Navigating Bounced Cheques in UAE: A 2024 Guide to Legal Recourse and Financial Recovery

Bounced Cheques in UAE.What you need to know

In the UAE, the frequent occurrence of bounced cheques poses a significant challenge for residents. Covered under the Commercial Transactions Law, the legal consequences for more severe offences can be financially daunting. Bounced cheques can arise in various commercial transactions, such as company exchanges, bank loans, property transactions, and individual dealings.

Understanding Bounced Cheques in the UAE: Key Information for 2024

Complaints and cases related to bounced cheques stem from a debtor’s failure to fulfill payment obligations to a creditor on the agreed-upon date. Federal Decree Law No. (14) of 2020, amending certain provisions of Federal Law No. (18) of 1993 concerning the Commercial Transactions Law, empowers legal action, both criminal and civil, against offenders.

It is crucial for individuals dealing with cheques in the UAE to grasp proper cheque issuance and acceptance procedures, as well as how to address situations when deposited cheques are returned unpaid.

Misconceptions abound, with some believing that the issuance of the Federal Decree Law absolves them from repaying bounced cheque amounts. However, the responsibility to pay the cheque amount and face sanctions persists until the full amount is repaid to the payee or cheque bearer.

Understanding Cheques: A Brief Overview

A cheque serves as a payment/negotiable instrument recognized in lieu of money. Regulated by Federal Law No. (18) of 1993, the Commercial Transactions Law outlines the issuance and circulation of cheques in the UAE. Article (483) defines a cheque as an order from the drawer to the drawee bank to pay a specific sum of money to the order of a third person (the Payee) or the bearer, on the indicated date of issuance.

A completed and signed cheque authorizes the bank to disburse funds from the drawer’s account, making it an irrevocable payment instrument.

Cheque Conditions According to the UAE law

Cheques issued in the UAE must adhere to certain conditions specified by the Commercial Transactions Law:

1. The Form: As per Article (598), cheques must be drawn on a bank and contain the account owner’s name, account number, and the cheque’s serial number.
2. The Particulars: Article (596) stipulates that a cheque must include the word “cheque,” an unconditional order to pay a specific amount, the drawee bank’s name, the payee’s name, the place of payment, the date and place of issuance, and the drawer’s signature.
3. Availability of Funds: In line with good faith principles, Article (599) requires the drawer to have sufficient funds in their account at the date of issuance. Failure to do so allows the payee to request a statement from the drawee bank as evidence in potential legal actions.

Understanding Bounced Cheques in UAE : Causes and Liabilities

A bounced cheque, also known as a dishonored or bad cheque, occurs when the drawee bank rejects the payment for reasons such as insufficient funds, a directive from the issuer to withhold payment, or improper signing by the drawer. Liability for bounced cheques is governed by Article (632) of the Commercial Transactions Law, enabling the bearer to seek recourse against the drawer, endorsers, and other liable parties.

Time Frame for Presenting a Cheque and Limitation Period

A cheque becomes due for payment on its specified issuance date and can be presented for payment within six months from that date (Article (618)). The drawer must ensure sufficient funds on the date of issuance, and failure to do so allows the bearer to seek recourse.

Legal Proceedings for Bounced Cheques in UAE

When a cheque bounces, the bearer can establish failure to pay through a bank statement. Legal proceedings can take a criminal or civil course.

Criminal Case Proceedings:

• Police Complaint: Filing a case requires the bearer to lodge a complaint with the police against the drawer. A travel ban/arrest warrant is automatically issued upon filing, and settlement at the police station can prevent further legal action.
• Public Prosecution: Unresolved cases proceed to the public prosecution, which makes decisions based on evidence and statements.
• Criminal Court: Examining case details, the criminal court determines if the material and mental elements of the crime are satisfied. Sanctions may include fines or imprisonment.

Civil Case Proceedings:

• The civil court may handle the civil claim separately from the criminal court, allowing the bearer to claim the disputed amount.
• The civil court can demand payment or attach assets if the drawer fails to comply.

Additional Considerations and Recent Developments
The court has discretionary power to decide sanctions, and the drawer should be aware that bounced cheques can be rectified if there were available funds but a typo mistake occurred.

