Resoluton  No. 73/3/8

CONCERNING AUCTION CONTRACTS

Compiled By:
Prof. Dr. Mohd. Ma’sum Billah
masum2001@yahoo.com
masum@applied-islamicfinance.com
+6019-3699542

Quote -  The Council of the Islamic Fiqh Academy, holding its Eight Session in Bandar Seri Begawan, Brunei Darussalam, from 1 to 7 Muharram 1414H (21-27 June 1993).

Having examined the research, received by the Academy on the subject of ''Auction Contracts''

Having listenedto the debate on the matter.


Given the fact  that auction sales are a common practice today and in some instances have involved certain excesses which have made it necessary to regulate its usage in a way that would preserve the rights of the parties to the contract in conformity with Islamic Shari'a rules, as they have been adopted by institutions and governments under specific administrative regulations. and in order to elucidate the Shari'a rules with respect to such contracts .

RESOLVES

1.      An auction contract is an exchange contract involving an invitation to interest parties, verbally or in writing, to partake in the auction. The contract is concluded with the consent of the seller.

2.      An auction contract may vary in nature according to its object, and ramify into a sale or lease or other types of contract. According to its nature it may also be either optional such as ordinary auctions amongst individuals, or compulsory such as in the case of auctions dictated by law. It may be required by public and private institutions as well as governmental bodies and individuals.

3.      The auction contract procedures in terms of written records, arrangements and administrative and legal  terms and conditions must not be in contradiction with the rules of Islamic Shari'a.

4.      Requiring a deposit from those wishing to enter the auction sale is permissible in terms of Shari'a. Their deposits must be re instituted to all the participants who have not been the last bidders. The deposit is deducted from the selling price for the last bidder.

5.      There is no objection from Shari'a point of view to levying entrance fees (value of the schedule of conditions, not exceeding actual value) as it represents a cost thereto.

6.      An Islamic financial institution or any other party may initiate investment projects so as to secure a higher benefit for itself, whether the investor is a party in a Mudaraba contract with the Bank or not

7.      "Najash" (Deception in bidding) is prohibited by Shari'a. It include the following practices:

a)      Someone with no intention of buying offers higher bids just to entice the earnest buyer into making higher offers.

b)      Someone not really intending to buy pretends to admire the commodity as an expert, and extol its benefits to the buyer, thus effecting a higher price.
c)      That the owner of the commodity, the agent or the broker, claims falsely that a specific price has been paid for it, so as to mislead the buyer.
d)      Contemporary forms of "Najash" prohibited by Shari'a include the use of the media, whether audio, visual, or in print to ascribe to the commodity unreal characteristics, or increase the price so as to seduce the buyer and entice him into entering the contract.

Allah knows best........Unquote
(Source: "Resolution and Recommendations of the Council of the Islamic Fiqh Academy (1985-2000)” , IRTI.)