Amendments on UAE laws involving bounced cheques from 2022
A. Amendments to criminal offences associated with bounced cheque:
The most anticipated decree, the Federal Decree No. 14/2020 (the “Decree”) will come into force in January 2022, abrogating provisions of Article 401, 402, and 403 of the Federal Law No. 3/1987 concerning the Penal Code governing the offense of bounced cheque.
Prior to the issuance of the Decree, the UAE Penal Code allowed the criminal courts to consider dishonoring a cheque by the drawer for any reason to be a criminal offense. The beneficiary was given two avenues for obtaining redress: civil redress and criminal redress.
After the issuance of the decree, criminal liability on the drawer of the bounced cheque is no longer applicable if the cause behind dishonoring the cheque is insufficient funds.
Does this mean any and all causes of a bounced cheque are not criminally punishable?
No. The Decree expressly specifies that pursuing a criminal remedy for a bounced cheque offense will no longer be available only if the cheque is bounced due to insufficient funds. Few examples of the acts which will be considered a crime of a bounced cheque, punishable by criminal penalties are as follows:
- If the drawer ordered the bank to stop paying the value of the cheque to the beneficiary;
- If the drawer closed the account and withdrew all the available balance before the cheque due date. If the drawer had a dormant account at the time of issuing the cheque, and yet issued the cheque to the beneficiary; and
- If the drawer has deliberately signed the cheque in such a way as to prevent the beneficiary from cashing the cheque at the bank (e.g.: signature mismatch).
B. Amendments to Commercial Transactions:
The Decree has introduced deterrents for the beneficiary of the cheque to claim its value in an efficient manner.
The key changes provide the beneficiary of a cheque the right to ask the bank for partial payment of the cheque’s amount, subject to the drawer account balance, as detailed in Article 617 of the Commercial Transactions Law. The beneficiary may ask the bank for partial payment multiple times to obtain the cheque’s amount. More importantly, a written consent from the beneficiary to the bank is essential. Thus, the bank is not liable to provide the beneficiary with partial payment if the latter did not ask for it. Banks must pay the beneficiary the partial amount from the account if the amount in the account is less than the value mentioned in the cheque unless the drawee rejects it, otherwise, the Banks will be subject to criminal liability.
In light of the Decree, the Central Bank of the UAE issued a notification dated 01 November 2021 (the “Notice”) informing all banks and finance companies operating in the UAE of the requirement to make partial payments on cheques. The instructions in the Notice will take effect on 02 January 2022.
If the cheque is bounced due to insufficient funds, the beneficiary of a bounced cheque, after obtaining a certificate from the bank of no sufficient funds, has the right to use the bounced cheque as a civil executive in accordance with the provisions of the Law. Similarly, where the value of a cheque is partially paid by the bank and a certificate of partial payment is given to the beneficiary, the beneficiary shall have the right to demand the payment of the remaining amount against the original cheque being considered as an execution writ according to the provisions of the Law. This implies that the beneficiary can open a civil execution case directly by filing it before a competent execution judge without having to follow the standard route of filing a civil case to claim the cheque amount or remaining value of the cheque.
Decriminalization is a positive move since it protects the drawer of a cheque that bounced due to insufficient funds from being prosecuted under criminal offense. At the same time, the amendments expedite the collection of cheque value more effectively.
Ali Alraeesi is a partner and senior advocate at Alsuwaidi & Company.
Ali is a member of the United Arab Emirates Bar Association. He is experienced in Criminal, Civil and Commercial Law, and represents clients’ interests before all levels of the UAE courts.
To speak to Ali directly, contact him at [email protected]