Reasonable care is crucial, as checkbook holders may face legal consequences even without signing a cheque. Legal reforms, such as the Decree-Law of 2020, aim to soften penalties for bounced cheques, encouraging alternative dispute resolution and streamlining civil court processes.

Recent amendments include fines based on the cheque amount and penalties for not surrendering checkbooks. The amendments also address crimes related to cheque forgery, fraud, and acts of terrorism.

Contrary to a common misconception, the decriminalization of bounced cheques in 2022 does not absolve individuals from repaying the cheque amount. The obligation to settle the cheque amount and any associated penalties persists until the entire sum is returned to the payee.

Exploring the Common Reasons for Bounced Cheques in UAE

It is essential for both creditors and debtors to comprehend the reasons behind bounced cheques. The Commercial Transaction Law of 2022, Article 663, outlines the legal framework for addressing bounced cheques in the UAE. This law delineates specific conditions under which a cheque can be considered dishonored, including but not limited to:

1. No Balance or Insufficient Balance: If the bank indicates no balance or an insufficient balance when presenting the cheque, it is considered an executive instrument, allowing the beneficiary to approach the execution court directly for enforcement.
2. Stale Date/Irregular Date: Cheques must be presented for payment within a six-month period. Failing to do so may result in dishonor, but the beneficiary can still file a case to claim the cheque’s value.
3. Closed or Dormant Account: Instructing the bank to dishonor a cheque, closing the account, or intentionally freezing the account is a criminal offense. The beneficiary can initiate criminal charges and file a civil case to recover the cheque’s value.

Consequences for Issuing Bounced Cheques in UAE

Article 674 of the Commercial Transaction Law stipulates that individuals knowingly issuing a cheque without adequate funds or with the intention of dishonoring it may face substantial fines. Bounced cheques can lead to criminal charges, including fines and imprisonment, under various circumstances, such as intentional closure of the account to prevent payment, intentional and false declaration of insufficient funds, knowingly issuing an unpayable cheque, premature dishonoring instructions, execution or signing of a cheque to prevent payment, forging or fabricating cheques, knowingly using forged cheques, accepting payments by forged cheques, and fraudulent use of a cheque executed in another person’s name.

Understanding the intricacies of bounced cheques and the legal consequences in the UAE is essential for individuals and businesses to safeguard their financial interests and navigate the legal system effectively. Seeking legal advice and conducting due diligence in financial transactions are crucial elements in avoiding the pitfalls associated with bounced cheques.

Laws governing bounced cheques in the UAE

In the United Arab Emirates (UAE), the act of bouncing a cheque is considered a misdemeanor, constituting a criminal offense under UAE law. Offenders may face imprisonment, fines, or a combination of these penalties, depending on the gravity and nature of the specific case. This issue is prevalent in the UAE due to its extensive commercial activities, with financial and legal implications intended to deter individuals from engaging in such illegal practices. Instances of cheque bounce commonly arise in commercial transactions, rent disputes, bank loans, and individual dealings.

To comprehend the legal context, let’s first define a cheque under UAE law. Federal Law Number 18 of 1993, also known as the Commercial Transactions Law, defines a cheque in Article 483 as a commercial paper containing an order from the drawer to a bank (the drawee) to pay a specified sum to the order of a third person (the payee) on the indicated date of issue.

A cheque is deemed bounced or dishonored when the drawee bank rejects the presented cheque due to various reasons, such as insufficient funds in the drawer’s account, orders from the drawer to refrain from payment, improper issuance or incorrect signing by the drawer, or closure of the drawer’s bank account before cheque presentation.

When a cheque is dishonored, the bearer has recourse against the drawer or endorser, as outlined in Article 632 of the Commercial Transactions Law. The drawee bank must issue a statement to establish the protest of failure to pay to the payee within the specified time limit of six months from the cheque’s date of issue.

Initiating legal proceedings against the drawer or endorser has a time limit of two years from the expiry of the cheque presentment period, as per Article 638. The drawer must ensure that the cheque meets all the requirements of a valid cheque and is issued and due for payment in the UAE.

Criminal proceedings for a bounced cheque commence with the bearer filing a formal complaint against the drawer with the police of the relevant emirate. The police may request the drawer’s presence to settle the matter amicably at the police station, allowing for resolution by paying the cheque amount. Failure to resolve the issue may lead to the transfer of the complaint to the public prosecution branch for further investigation.

