New Regulation on Bounced Cheques Effective 2022 and its Implications
The Federal Decree No. 14 of 2020 (the ‘Decree’) has been amended and added new articles to the UAE commercial transaction Law No. 18 of 1993. These changes (which are more particularly described below) are effective from January 2022. One of the major changes was decriminalization of bounced cheques on account of insufficient funds. Previously, criminal actions could be filed in all matters related to bounced cheques which has now been limited under the new law.
The new changes have strengthened the rights of both drawer and drawee and ensuring that a cheque collection process is made more effective. The new changes are also aligned with the international best practice and endeavors to bring fair practices at both individual and company levels.
Some Amendments are as follows:
Article 643 of the Decree states that the convict shall have the following consequences:
a) His/her cheque book shall be withdrawn (note that major tenancy contracts are established with postdated cheques) and will be prevented from acquiring new cheque books for a maximum of 5 years.
b) If the convict does not relinquish their cheque book within the stipulated period of 15 days to the bank, from the date of reporting to do so, they shall be subject to penalties. If the financial institution violates this order, they shall be subjected to a heavy penalty no less than AED 100,000 and no more than AED 200,000.
c) Other consequences shall include having their commercial license suspended for a certain time period, and it could even lead to revocation and dissolution of licenses if the offence is repeated.
Article 617(3) – The drawee shall inform the Central Bank of the particulars of the account holder, in accord with the guidelines and regulations published by the Central Bank to this effect, in any of the following cases:
- If the cheque has no adequate existing and withdrawable fund balance on its maturity date.
- If the drawer, after issuing the cheque, withdraws all the funds, making the cheque incapable of being cashed.
- If the drawee partly pays the value of the cheque amount.
Article 641(Bis1) of the Decree states that, whoever endorses or delivers a bearer cheque while knowing that there are insufficient funds to pay such cheque or that such cheque may not be drawn, shall be subject to a penalty. The penalty shall be double in case of repetition.
Article 641 (Bis2) of the Decree mentions the following as criminal acts surrounding criminal cheques:
- If the drawer, prior to the due date, orders the bank not to cash the cheque amount.
- Closing the account or withdrawing all available fund therein before releasing the cheque or before presenting the cheque for payment, or if the account has been frozen.
- Purposefully writing or signing the cheque in a way that makes it unpayable.
Article 641 (Bis3) of the Decree mentions the following as criminal acts surrounding criminal cheques:
- Forgery or counterfeiting of a cheque or attributing it to a third party by alternating details through addition, deletion, or other means with the purpose of damaging a third party.
- Knowingly using a forged or counterfeit cheque.
- Intentionally receiving funds paid through a forged or counterfeit cheque.
- Using a true cheque issued in the name of others, improperly profiting from it, or employing it in relation to a crime of fraud.
- Knowingly, importing, manufacturing, holding, selling, offering, or providing any tools, equipment, software, information, or data used in a crime of forgery.
- With the new amendments, the partial payment of the cheque has now become mandatory. This applies if the amount available for payment is less than a given cheque's value, then the drawee bank is now required to pay the amount partially. Further to said, the beneficiary can then proceed to claim the remaining amount by initiating legal measures through the civil courts. The banks in such instances will provide a partial payment certificate to the presenter of the cheque with all the basic details of the issuer of the cheques such as the emirates id/passport number, trade license details (if issuer is a company), IBAN number, contract details such as telephone and address.
- Cheque beneficiaries don’t need to file criminal or civil cases for non-payment of the cheque if the reason of bounced cheque is insufficient funds. They can directly approach the court's execution Judge to order payment of the cheque’s value or what is remaining of it. In this case, the cheque has the power of an executive bond that does not require a court ruling, which should expedite legal action. This should strengthen the cheque as a payment tool in commercial and financial transactions.
The new amendment has revised the penalties and imposes the following:
- Whoever endorses or delivers a bearer cheque while knowing that there are sufficient funds to pay such cheque or that such cheque may not be drawn shall be subject to a penalty of no less than 10% of the cheque value, subject to the minimum of AED 1,000, and no more than the cheque value. The penalty shall be double in case of repetition.
- An order of withdrawal of existing cheque book from a person convicted of breaching this law, and also to prevent such convicted defendant from obtaining any further cheque books for up to five years.
- Convicted defendant who does not surrender his existing cheque books to respective banks within fifteen (15) days from notifying him to do so shall be sentenced to a penalty of no less than AED 50,000 (AED Fifty Thousand) and no more than AED 100,000 (AED One Hundred Thousand).
- Any bank which violates the order provided for in the above two paragraphs shall be sentenced to a penalty of no less than AED 100,000 and no more than AED 200,000.
Fines will be determined depending on the criminal act. Since bounced cheques have been decriminalized, there is no jail term unless fraud can be proven.
- Penalties for bounced cheques will depend on the amount due. There will be a fine of Dh2,000 for Dh50,000, while bounced cheques of between Dh50,000 and Dh100,000 will have to bear a Dh5,000 penalty, with a penalty of Dh10,000 for cheques between Dh100,000 and Dh200,000.
- Article 641 (Bis3) are also punishment by imprisonment for no less than one year in addition to a penalty of no less than Dh20,000 (twenty thousand) and not exceeding Dh100,000 (one hundred thousand).
What should you do if a cheque is bounced in UAE
- Make sure the cheque was presented by the payee to the bank within six (6) months from its validity.
- Initiate the process with legal notice. There is no strict formal for legal notices. However, a legal notice for a bounced cheque has to be relevant and contain a demand for a payment within a stipulated time frame. The demand also has to be accompanied with legal consequences for the drawee should the legal notice still doesn’t result to a payment for the pending amount.
- A legal notice for a cheque bounce in the UAE should be delivered to the recipient through the proper channels. If the accused doesn’t make the payment within the prescribed period, a complaint can be filed with the Court.