Bounced Cheques in the UAE: What You Need to Know in 2024

Bounced cheque complaints and cases can be attributed to several reasons but primarily due to the debtor’s failure of paying the debt to a creditor on a specific date agreed thereon. Under the Federal Decree-Law No. 50/2022 Issuing the Commercial Transactions Law, both criminal and civil proceedings can be initiated against the perpetrator.

Therefore, it is crucial for every individual dealing with cheques in the UAE, specifically those who are not desiring to “intentionally” commit a crime and face the consequences, to know how to issue and accept cheques properly, or how to handle situations when deposited cheques returned unpaid.

Many people have come to believe that with the issuance of the Federal Decree Law, they are completely relieved from returning the bounced cheque amount, and this is a misunderstanding. The liability of paying the cheque amount and sanctions remain in place until the whole amount is paid back to the payee or cheque bearer.
 

What is Cheque?

A cheque (or check) is intended to act as a payment/negotiable instrument customarily recognized instead of money. The Federal Decree-Law No. 50/2022 Issuing the Commercial Transactions Law regulates issuing and circulation of cheques in the UAE. Article (514) of the law defines a cheque as “a commercial paper that includes an order issued by the drawer to the drawee bank, to pay on the date fixed therein as the date of issuing a specific amount of money to a third person namely the beneficiary or to bearer.”

A duly completed and signed cheque acts as an authority to the bank to disburse the money from the drawer. The bank must pay the cheque even if the drawer objects, except when the cheque was lost or if the bearer became bankrupt. Therefore, the cheque is effectively an irrevocable payment instrument.

The cheque issuer shall be aware that according to the law, a cheque needs to satisfy the conditions mentioned below.

The Form

As per Article (629) of the UAE Commercial Transactions Law, The cheque issued and falling due in the state shall be drawn at a bank. Each bank shall deliver his customer a checkbook containing blank cheques for payment from the treasury thereof. Each cheque shall state the name and account number (b) of the account holder (a) who receives the checkbook. Each cheque must also have a serial number (c) (see the picture below).

The Particulars

Pursuant to Article (627) of the UAE Commercial Transactions Law, a cheque shall contain the following particulars (see the picture above for reference):

• (1) The word "cheque" is written in the body of instrument in the language in which the instrument is written.;
• (2) An unconditional order to pay a specific amount of money;
• (3) The name of the person obliged to make payment (the Drawee);
• (4) The person to whom payment, or to whose order the payment should be made (the Payee);
• (5) The place of payment;
• (6) The date and place of issuing the cheque;
• (7) The signature of the cheque executor (the Drawer).

There is no mention in the law that a cheque without a date will be invalid. Thus if the date on the cheque is omitted, the date of issue shall be the date of presenting the cheque for payment.

If the place of payment is not stated on the cheque, the place indicated next to the bank name shall be deemed to be the place of payment; and if it is not indicated at all, then it shall be the bank's headquarters. Also, if the place of issue is not stated, the cheque shall be deemed to be issued at the place where it was effectively signed (Article (628)).

Availability of Funds

Abiding by the laws and principles of good faith (Bona Fides), the drawer shall bear in mind that he cannot issue a cheque knowing that he does not have, or will not have, enough funds in his account with the drawee at the date of issuance. The drawer shall deposit sufficient funds for the full payment of the amount indicated in the cheque, as per Article (630). Failure to provide such funds, partially or fully, entitles the payee to request a statement from the drawee (the bank) to present as a means of evidence in any action he opts to initiate against the drawer.
 

What is a Bounced Cheque?

A bounced cheque (also known as a ‘dishonored cheque’ or ‘bad cheque’) is a cheque presented by the payee and rejected by the drawee bank when:

• The bank indicates that the funds available in the account of the drawer at the date of issuance are insufficient to cover the amount mentioned on the cheque, either partially or fully; the cheque is consequently rejected and marked by the bank.
• The bank receives an order from the issuer to refrain from paying the cheque.
• The drawer makes or signs the cheque in a manner that prevents it from being paid, like omitting or changing his signature.
• The drawer's bank account was closed before the issued cheque is presented for payment.

Liability

The cheque is a payment instrument contingent on the availability of funds, through the drawee’s acceptance to pay the cheque issued by the drawer. Accordingly, Article (663) of the UAE Commercial Transactions Law entitles the bearer of a cheque to have recourse against the drawer, endorsers, and/or any other parties found liable thereon if the cheque is presented within the prescribed time limit but remained unpaid, and this fact is established by protest.

