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Criminal Aspects of Bounced Cheques Under the UAE Law

Guiding Principle

This Article analyses the criminal consequences of bounced cheques under the UAE law. In the first part it briefly describes the legal framework of the UAE system and how it reacts to the issuance of uncovered cheques. Afterwards, it highlights how the law is applied by the concerned authorities when a bounced cheque complain is filed and clarifies the nature and extent of a new presidential order that led to some misunderstanding. In the last part, the Article will also discuss the possibility of decriminalization of bounced cheques and the reforms demanded in this respect. Finally, it provides some practical advices to be considered before issuing a cheque.

A. Introduction

The UAE regulations on bounced cheques have always been a safety belt in the UAE commercial transactions as they prevent the common phenomenon of the debtor’s flee in case of his default. The regulation adds criminal implications on the defaulter so that the creditor may obtain an immediate provisional measure in his favour such as confinement during investigations or withholding of the debtor’s passport, by simply producing the signed cheque and its related documents from the bank. In fact, the result of this practice is to envisage criminal implications to work as a tool to pressure the debtor to secure repayment and for a criminal law to enhance and function as a debt collection mechanism.

This issue is under numerous current debates and many scholars and lawyers call for some sort of reform since the strict application of the rule may discourage investments as well as resulting in unjust individual restrictions. Moreover, the practice of requesting undated or even blank cheques to ensure repayment was on the rise in commercial transactions despite the tight legal provisions. Perhaps more importantly, often investigation is conducted through a rigid automatism so that the desired effects are produced quickly, but often in a lack of a proper investigation by the authorities.

B. Regulation
The UAE Penal Code[1] criminalises cases of fraud by drafting a cheque in instances where on the date of submission for collection, the issuer does not have sufficient funds in his account to honour it. A bounced cheque is a misdemeanour sanctioned under Article 401 of the UAE Penal Code by detention (one month to 3 years) or by application of a fine. In other words, if a cheque is presented without adequate funds to cover the amount, the person who signed the cheque can face both criminal and civil charges.

Court precedents in the UAE are such that the court would assume the “bad intention” without looking into the individual circumstances of the case, unless the issuer of the cheque can specifically prove otherwise. This explains why the police are more easily convinced to file a complaint for a bounced cheque, as they do not need much to be proven before them until a formal complaint is filed against the issuer. The bounced cheque itself is therefore enough reason against the issuer to be prosecutable. On the other hand, the creditor is entitled to claim a provisional measure against the debtor by simply producing the bank documents of the bounced cheque. Furthermore, even after the person has served the jail sentence, he may still not be able to leave the country until the funds have been fully settled with the beneficiary.

The defaulter may still proceed with the payment after the commission of the offence both prior and after a final ruling is made. In former cases, the criminal case “shall lapse”, whereas in the latter its enforcement “shall be stayed”[2]. In terms of principle, this provision is peculiar since its factual outcome will allow the sentenced to restore his initial status just as if the crime was never committed. On a public security perspective, this implies that the system would rather justify restriction of freedom to prevent cash default than the recidivism of criminal intents.

C. UAE Practice

As a law firm we have experienced a range of important legal case involving legal practice and customary rules of UAE Commercial Law.

Firstly, based on our firm experience, normally the complainant would take the bounced cheque and the bank report stating the issuer’s insufficient funds to the police. Afterwards, the police would file initial data of the complainant and request through a letter to the cheque issuer’s bank to acquire detailed information about the issuer and his other related documents. After submitting the detailed report issued by the issuer’s bank, the police will file a proper criminal complaint against the issuer and start their investigations.

Secondly, personal criminal liability also involves administrators (or the managing partner) and bank account holders whenever bounced cheques are issued by company’s employee and/or representatives within the legitimate performance of their functions. The debtor will have then to decide either to leave the country before the cheque is bounced, or otherwise face a trial. In a former case, a subsequent summary legal proceeding may be carried out in absentia, and should this terminate to a ruling to prison, the individual can only appeal the judgment by returning to the country. However, in such a case he will have no possibility to avoid the jail until further order of the judge. The outcome of such occurrence will eventually deter many debtors to go back in the UAE and repay their debts.

