In the UAE, the cheque bounce is a very frequent problem faced by people during their span in the country. It is covered under the purview of a criminal offense in the UAE, and legal implications/penalties can be financially severe and daunting. Bounced cheque issues may arise in a variety of commercial transactions, including but not limited to, companies’ exchanges, bank loans, property rents or purchases and individual transactions.
Bounced cheque complaints and cases can be attributed to several reasons but primarily due to the debtor’s failure of paying the debt to a creditor on a specific date agreed thereon. Under the UAE Federal Law No. (3) of 1987 Promulgating the Penal Code, both criminal, as well as civil proceedings, can be initiated against the perpetrator. Therefore, it is crucial for every individual dealing with cheques in the UAE, specifically those who are not desiring to “intentionally” commit a crime and face the consequences, to know how to issue and accept cheques properly, or how to handle situations when deposited cheques returned unpaid.
What is Cheque?
A cheque (or check) is intended to act as a payment/negotiable instrument customarily recognized instead of money. The Federal Law No. (18) of 1993 Issuing the Commercial Transactions Law regulates issuing and circulation of cheques in the UAE. The Article (483) of the law defines a cheque as “an order issued by a person (the Drawer) to a bank (the Drawee) to pay on the date indicated therein (Date of Issuance), a specific sum of money to the order of a third person (the Payee), being the beneficiary, or the bearer thereof”.
A duly completed and signed cheque acts as an authority to the bank to disburse the money of the drawer. The bank must pay the cheque even if the drawer objects, except when the cheque was lost or if the bearer became bankrupt. Therefore, the cheque is effectively irrevocable payment instrument.
The cheque issuer shall be aware that according to the law a cheque needs to satisfy the conditions mentioned below.
As per the Article (598) of the UAE Commercial Transactions Law, cheques issued and due for payment in the UAE must be drawn on a bank. Each bank provides bank account holders with chequebooks containing specially printed highly-protected forms – blank cheques. On each cheque must be printed (a) the name of the account owner, (b) his account number and (c) the serial number of the cheque (see the picture below).
Pursuant to the Article (596) of the UAE Commercial Transactions Law, a cheque shall contain the following particulars (see the picture above for reference):
- (1) The word “cheque” written in the text of the instrument in the language in which the text is written;
- (2) An unconditional order to pay a specific amount of money;
- (3) The name of the bank which is under obligation to pay (the Drawee);
- (4) The name of the person to whom or to whose order payment should be made (the Payee);
- (5) The place of payment;
- (6) The date and place of issuing the cheque;
- (7) The signature of the person who issued the cheque (the Drawer).
There is no mention in the law that the cheque without a date will be invalid. Thus if the date on the cheque is omitted, the date of issue shall be the date of presenting the cheque for payment.
If the place of payment is not stated on the cheque, the place indicated next to the bank name shall be deemed to be the place of payment; and if it is not indicated at all, then it shall be the bank’s head office. Also, if the place of issuing is not stated, the cheque shall be deemed to be issued at the place where it was effectively signed (Article (597)).
Availability of Funds
Abiding by the laws and principles of good faith (Bona Fides), the drawer shall bear in mind that he cannot issue a cheque knowing that he does not have, or will not have, enough funds in his account with the drawee at the date of issuance. The drawer shall deposit sufficient funds for the full payment of the amount indicated in the cheque, as per Article (599). Failure to provide such funds, partially or fully, entitles the payee to request a statement from the drawee (the bank) to present as a means of evidence in any action he opts to initiate against the drawer.
What is Bounced Cheque?
A bounced cheque (also known as ‘dishonoured cheque’ or ‘bad cheque’) is a cheque presented by the payee and rejected by the drawee bank when:
- The bank indicates that the funds available in the account of the drawer at the date of issuance are insufficient to cover the amount mentioned on the cheque, either partially or fully; the cheque is consequently rejected and marked by the bank.
- The bank receives an order from the issuer to refrain from paying the cheque.
- The drawer makes or signs the cheque in a manner that prevents it from being paid, like omitting or changing his signature.
- The drawer’s bank account was closed before the issued cheque is presented for payment.
The cheque is a payment instrument contingent to the availability of funds, through the drawee’s acceptance to pay the cheque issued by the drawer. Accordingly, the Article (632) of the UAE Commercial Transactions Law entitles the bearer of a cheque to have recourse against the drawer, endorsers and/or any other parties found liable thereon if the cheque is presented within the prescribed time limit but remained unpaid, and this fact is established by protest.
In lieu of the protest, failure to pay may be established by a statement from the drawee bank. Refrainment from paying a cheque shall be established before the expiry of the time-limit prescribed for presentment.
The Time Frame for Presenting a Cheque
A cheque is due for payment on the date stated thereon as the date of the issue. It may not be presented for payment before such date (Article (617)) and shall be presented for payment within a time-limit of six months from the date stated on the cheque as the date of issue (Article (618)).