In lieu of the protest, failure to pay may be established by a statement from the drawee bank. Refrainment from paying a cheque shall be established before the expiry of the time limit prescribed for presentment.

The Time Frame for Presenting a Cheque

A cheque is due for payment on the date stated thereon as the date of issue. It may not be presented for payment before such date (Article (648)) and shall be presented for payment within a time limit of six months from the date stated on the cheque as the date of issue Article (649)). 

It is important to note that the drawer shall provide the consideration for payment on the date of issue and such consideration shall continue to exist with the drawee until the expiry of the time-limit for presentment of the cheque. Otherwise, Article (665) grants the bearer the right to have recourse against the drawer, even when the former fails to present the cheque to the drawee bank, make a protest, or take a similar action within the prescribed time limit. 

The Limitation Period

Article (670) states that the actions of recourse initiated by the cheque bearer against the drawer, endorsers, and other obligors for the payment of its value, will not be heard after a period of two years from the expiry of the time-limit set for presentment thereof. 

In case a lawsuit is initiated, this time limit shall only apply from the day of the last action taken thereon. In addition, such time limitation shall not run if the debt is adjudicated or when it is acknowledged by a separate deed resulting in the renewal of the debt Article (672)).

The Course of Legal Proceedings

When a cheque is deemed bounced, failure to pay may be established by a statement from the bank. The bank cannot refuse a request to issue such a statement but may request a grace period not exceeding three working days following the presentment of the cheque to contact the drawer.

The bearer has no legal obligation to resolve the matter with the drawer through direct contact, and may rather initiate legal proceedings. Such proceedings may take the course of a criminal or civil case.

Criminal Case Proceedings

As per the new law amendments in relation to the cheque, criminal proceedings can still be initiated and sanctions imposed in certain cases specified in the Commercial Transactions Law. Apart from that, the cheque bounce will not instigate criminal liabilities through the Penal Law.

I. The Police Complaint

In order to file a case for a bounced cheque, the bearer of the cheque must formally lodge a complaint with the police of the respective emirate against the drawer. In Dubai, such a complaint may be filed through the Dubai Police mobile application.

After receiving the complaint, the police should contact the issuer of the cheque to notify him of the same and request his presence. At the police station, the drawer is allowed to settle the issue by paying the amount of the bounced cheque. In that case, no further legal proceedings will be taken.

The issuer of the bounced cheque has the right to request some time to settle the issue. Upon such request, the issuer may be granted a reasonable period secured by the deposit of his passport at the police station. However, it highly depends on the cheque’s amount as in many cases such a guarantee of depositing the passport is rejected by police officers if the amount drawn on the cheque is high (AED 1 Million and above).

As certain cases of bounced cheques are considered criminal offenses in the UAE, upon filing, upon filing the complaint at the police station, a travel ban/arrest warrant on the drawer will be issued automatically. Hence, the issuer of the cheque will be banned from leaving the country and arrested if he tries to escape, or will be detained on arrival if he enters the UAE from outside. Such ban/warrant can be removed only upon settlement of the bounced cheque issue, or after serving a sentence.

II. The Public Prosecution

In case the opponents failed to resolve the bounced cheque dispute at the police station, the police then transfers the complaint to the public prosecution in the court, to further conduct its investigations. Thereafter, the public prosecution makes decisions in the case upon hearing the opponents.

Based on the evidence presented in the court, the decision could be a bail either by paying the value of the bounced cheque or by depositing the passport of the defaulter or another guarantor. In case bail was denied, the public prosecutor may order the detention of the drawer until the court hears and decides on the case.

III. The Criminal Court

The role of the criminal court is to dive deeper into the case details, opponents’ arguments, and available evidence. The court then proceeds to examine whether the crime elements are satisfied or not. The crime elements are the material element and the mental element.

The material element (Actus Reus) means that the perpetrator had physically committed an act that is considered a crime by law. As mentioned before, these are the cases specified exclusively in the Commercial Transactions Law.

Such acts shall not constitute a crime without the coexistence of material elements and mental elements (Mens Rea). The mental element means the perpetrator’s intention to bring financial damages to the complainant.

