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Decriminalisation Of Bounced Cheques In UAE

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Staff Writer, TLR

Published on July 14, 2023, 17:41:00


Bounced Cheques  In UAE, Decriminalization

The UAE government has formulated certain amendments to the commercial transactions law that decriminalizes bounced cheque cases, wherein the drawee will not have to undergo the inconvenience of first filing a Criminal Case against the drawer and then filing a Civil Case to avail the funds, from now on the drawee can directly proceed towards the execution against the drawer of the cheque. The benefit of such decriminalization of bounced cheques has been provided under the Federal Decree No. 14 of 2020 Commercial Transactions Law (“the decree”) which came into force on 2nd January 2022 and repeals provisions of Articles 401, 402, and 403 of the Federal Law No. 3 of 1987 concerning the Penal Code governing the offense of bounced cheque.

The UAE Penal Code earlier allowed the criminal courts to dishonour a cheque by the drawer for any reason to be a criminal offence, which would be punishable with imprisonment or deportation and fines. However, the new decree clearly specifies that pursuing a criminal remedy for a bounced cheque offense will not be available only if the cheque is bounced due to insufficient funds, and the drawer will have the right to be liable for civil claims

This new amendment comes as an initiative of the UAE government to boost the economy affected by the pandemic, especially in the private sector. Other than changing the bouncing of cheques from a criminal offence to a civil offence, the amendment also mandated partial payment of cheques. However, bounced cheques due to insufficient funds in cases of fraud, forgery and ill faith is still a criminal offense under the Commercial Transaction Law.

This amendment is consistent with the desired goal of replacing decriminalization with preventive measures and milder alternative penalties to reduce the misuse of cheques. Moreover, this amendment will also prevent the accumulation of cheque-related cases in civil and criminal courts. The major changes due to this amendment are as follows: -

1. Reduced Scope of Criminality : The new amendment has narrowed down the scope of criminality in cases of bounced cheques. As per the amended laws, the only situations which would invite criminal procedure in case of bounced cheques due to insufficient funds include: 
a. Intentional falsifying of cheque passed in ill faith.
b. Cheque passed with intention of fraud where the issuer of a cheque might sign a cheque of a particular amount but then issues directions to the bank to not pay the cheque amount to the issue. However, the signature on the cheque is real/ genuine and is a clear acknowledgment of the debt that the issuer owes to the issue.
c. Passing counterfeit/ fake cheques. In this kind of cheque, the signature itself is fake or copied.
d. Withdrawing the account balance before the cheque is passed/ encashed by the issue to prevent the cheque from being cleared.

2. Partial Payment of Cheques : As per the new amendment, partial payment of cheques is now a mandatory exercise. The concept of partial payment applies when the amount available for payment in the bank account is less than the amount provided in the cheque. The issue can then ask the bank of the issuer to give the partial amount of the cheque and the rest the issue can claim through legal proceedings in civil court.  The bank of the issuer also needs to provide the issue with the issuer's details such as the passport number, trade license details, and contact details (including phone number and address). Furthermore, in the case of partial payment of cheques, the Court can issue an order against the issuer to pay either the entire cheque amount or the remaining amount of the cheque to the issue.

3. Revised Penalties : The penalties which were revised and imposed after the amendment are as follows: -

--Whoever endorses or passes a cheque while knowing that there is insufficient balance to pay the amount mentioned in the cheque or that the cheque will not be passed, shall be subject to a penalty of 10% or more of the cheque value, no less (subject of minimum value of AED 1,000 & no more). The repetition of the same offense invites the penalty to be doubled.

--The individual convicted of breaching this law has his cheque book withdrawn and is also prohibited from availing any other cheque book for the next five years.

--If the individual who is convicted of breaching the law does not surrender his cheque books within fifteen (15) days to their respective banks within 15 days of being notified by the Court, they shall be subject to a fine of no less than AED 50,000 but no more than AED 100,000.

--Also, any bank that violates the order passed by the Court in the case of the convicted individual shall be subject to a penalty of AED 100,000 and above but no more than AED 200,000.

Article 641/2 bis 2 of the new Federal Law No. 14/2020 stipulates that in the event;

1. The drawer closed the account or,
2. The drawer withdrew all funds from the account, prior to issuing a cheque or prior to presenting it to the drawee for payment or,
3. 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.

The court will have the absolute discretion to implement this provision on bounced cheques. 

Even though Articles 401, 402, and 403 of the Federal Decree No. 3 on the Penal code have been revoked, this does not mean that the bounced cheques will be decriminalized or that the drawer will not be subjected to imprisonment.

In practice, legal proceedings in relation to a bounced cheque in the 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. Generally, the courts will apply a fine instead of a jail sentence in cases where the amount of the cheque is small but the courts will still apply imprisonment as a punishment if the amount is high.

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