Bounced Cheque NEW Law In UAE: Here's What You Need To Know

In the UAE, there was a time when a bounced cheque was a criminal offence and could land the offender in jail. The previous legislation remained in effect for nearly 30 years. Since 2 January 2022, most cases have been decriminalised, though some exceptions still apply. However, bouncing a cheque can still lead to financial penalties and civil lawsuits. Here is everything you need to know about the law regarding bounced cheques in the UAE.

Bounced Cheques in the UAE Before The Amendment

A bounced cheque used to be a criminal offence under UAE law. Under the old Article (401) of the UAE Penal Code, you could be punished with jail time or fines if your cheque bounced for any reason.

Here's a familiar scenario in Dubai's leasing landscape while it was still in effect:

If a tenant's cheque is dishonoured, a landlord could file a criminal complaint at a local police station. The police may then summon the tenant, the drawer of the bounced cheque, where they can settle the amount. Otherwise, the matter could be taken to court.

If the settlement does not happen, the police may register a case against the tenant and endorse the case to the public prosecutor or criminal court. This is where criminal liability is determined, and a fine or detention is imposed.

Bounced Cheques After The Amendment

The amendments to the rules in early 2022 now classify issuing a cheque without sufficient funds as a civil offence. Article 630 of the Federal Decree-Law No. 50 of 2022 states that you can only write a cheque if you have enough money in your account at the time of issuing the cheque. Further, partial payment of a cheque is now mandatory under the changes.

These changes encourage friendly settlements between parties, like landlords and tenants. These new rules also clarify what counts as a crime when a cheque bounces in business deals and help reduce the number of cases in UAE courts.

The previous steps of filing a police report and the ensuing procedures have been removed from the equation.. Instead, a cheque bearer can directly present a returned cheque to request an executory order to pay the entire or remaining value in question.

With this, banks must release any available funds in the drawer's account for the cheque bearer's benefit unless the beneficiary refuses the partial payment.

As per the new law, the fine for cheques less than AED 50,000 is AED 2,000. For cheques between AED 50,000 and AED 100,000, the fine is AED 5,000. For cheques between AED 100,000 and AED 200,000, the fine is AED 10,000.

Common Reasons for Cheques Bouncing

Here are some common reasons for a bounced cheque:

• Not enough money in the bank account when the cheque was written.
• Technical mistakes like signatures not matching, missing or incorrect dates, or unclear writing.
• Closing the bank account before the cheque is cashed.

• Asking the bank not to pay for the cheque.

  

Best Practices to Prevent Bounced Cheques

Post-dated cheques are better to avoid since they entail bouncing if funds are unavailable on the indicated date. Instead, other payment methods should be used that do not involve post-dating. Nowadays, with the advent of the digital era, electronic payment methods such as bank transfers, online payments, and different mobile apps for transfers are convenient and clear substitutes for cheques.

When you are handed a cheque from someone, ensure there are available funds in their bank account. You can contact the issuing person’s bank and ask about their account status or use a cheque verification service. These services can check if a cheque is valid by looking at the client's account status, available funds, and their history with previous cheques. They add extra security and help lower the chance of taking a bounced cheque.

Steps to Take if You Receive a Bounced Cheque

If you eventually receive a bounced cheque, you must take steps to avoid risking your money. They are:

Contact Your Bank

Immediately contact your bank and report the bounced cheque. Provide them with the cheque number, date, amount, and the name of the person or company that issued the cheque. Your bank will investigate the matter and provide you with information about the cheque's status and the account holder.

Request a Written Statement

Request a written statement from your bank confirming that the cheque has bounced due to insufficient funds or other reasons. This statement will serve as evidence in case you need to take legal action.

Send a Demand Letter

Send a demand letter to the person or company who issued the bounced cheque. The letter should include the following information:

• Details of the bounced cheque, like the cheque number, date, amount, and the issuer's name. 
• A request to pay the outstanding amount within a specified time frame (usually 7-14 days).
• Information about the consequences of failing to make payment, such as legal action or reporting to the relevant authorities.

File a Complaint

If the person or company does not respond to your demand letter or make payment, you can file a complaint with the police or the concerned authorities. You can provide the police or the authorities with the relevant information and documents, such as the bounced cheque, bank statement, and demand letter. The concerned authorities will investigate the issue and take action against the offender.

Take Legal Action

You can take legal action against the person or company that issued the bounced cheque if necessary. Consult with a lawyer to understand your legal rights and options for recovering the funds owed to you.

Conclusion

Bounced cheque cases are common in the UAE and can happen anytime for illegal termination, company bankruptcy, or the cheque issuer running away. The UAE often imposes travel bans on people with unresolved bounced cheque cases, preventing them from travelling until they settle the issue. Usually, the authorities lift the travel ban once the matter is settled. The person might also get blacklisted by banks, making it difficult to open new accounts or conduct financial transactions. To avoid these serious problems, always make sure you have enough funds before writing a cheque and avoid any actions that could cause it to bounce.

Please read:

What Happens If My Tenant Doesn’t Pay Rent? (Dubai 2024)

Understanding the Legal Steps for Purchasing Real Estate in Dubai