Cheque transactions are a common way of settling property, rental, and other payments. But what if the bearer is unable to encash a cheque? That is when a cheque is bounced in the UAE.
This is daunting for both bearers (beneficiaries) and drawers (issuers). In the UAE, the drawer of a bounced cheque can face legal repercussions such as fines and imprisonment. But what are the reasons behind a bounced cheque, and how can you recover the money?
Scroll down to get all the answers to your what, why, and how.
- Understanding Bounced Cheques
- Reasons Behind Bounced Cheques
- Bounced Cheques in Light of the UAE Laws
- Penalties for Bounced Cheques
- Received a Bad Cheque – What To Do Afterwards
- Preventive Measures to Take
- FAQs
Understanding Bounced Cheques
Cheque transactions are a common way of payment for different procedures in the UAE. Whether it is a commercial transaction in Abu Dhabi or a rent payment in Dubai, people prefer paying through cheques.
But what if the beneficiary is unable to encash a cheque? As per UAE laws, bounced cheques are a civil offence and can lead to hefty penalties. Both the beneficiary and drawer should have complete knowledge of bounced cheques for stress-free transactions.
Reasons Behind Bounced Cheques
The Emirates has laws in place guiding such procedures. Even if a person does not have any criminal intention, the cheque can be dishonoured if one of the following cases:
- If the bank account doesn’t have enough funds as per the cheque’s value on the issuance date.
- Any issue with cheque writing such as missing dates, wrong dates, forged signatures, or overwriting.
- If the drawer’s bank account is either closed or blocked.
- If the bank doesn’t have enough funds to pay the beneficiary in case of bankruptcy.
- Lastly, if the issuer intentionally restricts the bank from honouring the cheque.
Bounced Cheques in Light of the UAE Laws
Previously, as per Federal Law No. 18 of 1993, bounced cheques for any reason were a criminal offence. One that could lead to penalties such as imprisonment and hefty fines. The recent amendment, the Federal Decree Law No. 50 of 2022 guides commercial transactions.
The amendment shifted the parameters from criminal to civil offence. Now, dishonoured cheques are more of a civil matter requiring discussions and financial repercussions. This is what we call the decriminalisation of bounced cheques, which has eliminated imprisonment punishment for most of the reasons.
Criminalisation
Under the amended law for a bounced cheque in UAE, some cases are criminal offences. For that, imprisonment with financial penalties is applicable. Let’s go through the cases:
- If the cheque drawer instructs the bank not to encash the cheque before its due date. Exceptions to this case are for valid reasons. Examples include misplacement of a cheque or bankruptcy as outlined in Article 651 of Commercial transaction laws.
- Account closure, frozen/dormant account or withdrawal of all money before cheque encashment.
- Forging signatures or wrong signatures such as overwriting.
Decriminalisation
As per the recent amendment, certain cases of bounced cheques are no longer a criminal offence. Instead, now these cases are a part of civil offences that require negotiations and fines. Here are the details:
- Under Article 630 of the Federal Decree-Law No. 50 of 2022, issuing a cheque requires sufficient funds at the time of writing it. This is a legal obligation as per the new amendment and the drawer must prove it.
- If for some reason, there are not sufficient funds in the account, imprisonment is no longer an applicable punishment.
- Previously, beneficiaries or drawers used to report bounced cheques directly to the police. As per the new amendment, for insufficient funds in the account, referring the matter to the court’s execution judge is necessary. This is to streamline the process and save time.
Cheque Encashment by Bank
The drawee (bank) must encash cheques if there are sufficient funds available in the account despite opposition by the drawer. This update is to protect beneficiary rights. The only exception to this is bankruptcy or cheque misplacement.
Additionally, this law makes it a legal obligation for banks to clear at least partial cheque value. With this, each partial payment must have a mark at the back of the cheque as proof. Also, the drawee should give the original cheque with a certificate of the payment to the bearer.
Article 663: In case of multiple cheques submitted concurrently and the drawee (bank) doesn’t have enough funds, payments should be priority-wise. This means the first submitted cheque should be paid first. If submitted at the same time and from the same chequebook, the serial number should be prioritised.
