Bounced Cheque in UAE? Here’s what you need to know.
The practice of using PDC’s is not unique to the UAE: they are frequently used throughout the GCC. Recent changes to law in Qatar (which reversed a 2006 law to remove legal protection of PDCs by May 2010) show that PDCs are likely to be used for the foreseeable future. Saudi Arabia has introduced a law to increase the penalties for those failing to honour cheques, thereby attempting to uphold the use of PDCs, but reduce the increasing number of defaults. Suggestions for securing future payments It is a criminal offence under Federal UAE law (and laws of many of its surrounding countries) to knowingly issue a cheque with insufficient funds to clear that cheque. If a cheque is not honoured, the receiver must pursue the issuer to enforce payment. Whilst the issuer can be investigated or charged, the receiver could remain without payment.
Understanding Cheques and Bounced Cheques in the UAE
Before exploring the nuances of bounced cheques, it is crucial to grasp the legal definition of a cheque within the UAE’s commercial framework. According to Article 483 of the Federal Law Number 18 of 1993, issuing the Commercial Transactions Law, a cheque is a commercial instrument containing an order from the drawer (issuer) to a bank (drawee) to pay a specific sum of money to a third party (payee) or the bearer on the date indicated as the issue date.
A cheque is considered bounced or dishonored when the drawee bank refuses to honor the payment due to various reasons, such as insufficient funds in the drawer’s account, the drawer’s instructions to the bank not to pay, or the closure of the drawer’s account before the cheque’s presentation.
Prevalent Reasons for Cheque Bounces
While the primary reason for a bounced cheque is the lack of adequate funds in the drawer’s account to cover the cheque amount, several other factors can contribute to this phenomenon:
- Technical errors: Discrepancies in signatures, missing or incorrect dates, overwriting, or scrawled text on the cheque can lead to its rejection.
- Account closure: If the drawer’s bank account is closed before the cheque is presented for payment, the cheque will inevitably bounce.
- Drawer’s instructions: The drawer may instruct the bank not to honor the cheque, resulting in a bounced cheque.
It is essential to note that a cheque bounce can occur not only when the drawer issues a cheque but also when the payee attempts to deposit a cheque received from a third party with insufficient funds.
Legal Implications: From Criminal to Civil Offenses
Historically, the issuance of a bounced cheque in the UAE was considered a criminal offense, carrying severe penalties such as imprisonment, fines, or a combination of both. However, a significant shift occurred on January 2, 2022, when the UAE decriminalized most instances of bounced cheques due to insufficient funds.
Under the new regulations, the issuance of a bounced cheque is primarily treated as a civil matter, allowing the aggrieved party (payee) to initiate civil proceedings against the drawer for the recovery of the cheque amount. Nonetheless, instances involving fraud, forgery, or bad faith remain criminalized, ensuring a deterrent against intentional malpractices.
Civil Proceedings and Execution Judges
With the decriminalization of most bounced cheque cases, the payee now has the option to petition the execution judge directly for assistance in recovering the owed amount. This streamlined process eliminates the need for police intervention, expediting the resolution of such disputes.
The execution judge possesses the authority to issue orders, including travel bans or asset seizures, to compel the drawer to fulfill their financial obligations. However, it is important to note that these measures are subject to legal scrutiny and due process, ensuring the protection of the rights of all parties involved.
Partial Payment of Cheques: A New Obligation
One of the notable changes introduced by the recent amendments is the mandatory partial payment of cheques. If the drawer’s account balance is insufficient to cover the entire cheque amount, the bank is now obligated to pay the available funds unless explicitly instructed otherwise by the drawer.
For instance, if a cheque is issued for AED 100,000, but the drawer’s account only holds AED 50,000, the bank must transfer the available AED 50,000 to the payee. This provision aims to mitigate potential losses and promote a more equitable distribution of funds in cases of partial availability.
Penalties and Fines for Bounced Cheques
While the decriminalization of bounced cheques has alleviated the burden of potential imprisonment, financial penalties and fines remain in place to deter such practices and compensate aggrieved parties. The fines for bounced cheques in the UAE are based on the cheque amount:
- Cheque amount less than AED 50,000: AED 2,000 fine
- Cheque amount between AED 50,000 and AED 100,000: AED 5,000 fine
- Cheque amount between AED 100,000 and AED 200,000: AED 10,000 fine
In addition to these fines, banks may impose additional charges and penalties on both the drawer and the payee for bounced cheques. These charges can vary depending on the bank and the account type but typically range from AED 100 to AED 300 for inward cheque returns (cheques issued by the account holder) and AED 300 or more for outward cheque returns (cheques deposited by the account holder).
Impact on Credit Scores and Financial Standing
While a single bounced cheque may not directly impact an individual’s credit score, as banks do not report such incidents to credit bureaus, the repercussions can still be significant. A bounced cheque can damage an individual’s financial standing, which may ultimately affect their credit score indirectly.
Lenders and financial institutions often consider an individual’s history of bounced cheques as an indicator of financial reliability. A pattern of bounced cheques can raise red flags, potentially leading to the denial of loans, credit cards, or other financial services in the future.
