Question Summary:
May I sign a contract which consists of paying monetary penalties?

Question Detail:

 
 
I have joined a company as Management Trainee in their procurement department. While going through the documents, I noticed a clause regarding penalty to be applied on vedors for late delivery mentioned on their local and foreign contracts. When I asked the people in this department regarding the implementation of this clause, they said it has never been implemented or forced onto the vendor. But, this clause is part of every purchase contract.
 
As an example of one contract, the clause regarding Liquidated Damages on Late Delivery reads as follows
 
" The Purchaser is entitled to liquidated damages two weeks after the date on which delivery should have taken place. The liquidated damages shall be payable at a rate of 0.5 percent based on the value of the delayed portion of the delivery for each complete week of delay. The liquidated damages shall not exceed 5.0 percent of the value of the delayed portion of the delivery. The liquidated damages are the only compensations available to the Purchaser in the case of delay caused by supplier."
 
Please note that currently the salary from this company is my only source of income. I am married and I am affording the expenses of myself and my wife.
 
Question 1
If my manager asks me to make such a contract (draft or final with signature) having the above mentioned clause, what should be my response?
 
Question 2
Should I decline to make this contract even if it means that company fires me and I am left with no source of income?
 

Answer :

In the Name of Allah, the Most Gracious, the Most Merciful.
As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.
In Shair’ah, all forms of monetary penalties are not permissible. If your manager requires you to sign the contract and you have no alternate income, you may sign the contract.^[1]
However, this does not permit you to make late deliveries. Full precaution must be taken to abstain from carelessness and any form of negligent behavior.
And Allah Ta’āla Knows Best
AbdulMannan Nizami
Student Darul Iftaa
Chicago, IL, USA
Checked and Approved by,
Mufti Ebrahim Desai.
www.daruliftaa.net