Despite global advancements in the payment instruments, cheque remains the most widely used mode of payment and is preferred by a vast majority of corporations and individuals. However, it comes with a liability if the cheque is dishonored/bounced due to any reasons and the drawer might have to face the consequences accordingly. There can be numerous instances where a cheque can be bounced and is considered a serious offence as per the laws of the United Arab Emirates.
Article 483 of the UAE Federal Law No. (18) of 1993 Commercial Transactions Law defines a cheque as “a commercial paper containing an order issued by the drawer upon a bank (the drawee) to pay in the date indicated therein, as being the date of issue, a specifying sum of money to the order of a third person being the beneficiary or the payee.”
The UAE laws considers cheque as a critical payment instrument and can invite serious consequences both civil and criminal, if bounced due to any reason. Among various reasons, some of the major reasons due to which a cheque can be bounced/dishonored are listed below:
i. Insufficient funds in the bank account of the drawer.
ii. False/fake signature on the cheque regardless of intention.
iii. On receipt of order by the Bank from Drawer to refrain from the payment.
iv. Closure of bank account before encashment of the cheque.
However, on 27th September 2020, His Highness Sheikh Khalifa Bin Zayed Al Nahyan, President of United Arab Emirates, issued a new Federal Decree No. 14/2020 (the “Decree”) and the provisions of Article 401, 402 & 403 have been amended by virtue of Article 1 of Federal Law No. 34 dated 24-12-2005, they have been abrogated by virtue of Article 3 of Federal Decree Law No. (14) of 2020 dated 27-09-2020. The latest amendments in the above-mentioned laws have introduced new dimensions towards the implications, consequences and classification of civil and criminal acts in lieu of bounced cheques. A bounced cheque had been considered a criminal offence regardless of the reason, which has now been amended.
As per the Article 641 of the Federal Decree Law No. (14) of 2020 amending certain provisions of the Federal Law No. (18) of 1993 Concerning the Commercial Transaction Law, whoever commits any of the acts bellow shall be subject to a penalty of no less than 10% of the cheque value, subject to the minimum of AED 5,000 (AED Five Thousand), and no more than twice the cheque value:
- Declaring deliberately and contrary to the truth that no fund for payment of the cheque value is available or that the fund available is less than the cheque value.
- Rejecting in bad faith the payment of a cheque drawn on the bank where the fund is available to a bearer to whom a valid protest has not been made.
- Refusing to write the statement provided for in Article (632) of this Law.
- Rejecting partial payment of the cheque value, issuing a certificate to this effect, or giving back the original of the cheque as per the provisions stipulated in (2) of Article (617) of this law.
A bounced cheque will constitute a criminal offence in the below-mentioned instances and as stated in the Article (641) Bis (2) of the Federal Decree Law No. 14 of 2020, “Whoever commits any of the acts bellow shall be subject to the punishment of imprisonment for no less than six months and no more than two years in addition to a penalty of no less than 10% of the cheque value, subject to the minimum of AED 5,000 (AED Five Thousand) and no more than twice the cheque value, or any of the two punishments:
- Ordering or asking the drawee, prior to due date, not to pay the value of a cheque he has issued, with the exception of the cases provided for in Articles (620) and (625) of this Law.
- Closing the account or withdrawing all available fund therein before issuing the cheque or before presenting the cheque for payment or if the account has been frozen.
- Deliberately writing or signing the cheque in a way that make it unpayable.
Penalty shall double in case of repetition.”
The bearer of the cheque shall now have the option to demand partial payment from the relevant bank if the cheque has been bounced due to unavailable or insufficient balance in accordance with newly introduced Article 635 Bis in the Federal Decree Law No. 14 of 2020. The bearer can also file a civil suit against the bounced cheque after obtaining a cheque return memo from the bank.
The Decree will come into force on 02nd January 2022 and the implications as stated above will be enforced accordingly.
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Disclaimer: The above is solely our opinion on the newly introduced Decree and does not constitute a legal opinion in any way whatsoever.