Once both of the crime elements are satisfied, and by the authority vested in it in Article (401) of the UAE Penal Code (This law has been repealed by Federal Decree-Law No. (31) of 2021 Promulgating the Crimes and Penalties Law), the court may decide the sanction of the perpetrator. This can be confined to a fine assessed solely by the court, based on the conclusion reached and the amount claimed and usually ranging between AED 1,000 and AED 30,000, or more. The court may also decide the sanction of the perpetrator to be serving jail time of between one year and three years.

Civil Case Proceedings

The criminal court and the civil court function separately. Hence, the sentence issued by the criminal court comes only as a sanction for the act of issuing a cheque in bad faith without sufficient funds or withdrawing all or part of the funds after giving the cheque, so that the remaining balance is insufficient to cover the amount of the cheque.

Nevertheless, the court conducting the criminal trial may transfer the civil claim to the civil court for determination. The claimant may present his case to the civil court as well to claim his right to the disputed amount.

The civil court may be any competent judicial authority other than the courts. For example, in Dubai, the Rent Disputes Settlement Center (also known as Rental Committee) is a competent authority carrying out the settlement of all rental disputes arising between property landlords and tenants in the emirate.

After reaching a conclusion based on the evidence and facts presented by the opponents, the civil court can then demand the issuer of the bounced cheque to pay a sum equal either to the value of the cheque or its outstanding balance. In case the perpetrator fails to pay the said amount, his assets may be attached, and he may be subjected to another jail term for failing to comply with the civil court decision.

If there are no pending cases against the issuer of the bounced cheque, once the jail term is completed, he is free to leave the country after collecting his impounded passport.

Cheque Execution as per the New Commercial Transactions Law

According to the rules of the new Commercial Transaction Law Federal Decree-Law No. 50/2022 Issuing the Commercial Transactions Law, there is no need anymore to go through the usual legal proceedings if a cheque is bounced for insufficient funds, in order to obtain a final judgment and enforce the payment of the amount. Article 667 states that "the cheque on which the drawee states that it has no or insufficient balance shall be an executive instrument. The bearer of the cheque may request the execution thereof, in whole or in part, by force."

This is in relation to the nature of the cheque itself as an executive instrument and valid to be submitted directly to the execution court for enforcement. Pursuant to the new Civil Procedures Decree-law Federal Decree-Law No. (42) of 2022 Promulgating the Civil Procedures Code, the debtor has the right to object to the execution procedures and challenge them but they cannot be canceled unless the objection is valid and supported with enough evidence before the competent court.

There are many cases where the enforcement proceedings may be suspended, including but not limited:

- When the cheque is a security cheque issued by the drawer to the beneficiary as an instrument to guarantee the fulfillment of a certain obligation by the drawer and there was a breach of the obligation.

- The cheque is issued by the drawer against an obligation to be fulfilled by the beneficiary, and the latter fails to fulfill the obligation.

- The value of the cheque is paid in the commitment but the cheque is submitted by the beneficiary to get bounced and executed.

In application, the courts of the UAE have the authority to look into any substantive objection if supported with valid evidence and documents that the beneficiary is not entitled to the cheque's value for any of the abovementioned reasons.

What Else You Need to Know

Once the court concludes that the elements of the crime are satisfied, it is entitled to decide by its sole discretion which sanctions to apply from the options allowed by law.

The issuer of a cheque should be aware that if the cheque bounced for a typo mistake, but there were available funds, it can be remedied at any stage of the legal proceedings. The remedy may yet be possible after the court makes its decision, and consequently, execution will be suspended.

The same applies if the drawer filled the cheque properly but had no available funds at that moment. The sooner a drawer manages to provide the amount he is defaulting with, the fewer legal proceedings will be initiated against him.

In case of settlement, the drawer shall make sure to retrieve the bounced cheque and get a clearance paper from his debtor upon payment of the disputed amount. Henceforth, no further legal proceedings will be initiated, and the travel ban/arrest warrant will be removed.

Furthermore, the issuer of a cheque might have done everything properly but drained his account for a sudden emergency like losing a job or facing serious health issues, leading to his default when the cheque was presented for payment. It might appear that the courts did not take into consideration the existence or nonexistence of the criminal intention and considered the drawer always to have that intent. Nevertheless, if the issuer of a cheque was able to prove an emergency and show his good faith and readiness to repay his debt, the sanction may be confined to a fine. A grace period may be granted then for the payment, to be reasonable for both, the perpetrator and the complainant.

