Guide To Update of Cheque Bounce in UAE 2023

A bank cheque is a widely used financial instrument for transactions worldwide. However, a bounced cheque occurs when the account holder does not have enough funds available, resulting in the inability to process the transaction. Cheque bounce in UAE is a prevalent issue encountered by individuals during their time in the country. It falls under the scope of the Commercial Transactions Law, and the legal consequences and penalties can be financially significant.

Comprehending The Uses of a Cheque

When a cheque you issued is bounced in UAE, returned, or dishonoured, it can expose you to civil and/or legal actions. There are 4 factors that can lead to a cheque being returned:

• • Insufficient funds: When the account does not have enough money equal to or more than the cheque amount on the date of issue.
  • Technical errors: This includes issues such as mismatched signatures, missing or incorrect dates, overwriting, or scribbled text on the cheque.
  • Closed bank account: If the bank account is closed before the issued cheque(s) are cashed.
  • Payment withholding instruction: When the bank is instructed to withhold payment against the cheque.

• The Form: An Overview 

In the UAE Commercial Transactions Law, cheques issued and due for payment in the UAE must be drawn on a bank. Each bank supplies chequebooks to its account holders, containing specially printed and highly-protected forms, i.e., blank cheques. These cheques must bear the following printed information: 

• • Name of the account owner 
  • Account number
  • Cheque’s unique serial number

• What are The Important Particulars?

The law does not stipulate that a cheque without a date will be considered invalid. If the date is missing from the cheque, the date of issue will be considered the date when the cheque is presented for payment. If the place of payment is not mentioned on the cheque, the location specified next to the bank’s name will be deemed as the place of payment. 

A valid cheque must include the following details:

• • The term “cheque” is written in the language used for the instrument’s text.
  • An unconditional order to pay a specified sum of money. 
  • The name of the bank obligated to make the payment (the Drawee). 
  • The name of the person or entity to whom the payment should be made or the person who can endorse it to receive the payment (the Payee). 
  • The designated place of payment. 
  • The date and location of issuing the cheque. 
  • The signature of the individual who issued the cheque (the Drawer). 

If no place is indicated at all, then the bank’s head office will be considered the place of payment. If the place of issue is not stated, the cheque will be considered as issued at the location where it was effectively signed.

• Understanding The Availability of Funds

It is imperative for the drawer must be aware that – issuing a cheque without sufficient funds in their account with the drawee at the time of issuance is not permissible. The drawer must ensure that they have enough funds to cover the full amount indicated on the cheque. Failure to deposit adequate funds, either partially or fully, gives the payee the right to request a statement from the drawee (the bank). It is of utmost importance for all the parties involved to act honestly and responsibly in their financial dealings. 

Meaning and Implications of a Cheque Bounce in UAE

Bounced cheque, also referred to as a dishonoured cheque/bad cheque, is a cheque that the payee presents but gets rejected by the drawee bank when:

• • The bank marks the cheque as rejected when the funds in the drawer’s account at the date of issuance are insufficient to cover the mentioned amount, either partially or entirely. 
  • The bank receives an order from the issuer to withhold payment for the cheque. 
  • The cheque is rendered unpresentable for payment due to improper signing, like missing or altered signatures by the drawer. 
  • If the drawer’s bank account is closed before the cheque is presented for payment, it will lead to the cheque being declined.

• Liability: An Overview

The cheque serves as a payment instrument that depends on the availability of funds, with the drawee agreeing to honour the cheque issued by the drawer. The bearer of a cheque has the right to seek recourse against the drawer, endorsers, and any other liable parties if the cheque is presented within the specified time frame but remains unpaid, as confirmed by a protest. The failure to make payment can be confirmed through a statement from the drawee bank.

• What is the Time Frame for Presenting a Cheque?

A cheque becomes payable on the date indicated as the date of issue. Prior to that date, it is not acceptable. The cheque must be presented for payment within 6 months from the date mentioned as the date of issue. The drawer is obligated to provide the necessary funds for payment on the issued date, and these funds must remain available with the drawee until the expiration of the time limit for presenting the cheque. Failure to maintain the required funds beyond this time limit grants the bearer the right to seek recourse against the drawer, even if the bearer neglects to present the cheque to the drawee bank and make a protest.

• The Limitation Period

Any recourse actions undertaken by the cheque bearer against the drawer, endorsers, or other obligors for the payment of the cheque’s value will not be considered valid after 2 years from the date when the cheque expires. If a lawsuit is initiated, this 2-year time limit will only commence from the day of the last action taken in the lawsuit. This time limitation will not be applicable if the debt is adjudicated or if it is acknowledged through a separate deed that results in the renewal of the debt.

Bounced Cheque In The United Arab Emirates

Federal Decree-Law brought about these amendments to streamline the process while upholding principles of justice. The changes strike a balance to promote the more efficient utilisation of police personnel and improve economically.

