Cheques are used across the world for various purposes, but most importantly to make payments for a variety of goods and services. In the UAE, cheques are extremely commonly used as a mode of payment, especially for rent payments. Often a cheque gets bounced by the bank. This is a common phenomenon, which is why it has strong and legal implications in the UAE if you issue a cheque that bounces.
Bounced Cheque: What is it?
In the UAE, we use cheques to pay for business and personal expenses. It is also a widely used method of payment of rent in Dubai.When a cheque gets bounced, or dishonoured & returned, there will be legal consequences. A cheque will be bounced in the following scenarios:
1. Insufficient Funds: When the funds in the account are insufficient and are not equal to or more than the amount of money written on the cheque when it was issued, the cheque will get bounced.
2. Errors: In case of wrong signatures, incorrect date or missing date, scribbled and over-written text the cheque will get rejected by the bank.
3. Bank Closure: In case the bank closes up before the date of the cheque encashment, then it is not going to be accepted.
4. Bank Instruction: If the bank has been instructed to withhold payment in lieu of the cheque issued, the bank will bounce the cheque.
The original law imposed a fine on the person issuing the check in bad faith of a minimum of AED 1K and at least a month of imprisonment.
In 2021, the government of UAE amended the law to state the following:
Anyone who endorses or issues a cheque while being aware of the lack of funds in the account and that the amount can not be withdrawn from the account will be fined at least a minimum of 10% of the cheque amount, not less than AED 1K.
If the offence is repeated, the penalty is doubled. In addition to the above, the new amendment also added a sentence of 6 months to 1-year imprisonment to the defaulters.
The new amendment also allows the court to have the right to publish the name, occupation and residence of the defaulter in 2 newspapers ( English & Arabic ), along with the judgement. The publishing costs will be borne by the defaulter.
A bounced cheque can cause legal implications like a civil and/or criminal case.
With the new amendment, the bank has to pay half of the cheque amount to the beneficiary of the bounced cheque. The rest of the amount will be bounced by the bank. The beneficiary can then produce the cheque to the court in order to get the rest of the amount.
The UAE government has set out new rules for the future, which will be applicable from 2022. These are amendments to the Commercial Transaction Law that talks about the legal consequences of bounced cheques. The new law aims to
1. Use and create different types of mode of payment collection from Dubai banks and other emirates.
2. Declare any bounced cheque as an executive document which will hereby be presented in the appropriate court of law and will be directly executional.
3. Create more reconciliation between the issuer and beneficiary, thereby reducing criminal lawsuits.
4. Establish additional penalties like suspension of trade licenses and cancelling cheque book issuance in order to reduce the frequency at which cheque bouncing happens.
These new amendments will therefore seek to mitigate the occurrence of bounced cheques in the UAE. It will help in creating a more strict action and consequence for the defaulters while also helping out the beneficiary. The new rules for the future will be applicable from 2nd January, 2022.