Invalid Loan, Joint Liability: Dubai Court Orders Dhs2.5 Million Repayment Without Contractual Interest

The Dubai Commercial Court has declared a loan agreement void for violating public order, while directing the defendants to jointly repay Dhs2.5 million. The court also awarded legal interest at 5 per cent per annum from the date of filing the case until full settlement, rejecting all other claims.

According to court records, an investor filed a lawsuit against a company and its owner seeking recovery of Dhs2.5 million under a loan arrangement, along with accrued interest. The investor also sought the appointment of an expert to assess penalties for delayed payments.

The investor stated that the loan had been extended to support business activities under agreed terms, with a guarantee cheque issued as security for the full amount.

Documents before the court showed that the agreement required repayment of the principal along with interest within a specified period, and imposed compounded monthly penalties in case of default.

The investor confirmed that the funds were disbursed and used for business purposes. However, the records also revealed payment defaults, the dishonour of the guarantee cheque due to insufficient funds, and indications that the funds had been diverted from their intended use.

Court documents further noted that the company and its owner failed to repay the amount upon maturity, prompting the investor to initiate legal proceedings. The owner, however, contested personal liability in the case.

In its ruling, the court found that the transaction constituted an interest-based lending arrangement subject to regulatory restrictions and not permissible without proper licensing. This rendered the agreement contrary to public order and legally void.

As a result, the court ordered restoration of the parties to their original position prior to the contract. It directed repayment of the principal amount alone, excluding the contractual interest and penalties, while permitting legal interest for the delay.

The court also held both the company and its owner jointly liable, citing serious violations including entering into an unlawful agreement and issuing a cheque without sufficient funds. It therefore imposed joint and several liability for repayment, apportioned legal costs, and dismissed the investor’s request for expert evaluation and contractual penalties.

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