Understanding Bounced Cheques in the UAE
Understanding Bounced Cheques in the UAE
In the United Arab Emirates, bounced cheques is a common challenge occurring in a variety of commercial transactions including business exchanges, bank loans, property rentals and purchases, and personal dealings, and the consequences and penalties can be financially burdensome and daunting.
It is necessary for any individual using cheques in the UAE, especially those who have no intention of committing a crime, to be well-informed about how to issue and accept cheques correctly, and also understanding how to handle situations when deposited cheques are returned unpaid is key.
It is a common misconception that the decriminalization of bounced cheques in 2022 completely discharges an individual from repaying the amount of the bounced cheque. The obligation to pay the cheque amount and the associated penalties remain in effect until the entire sum is returned to the payee.
Common Reasons for Cheques Bouncing
Understanding the reasons behind bounced cheques is necessary for both creditors and debtors. Article 663 of the Commercial Transaction Law 2022 outlines the legal framework for dealing with bounced cheques in the UAE. The law states specific conditions under which a cheque can be considered dishonored. These conditions include, but are not limited to the following:
1. No Balance or Insufficient Balance
In cases where the bank indicates no balance or an insufficient balance when presenting the cheque, it is considered an executive instrument. The beneficiary can directly approach the execution court 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 the cheque being dishonored. However, 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, closure of the account, or intentionally freezing the account is a criminal offense. In such cases, the beneficiary can initiate criminal charges and file a civil case to recover the cheque’s value.
Consequences for Issuing Bounced Cheques
Article 674 of the Commercial Transaction Law states “everyone who endorses or delivers a cheque to another person, knowing it lacks sufficient funds or cannot be drawn, shall be subject to a fine of not less than 10% of the cheque’s value, a minimum of 1,000 Dirhams, and not exceeding the cheque’s value.” This means, individuals who knowingly issue a cheque without adequate funds or with the intention of dishonoring it may face substantial fines.
Bounced cheques can result in criminal charges, including fines and imprisonment, in the UAE under the following circumstances:
- The account is intentionally closed, or the funds are withdrawn to prevent the cheque from being paid.
- There is an intentional and false declaration of insufficient funds.
- A cheque is knowingly issued with the knowledge that it cannot be paid.
- The issuer of the cheque instructs the bank to dishonor the cheque prematurely.
- A cheque is executed or signed in a way that prevents its payment.
- Forging or fabricating a cheque or altering its components to harm others.
- Knowingly using a forged or fabricated cheque.
- Accepting amounts paid by a forged or fabricated cheque.
- Using a cheque validly executed in the name of another person with fraudulent intent.
Understanding the challenges of bounced cheques and the legal consequences in the UAE is key for individuals and businesses to protect their financial interests and navigate the legal system effectively. Legal advice and due diligence in financial transactions are key to avoiding the pitfalls associated with bounced cheques.
The authors of this Galadari Insight are Marwan Al Cherkeh and Gheith Al Cherkeh
Marwan has been practicing law in the UAE for almost 35 years and has over 50 years of experience in the MENA region. He is one of the select few expat lawyers granted rights of audience in the UAE Courts, and has been advocating for his clients since 1991, highlighting his unwavering commitment and dedication to the profession.
Gheith is a trainee lawyer at Galadari. He supports the litigation and corporate teams in employment matters, family disputes, personal status matters, and commercial agreements.
For more information on bounced cheques in the UAE, please contact Marwan and Gheith.
|Marwan Al Cherkeh
|Gheith Al Cherkeh