In the criminal court, both the guilty intent (mens rea) and the wrongful act (actus reus) must be proven. If found guilty, the court can impose penalties, including a fine ranging from AED 1,000 to AED 30,000, imprisonment for one to three years, or a combination of both. The recent amendment by Federal Decree-Law Number 14 of 2020 introduced stricter penalties for bad faith cheque issuance.

In civil proceedings, the case is transferred to the Civil court after criminal sanctions are imposed. The Civil court determines civil claims against the accused, issuing orders for payment and allowing asset attachment if the accused fails to comply. Article 642 of the UAE Commercial Transaction Law introduces the possibility of publishing the judgment in two daily newspapers or online, detailing the convicted person’s information at the convicted person’s expense.

To expedite minor bounced cheque cases, the UAE has introduced the ONE DAY COURT system, ensuring speedy resolution within 24 hours. This system is successfully operational in the emirates of Abu Dhabi, Dubai, and Ras Al Khaimah, enhancing the UAE judicial system for minor cases related to cheque misdemeanors.

Execution Procedures for Bounced Cheques in UAE

The legal landscape surrounding bounced cheques in the United Arab Emirates (UAE) has undergone significant reforms with the introduction of Federal Decree Law no 14 of 2020. This revision amends the Federal Decree-Law No. 18 of 1993, governing commercial transactions, and brings crucial changes to the UAE’s legal code.

Historical Context and Legislative Amendments

Previously, the bounce of a cheque due to insufficient funds could lead to imprisonment under Article 401. However, the revised law eliminates this provision, signaling a paradigm shift in the treatment of bounced cheque offenses. Now, bounced cheques resulting from insufficient funds no longer incur criminal charges or imprisonment.

Execution Proceedings and Legal Recourse

Instead, the revised law offers a robust mechanism for addressing bounced cheques through execution proceedings, as outlined in Article 635 bis. This article empowers beneficiaries to file execution cases in UAE courts, utilizing bounced cheques as actionable legal instruments.

Key Provisions of Article 635 bis:

Equivalence to an Official Order:

A bounced cheque accompanied by a written document indicating insufficient funds is deemed equivalent to an official, enforceable order under Federal Law No. 11/1992.
Beneficiaries have the right to request partial or full execution based on the bounced cheque.

Reference to Regulations:

The provisions, procedures, and rules stipulated in the revised Commercial Transaction Law act as a comprehensive reference for addressing bounced cheques and related matters.

Partial Payment Entitlement:

Under Article 617 of the Commercial Transactions Law, beneficiaries are entitled to receive partial payment when the available funds are less than the cheque’s value. The cheque issuer confirms partial payment and assures gradual disbursement of the outstanding amount to the beneficiary.

Execution Proceedings and Asset Seizure:

Upon confirmation by the bank that the cheque issuer lacks sufficient funds, beneficiaries can initiate civil proceedings under Federal Law No. 11/1992. Article 635 bis facilitates dragging the cheque issuer to court, where execution proceedings can be ordered. The court may authorize the attachment or seizure of the cheque issuer’s assets, including movable assets, shares, real estate, etc., equivalent to the cheque amount.

Additional Legal Consequences:

The Civil Procedural Law enables the court to take further actions if there are grounds to believe that the debtor may abscond or conceal funds. These include:

Seizure of Real Estate and Assets:

Courts may order authorities to seize the debtor’s real estate and assets under Article 111 of Cabinet Decision 57 of 2018 and Federal Law Regulation No. 11/1992 of the Civil Procedure.Investigative bodies can conduct inquiries, gather statements, evidence, and affidavits to support the seizure of assets.

Creditor’s Remedial Actions:Creditors can request the court, under Cabinet Decision 57 of 2018, to attach or seize movables, payables held by third parties, stocks, bonds, revenue, shares, and initiate real estate attachment, sale, and bankruptcy proceedings.

The recent legal amendments signify a shift toward a more effective and comprehensive approach in dealing with bounced cheques in the UAE. Beneficiaries now have enhanced legal avenues to pursue their claims and recover funds through execution proceedings, providing a structured and legally sound framework for addressing cheque bounce cases.