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Fatwa CenterOwner of the capital money incurs the losses in Mudhaarabah deal
Question
Dear Sheikh, AssalamoAllaikum Wa Rehmatullahi Wa BarakatAhu. I need your guidance in an important matter concerning my family. Back in the year 2007, my wife got into a business agreement with her maternal uncle, whereby her uncle gave her 1.5 million rupees to start a business. Both parties held 50% partnership, the uncle was investor and my wife was working partner. There was no written agreement regarding this deal or its conditions or any agreement if loss incurred. As my wife started this business she incurred heavy losses and in next 12 months, 1.2 million was spent (main expenses rent of the space and merchandise). Her uncle was kept informed about this through telephone as he lives abroad, and when he visited home my wife explained to him the reasons about this loss. My wife was relieved that this meeting went well and no bad mouthing and allegations took place. Then last year(2012) out of the blue her uncle demanded that she return all 1.5 million, she got under pressure and accepted that she will pay him 0.3 million and my wife's father and brother agreed to pay the remaining 1.2 million (just to save themselves from embarrassment). When I came to find out about it, I was astonished and hurt about her uncle's behavior. It's was not a Debt but a business deal. Please guide us in this matter, and please explain the mistakes committed by each party so that it's easy for me to explain this to my wife and her uncle and conclude this matter in light of Quran and Sunnah. JazakAllahu Kheir
Answer
All perfect praise be to Allaah, The Lord of the Worlds. I testify that there is none worthy of worship except Allaah, and that Muhammad 
is His Slave and Messenger.
According to what we understood from your question, the transaction that took place between your wife and her maternal uncle is a Mudhaarabah (profit-sharing partnership) where the capital is provided by her uncle and the work is done by her.
We have already clarified in Fataawa 10549 and 5160 the conditions of Mudhaarabah, among which is that the working partner in Mudhaarabah does not guarantee the capital money and neither does he guarantee the profit. If there is any loss, it is the owner of the capital money who incurs it, while the working partner only loses his effort unless the loss was incurred because there was transgression or negligence on his part [in which case he is responsible for the loss].
Therefore, if your wife was neither negligent nor was there transgression on her part, then she is not to be held responsible for the loss of her uncle's capital; rather, it is he himself who incurs that loss.
Allaah Knows best.
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