Also, if a tenant issued post-dated cheques to the landlord and defaulted at the date of issuance, such an act shall not undergo the court system and may rather be deemed as a misdemeanor subject to a financial penalty. This does not mean that the cheque issuer is exempted from paying his debt, and a civil case could yet be filed by the landlord to claim the defaulted amount.

Subsequently, the sanction of imprisonment and/or a higher fine is more likely when it is proven to the court that the issuer of a bounced cheque was acting in bad faith (Mala Fides). This means having an intention to commit an act of fraud and cause financial harm to the claimant.
 

Reasonable Care

Unfortunately, in the UAE, checkbook holders can get in trouble for a bounced cheque even without signing one. The practical experience shows that there are cases where a person can be subject to legal liability towards a bounced cheque that he/she did not sign. Some examples that may lead to such results are: 

• the lost checkbook was found and used by a non-authorized person;
• the cheque was signed by another person who is a joint signatory for the bank account and has access to  the checkbook;
• the company/work checkbook was misused by non-authorized employees;
• other examples of the same nature.

In practice, when the cheque bounces, the drawee bank – based on the police request – extracts details of the signatories from the bank account file and forwards them back to the police. The Police Department subsequently takes legal measures to detain such signatories without performing an investigation into whether the signatory has actually committed the crime or not. Thus, a bank account signatory may be banned from leaving the country, detained for the uncommitted crime, and get rejection to be bailed by leaving his passport as a guarantee if the amount is high.

In this case, the only way for the person to retain freedom will be to pay the full amount of the bounced cheque, and only afterward he can object to this decision and appeal it. Then, the prosecutor will forward the case to the Police Department to start the investigation procedures towards the person who has actually committed the crime, but only if they are able to identify such a person. Otherwise, the signatory may never return the amount paid for the bounced cheque. And all these problems may occur just because of a lack of reasonable care in the handling of the checkbook.
 

Recent Developments

Following its relentless pursuit to update its laws, and as the cheque plays a pivotal role in business transactions and most individual dealings, the UAE government has introduced many regulations in recent years to tackle the bounced cheques issue aiming to "soften" the penalties decided to that crime and give more efficiency to cheque beneficiaries in the legal proceedings related to their claims.

The first major change was brought in December 2017 with a new criminal order issued by the Dubai Attorney General that came into effect in the Emirate of Dubai. The core of the order was based on the idea that minor offenses shall not be put through the police and criminal courts system, but would rather be downgraded and deemed as misdemeanors punished with fines instead of jail (subject to the decision of the public prosecutor).

Nevertheless, this practice remained beneficial particularly in the Emirate of Dubai as the other emirates continued applying jail sentences to bounced cheque cases regardless of the claim amount. Many cheque beneficiaries who have the option, favored filing their cheque claims in emirates other than Dubai to benefit from more coercive measures.

According to the order, bounced cheque cases of the amount not exceeding AED 200,000 shall be punished with the following fines:

Three years after the last relief of dishonored cheques procedures in Dubai, the Federal Government of the UAE issued a new Decree-Law on 27 September 2020 that had come into force on 2 January 2022 (Federal Decree-Law No. 14 of 2020 Amending Certain Provisions of the Federal Law No. 18 of 1993 Concerning the Commercial Transactions Law) “The Decree-Law” and brought amendments to some articles in the Commercial Transactions Law.

The amendments take into consideration the interests of both the drawer and beneficiary of a cheque among others, and are anticipated to give more efficiency and ease to the procedures of fulfilling obligations.

In addition to the Commercial Transactions Law, the Decree-Law had also repealed articles 401, 402, and 403 of Federal Law No. (3) of 1987 Promulgating the Penal Code, decriminalizing the act of issuing a cheque without balance. Nonetheless, the decriminalization of cheques without balance excludes four cases that are still considered a crime, and these are:

• The crime of forging cheques
• Cheque fraud by giving an order to the bank not to cash the check illegally
• Withdrawing the entire balance before the date of issuance of the check
• Intentionally complicating the drafting of the check, or deliberately signing it in a way that prevents its cashing

The amendments encourage the parties to seek alternative dispute resolution before resorting to criminal proceedings. In case reconciliation was successful and leads to the direct payment or rescheduling of payment, criminal proceedings against the perpetrator will be suspended as per Article (682).

