UAE Court Throws Out Bank’s Loan Recovery Claim Over Missing Guarantees

A bank in Abu Dhabi has failed in its attempt to recover nearly Dh950,000 from a borrower and her guarantor after a court ruled that it had not complied with central bank rules designed to protect customers.

 

The Abu Dhabi Commercial Court of First Instance dismissed the claim, finding that the lender had granted the loan without securing the required guarantees, in breach of regulatory provisions.

 

The bank had sought to compel the two defendants to jointly repay Dh949,938, representing the outstanding balance of a loan issued to the first defendant, with the second defendant acting as guarantor. It also asked the court to award annual legal interest of 9 per cent from the date of default until full repayment, in addition to court fees and immediate enforcement.

 

According to court documents, the lender submitted a copy of the loan agreement, an account statement and the guarantor’s undertaking. However, the court found that the bank had not obtained sufficient guarantees or the necessary number of post-dated cheques corresponding to the installment schedule.

 

In its judgment, the court referred to Article 150 of Federal Decree Law No. 6 of 2025 on the Central Bank and the regulation of financial institutions. The provision obliges licensed financial institutions to obtain and maintain adequate guarantees for all credit facilities granted to individuals and sole proprietors, proportionate to the borrower’s income and the value of the facility.

 

The law further states that courts and arbitration bodies must not accept claims filed by financial institutions if such guarantees were not obtained or preserved.

 

The court also noted that lenders cannot collect a single cheque covering the entire loan amount unless the loan is repayable in a single instalment. Where repayment is structured over multiple instalments, lenders must secure several guarantee cheques corresponding to the number and value of those instalments, and their total value must not exceed 120 per cent of the loan.

 

Judges concluded that the bank had extended the loan without obtaining guarantees from either the borrower or the guarantor, in violation of central bank instructions. While contracts are generally binding on both parties, the court emphasised that this principle does not apply where contractual terms conflict with mandatory legal provisions.

 

The court therefore ruled the claim inadmissible and ordered the bank to bear the legal costs.

 

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