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Bounced Security Cheques as Evidence in Criminal Cases

Guiding Principle

In the UAE security cheques are a popular securing device. According to its definition a security cheque is a postdated cheque to secure payments that will arise in the future. In many cases payment is dependent on the fulfillment of a condition. The majority of security cheques is issued in order to secure the repayment of a debt, e.g. a real estate or a personal loan.

I. Criminal and Civil Liability

It is important to make the distinction of criminal and civil liability. Whereas civil liability provides financial compensation to the injured party and is amendable to waiver and compromises, the penalty which results from criminal liability is prescribed by law and not negotiable.

Art. 401 of the UAE Penal Code make cheque fraud a punishable offence which results to confinement or fine. The criteria for the assumption of fraud are the issuance of a cheque which does not have a provision, which could be withdrawn or which has a provision less than the amount of the cheque, with bad faith. This will be punished in the same manner a person who, in bad faith, after issuing the cheque withdraws all or part of the provision and renders the balance insufficient to settle the amount of the cheque, orders the drawer not to pay the value of the cheque or issues a cheque in such a manner as to prevent it from being paid.

II. Function of Cheques in Legal Matters

In legal matters cheques are used as proof for certain circumstances. For the courts in the UAE a cheque is a commercial paper which contains an order of the issuer towards his bank to pay the beneficiary a specific sum of money on a specific date.

What kinds of facts are actually able to be proven with the presentation of a cheque depends on the applicable field of law.

1. Civil Cases

Within civil cases a cheque can be used to prove the fact that the debtor owes money, especially loan and interest.

2. Criminal Cases

According to Art. 401 of the UAE Penal Code the issuance of a cheque while knowing the funds are insufficient to cover it on the due date, is a criminal offence. In conjunction with these circumstances the issuance of a security cheque can often result in problems. An undated or postdated security cheque is able to fulfill Art. 401 of the UAE Penal Code easily, as the issuer does not have influence on the moment the cheque is cashed.

Therefore it is absolutely decisive whether bad faith can be proven to the issuer.

The Criminal Courts in the UAE and its Supreme Court have determined that the issuer’s bad faith is established when he knows that there are insufficient funds. As a result the Supreme Court has stated that the criminal offence of Art. 401 of the UAE Penal Code is committed by issuing a bounced cheque. For the Court, criminal liability cannot be avoided by claiming that the cheque was supposed to be a security instrument and that the beneficiary should have known about the insufficiency. To put it in another way, the presentation of a cheque linked to the fact that it bounced is considered to be a proof for bad faith of the issuer.

Given the fact that it does not make a lot of sense to impose a fine on the debtor, his freedom of movement will be restricted in the majority of cases. This can be achieved by either confinement or confiscation of the passport during the investigations.

a) UAE Citizens

Considering the results of this established law practice, a presidential decree was passed on 25th October 2012. The decree affected cases of bounced cheques filed by banks and financial companies against Emirati citizens. Accordingly, UAE courts stopped accepting cheques which were submitted by banks or financial companies as a criminal tool in cases against Emiratis.

Moreover cases against Emiratis were dismissed after an application. The decree pertains to cases under investigation as well as cases where verdicts already have been issued as it either calls for suspension or grants a search suspension document to avoid any action against the affected persons. In consequence many UAE citizens were freed from custody.

Nevertheless it is important to point out the independence of criminal and civil liability. The decree does not undermine the rights of banks and financial companies regarding their civil claims.

It is also very important to pay attention to the fact that the decree only deals with cheques favoring banks and financial companies. Therefore it does not apply in cases in which cheques are issued between individuals, where the liability continues to be a criminal one.

b) Citizens from other Countries

In January 2013 rumors circulated that expatriates in the UAE will not be exempt from the impact of the presidential decree issued in October 2012. The media reported that UAE courts have stopped accepting cheques submitted by banks and financial companies as criminal tools in cases against expatriates, too. The newspapers indirectly quoted government workers saying that banks were told that federal courts would no longer accept cheques presented by them by expatriates against a loan.

The government worker gave the President’s directives to achieve justice for all residents including Emiratis and expatriates as a reason. Moreover a judge was quoted saying that the Federal Public Prosecutors have also released expatriates from detention.

Moreover banking officials confirmed that cheques would no longer be considered criminal tools but only as a proof for the fact that the banks are owed money by a debtor.

However these media reports do not comply with the truth. No evidence which could support this statement can be found. The presidential decree expressively only affects UAE citizens. There is no clue that it is supposed to be applied mutatis mutandis to persons who are not citizens of the UAE.

The media also became aware of this on 6th January 2013, the first article appeared stating that expatriates will not be exempt from criminal charges for bouncing cheques.

This can be explained as follows: In cases of Emiratis, their loans will be settled in accordance with specific settlement mechanisms, including a deduction of 25 % from their monthly salaries, with undertakings not to borrow again until the loan is settled.

Only Emiratis whose files are being handled by the Higher Committee for Debt Settlement Fund for Nationals can be beneficiaries of the decree. The Higher Committee stated that it will only settle bad debts for Emirati citizens and not foreigners living in the UAE. Furthermore it was made clear that the mechanisms set by the fund will apply only to UAE citizens, and not others, and this includes the President’s directives to decriminalize security cheques presented by UAE citizens to banks and financial companies.

This fund may settle the debts of Emiratis whether detained or convicted, and are still settling their debts according to payment schedules set by courts.

III. Conclusion

To put it in a nutshell the effects of the Presidential Decree from October 2012 only made a difference for Emiratis who are seriously trying to settle their debts. Expatriates do not profit from the new regulations except maybe for a few lucky ones.

In cases against Expatriates there is no guarantee that a UAE court will reject a bounced cheque as proof for bad faith, thus leading to criminal liability.

January, 2013 Hanka Jahn
Meyer-Reumann & Partners, Dubai Office
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