Consequence of bounced cheques

The number of people who have loans, own credit cards and owe debt on getting higher every year and now with the job losses or reduced income it is becoming more and more problematic for a large number of people to repay back the debts that accumulated over a period of time. The situation is even worse when such difficulties in repayment of debts are considered as a criminal offense.

Article 599 of the Commercial Transactions Law of the UAE (Federal Law No. 18 of 1993) prohibits the issuance of cheques unless the drawer (individual issuing the cheque) of the cheque has sufficient money with the drawee (bank) of the cheque which the drawee can dispose pursuant to an express or implicit agreement between the two. The UAE law makes it a criminal offense when an individual unable to honor his financial obligations and writes a cheque while having insufficient funds in the account.

The UAE Federal Penal Code (Federal Law No. 3 of 1987) describes and criminalizes dishonor of cheques. The various acts included within the scope of dishonor are as follows: 
a) Drawing of a cheque in bad faith without funds which could be withdrawn or with funds less than the amount of the cheque 
b) After issuing a cheque, withdrawing all or part of the funds and rendering the balance insufficient to settle the amount of the cheque. This is done in bad faith. 
c) In bad faith, ordering the drawee not to pay the value of the cheque 
d) In bad faith, drawing or signing a cheque in such a manner as to prevent it from being paid, 
e) Showing or delivering to another a cheque payable to bearer, with full knowledge that it does not have a provision which could be withdrawn or which has a provision less than the amount of the cheque.

Thus it is noticed that in all the above described criminalized acts, two essential components are 'knowledge' and 'bad faith'. These components are generally presumed to be present in case of cheque bouncing and therefore the burden of proving an absence of these elements is on the individual accused of the offense. If the individual is not able to disprove the existence of those elements, he is penalized by either a term of imprisonment or with a fine or with both.

The Penal Code also provides for punishment or fine where a drawee (bank), in bad faith, declares the availability of funds which is less than what is actually in the account. The banks are always alert to avoid such liability. If you have issued cheques to settle outstanding balances on credit cards and other accounts and those have bounced, banks may take legal actions against you. Only the cheques that have been lost or stolen can be canceled. Individuals who failed to keep up with their payments or whose cheques have bounced are considered as criminals and are subjected to the provisions of the penal code.

However, the banks might give a person an opportunity to settle the amount before filing a case against him/her. If the settlement cannot be reached; the complaint will be registered as a case in the police, who will then arrest and give a person an opportunity to repay the debt. However, if the settlement is not reached the case will be referred to the Criminal Court with the strong possibility of jail time.

Expatriates who accumulated debts in the UAE have to be alert while traveling to the any of the UAE Emirate as they are at risk of being arrested and taken to a police station where they have to undergo a lengthy and cumbersome procedure for being released on bail pending the settlement of the matter.

Further, it must be noted that cheques issued in connection with the Real estate are being dealt with by a Special Judiciary Committee established under Decree No. 56 of 2009.

This Committee is established in order to settle cases connected only to the bounced cheques in the Real Estate matters. It focuses and has full power over such cases and judgments rendered by the committee cannot be appealed. The Committee also has the following powers: 
1. To cancel the bounced cheque issued to the real estate developer if it is proved that the developer is not entitled to the amount of the cheque; 
2. Compel the cheque issuer to issue a new cheque to replace the bounced one. 
3. Refer the case to the concerned judicial authorities to determine whether to commence legal proceedings; and 
4. Consult on the property sector issues with experts.

It is also to be noted that the Decree No. 56 of 2009 prevents the Public Prosecution and Courts from carrying out any investigation into bounced property cheques or issuing any ruling until the case is looked into by the committee.

The Public Prosecution and the Courts are also under obligation to cease investigating any complaints or cases of bounced cheques relating to Real Estate matters and must submit them to the committee.

Both the committee and the Courts are very efficient in dealing with such cases. There is a six months limitation period for filing of cases relating to the bounced cheques after which no legal action can be taken against the drawer of the bounced cheque. Hence, it is advised to take action at the earliest and to seek the assistance of a lawyer to avoid delay in the procedure to avail the remedy.

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