14 Apr 2022
The United Arab Emirates Law (UAE)
A cheque bounce is a misdemeanour (a criminal offence) under UAE law punishable by imprisonment, fine, and either of the penalties depending on the gravity and nature of the case in hand. The cheque bounce cases take place so frequently in the UAE due to its vast commercial activities. The UAE laws impose financially daunting and rigorous legal implications on the offenders to restrain people from such illegal and unethical practices. Usually, the issues of cheque bounce arise in commercial transactions, rent matters, bank loans, and individual transactions, etc. there are several reasons for bouncing of cheques, but one of the common complaints received is that the debtor’s cheque to creditors gets bounced in most of the cases while returning debt amount and failure to pay.
Let us understand what does a cheque and bounced cheque mean under UAE law before moving further.
The Federal Law, Number 18 of 1993 Issuing the Commercial Transactions Law, that regulates the matters of issuing of cheques define a cheque in its Article number 483 and that is the cheque is a commercial paper containing an order issued by the drawer to a bank (the drawee) to pay, on the date indicated therein as being the date of issue, a specific sum of money to the order of a third person (the Payee), being the beneficiary, or the bearer thereof.
A cheque gets bounced or dishonoured when a drawer issues a cheque ordering the bank (drawee) to pay a required amount to the payee, and the bank rejects the presented cheque due to;
a. Insufficiency of amount (to partially or wholly cover mentioned amount on the cheque) in the drawers account at the date of issuance of cheque
b. Order received by the bank from the drawer to refrain from paying the cheque
c. The manner of issuance of cheque improperly or signed incorrectly by the drawer
d. The bank account of the drawer closed before the cheque was presented for payment
As the cheque is a payment instrument reliant on the accessibility of capitals, through the drawee’s agreeing to pay the cheque issued by the drawer. If a cheque gets bounced or dishonoured due to the above reasons, the cheque bearer has recourse against the cheque drawer or endorser if the issued cheque is presented within the time limit and it gets rejected under Article 632 of the Commercial Transactions Law of UAE. The drawee bank shall issue a statement to establish the protest of failure to pay to the payee. It should be established before the expiry time limit of the presentment of the cheque. The drawee bank cannot refuse to provide the statement for bouncing of the cheque presented before it. If it is not possible for the bank to provide the statement simultaneously, it can request a grace period to provide the statement, and it should not be more than three working days. The time limit for the presentment of a cheque is six months from the date of issue under Article 618 of UAE Commercial Transactions Law.
The cheque cannot be presented for payment before the due date mentioned on it, and it can be present on the stated date according to Article 617 of Commercial Law. The drawer shall bear in mind that the cheque issued by him should meet all the requirements of a valid cheque, and it shall be issued and due for payment in the State must be drawn on a bank as per Article 598 of UAE Commercial Transactions Law. The law also provides a time limit for initiation of recourse against the drawer or endorser in case of cheque bounce, and that is two years from the expiry of the time limit of presentment of a cheque under Article 638, and if legal proceedings are initiated the time limitation shall be started from the last action taken by the payee as per Article 640. The cheque bear can initiate legal proceedings against the drawer; it can be a criminal or a civil case.
Criminal Proceedings and implications in case of cheque bounce
To initiate a criminal case against a bounced cheque, the cheque bearer shall file a formal complaint against the drawer with the police of the relevant emirate. In Dubai, the complainant can complain about the incident on the Dubai Police mobile App. After they receive the complaint, the police inform the cheque issuer and request his presence. The drawer or issuer can settle the dispute at the police station by paying the amount of bounced cheque to the payee, and no further proceedings shall occur then. In such a case, the drawer can request some time to settle the issue, and if he is granted permission, he will have to deposit his passport at the police station. Although in some instances, police do not accept the depositing of a passport as a guarantee, such as if the amount of a bounced cheque is one million AED more than it.
The cheque bounce is considered a criminal matter in UAE, so the criminal implications for the bounced cheques when complained in the police station a travel ban or arrest warrant against the cheque drawer are issued. Following this, the drawer will be banned from travelling outside of UAE, and he tries to escape, he will be arrested, and if he tries to enter UAE, he will be detained on arrival. The sole way to get rid of these consequences is to settle the cheque bounce issue amicably or serve a sentence. If the parties do not sort out the issue of a bounced cheque at the police station, the police will transfer the complaint to the public prosecution branch in the courts for further investigation of the matter. Afterwards, the public prosecution hears opponents and makes a decision accordingly. The decision will be based on the evidence presented in court, and the public prosecutor could decide the issue in the form of bail either by paying the amount of bounced cheque or depositing the passport of the drawer or his guarantor. In case of denial of bail, the public prosecutor may order the detention of the drawer until the court hears and adjudicates the case. The next stage of resolution if the issue is criminal court after failing all the other subordinate forums of justice, opponents can finally seek relief from the criminal court, and a criminal court would go through the case in-depth and carry on the procedure through arguments of the parties, pieces of evidence, all the details relevant to the case to adjudicate the matter. The court will try to ensure that all the elements of the crime are satisfied and fulfilled or not.