• Case Study: Decriminalisation 

One significant change in cheque bounce in UAE punishment mostly is the reduction of jail time. A criminal case can be pursued if any of the following situations occur: 

• • The drawer instructs the bank not to cash the cheque prior to the specified day. 
  • The drawer closes the account/ withdraws the available balance before the due date. 
  • The cheque is intentionally signed inaccurately. 
  • The drawer deliberately writes/  signs the cheque incorrectly.

• A Look At The Role Of The Courts

Under the latest rules, banks are required to make a partial payment to the cheque holder. This has to be done in case the full amount is not available in the account. However, the bank still retains the right to refuse such a payment. This is a departure from the previous law, where the account holder had to instruct the bank to make a partial payment explicitly. Under the new law, individuals can directly approach the court’s execution judge to obtain an order for full payment or the remaining amount in cases where payment is not made as ordered by the court.

Going Through The Course of Legal Proceedings

When a cheque is considered bounced, the failure to pay can be confirmed by obtaining a statement from the bank. The bank is obliged to provide such a statement and cannot refuse the request. However, the bank may request a grace period of up to 3 working days. The bearer of the cheque bounce in UAE has no legal obligation to resolve the matter directly with the drawer. Instead, they have the option to initiate legal proceedings. These proceedings may take the form of either a criminal case or a civil case to address the issue of the dishonoured cheque.

• Understanding the Criminal Case Proceedings

Under the new law amendments concerning cheques, criminal proceedings and sanctions can still be pursued in specific cases outlined in the Commercial Transactions Law. Aside from those specified instances, the bounce of a cheque in the UAE  will not lead to criminal liabilities under the Penal Law.

• • The Police Complaint Regarding Bounced Cheque

To initiate legal action for a cheque bounce in UAE, the bearer must formally file a complaint with the police of the relevant sovereign against the drawer. This complaint can be lodged conveniently in Dubai through the Dubai Police mobile application. At the station, the drawer has the opportunity to resolve the matter via payment of the amount of the cheque bounce in Dubai. In such cases, no legal actions will be taken in the future. The drawer has the right to request some time to settle the issue. A reasonable period can be granted, secured by depositing the drawer’s passport. The acceptability of this guarantee depends on the cheque’s amount. After they file the complaint, an automatic travel ban or arrest warrant will be issued. 

• • Going Through the Public Prosecution

If the parties involved in the bounced cheque dispute fail to reach a resolution at the police station, the complaint is then transferred to the public prosecution in court for future inquiry. Depending upon the evidence put forth, the decision might involve the option of posting bail, either by paying the value of the bounced cheque/ by depositing the defaulter’s passport or another guarantor’s passport. If bail is denied, the public prosecutor may order the detention of the drawer until the court hears and decides on the matter.

• • The Criminal Court: An Overview

The Criminal Court’s responsibility is to conduct an in-depth analysis of the case particulars, arguments from both parties and the available evidence. The court examines whether the essential elements of the crime are present or not. These acts alone do not constitute a crime unless material and mental elements (Mens Rea) coexist. Once both crime elements are established, the court, empowered by the UAE Penal Code, has the authority to determine the perpetrator’s sanction. This can entail a fine imposed solely by the court, based on the findings and the amount in question, usually ranging from AED 1,000 to AED 30,000 or even more. The court may decide to sentence the perpetrator to imprisonment for a period ranging from 1-3 years.

• Comprehending the Civil Case Proceedings

The sentence issued by the criminal court serves as a sanction solely for the act of issuing a cheque in bad faith, with insufficient funds/ by withdrawing funds after issuing the cheque, leaving an inadequate balance to cover the cheque amount. The claimant also has the option to present their case directly to the civil court to assert their right to the disputed amount. A civil court can be any competent judicial authority other than the criminal court. Failure to comply with the civil court’s decision may lead to the attachment of the perpetrator’s assets, and he may face another jail term. Once the jail term is completed, and in case there are no other unresolved cases against the issuer of the bounced cheque, he is allowed to leave the country.

What Are The Penalties For a Bounced Cheque?

According to the latest amendment, the punishment for a cheque bounce in UAE relies on the amount due.

• Will You Get a Jail Term? 

Forgery or counterfeiting of a cheque and attributing a cheque to a third party by altering any detail carries a strict penalty. Individuals found guilty of such actions may face a minimum jail term of a year and a fine of no less than AED 20,000, with a maximum fine of not more than AED 100,000.

Summing Up 

Bounced cheque problems can emerge in various commercial transactions, such as company dealings, bank loans, property rentals or purchases, and individual transactions. Previously, a bounced cheque was deemed a criminal offence under UAE law, potentially leading to imprisonment for the payee. However, as of January 2nd, 2022, with certain exceptions, most cases have been decriminalised.

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