New Cheque Bounce Law in The UAE: Key Legal Implications You Need to Know

This article has originally been published on www.Sklegalfirm.com

Cheques are widely accepted as a safe mode of payment in the UAE. However, cheque bounce cases are not uncommon. Resolving cheque bounce cases often requires specialized legal expertise, such as Dispute Resolution Services and Commercial Litigation Expertise, to ensure the best outcomes. This article gives an overview of various issues related to bounced cheques and , including recent amendments in the new cheque bounce law in UAE.

What is a Bounced Cheque?

When a cheque is returned unpaid by the bank, it is called a bounced cheque or dishonoured cheque. In other words, it refers to a situation where the bank refuses to accept a cheque when presented by the payee, and as a result, the payee cannot withdraw the amount mentioned in the cheque.

A cheque can be bounced for many reasons, such as:

– Insufficient funds in drawer’s account;

– Closure of drawer’s bank account;

– Stop payment instruction to the bank (i.e., when the drawer instructs the bank to withhold payment);

– Incorrect signature/overwriting (i.e., a defective cheque).

What Happens When a Cheque is Bounced?

In the event of dishonour, the bank must issue a return memo to the payee mentioning why the cheque was bounced. The original cheque is also returned to the payee.

Legal Implications of Bounced Cheque

As explained below, a payee can file a civil lawsuit and initiate criminal proceedings against the drawer in the UAE. In this regard, it should be noted that a bounced cheque used to be a severe criminal offence in the UAE. However, the recent amendments in the new cheque bounce law in UAE have decriminalised bounced cheques under certain circumstances. The payee can also file a civil suit against the drawer to recover the cheque amount.

New Cheque Bounce Law in UAE

Federal Decree Law No. (50) of 2022 issuing the Commercial Transactions Law was enacted on 2 January 2022 and has brought about significant changes related to cheque bounce cases. Some of the key changes are discussed below.

Decriminalisation

Before the new law, the payee could file a criminal complaint before the police, leading to a travel ban and arrest warrant for the issuer of a cheque that was bounced/returned due to insufficient funds.

However, under the new law, a criminal case can no longer be filed for a bounced cheque offense if the cheque is returned due to insufficient funds.

Bounced Cheque as an Execution Deed

The payee can now straightaway approach the Execution Division of UAE Courts and request an order for payment if the cheque has been returned due to insufficient funds. The new law provides that a cheque that is returned due to “insufficient balance” shall be considered an execution deed, and the payee can directly file a civil execution case against the issuer of the cheque.

If the issuer raises no valid objection, the Execution Judge can order the issuer of the returned cheque to pay the cheque amount within 15 days. If the issuer does not do so, then the Execution Judge can order a travel ban and arrest warrant for the issuer.

Partial Payment

The banks are now obligated to make a partial payment to the payee when the cheque is presented for payment, as long as an account balance is available to satisfy the payee’s claim partly. The payee is entitled to file a civil case for the remaining amount.

Imprisonment and Penalties

In cases where the drawer closes his account or intentionally writes or signs a cheque that prevents it from being encashed, the drawer shall be punished with imprisonment for not less than six months and not exceeding two years or a fine of not less than 10% of the value of the cheque, subject to a minimum of AED 5,000.

However, in the above case, the criminal case will be stopped if the cheque value is paid before execution procedures are started.

Forging or counterfeiting a cheque or attributing it to a third party by changing details through addition, deletion, or other means is punishable by imprisonment for no less than one year in addition to a penalty of no less than AED 20,000 (and not exceeding AED 100,000).

Summary Proceedings

One option available to the payee in case of a cheque returned due to account closure or defect in the cheque or stop payment instruction is to file summary proceedings based on the bounced cheque. Unlike other civil suits, the creditor in a summary suit can request immediate payment of the debt (after serving legal notice on the debtor) in cases of admitted debt.

The main advantage of the summary procedure is that it can be completed within a few weeks. However, whether a summary procedure can be filed largely depends on the facts and circumstances of the case.

The Time Limit for Filing Legal Proceedings

The time limit for filing legal proceedings depends on the cheque date. If the payee wants to file a case in the Execution Division of the Court, the payee must do so within two years from the expiry of the deadline for presenting the cheque.

A Word of Caution!

Although the amendments have provided respite to the drawer of the cheque, the drawer should not get a false sense of comfort in thinking a criminal case would not be filed no matter how many cheques are returned due to insufficient funds. This is because, as per UAE Central Bank regulations, banks are obligated to close any customer’s account if four cheques get returned within one year due to insufficient funds.

In such a scenario, if a cheque is presented for payment after the account has been closed, the bank would return the cheque stating the reason as closure of account in return slip.

This would entitle the payee to file a criminal complaint against the cheque drawer. So, the drawer whose one or two cheques bounce due to a short-term reduction in cash flow should take comfort in the fact that a criminal case will not be filed against him.

However, a drawer whose cheque bounces because of a general reduction in income due to loss of job or company revenue should take heed as it is likely that many of his/her cheques would start bouncing in a short period (e.g., cheques issued to pay monthly instalments of earlier purchase).

He should not wait for the cheques to keep bouncing, leading to an account closure. Instead, he should approach the payees/beneficiaries and seek to negotiate to restructure his loan or some form of settlement.