To maintain a healthy credit score and financial standing, it is crucial to ensure that cheques are never dishonored and that sufficient funds are available in the account, even after the cheque is encashed.
Avoiding Bounced Cheques: Proactive Measures
Preventing bounced cheques should be a priority for individuals and businesses alike. Here are some proactive measures that can be taken:
- Maintain adequate funds: Ensure that sufficient funds are available in the account to cover the cheque amount, as well as any associated fees or charges.
- Monitor account balances: Regularly check account balances and transaction history to avoid inadvertent overdrafts or insufficient funds.
- Utilize online banking: Take advantage of online banking services to set up automatic payments, transfer funds, or monitor account activity in real-time.
- Consider alternative payment methods: Explore the use of electronic fund transfers, mobile payments, or other digital payment solutions to minimize the risk of bounced cheques.
- Communicate with creditors: In cases of financial difficulties, promptly communicate with creditors and seek alternative payment arrangements or extensions to avoid defaulting on payments.
By implementing these proactive measures, individuals and businesses can mitigate the risks associated with bounced cheques and maintain a positive financial reputation in the UAE.
Legal Assistance and Dispute Resolution
In the event of a bounced cheque dispute, seeking legal assistance from experienced professionals can be invaluable. Skilled legal practitioners can provide guidance on navigating the intricacies of the UAE’s legal system, advising on the best course of action, and representing clients in court proceedings if necessary.
Alternative dispute resolution methods, such as mediation or negotiation, may also be explored to reach amicable settlements and avoid lengthy legal battles. These approaches can help preserve business relationships, minimize costs, and expedite the resolution process.
Fostering Financial Responsibility and Trust
The recent amendments to the UAE’s bounced cheque regulations have ushered in a new era of financial responsibility and trust. By decriminalizing most instances of bounced cheques due to insufficient funds and introducing measures like mandatory partial payments, the UAE has taken steps to promote business confidence, attract investments, and foster a more conducive environment for commercial transactions.
However, it is crucial for individuals and businesses to exercise due diligence, maintain transparency, and uphold ethical practices when issuing or accepting cheques. By embracing financial prudence and adhering to legal obligations, the UAE’s business community can navigate the complexities of bounced cheques while nurturing a thriving and trustworthy economic landscape.
Who is responsible for corporate cheques?
In companies or partnership firms, not all partners or stakeholders can be held liable in the event of a cheque being issued without sufficient funds to pay it off.
The criminal liability shall be borne by the individual who signed the cheque – whether it be a manager or a partner/co-owner. Other people’s private funds have no bearing on the value of the cheque. Its value shall be realised only through the assets of the company.
However, if the losses or lack of funds which resulted in the company-issued cheque bouncing, are proven to be a result of any kind of fraud by the owners or partners, the case may take a different direction.
What happens when the signatory absconds?
If it is proved that the company, which the complainant has dealt with, does not have enough funds to settle the cheque’s value, he or she can file a criminal case against the manager who signed the cheque, even if he or she has left the country. After a judgement is issued, the questioner may request the concerned authority to include the manager’s name in Interpol’s wanted list.
Always keep a copy of all the personal cheques you sign for banking, renting or any other purposes. A photo is more than enough to ensure that when the obligation is done, you can keep track of due cheques and cancelled ones (like security cheques given to banks for personal loans).
If you’re a manager or accountant authorized to sign cheques, have email trails for every cheque signed no matter the amount. Even if your boss asks you to sign a cheque, ultimately the person who signed is liable to a major extent. Again, keep copies of the cheque and correspondence.
What happens when the convict is unable to pay after a jail term?
If a certain person was convicted for a bounced cheque case and has served jail term, he or she stands released after the period. However, if the original complainant files the case again in the civil court for the second time, he or she will have to pay the unpaid amount then or go back to jail on conviction from said civil court. In case there is no pending or second case once the jail term is completed, the person is free to leave the country after collecting his impounded passport.
Summary
The United Arab Emirates (UAE) has a prevalent practice of cheque-facilitated transactions. Bounced cheques, however, pose significant legal and financial concerns. A cheque is considered bounced if the bank refuses payment due to various reasons, including insufficient funds, drawer’s instructions against payment, or account closure.
Primary reasons for cheque bounces include technical errors, account closure, and drawer’s instructions. Cheque bounces due to insufficient funds were decriminalized on January 2, 2022, making it primarily a civil matter. Aggrieved parties can now initiate civil proceedings against the drawer, while cases involving fraud or forgery remain criminalized.
The payee can approach the execution judge directly for assistance in recovering owed amounts, speeding up dispute resolution. The judge has the authority to issue orders, including travel bans or asset seizures, subject to legal scrutiny and due process.
New regulations have also introduced mandatory partial payment of cheques. If account balance is insufficient, the bank must transfer available funds, mitigating potential losses. However, bounced cheques still invite financial penalties based on cheque amount. Furthermore, banks impose additional charges on both drawer and payee.
A bounced cheque can damage financial standing and indirectly impact credit scores. It’s important to ensure cheques are always honored with sufficient funds in the account. Proactive measures like maintaining adequate funds, using online banking, and considering alternative payment methods can help avoid issues post cheque bounces in UAE.
