Are reverse auctions or Dutch auctions halal? [Question Published as Received]
In the Name of Allah, the Most Gracious, the Most Merciful
It is permissible to participate in a Dutch auction on the following conditions:
- The auction does not involve non-compliant agreements.
- The items being auctioned are lawful.
- There is no other wider Shari’ah infringement in the auction.
The Fiqh of the Answer
A Dutch auction is different from the more traditional auction, in which the price of an item is increased as bidders compete to purchase it. In a Dutch auction, the auctioneer will begin by offering the item for sale at a high price, and then gradually lower the price until a buyer is willing to pay the new, lower price. The first buyer to accept the reduced price wins the auction and purchases the item. The concept of a Dutch auction is often used in financial markets to sell securities and commodities, and in the sale of goods, such as fresh produce, to ensure that the items are sold before they become stale or otherwise undesirable.
An auction is governed by several principles that include:
- An introduction to the item (Nidā’)
- An initial offer or a starting price (‘Atā’)
- Acceptance of the auctioneer (Rusuẅ)
So long as an auction is conducted in a transparent and honest manner, one would be permitted to partake or facilitate in such auctions. The auctioneer is required to call out the bids clearly and impartially, and the bidders are required to respond with their offers. Once the highest bid, or lowest in the case of a Dutch auction, is determined, the auctioneer declares the item sold, and the seller must deliver the goods or services to the buyer. This process of Ījāb and Qabūl establishes a binding contract between the seller and the buyer.
It is important to note that only permissible items can be sold at an auction, and the sale must not involve riba (usury or interest), which is prohibited.
Muftī Muhammad Taqī Uthmāni (ḥafiẓahullah) states in Fiqhul Buy’u that although there is no discussion to be found in classical sources of jurisprudence in regard to a reverse auction, however, it can still be accepted by drawing a comparison to the structure of standard auctions.
And Almighty Allah Alone Knows Best
Maulana Ammar Y Badat
The views and opinions expressed in this answer belong only to the author and do not in any way represent or reflect the views of any institutions to which he may be affiliated.
Arguments and ideas propounded in this answer are based on the juristic interpretations and reasoning of the author. Given that contemporary issues and interpretations of contemporary issues are subjective in nature, another Mufti may reach different conclusions to the one expressed by the author. Whilst every effort has been taken to ensure total accuracy and soundness from a Shari’ah perspective, the author is open to any correction or juristic guidance. On the event of any juristic shortcomings, the author will retract any or all of the conclusions expressed within this answer.
The Shari’ah ruling given herein is based specifically on the scenario in question. The author bears no responsibility towards any party that acts or does not act on this answer and is exempted from any and all forms of loss or damage. This answer may not be used as evidence in any court of law without prior written consent from the author. Consideration is only given and is restricted to the specific links provided, the author does not endorse nor approve of any other content the website may contain.