Thirdly, the law prescribes an actual investigation to be conducted appropriately to ascertain the subjective element– that is the intention to fraud – of the bounced cheques issuer. As mentioned above, in practice the authorities assume this requirement as being met, being the bank certification stating the insolvency sufficient condition to prove his mala fide. This circumstance may lead to unjust consequences especially considering the said practice of issuance of blank cheques to banks.

D. Press Reports on New Regulations

In the last few months press reports created some confusion regarding the procedure following a cheque bounced. The UAE local press widely reported that bounced cheques will no longer be considered a crime in the UAE based on a presidential order issued in October, 2012. However, the matter does not seem to be, theoretically as well as practically, as reported and circulated in the local press.

The referred presidential order is very limited in nature and application. Firstly, it is limited to cheques issued as guarantee and security, therefore cheques that are issued for a payment will not fall under the order. A guarantee or security cheque is a title that is given as a guarantee of a debt rather than as a payment instrument and can be cashed out only upon a certain condition. For instance, normally banks request a guarantee cheque for the amount of the credit card limit as a security for its issuance. Secondly, the order applies only to cheques issued by UAE National. Thirdly, and most importantly, the order relates only to cheques issued by UAE Nationals whose cases are being dealt by The Higher Committee of the Nationals Defaulted Debts Settlement Fund[3]. Thus, not even all UAE Nationals will benefit from this order. Hence, nothing has in fact changed with regards to the practice of criminalizing the issuance of bounced cheques.

E. Demand for Reform

The current applicable law criminalizing bounced cheques and its straight application by the concerned authorities is considered by prominent economists to be too rigid as an investor easily risks facing jail sentence for issuing a cheque which bounced in a matter of civil and commercial transaction. Hence, some legal and business experts suggest a change to the current legislation in order to conform to the modern business practices. However, the current applicable law is unlikely to change as it safeguard valid interests of the creditors to recover their money without going to lengthy and costs consuming procedures. In addition, the current law and practice also provides a safe and smooth environment for businesses and financial transactions well rooted in the UAE system. Therefore, any alternative approach that suggests the complete decriminalization of bounced cheques in the UAE may bring more obstacles to business than any improvement.

F. Issuing a Cheque in the UAE: Do’s and Don’ts

This article shows the severe risks of issuing a cheque in the UAE. We therefore suggest a few practical advices on how to avoid such a situation:

  • Never sign blank or undated cheques, only sign cheques after all details have been duly filled; should the beneficiary insist, inform him that such a request is illegal and against the instructions and regulations of the UAE Central Bank;
  • Always make sure that you have sufficient funds available in your account before issuing a cheque. Do not sign cheques if you have reason to believe that sufficient funds will not remain in your account until the cheque is deposited or cashed by the beneficiary;
  • It is important to keep accurate records of your accounts including every cheque that is issued, to whom it is payable, when it is dated and its amount. Do not unwittingly withdraw money before the cash is taken out to pay for the cheque;
  • All financial records should be consistently cross-checked against the bank account to ensure there are always sufficient funds to cover the value of the cheques;

If any of your cheques does bounce, speak immediately with the bearer of the cheque to reschedule the payment. If the matter gets out of control, contact your lawyer immediately.

April, 2013 Ahsanullah Swati, Francesco Caccamo
Meyer-Reumann & Partners, Abu Dhabi Office

[1] UAE Penal Code, article 401 as amended by Federal Law no. 34 dated 24/12/2005.
[2] UAE Penal Code, art. 401 § 3.
[3]     The fund is applicable to Emiratis who successfully applied for help with loans had to meet certain, unspecified criteria, and it aims to settle the defaulted debts owed by UAE citizens to various banks. Six national banks dealt with the rescheduling of the loan repayments by the citizens in such a way that the reimbursed amounts each month will not exceed 50 percent of their salaries transferred to the banks. The banks also agreed to cut the interests on the loans by one percent.
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