A Critique of the Absolute Revocability of Civil Mudaraba in Iranian Law and Selected Arab Countries

The Iranian Civil Code and the laws of many Arab countries such as Tunisia, Algeria, Qatar, and the UAE consider the Mudaraba contract as a revocable (Ja'iz) contract. The ruling on the revocability of this contract in these legal systems stems from their reliance on the predominant opinion in both Imami (Shiite) and Sunni jurisprudence. Gradually, with the emergence of intermediary financial systems such as banks, the need to utilize such contracts in the banking sector became evident. However, due to the fundamental differences in how these contracts are structured in banking compared to traditional settings, the inadequacy of civil Mudaraba in providing a suitable framework for banking transactions became apparent. In this context, and using a descriptive-analytical method, this article highlights the growing necessity to modify the rules to facilitate the use of banking Mudaraba and enhance its efficiency. In some countries, such as Iran, the issue was addressed by incorporating contractual stipulations, revoking the right of unilateral termination, and limiting the Mudaraba to a one-year period. Some Arab countries attempted to resolve the problem by excluding Mudaraba from banking contracts altogether, while others introduced additional regulations. The findings of this study indicate that the evidence supporting the revocability (jawāz) of Mudaraba pertains only to unrestricted (mutlaq) Mudaraba and remains silent on restricted (muqayyad) Mudaraba. Therefore, all traditional justifications for the revocability of civil Mudaraba—such as the permissibility due to its consensual nature, its composition from revocable contracts, the practice of rational actors (binā’ al-‘uqalā’), and juristic consensus (ijmā’)—fall short in proving the revocability of restricted Mudaraba. Restricted Mudaraba, the most prominent example of which is seen in banking contracts, is instead a binding (lāzim) and irrevocable contract.