According to the new Commercial Transactions Law Amendment that has taken effect on January 2, 2022, stop payment orders from a cheque issuer to his bank are no longer allowed, except in two specific conditions.

A stop payment note, often known as a 'protest to the cheque' in banking terminology, is an instruction from the drawer of a cheque to the bank not to pay the bearer the amount of the cheque. The legislature prevents the drawer from instructing his drawee bank not to pay the cheque's amount to the bearer, whose rights include the consideration for payment, under the Commercial Transactions Law (the balance). Thus in this blog, we will discuss in length, all relevant information that you should be familiar with about Canceling Cheques in the UAE. So, without any further ado, let’s begin!

So What led the Authorities to make such an Amendment?

The CBUAE's clarification aims to raise awareness among cheque users about the decriminalization of issuing a cheque without sufficient funds, the criminalization of refraining from partial payment of the cheque's amount, and the tougher administrative penalties for issuing a cheque without sufficient funds.

• The Commercial Transactions Law has been updated in accordance with best practices to stay up with international changes, according to the apex bank.

• It also attempts to provide a strict legal framework for these transactions, governing the use of cheques as a payment method rather than cash.

In general, the new amendments to the Penal Code decriminalize several cheque-related issues, particularly issuing a cheque without sufficient funds, and introduce amendments and new legal provisions to Chapters (Three) of Book Four of the Federal Commercial Transactions Law related to cheques. 

Thus the advantages of the aforementioned Amendment are mentioned below-

Reduction of Negative Impacts

In light of the greatest and most successful worldwide techniques, lowering the negative practical aspects of dealing with cheques

Balance

By balancing the interests of the beneficiary (in completing their rights as quickly as possible) with the interests of the drawer, the concepts of justice, fairness, and equal opportunity are consolidated (in terminating the criminal case against them upon payment).

Enhancement of National Economy

Maintaining a strong national economy and a high-quality judicial system, as well as improving the rule of law and international competitiveness metrics, all in line with the state's overall vision and strategy.

Few instances which forced the authorities to take this step-

The following are examples of criminalization and fraud involving checks:

1.  Cases of fraud when issuing the cheque, such as requesting the bank not to cash the cheque before the due date without a valid reason (other than those specified in Articles (620) and (625), when the cheque has been misplaced or the bearer has been declared bankrupt).

2.  Cases of criminalization involving check fraud and misuse

3.  Closing the account or withdrawing the full sum prior to issuing the check or presenting it to the bank for cashing, or if the account has been frozen.

4.  Intentionally writing or signing a check in such a way that it cannot be cashed.

Read More: Cheque Book Request from Bank in UAE

What are the Exceptions to this Law?

The UAE's Central Bank has highlighted that the law permits a drawer to protest (send a stop payment order to the bank) and refuse to pay the value of a cheque in certain circumstances.

The modified law allows for two sorts of protests to the payment of a Cheque:

• One is for the benefit of a cheque bearer who has lost a cheque against his will, such as a stolen or lost cheque.

• The second type occurs after a bankruptcy filing, when a bankrupt is barred from managing or disposing of his or her assets in order to protect his or her creditors.

The first scenario is a protest in the event that the check is stolen or misplaced. If the cheque is stolen, misplaced, or obtained through fraudulent methods, the bearer of the cheque may object to the drawee bank paying the cheque value. In this circumstance, either the drawer or the cheque bearer might request a halt payment (protest) after the cheque has been stolen or misplaced.

How does this new law affect confidentiality?

Banking secrecy and confidentiality terms are also redefined in the latest modification to the commercial transaction’s statute.

• A bank employee's declaration that there is insufficient funds for the value of the cheque/part of the value of the cheque is not considered a violation of banking secrecy under the new requirements, as long as the disclosure is made within the boundaries of the statement.

• According to a letter from the CBUAE, "there is no infringement of banking secrecy if the bank employee's assertion that there is insufficient fund, or that there is a portion of it in the drawer/account clients to cash the check is restricted to that only, without referring to other data."

Functioning of Cheques under the New Law

The functions of Cheques are as follows-

• When there is adequate funds, the bank (the drawee) is obligated to pay the cheque's value upon presentation. It cannot refuse to pay since doing so would jeopardize the holder's primary entitlement to possession of the cheque in exchange for payment.

• Although the law allows the bank (the drawee) to refuse to pay if it receives opposition, the law has narrowed the circumstances in which this opposition is permissible, limiting it to cases of cheque loss and bearer bankruptcy only, to ensure that the cheque serves its intended purpose as a payment tool.

• Strong civil alternatives have been developed that lead to the fastest and simplest possible collection of the cheque value, including: -

• Obliging the bank to pay the cheque (at least partially)

• Making a cheque from the drawee's bank account with insufficient funds an executive document to be implemented directly through the execution judge, without resorting to lengthy legal procedures, as was previously the case (before the amendments).

• This eliminates the necessity for a police report, a complaint, and the subsequent follow-up procedures with the police and prosecution, followed by the courts. In this scenario, the cheque has the power of an executive bond, which means it can be used without a court order, which should speed up legal action and make it easier for a bank to exercise its rights and receive the cheque's value. This should strengthen the cheque as a business and financial transaction payment method.

• If the entire (or the remainder) of the cheque's value is paid before the start of mandatory execution processes or the issuance of a final judgment, this gives a way to avoid criminal action and associated procedures.

• A number of additional penalties have been imposed, including the withdrawal of the convicted person's existing chequebook, the prohibition of the convicted person from obtaining a new chequebook for a period of up to five years, and the suspension of the legal person's professional or commercial activities.

• The imposition of a fine, license suspension for a term of six months, and license cancellation or dissolution of the legal entity for repeated violations have all been added as new additions for legal persons (excluding banks and financial organizations).

Conclusion

Being up to date with the changing norms is the need of the hour to avoid any unwanted circumstances which can create hindrances for you. Thus we hope that the above-mentioned information which is carefully curated by our team of Experts at Dhanguard is helpful to you. For information on other related aspects, feel free to check out our website as well.