Penalties for Bounced Cheques
There are certain financial penalties and imprisonment charges on the drawer for writing bad cheques. If a drawer intentionally writes a fraudulent cheque or has insufficient funds, here are the laws safeguarding the bearer’s rights:
| Article (s) | Penalty | Reason |
| Article 673 | Not less than 10% of the cheque value of a minimum of AED 5000. Must not exceed the double of the cheque value. | Intentionally writing a cheque without a sufficient amount in the account.Not paying partial payments or recovering the original amount. |
| Article 674 | No less than 10% of the cheque value of a minimum of AED 1000. Must not exceed the cheque value. | If the drawer or obligor knows that a cheque cannot be encashed or has no outstanding balance to pay. |
| Article 675 | Imprisonment for a minimum of six months and a maximum of two years.A fine of not less than 10% of the cheque value of a minimum of AED 5000. Must not exceed the double of the cheque value. | Asks the drawee to dishonour the cheque before encashment other than valid reasons as stated in Article 651.Closure of an account or a dormant account.Signing or writing a cheque in a way that restricts honouring it. |
| Article 676 and 677 | Imprisonment for a minimum of one year.A fine of a minimum of AED 10000 and a maximum of AED 100,000.For terrorist purposes: Life sentence with a minimum fine of AED 500,000 and a maximum fine of AED 1,000,000. | Anyone who forges a cheque or gives it to a third party.Anyone who uses a forged cheque.Forges PR fabricates cheques for terrorist activities. |
| Article 679 | The court may confiscate the chequebook and ban the issuance of the new chequebook for up to five years.If the chequebook is not returned within 15 days, a fine of a minimum of AED 50,000 and a maximum of AED 100,000 is applicable.Any bank violating the above clauses has to pay a fine of a minimum of AED 100,000 and a maximum of AED 200,000. | If conviction is proven right in Articles 674 and 675. |
Note: As per Article 683, all the crimes and penalties mentioned above are not applicable until and unless a person is proved guilty. That means if a person has intentionally committed these crimes.
Received a Bad Cheque – What To Do Afterwards
In case of a bounced cheque in UAE, here is what they can do to recover their money:
1. Report the Case to the Bank
The first thing to do is to inform the bank about the incident with all the details. The bank will provide the beneficiary with details about the cheque and the account’s status.
2. Proof of Insufficient Funds
The beneficiary should request proof of insufficient funds in the drawer’s account from the bank (if applicable).
3. Ask for Payment Recovery
In case of civil offences, the beneficiary should first protest about the incident to the drawer. This must include a written statement outlining cheque details, recovery time and legal repercussions.
As per Article 663, the bearer should recourse to the drawer and submit proof of bounced cheque. With this, the drawer must provide his stance on the bank of the chaque within 3 business days.
4. Report to Relevant Authorities
It is essential to inform relevant authorities within the stipulated timeline of receiving a bounced cheque. The validity period of cheques in the UAE is 180 days, as per Article 649. For insufficient funds, report to the court, and for criminal offences, file a police complaint.
Dubai Police is a relevant authority to consult in case of a bounced cheque in the UAE. Visit their official website or smart police stations in Dubai to get your work done.
5. Partial Payments
In case of partial payments, the beneficiary has the right to claim the full cheque value as per Article 667 or the recovery time set as per Article 663.
Preventive Measures to Take
Here are some quick tips to save you from the future hassle of receiving bounced cheques:
- When accepting a cheque, ensure the drawer’s account has enough funds. Using a cheque verification service or contacting the drawer’s bank is a good way of clearing doubts beforehand.
- Avoid post-dated cheques as there is a high risk of dishonouring due to insufficient funds in the future.
- When renting and leasing a commercial property in Dubai or other Emirates, check for the payment method beforehand.
FAQs
Yes, in case of fraud, where the cheque drawer intentionally closes his account, withdraws money, or writes a bad cheque.
This is only possible once the beneficiary visits a bank to encash the cheque.
In case of a bounced or dishonoured cheque, the account holder must clear the payment.
Settling a bounced cheque case in the UAE requires a series of steps:
– Contact the beneficiary.
– Try resolving the matter outside court by paying off the cheque’s value.
– If the case has been taken to the court or police, gather evidence as proof.
– In any other case, recovering money as soon as possible is the most feasible option to avoid legal proceedings.
Understanding the intricacies of bounced cheques in the UAE is essential for both cheque drawers and bearers. Save yourself from undue stress or penalties by following the legal guidelines and this guide. Be smart, take precautionary measures, and have smooth financial transactions!
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