Question :

What is the ruling on one who has taken a loan from a company with the intention of not paying it back? However, after sometime, he decided to return it, but found out that the company had closed down, most debts were lapsed, and owners changed. Is it permissible to give that money to public or private institutions as charity on behalf of its owners?

The Answer :

Praise be to Allah, the Lord of the Worlds.

In principle, a Muslim must be truthful and trustful with Muslims as well as non-Muslims since Almighty Allah said, "O ye who believe! Be careful of your duty to Allah, and be with the truthful."{At-Tawbah, 119}. Moreover, Allah, the almighty, commands giving rights to whom they belong and prohibits borrowing money with the intention of not repaying it. He, the Exalted, said," O ye who believe! Squander not your wealth among yourselves in vanity, except it be a trade by mutual consent, and kill not one another. Lo! Allah is ever Merciful unto you."{An-Nisa`, 29}. In addition, the Prophet (PBUH) said, "Whoever takes the money of the people with the intention of repaying it, Allah will repay it on his behalf, and whoever takes it in order to spoil it, then Allah will spoil him."{Related by Bukhari}. Therefore, not repaying debts is tantamount to squandering people`s money, and the word "people" is generic.

These companies have a legal personality and an independent financial liability regardless of their shareholders. Therefore, a borrower must clear himself/herself from the liability by returning that loan to the company in question. However, if it was difficult to give back the whole sum or part of it, then it must be given to charity. And Allah knows best.