A bounced check in the United Arab Emirates

Les chèques sans provision, a financial concern that is the subject of discussion among both citizens and expatriates in the United Arab Emirates, remain a significant issue in 2023. The implications of a bounced cheque in the UAE are extensive, affecting not only the individuals involved but also reflecting on the legal and financial landscape of the country. In this article, we explore key aspects of bounced cheques, examining what you need to know to navigate this challenge in 2023.

What is a Bounced Cheque or “Chèque en Bois”?

A bounced cheque, often referred to as a “chèque en bois,” refers to a cheque issued from a bank account that lacks sufficient funds to cover the specified amount on the cheque. In other words, when the payee attempts to cash or deposit the cheque, it is rejected by the issuing bank due to insufficient funds.

Issuing a bounced cheque is a financial offense in many jurisdictions and can lead to legal and financial consequences for the person or entity that issued the cheque. Penalties may include fines, additional bank charges, and, in some cases, criminal prosecution.

The term “chèque en bois” is often used informally to describe this situation, suggesting that the cheque is as unreliable as wood.

Understanding the Legal Framework

The UAE has strict laws surrounding bounced cheques, and it is crucial for residents and businesses to understand the legal implications associated with such incidents. Issuing a bounced cheque is considered a criminal offense in the UAE. This falls under the scope of the Commercial Transactions Law, and the legal implications and sanctions can be financially severe and daunting for offenses considered more serious. Issues related to bounced cheques can arise in various commercial transactions, including business exchanges, bank loans, real estate leases or acquisitions, as well as transactions between individuals.

According to Federal Decree Law No. (14) of 2020 amending certain provisions of Federal Law No. (18) of 1993 on Commercial Transactions, both criminal and civil judicial procedures can be initiated against the responsible party.

Many individuals tend to believe that with the enactment of the Federal Decree Law, they are completely exempt from repaying the amount of the bounced cheque, but this is a misconception. The responsibility to pay the cheque amount and the penalties remains in effect until the full amount is returned to the payee or bearer of the cheque.

Repercussions for Issuing a Bounced Cheque

When a cheque is rejected due to insufficient funds or other reasons, it triggers a series of legal actions. The person or business that issued the bounced cheque may face legal consequences, including fines and imprisonment. Additionally, the concerned financial institution may impose additional fees for the bounced cheque, exacerbating the financial burden for the defaulter.

Legal Procedures and Debt Recovery

When a cheque is bounced, non-payment can be confirmed through a bank statement. The bank cannot refuse to provide this statement but may request a period not exceeding three working days after cheque presentation to contact the person who issued it.

The bearer of the cheque is not legally obliged to resolve the issue directly with the person who issued the cheque and may choose to initiate legal proceedings. These proceedings can take the form of a criminal or civil case.

Legal Procedures in the Case of Criminal Offense

Following recent legislative amendments regarding bounced cheques, criminal proceedings can still be initiated, and penalties can be applied in specific cases outlined in the Commercial Transactions Law. Outside of these defined situations, the rejection of a cheque will not lead to criminal consequences according to the Penal Code.

Filing a Police Complaint

To pursue legal action following an unpaid cheque in Dubai, the bearer must file a formal complaint via the police mobile application. After filing the complaint, the police contact the cheque issuer, who can settle the matter at the police station by paying the cheque amount. No further legal action is taken in this case. If the issuer needs time, they can request a period with passport deposit, though this depends on the cheque amount. Filing a complaint automatically results in a travel ban/arrest warrant, lifted after resolving the issue or serving a sentence.

Public Prosecution

If the dispute over the unpaid cheque is not resolved at the police station, the complaint is transferred to the public prosecution before the court for further investigation. Subsequently, the public prosecution makes decisions in the case after hearing the involved parties.

Based on the evidence presented to the court, the decision may involve posting bail, either by paying the value of the unpaid cheque or depositing the debtor’s passport or another guarantor. If bail is refused, the public prosecutor can order the detention of the issuer until the court hears and decides on the case.

Criminal Court

The criminal court examines the details of the case, the arguments of the parties, and the available evidence in detail. It assesses whether the elements of the crime are present, namely the physical act and the criminal intent.

The physical act (Actus Reus) assumes that the offender physically committed an act considered a crime by law, limited to specified cases in the Commercial Transactions Law.

These acts constitute a crime only if accompanied by criminal intent (Mens Rea), meaning that the offender intended to cause financial harm to the complainant.

If both elements of the crime are met, the court, under Article 401 of the UAE Penal Code, can impose a penalty. This can result in a fine decided by the court, typically between AED 1,000 and AED 30,000, or more. The court may also sentence the offender to imprisonment for one to three years.

Procedures in the Case of Civil Dispute

The criminal court and civil court operate separately. Thus, the conviction pronounced by the criminal court solely constitutes a penalty for issuing a bounced cheque or withdrawing funds after its issuance, rendering the balance insufficient to cover the cheque amount.

However, the criminal court can transfer the civil claim to the civil court for examination. The plaintiff can also present their case to the civil court to assert their right to the contested amount.

The civil court can be any competent judicial authority other than the courts. For example, in Dubai, the Rental Dispute Settlement Center (also known as the Rental Committee) is competent to settle disputes between landlords and tenants.

After reviewing the evidence and facts presented by the parties, the civil court may demand payment from the issuer of the unpaid cheque equivalent to the cheque’s value or its outstanding balance. In case of non-payment, their assets can be seized, and a new prison sentence may be pronounced for non-compliance with the civil court’s decision.

In the absence of ongoing disputes against the issuer of the unpaid cheque, once the prison sentence is served, they are free to leave the country after recovering their seized passport.

Once the court concludes that the elements of the crime are satisfied, it has the right to decide, at its sole discretion, which sanctions to apply among the options allowed by the law.

Preventive Measures and Financial Planning

In recent years, the UAE has recognized the need to address the challenges posed by bounced cheques, and efforts have been made to streamline legal processes. In 2023, updates and reforms to the legal system could bring changes in how bounced cheques are handled. Staying informed about these developments is crucial for individuals and businesses operating in the UAE.

Given the severe consequences of bounced cheques, individuals and businesses are advised to adopt preventive measures. This includes a diligent approach to financial planning, ensuring that sufficient funds are available to cover issued cheques. Establishing open communication with creditors and negotiating payment plans can be crucial to avoiding financial pitfalls leading to bounced cheques.

Bounced cheques remain a crucial financial concern in the UAE, and understanding the legal implications is essential for both individuals and businesses. Staying informed about legal reforms and preventive measures is crucial to maintaining financial integrity and avoiding the serious consequences associated with bounced cheques.

For more information, please contact us by email: support@merritt.ae.