Article (648) remained the same in regards to the partial payment of the cheque to the bearer in case the available amount in the drawer’s account doesn’t cover the amount of the cheque, however, the bearer can now refuse partial payment. In addition, the Decree-Law requires the drawee bank to report to the central bank any incident related to insufficient funds and the cheque bounces.

Besides the criminal courts, the amendments relieve civil courts as well, with the beneficiaries' right to take their bounced cheques directly to execution, saving them time and money in getting access to the perpetrators' assets. This is according to the new text of Article (667) which states:

“The cheque on which the drawee states that it has no or insufficient balance shall be an executive instrument. The bearer of cheque may request the execution thereof, in whole or in part, by force.”

In addition, the Decree-Law has introduced penalties between AED 50,000 and AED 100,000 against a person convicted in a bounced cheque case for not surrendering the checkbook and banned him from issuing a new one for up to five years. Any bank that violates this order will face a penalty between AED 100,000 and AED 200,000.

The Decree-Law sets out in Article (673), Article (674), Article (675), Article (676), Article (677) penalties for cheque crimes ranging between the cheque endorser or bearer (a minimum of 10% and a maximum of the cheque value), issuing a cheque with insufficient funds (imprisonment between 6 months and 2 years plus a minimum of 10% and a maximum of twice the cheque value), forging or using a forged cheque (imprisonment no less than 1 year plus a minimum of AED 20,000 and a maximum of AED 100,000) and any of the above crimes committed for the objective of terrorism (life imprisonment plus a minimum of AED 500,000 and a maximum of AED 1000,000).

The decided penalty for the drawee in the above articles (673-677) of the Commercial Transactions Law with imprisonment or fine for refusing in bad faith to pay the cheque wholly or partially, declaring contrary to the truth that there are no sufficient funds, or refusing to give a statement for insufficient funds, was also amended to a penalty of no less than 10% of the cheque value, subject to the minimum of AED 5,000 (AED Five Thousand), and no more than twice the cheque value.

In general, and contrary to how a lot of people understood the Decree-Law, the new amendments did not cancel the sanctions for a bounced cheque, nor did they intend to “absolve” the issuer from criminal and civil liabilities. As a matter of fact, the purpose of the law was to reduce the pressure on criminal courts in the first place, given the bulk of cheque bounce cases that were registered with them. That’s why the imprisonment sanction was kept in the amendments for more serious cheque crimes or even higher amounts.

The court may also ban a defendant convicted in any of the above crimes from carrying out any professional or commercial activities for a period of up to three years if the crime committed is in relation to conducting business. In case of repetition, the perpetrator shall be subject to imprisonment for no less than one year and a penalty of no less than AED 50,000 (AED Fifty Thousand) and no more than AED 100,000 (AED One hundred Thousand) or any of them.

Where any of the crimes mentioned in the above articles (673-677) are committed for the benefit of a corporation and with the knowledge of the person in charge of administration, the latter will be subject to a penalty no less than twice the legally applicable penalty for this crime and no more than five times of it. The court may also order the suspension of the corporation’s business for no more than six months, and in case of repetition, cancellation of the trade license, and insolvency of the corporation.

The courts judgments for bounced cheques signed by company managers were not all the same though. Some of them considered the manager jointly liable with the company based on Article (630) of the Commercial Transactions Law, while others considered the manager signing on behalf of the company and not included in the liability towards the beneficiary.

Furthermore, the holders of joint accounts will be required to inform the bank in case of a change in the status of one holder like demise or other kinds of disqualification, in order for the bank to take the required measures limiting access to the patrimonial assets of the deceased or disqualified person.

Conclusion

Bounced cheque cases are prevalent in the United Arab Emirates and can be associated with numerous reasons including illegal termination, the bankruptcy of companies, absconding of the cheque issuer, etc. In practice, when the bearer of the bounced cheque filed a complaint with the police, the most viable way to resolve the issue for both parties – is to settle it at the police station amicably.

However, if for some reason the amicable settlement was not reached, and the matter gets escalated to the next level, appointing an experienced lawyer as soon as possible would be the most practical and rational decision to prevent further negative legal implications and damages.

Special thanks to:

Ahmed Odeh | MIO Law Firm
Ahmed Elnaggar | Elnaggar & Partners
Maha Bin Hendi | Maha Bin Hendi Law Firm

for their help in writing the article.

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Originally published 30-Mar-2018, last updated 15-October-2024