What is the ruling on a teacher imposing a financial penalty on students who are negligent in their assignments, and giving the money to their diligent classmates, or donating it as charity?

It is not permissible to impose a financial penalty on a negligent student, even if it is for charity or for outstanding students, because this constitutes financial chastisement (ta'zir bi al-mal), which is the right of the legitimate ruler or his representative. The default rule is the impermissibility of a Muslim's wealth, based on the Prophet's (peace and blessings be upon him) saying: "Indeed, your blood, your wealth, and your honor are sacred among you." The Permanent Committee has issued a fatwa stating that it is not permissible for anyone other than judges to impose financial fines.