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Cheque Bounce law– One of the most popular ways to conduct financial transactions in the UAE is with a bank check. And this is a critical factor in the UAE’s high rate of bounced checks. A bounced check, also known as a bad or dishonored one, may be subject to legal action. With a few noteworthy exceptions, most incidents of bounced checks are no longer criminal offenses as of January 2, 2022. A bounced check is still regarded as a criminal offense in the UAE, and those responsible may be subject to civil litigation. let’s explain the Cheque Bounce law in detail according to the UAE law.

What does a cheque and a bounced cheque mean under UAE law? | cheque bounce in UAE

Under UAE law, a cheque bounce is a misdemeanor (a criminal crime) punishable by jail, fine, or both.  Cheque bounce cases are common in the UAE due to the country’s extensive business operations. To discourage anyone from engaging in such unethical and illegal practices, UAE regulations impose financially threatening and stringent legal consequences on violators. Cheque bounce concerns typically emerge in business transactions, rent matters, bank loans, and individual transactions, among other things. There are numerous causes for cheque bouncing, but one of the most prevalent complaints is that the debtor’s cheque to creditors is frequently rejected when repaying the debt amount and failing to refund the debt amount.

The Federal Law Number 18 of 1993, issuing the Commercial Transactions Law, which regulates the matters of issuing cheques, defines a cheque in its Article number 483 as a commercial paper containing an order issued by the drawer to a bank (the drawee) to pay, on the date indicated therein as 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.

When a drawer produces a cheque instructing the bank (drawee) to pay a needed amount to the payee, and the bank rejects the submitted cheque owing to

  1.  Inadequate funds (to partially or entirely cover the amount specified on the cheque) in the drawer’s account at the time the cheque was issued.
  2.  Order received from the drawer instructing the bank not to pay the cheque
  3. The drawer’s bank account was closed before the check was offered for payment. d. The drawer’s bank account was closed before the cheque was presented for payment.

Since a check is a form of payment that depends on the availability of money, the drawee must consent to honor the check that the drawer has issued.

If a cheque is bounced or dishonored for any of the reasons listed above, the cheque bearer has recourse against the cheque drawer or endorser if the issued cheque is submitted within the time restriction and is refused under Article 632 of the UAE Commercial Transactions Law.

The drawee bank must submit a statement to the payee to substantiate the protest of failure to pay. It should be established before the cheque’s presentation time restriction expires. The drawee bank cannot refuse to give the bounce statement for the cheque handed to it.

If the bank is unable to produce the statement immediately, it may seek a grace period of no more than three working days to provide the statement. According to Article 618 of the UAE Commercial Transactions Law, the time restriction for presenting a cheque is six months from the date of issue.

According to Article 617 of Commercial Law, the cheque cannot be presented for payment before the due date written on it, and it may only be shown on the stated date.

The drawer must keep in mind that the cheque he issues must fulfill all of the conditions of a legitimate cheque, and it must be issued and due for payment in the State, as per Article 598 of the UAE Commercial Transactions Law. The legislation also specifies a time restriction for The claimant may file a claim against the drawer or endorser in the event of a cheque bounce, which is two years after the expiration of the time period for presenting a cheque under Article 638. In addition, if legal proceedings are commenced, the time restriction begins from the last action taken by the payee, as specified in Article 640. The bearer of the cheque may file legal action against the drawer, either criminally or civilly.

Read more information about: what is money laundering in Dubai?

FAQ about Cheque Bounce law in UAE | best lawyers in dubai for cheque bounce

1- How to File Civil Case for Cheque Bounce?

Since dishonoring a check is a crime in the UAE, those who have dishonored bank checks are permitted to initiate criminal charges against the companies or individuals who issued them. This is consistent with Article 401 of Federal Law No. (3) of 1987 of the UAE Penal Code, which states:

In Dubai, an individual or a company can submit a police complaint against a bounced cheque in one of two ways. The first step is to go to a police station, and the second step is to file a police complaint online.

2- When does a cheque in the UAE bounce or become a bad cheque?

A cheque is returned due to four factors:

  • Non-availability of money equal to or greater than the amount of the cheque on the day of issue.
  • Mismatched signatures, missing or incorrect dates, and over-written or scrawled text are examples of technical faults.
  • Closure of the bank account prior to the issuance
  • The bank receives an instruction from the issuer not to cash the check.

3- What Happens in the UAE When a Cheque Bounces?

In the UAE, a payee who gets a faulty cheque has the right to take legal action against the drawer. They can now immediately petition the court’s execution judge for help. The existing procedure for filing police complaints has been modified to expedite the process. Because most instances are now decriminalized, police intervention is no longer required.

in addition, according to the most recent amendment, the penalty for a bounced cheque in the UAE is based on the amount owed.

CHEQUE AMOUNT FINE AMOUNT
Less Than AED 50,000 AED 2,000
AED 50,000 – AED 100,000 AED 5,000
AED 100,000 – AED 200,000 AED 10,000

Read more about: Money Laundering Lawyer in Dubai | Defenses, Penalties, Charges 

Maher Mahmoud Al Khalaf

Abdultaiyab Bahrainwala

Partner / Senior Lawyer

Abdultaiyab Bahrainwala, LLM, LLB advises on all aspects of UAE Property Laws, Commercial Laws, Corporate Laws, Labour Laws, 

+971 4 427 0842

Conclusion

Bounced cheque cases are common in the UAE and can be attributed to a variety of factors such as illegal termination, company insolvency, absconding of the cheque issuer, and so on. In practice, when the bearer of a bounced cheque submits a police complaint, the most realistic option to handle the matter for all parties is to settle it peacefully at the police station.

However, if an amicable settlement cannot be achieved and the situation escalates to the next level, hiring an experienced lawyer as soon as possible would be the most practical and reasonable option to avoid future severe legal implications and damages. Khairallah Advocates provides professional services in cases involving bounced checks in the UAE as an experienced law firm with many accumulated years of legal activity. If you are not based in the UAE, you may provide us with a Power of Attorney that is notarized in the country where you are presently resident and attested by the UAE Ministry of Foreign Affairs and International Cooperation.

We will approach the bank, the court, and any other relevant authorities on your behalf in order to offer documentary proof and reach an early settlement.

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