Cheques are widely accepted as a safe mode of payment in the UAE. However, cheque bounce cases are not uncommon. This article gives an overview of various issues related to bounced cheques, including the recent amendments in UAE Law.
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 UAE law have decriminalised bounced cheques under certain circumstances. The payee can also file a civil suit against the drawer to recover the cheque amount.
Recent Amendments in the UAE Law
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.
Frequently Asked Questions About Cheque Bounce
A cheque returned due to “insufficient balance” shall be considered an execution deed, and the payee can directly file a civil execution case against the cheque issuer. 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 for the issuer and also seizure of his bank accounts and other assets.
To file a civil case for cheque bounce, the payee can open a civil execution case directly by filing it in the Execution Division without having to file a main civil case to claim the cheque amount or remaining value of the cheque. In case of a cheque returned due to account closure or defect in the cheque or stop payment instruction, the payee can file summary proceedings based on the bounced cheque.
The payee of a returned cheque now has a fast remedy, and at the same time, the recent amendments in the law also benefit the drawer. This is because the drawer can request the Execution Judge to allow him to pay the cheque amount in installments.
This allows the drawer some breathing space to pay the cheque amount without the stress of an arrest warrant. However, he will remain on a travel ban until he pays all the instalments.
The banks tend to report bounced cheques to credit rating agencies. If repeated cheque bouncing cases result in a missed EMI or credit card payment, it will most likely hurt the credit score. A negative credit score can lead to issues in the future when seeking credit facilities.
As per the information available on AECB’s website, bounced cheque information will appear in the credit report for up to a period of five years.
A bounced cheque can be deposited again with the drawee bank. The payee can present a cheque multiple times for encashment during its validity period (six months from the date of issue), even if the cheque was returned initially.
Get Expert Legal Advice on Bounced Cheques Now!
A quick and efficient way to resolve a bounced cheque issue is for both parties to settle amicably. It is also imperative to check the sufficiency of funds before issuing a cheque.
Navigating the intricacies of cheque bounce cases requires more than just knowledge; it demands experience, expertise, and a deep understanding of the local legal landscape. We at S.K. Legal provide the following services:
- Comprehensive legal consultancy: Whether you’re dealing with civil or commercial disputes, our team is equipped to provide you with the best legal advice.
- Support during negotiations: Our legal advisory services extend to assisting clients during crucial negotiations, ensuring their interests are always protected.
- Collaboration with local law firms: We understand the nuances of local jurisdictions. That’s why we collaborate with licensed local law firms to oversee court cases in Dubai and Sharjah Courts.
For personalized assistance and advice on bounced cheques, contact us at info@sklegalfirm.com.
Disclaimer
This publication does not provide any legal advice and it is for information purposes only. You should not rely upon the material or information in this publication as a basis for making any business, legal or other decisions. Therefore, any reliance on such material is strictly at your own risk.
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Sameer A. Khan
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