20. Al Jaziri, op. cit., Vol. Ill, page 186.
21. Al Mughni op. cit.,Vol. p. 130.
22. Al Marghinam: Al Hiddyah (the last two parts pub. Dehli 1358 A.H. p. 163, (Herein
after referred to as Al Hidaya II).
23. Al-Hiddya I, op. cit., p. 610.
24. op. cit.
25. Shamsuddin Al Sarakhsi, Kitdb Al Mabsoot, Vol. XI, Matba Al Sa'adah of Egypt
p. 168 (Hereinafter feferred to as Al Sarakhsi).
26. Al Sarakhsi, op. cit., vol. XI p. 174.
27. 'Abdul Karim ibn Muhammad Ibne Rafii, Fath al 'Aziz Shark Al Wajiz, pub.
Metbah Al Tadamun al Akhwi, Egypt, vol. X p. 386 (Hereinafter referred to as Fath
Al Axix).
28. Ibne Nujaim op. cit., p. 179.
29. Ibid.
30. Ahmad ibne Qudama al Maqdls", Al-Muqnay. vol. II, pub. Al Matba Al Salafiyah
Cairo (Hereinafter referred to as AlMuqnay) p. 167-168.
31. Al Muqnay, op. cit., p. 183.
32. Mohammad Jawad Mughnia, Fiqh Al Imam J'afar Al-$ddiq yo\. IV, First print
1965 Darul 'Ilm, Beirut, p. 110-111 (Hereinafter referred to as Fiqh Ja'fari)

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 THE LIABILITY OF PARTNERS 341

33. Section 1380 of Al Majallah op. cit., reads as under:?

"Although a partner cannot lend without the expess consent of the other
partners, he has the power to borrow for the partnership business and the loan
would be binding jointly on all the partners"
34. Ibn Nujaim op. cit., vol. V. p. 179
p. 30 (Hereinafter referred to as *?lamgiri).
Ibid.
37. As a rule the Malik! doctors term it as Dhamam and disapprove it. They however,
approve it one the condition that purchase should be confined to some specified
commodity and the partners who intend to purchase on credit shouM be present
on the spot. Moreover they should also stand sureties to each other. Al Fiqh,
op. cit., vol. 3, p. 74.
38. Al-Mudawwanah op. cit., vol. XII pp. 41-42
39. Al-Mughni, op. cit. vol. V p. 13.
40 Al Hidaya I op. cit., p. 610.
41. Op. cit.
42. Op cit.,
43. Supra
44. Al-Mughni op. cit., Vol. V p. 18.
45. Al-Muqnay op. cit., vol. II, pp. 167-168.
46. Al-Muqnay op. cit., vol. II p. 183.
47. Al-Muqnay op. cit., vol. II, p. 182.
48. Al-Muqnay op. cit., vol. II p.p 165-167.
49 Al-Mudawwanah, op. cit., vol. XII p. 71.
50. Al-Mudawwanah, op. cit., vol. XII p. 60.
51. Al-Mudawwanah, op. cit., vol. XII p. 70.
52. Al-Mudawwanah, op. cit., vol. XII p. 71.
53. Al-Mudawwanah op. cit., vol. XII pp. 8^-84.
54 op. cit.
55. Al-Mudawwanah, op. cit., vol. XII pp. 80-81.
56. Al-Hiddya 11 op. cit., p. 408.

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