To establish the crime, both men’s rea and actus reus should be proven to decide the case against the drawer; only actus reus is not sufficient to charge the drawer. Once the guilty intent of the perpetrator is established, the court punishes the perpetrator as per Article 401 of the Federal Law Number 3 of 1987 (Penal Code) can decide penalty of a fine of a minimum of AED 1,000 to AED 30,000 or imprisonment between one to three years or both for the criminal and as it is amended by Federal Decree-Law Number 14 of 2020, and it shall come into force as of 02/01/2022, and the said Article states that imprisonment or a fine shall be imposed on whoever draws in bad faith a cheque without sufficient and drawable funds or who, after issuing the cheque, draws the funds (all or part of it) so that the remaining amount is not sufficient to compensate the amount of the cheque issued, or instructs the drawee bank to refrain from payment, or if he intentionally writes or signs the cheque in such a way that makes it non-payable.
A similar sentence shall be imposed on whoever endorses another or delivers a bearer draft to them, knowing that it has no available sufficient funds in consideration thereof.
Alternatively, it is not drawable. The penal action proceedings shall be terminated in case of payment or its withdrawal after the perpetration of the crime but before the settlement of the case by a decisive judgment; otherwise, a stay of execution shall be ordered
In case the court orders the withdrawal of the chequebook from the losing party and the prohibition against giving him new chequebooks, according to the provisions of Article 643 of the Commercial Transactions Law, the public prosecutor shall notify the order of the Central Bank in order to generalize it to all banks. If the convicted defendant does not follow the court order after getting notified by the bank and does not surrender his chequebook within fifteen days of the notice, he shall be held responsible to a fine, up to fifty thousand dirhams and not more than one hundred thousand dirhams.
If any bank violates these orders, it shall be liable to pay a fine amounting to one hundred thousand dirhams to two hundred thousand dirhams.
Decision Number 14 of 2020 (Abu Dhabi PP Decision) was dispensed by the Attorney General Office (AG Office) in Abu Dhabi, which included provisions related to the imposition of fines for bounced cheques of a certain amount. The Abu Dhabi PP Decision is operative from 16 March 2020. In this new decision, the bounced cheque amounting to AED 500,000 or less shall not be liable for criminal sanctions like there shall not be any arrest warrant issued against the cheque issuer. Whereas, in Dubai Bounced cheque with the value of AED 200,000 or less shall not be considered a criminal act, and no arrest will be made; only a fine of AED 10,000 shall be imposed. Bounced cheque in Abu Dhabi with the value of AED 50,000 to AED 500,000 shall be legally responsible for paying a fine of a minimum of AED 10,000 to 20,000. This decision is similar to the Dubai PP Decision back in 2017. In Dubai, the punishment for the forgery of cheques will be imprisonment for a minimum of one year and a fine between AED 20,000 and AED 100,000.
Civil proceeding and implication of bouncing of cheque
After providing sanctions against the accused person in bad faith Criminal court transfers the case to the Civil court to determine the civil claims against him. The Civil court issues an order for payment of the whole debt or the remaining amount for payment. If the accused fails to make payment, his assets will be attached, and he will be punished (a jail term) for an additional offence that is not following the court’s orders. After completing the jail term, if no other case remains against the offender, he will be released, leave the country without restriction, and collect his confiscated passport.
Article 642 of the UAE Commercial Transaction Law provides another strict punishment for the bounced cheque issuer. The court can issue the order of publishing the judgment of the convicted person’s case in two daily newspapers in Arabic and English or online, mentioning the name, domicile, residential address of that person, and all relevant details regarding him. The publishing expenses shall be upon the convicted person.
ONE DAY COURT is a new system that allows the resolution of minor bounced cheque cases to be heard and decided within 24 hours. This system effectively facilitates the UAE judicial system for speedy determination of minor cases and strengthening UAE laws for the misdemeanour. The courts in the emirates of Abu Dhabi, Dubai, and Ras Al Khaimah have been established successfully resolving minor bounced cheque cases.