UAE Update: What happens when a cheque bounces? A new law is coming that will drastically change what happens next

Date: 04 Nov 2020

The UAE Cabinet has ratified a decree to amend certain provisions of the UAE’s Commercial Transactions Law (the “Decree”), and it is expected to come into force in 2022.

Currently in the UAE, giving a cheque without having sufficient funds to meet the payment (colloquially known as bouncing a cheque) is a criminal offence pursuant to the UAE Penal Code. Over the years there have been a number of amendments and qualifications to restrict the criminal liability which arises from the Penal Code with respect to bounced cheque crime.

How will the Decree significantly change the current provisions?

The Decree aims to provide a streamlined mechanism for parties to agree to retrieve the funds of the cheques. The amendments include key changes such as the re-definition of the events that constitute a criminal offence when a cheque is dishonoured, including the following circumstances:

  • forgery of cheques;
  • fraud committed by giving orders to the bank to cease the encashment of the cheque;
  • withdrawing the full balance from the account before the date of issuing the cheque; and
  • deliberately issuing a cheque or signing it in a manner that prevents its encashment.

These amendments are significant and once enacted would revoke the current offence of issuing dishonoured cheques, as outlined under the Penal Code, save for the events that are regulated by the new amendments.

It is also pertinent to mention that the amendments aim to ease the enforcement options available to beneficiaries of dishonoured cheques by deeming a dishonoured cheque as an executive document that could be enforced and executed directly by the competent judge at the UAE courts.

The Decree also covers other legal issues, including:

  • obliging banks to make a partial payment of the cheque amount to the beneficiaries when a cheque is presented for payment; and
  • certain aspects of the provisions relating to the opening of joint accounts – in the event that one of the joint account holders passes away / loses his legal capacity, the other holder is obliged to notify the bank within 10 days from the date of death or loss of legal capacity. In turn, the bank must, from the date of notification, limit the ability to withdraw from the joint account within a party’s share of the account balance on the day of death or loss of legal capacity.

In addition, as a result of the amendments, a number of related penalties would be introduced, including:

  • withdrawing cheque books of convicted persons and the prevention of issuing new ones for a maximum period of five years;
  • ceasing the professional or commercial activities of the convicted persons; and
  • imposing a fine and suspension of licences for certain corporate entities to prevent them, for a period of six months, from practicing their activities.

The new amendments have been welcomed as a significant development in UAE legislation and should help to further the UAE’s goals and vision to support the economic and commercial sectors, while maintaining protection of cheques as payment instruments.

We will keep you up to date on these developments as they come into force. However, if you have any questions in the meantime, please do not hesitate to contact us.

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