It is important to note that the drawer shall provide the consideration for payment on the date of issue and such consideration shall continue to exist with the drawee until the expiry of the time-limit for presentment of the cheque. Otherwise, the Article (634) grants the bearer the right to have recourse against the drawer, even when the former fails to present the cheque to the drawee bank, make a protest, or take a similar action within the prescribed time limit.
The Limitation Period
The Article (638) states that the actions of recourse initiated by the cheque bearer against the drawer, endorsers and other obligors for the payment of its value, will not be heard after a period of two years from the expiry of the time-limit set for presentment thereof.
In case a lawsuit is initiated, this time limit shall only apply from the day of the last action taken thereon. In addition, such time limitation shall not run if the debt is adjudicated or when it is acknowledged by a separate deed resulting in the renewal of the debt (Article (640)).
The Course of Legal Proceedings
When a cheque is deemed bounced, failure to pay may be established by a statement from the bank. The bank cannot refuse a request to issue such a statement but may request a grace period not exceeding three working days following the presentment of the cheque to contact the drawer.
The bearer has no legal obligation to resolve the matter with the drawer through direct contact, and may rather initiate legal proceedings. Such proceedings may take the course of a criminal or a civil case.
Criminal Case Proceedings
I. The Police Complaint
In order to file a case for a bounced cheque, the bearer of the cheque must formally lodge a complaint with the police of the respective emirate against the drawer. In Dubai, such complaint may be filed through the Dubai Police mobile application.
After receiving the complaint, the police should contact the issuer of the cheque to notify him of the same and request his presence. At the police station, the drawer is allowed to settle the issue through paying the amount of the bounced cheque. In that case, no further legal proceedings will be taken.
The issuer of the bounced cheque has the right to request some time to settle the issue. Upon such request, the issuer may be granted a reasonable period secured by the deposit of his passport at the police station. However, it highly depends on the cheque’s amount as in many cases such guarantee of depositing the passport is rejected by police officers if the amount drawn on the cheque is high (AED 1 Million and above).
Since the bounced cheque is a criminal offence in the UAE, upon filing the complaint at the police station, a travel ban/arrest warrant on the drawer will be issued automatically. Hence, the issuer of the cheque will be banned from leaving the country and arrested if he tries to escape, or will be detained on arrival if he enters the UAE from outside. Such ban/warrant can be removed only upon settlement of the bounced cheque issue, or after serving a sentence.
II. The Public Prosecution
In case the opponents failed to resolve the bounced cheque dispute at the police station, the police then transfers the complaint to the public prosecution in the court, to further conduct its investigations. Thereafter, the public prosecution makes decisions in the case upon hearing the opponents.
Based on the evidence presented in the court, the decision could be a bail either by paying the value of the bounced cheque or by depositing the passport of the defaulter or another guarantor. In case bail was denied, the public prosecutor may order the detention of the drawer until the court hears and decides on the case.
III. The Criminal Court
The role of the criminal court is to dive deeper into the case details, opponents’ arguments, and available evidence. The court then proceeds to examine whether the crime elements are satisfied or not. The crime elements are the material element and the mental element.
The material element (Actus Reus) means that the perpetrator had physically committed an act which is considered a crime by law. Examples on that can be many, like failing to provide the amount of money or withdrawing it from the issuer’s account after the cheque’s date of issuance, or making mistakes with the name, amount, and/or signature in the cheque.
Such acts shall not constitute a crime without the coexistence of material element and mental element (Mens Rea). The mental element means the perpetrator’s intention to bring financial damages to the complainant.
Once both of the crime elements are satisfied, and by the authority vested in it in the Article (401) of the UAE Penal Code, the court may decide the sanction of the perpetrator. This can be confined to a fine assessed solely by the court, based on the conclusion reached and the amount claimed and usually ranging between AED 1,000 and AED 30,000, or more. The court may also decide the sanction of the perpetrator to be serving jail time of between one year and three years.
Civil Case Proceedings
The criminal court and the civil court function separately. Hence, the sentence issued by the criminal court comes only as a sanction for the act of issuing a cheque in bad faith without sufficient funds or withdrawal all or part of the funds after giving the cheque, so that the remaining balance is insufficient to cover the amount of the cheque.
Nevertheless, the court conducting the criminal trial may transfer the civil claim to the civil court for determination. The claimant may present his case to the civil court as well to claim his right to the disputed amount.
The civil court may be any competent judicial authority other than the courts. For example, in Dubai, the Rent Disputes Settlement Center (also known as Rental Committee) is a competent authority carrying out a settlement of all rental disputes arising between property landlords and tenants in the emirate.
