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Civil Law

Explanation of Article 563

Explanation of Article 563

The article addresses the consequences of the termination of the Mudaraba contract; the principle is that once the reason for its termination arises, the obligations of the Mudarib (investment manager) consequently end, and he is not allowed to dispose of the Mudaraba funds. However, the article refers to two cases where the Mudarib is required, by his obligation to exercise due diligence, to complete the Mudaraba activities, due to the nature of the Mudaraba contract which may encounter circumstances necessitating this upon its termination.

The first paragraph clarifies that the Mudarib is required, upon the termination of the Mudaraba, to bring the activities he started to a state where the Mudaraba funds or profits are not exposed to damage or loss. The consequence of the Mudarib violating this provision is his liability for ensuring the safety of those funds and any other damages incurred by the capital owner due to the Mudarib's failure to fulfill this obligation.

The second paragraph clarifies that the Mudarib is not allowed to dispose of the Mudaraba funds after the termination of the Mudaraba contract. The consequence of violating this is the Mudarib's liability, which includes ensuring the safety of those funds and any other damages incurred by the capital owner as a result of this action. An exception is made if the Mudaraba assets at the time of termination are non-cash; the Mudarib is required to convert them into cash, as this is part of the Mudarib's duties. The period for converting non-cash assets into cash is determined by custom and the nature of the assets.

The paragraph exempts the Mudarib from the obligation to convert the Mudaraba assets into cash at the end if custom, agreement, or the nature of the transaction dictates otherwise; in this case, the matter is handled according to what is required.

Related To

Article 563

  1. A mudaraba agent shall, upon termination of the mudaraba contract, continue with activities already commenced until the mudaraba capital or the profits are not at risk of damage or loss.

  2. The mudaraba agent may not, after the termination of the mudaraba contract, dispose of the mudaraba capital. If the capital is in a form other than cash, the agent shall liquidate such capital, unless the agreement or the nature of the dealing between the parties requires otherwise.