bounced cheques in the UAE | BSA Middle East Law Firm

Latest amendments in relation to bounced cheques in the UAE

Bassel Boutros Senior Associate bassel.boutros@bsabh...

Bassel Boutros Senior Associate bassel.boutros@bsabh.com

On the 2^nd of January 2022 the Federal Decree-Law No. 14/2020 will come into force, however, and similar to all new laws and regulations, it will be necessary to see how the relevant court will implement its provisions in order to understand the different aspects which are governed by the said Federal Decree-Law.

One important aspect addressed by the new amendments is related to cheques issued within the State. While Articles 401, 402, and 403 of the Federal Decree No. 3/1987 on Penal code have been abrogated, this does not mean that the bounced cheques will be decriminalized or that the drawer will not be subject to imprisonment.

In practice, legal proceedings in relation to a bounced cheque in the United Arab Emirates (UAE) differ from one case to another, and several factors must be taken into consideration including the amount of the cheque and the reason the cheque was bounced. In general, the relevant courts will apply a fine instead of a jail sentence in cases where the amount of the cheque is small, however, the courts will still apply imprisonment sanctions if the amount is high.

It is expected that the proceedings will be similar under the new Federal Decree-Law, noting that the abrogation of the Articles 401, 402, and 403 from the Penal Code does not mean that the issuance of bounced cheques will not be considered a crime.

Penalties

In this context, Article 641/2 bis 2 of the new Federal Decree-Law stipulates that in the event;

The drawer closed the account or,
The drawer withdrew all funds from the account, prior to issuing a cheque or prior to presenting it to the drawee for payment or,
The account has been frozen,

the drawer will be punished by imprisonment for a period of not less than six months and not exceeding two years, and a fine of not less than 10% of the value of the cheque and of a minimum of AED 5,000 and not more than double the value of the cheque, or by either of these penalties.

Therefore, the court will have the authority and the absolute discretion to implement this provision on bounced cheques. Furthermore, the beneficiary will still have the right to file a criminal complaint in the event the cheque is returned.

Another important amendment will be introduced in relation to bounced cheques, where it will constitute a writ of execution, meaning that the beneficiary will no longer be under obligation to file a claim before the courts to obtain a final judgment or a payment order, hence they can initiate the enforcement proceedings directly before the execution judge.

Managers Liability

Court judgments in relation to bounced cheques signed by managers of a company were not unified. Some judgments considered the manager to be jointly liable along with the company, towards the beneficiary, pursuant to Article 599 of the Commercial Transactions Law No.18/1993 which states that:

‘’the drawer for the account of others is personally liable towards the endorsers and the bearer, to the exclusion of all others, to provide the required consideration for payment’’.

Whereas other precedents considered the manager to be acting on behalf of the company and therefore the latter to be liable towards the beneficiary, without including the manager.

Based on the above, the execution judge will have no right to consider whether or not the manager is personally liable.

The question remains whether the beneficiary will have the right to file a claim before the relevant court, or he will be obliged to open an execution file directly.

Contacts:

Bassel Boutros Partner, Corporate
bassel.boutros@bsabh.com

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Latest amendments in relation to bounced cheques in the UAE

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