Do you have a cheque bounce case in the UAE? Here,s what you need to know.
When Dubai’s property market was booming, many developers collected post dated cheques (PDCs) from buyers. Additionally, landlords and banks commonly collect PDCs for future lease and loan payments. Dubai’s Decree 56 of 2009 should serve to curb reliance on PDCs. It established a special judicial committee (the Committee) to resolve complaints involving bounced cheques issued to developers in connection with real estate transactions. The police, and any other judicial investigation authority, are obligated to refer these complaints to the Committee – the aim undoubtedly being to reduce the number of criminal cases before Dubai Courts involving bounced cheques.
The practice of using PDCs 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.
In many jurisdictions, it is common for developers to carry out credit checks to limit their exposure to non credit-worthy buyers. A variety of companies can perform a search and issue a credit rating for an individual based on past records. For companies, company searches can be carried out and research into an investor’s trading history can be undertaken. The introduction of Emcredit in Dubai has assisted in making some credit information available to lenders and members.
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 offence.
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 offence 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 absence of these elements is on the individual accused of the offence. 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 cancelled. 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 travelling 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 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.
The criminal court and civil court function separately. When the receiver of a cheque (which bounced) files the initial complaint in the police station against the issuer, the case is forwarded to the public prosecution and then to the criminal court. The criminal court may convict the issuer (based on evidence provided by the complainant) and give him two options – pay the money or go to jail.
However, in case of failure to get cheque amount despite imprisonment, the complainant should present his or her case to the civil court next, to claim the money, along with documents and evidence to prove it. The civil court could then either demand the issuer to pay or face jail term.
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.
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.