After reaching a conclusion based on the evidence and facts presented by the opponents, the civil court can then demand the issuer of the bounced cheque to pay a sum equal either to the value of the cheque or its outstanding balance. In case the perpetrator fails to pay the said amount, his assets may be attached, and he may be subjected to another jail term for failing to comply with the civil court decision.
If there are no pending cases against the issuer of the bounced cheque, once the jail term is completed, he is free to leave the country after collecting his impounded passport.
What Else You Need to Know
Once the court concludes that the elements of crime are satisfied, it is entitled to decide by its sole discretion which sanctions to apply from the options allowed by law.
The issuer of a cheque should be aware that if the cheque bounced for a typo mistake, but there were available funds, it can be remedied at any stage of the legal proceedings. The remedy may yet be possible after the court makes its decision, and consequently, execution will be suspended.
The same applies if the drawer filled the cheque properly but had no available funds at that moment. The sooner a drawer manages to provide the amount he is defaulting with, the less legal proceedings will be initiated against him.
In case of settlement, the drawer shall make sure to retrieve the bounced cheque and get a clearance paper from his debtor upon payment of the disputed amount. Henceforth, no further legal proceedings will be initiated, and travel ban/ arrest warrant will be removed.
Furthermore, the issuer of a cheque might have done everything properly but drained his account for a sudden emergency like losing a job or facing serious health issues, leading to his default when the cheque was presented for payment. It might appear that the courts did not take into consideration the existence or nonexistence of the criminal intention and considered the drawer always to have that intent. Nevertheless, if the issuer of a cheque was able to prove an emergency and show his good faith and readiness to repay his debt, the sanction may be confined to a fine. A grace period may be granted then for the payment, to be reasonable for both, the perpetrator and the complainant.
Also, if a tenant issued post-dated cheques to the landlord and defaulted at the date of issuance, such act shall not undergo the court system and may rather be deemed as a misdemeanoursubject to financial penalty. This does not mean that the cheque issuer is exempted from paying his debt, and a civil case could yet be filed by the landlord to claim the defaulted amount.
Subsequently, the sanction of imprisonment and/or higher fine is more likely when it is proven to the court that the issuer of a bounced cheque was acting in bad faith (Mala Fides). This means having an intention to commit an act of fraud and cause financial harm to the claimant.
Unfortunately, in the UAE, chequebook holders can get in trouble for a bounced cheque even without signing one. The practical experience shows that there are cases where a person can be subject to legal liability towards a bounced cheque that he/she did not sign. Some examples that may lead to such result are:
- the lost chequebook was found and used by a non-authorised person;
- the cheque was signed by another person who is a joint signatory for the bank account and has access to the chequebook;
- the company/work chequebook was misused by non-authorised employees;
- other examples of the same nature.
In practice, when the cheque bounces, the drawee bank – based on the police request – extracts details of the signatories from the bank account file and forwards them back to the police. The Police Department subsequently takes the legal measures to detain such signatories without performing the investigation whether the signatory has actually committed the crime or not. Thus, a bank account signatory may be banned from leaving the country, detained for the uncommitted crime, and get rejection to be bailed by leaving his passport as a guarantee if the amount is high.
In this case, the only way for the person to retain freedom will be to pay the full amount of the bounced cheque, and only afterwards he can object this decision and appeal it. Then, the prosecutor will forward the case to the Police Department to start the investigation procedures towards the person who have actually committed the crime, but only if they are able to identify such person. Otherwise, the signatory may never return the amount paid for the bounced cheque. And all these problems may occur just because of a lack of reasonable care in handling of the chequebook.
To mitigate the non-payment of bounced cheques, the UAE government has recently introduced new regulations to punish such crimes with fines instead of jail term. This initiative allows the issuer of the bounced cheque to get employment opportunities or other such alternatives to be able to repay his debt instead of going to jail.
In December 2017 a new criminal order issued by the Dubai Attorney General came into effect in the Emirate of Dubai. The core of the order is based on the idea that minor offenses shall not be put through the police and criminal courts system, but would rather be downgraded and deemed as misdemeanors punished with fines instead of jail (subject to the decision of the public prosecutor).
According to the order, bounced cheque cases of the amount not exceeding AED 200,000 shall be punished with the following fines:
|Bounced cheque(s) amount||Fine|
|less than AED 50,000||AED 2,000|
|AED 50,000 – 100,000||AED 5,000|
|AED 100,000 – 200,000||AED 10,000|
Bounced cheque cases are prevalent in the United Arab Emirates and can be associated with numerous reasons including illegal termination, bankruptcy of companies, absconding of the cheque issuer, etc. In practice, when the bearer of the bounced cheque filed complaint with the police, the most viable way to resolve the issue for both parties – is to settle it at the police station amicably.
However, if for some reason the amicable settlement was not reached, and the matter gets escalated to the next level, appointing an experienced lawyer as soon as possible would be the most practical and rational decision to prevent further negative legal implications and damages.