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Read This Blog before you Write a Cheque! Cheque Bounce in UAE Explained.

One of the most common methods of payment in the United Arab Emirates is a bank cheque. Business Owners, Employed Persons etc make use of Cheques to make their business or other transactions. It is also because of this reason, that malpractices related to cheques have risen in recent years. A bounced cheque, sometimes referred to as a dishonored or bad cheque which is a result of lack of funds in one’s Bank Account, can lead to legal action being taken against the issuer on both a civil and criminal level. 

Thus in this Blog, Dhanguard will extensively discuss what you should do if you ever find yourself in a dilemma because a cheque you wrote or received was returned by the bank. So without any further ado, let’s learn!

Legislation with respect to Cheque Bounce in the UAE

In the UAE, cases of bounced checks are governed by Article 401 of the Federal Penal Code from 1987. The law states that 

  • Anyone who, in bad faith, gives a draught (cheque) without a sufficient and drawable balance, or who, after giving a cheque, withdraws all or part of the balance, making the balance insufficient for settlement of the cheque, or who orders a drawee not to cash a cheque, or who makes or signs the cheque in a manner that prevents it from being cashed, shall be detained or fined.

  • Anyone who endorses a cheque in another's favor or extends a bearer drought to him while being aware that there are not enough funds to honor the cheque or that it is not drawable will be subject to the same punishment.

What does a Bounced Cheque means?

In the UAE, checks are frequently used for both business and private transactions. In Dubai, they are actually the most frequently accepted form of payment for payment. They are always acceptable, but there is always a chance that things could go wrong.

You could be subject to legal and/or disciplinary action if a cheque you wrote bounces, is returned, or is dishonored. Now the question is: When does a check bounce or turn into a bad check in the UAE?

Four Primary Reasons why your Cheque Bounced-

  • No money in an amount equal to or higher than the check's value is accessible on the day it is issued.

  • Examples of technical errors include mismatched signatures, missing or inaccurate dates, and rewritten or scratched writing.

  • Prior to the issued cheque being cashed, the bank account is closed (s).

  • The bank has been given instructions to hold off on cashing the cheque 

 

Read More: Why Dubai can be Your Best Option for Making Investments? Read Now!

What are the repercussions of a Bad Cheque?

In accordance with a previous modification to the law on dishonored checks, the person who draws the cheque may be subject to a fine of no less than AED 1,000 and a prison term of no less than one month in the UAE, depending on the amount of the check.

 

  • A penalty of at least 10% of the cheque's value and up to AED 1,000 will be imposed on anyone who endorses or issues a check in another person's name while knowing there are insufficient funds or that the check cannot be withdrawn. This most recent revision will take effect in 2021. The penalty is doubled if this offense is committed twice.

  • If defaulters do not abide by the modification, they will also be sentenced to a six-month to one year term.

  • Currently, Article 642 of the law stipulates that the court has the power to publish the decision along with the person's name, occupation, and residence in two local newspapers (in English and Arabic). The expense of publication shall be borne by the defaulter.

How do you file a Cheque Bounce Case in the UAE?

Legal actions regarding returned cheques are handled by the One-Day Courts in Abu Dhabi, Ras Al Khaimah, and Dubai. 

  • These courts make sure that the proceedings are swift to conclude usually in less than 24 hours.

  • Despite the fact that imprisonment is typically the last recourse, bounced cheques are nonetheless considered a criminal offense in the UAE. 

  • This is one of the reasons that, no matter which city in the United Arab Emirates you happen to be in, the police should be notified as soon as a bogus cheque is discovered.

  • The process might be the same as in Dubai, however in Sharjah and other cities in the United Arab Emirates, there might be differences in the punishment and some legal implications for a bounced cheque.

Penalty for a Bounced Cheque in Dubai

In Dubai and the United Arab Emirates, there are different costs for bouncing checks. A new law adopted in Dubai in 2017 states that matters involving check bounces would no longer be handled by the criminal court. It will be resolved by the fines themselves, which is a major comfort for check writers because it means that the person who issued the dishonored check won't go to jail. Just Dubai is covered by this new law. The rest of the UAE will adhere to customary law, which calls for incarceration and payment of fines.

  • In Dubai, if the amount on the check is less than AED 50,000, the penalty is AED 2000.

  • If the amount on the check is between AED 50,000 and AED 100,000, the fine is AED 5000 in Dubai.

  • If the amount on the check is between AED 100,000 and AED 200,000, the fine is AED 10,000 in Dubai.

  • If the value of the check exceeds AED 200,000, the penalty will be determined by the relevant authorities. The fine will be directed at the government, not the recipient.

What are the New Provisions with respect to UAE’s Cheque Bounce Law?

Changes to the Commercial Transaction Law on the penalties and legal repercussions of a failed check have been approved by the UAE Cabinet. 

The UAE's new law on returned checks, which is scheduled to go into force in 2022, will:

  • Establish alternative means of money collection through the banks of Dubai and other emirates.

  • Decree bounced Cheque to become an executive document that can be directly executed by a court judge.

  • Encourage parties to come to an amicable agreement to decrease the number of criminal cases.

  • Additional sanctions, such as the suspension of business licenses or the revocation of cheque books, should be put in place to lessen the prevalence of bounced checks in the United Arab Emirates.

Conclusion

Thus we can conclude with the fact that Cheque return or bounce is a situation which should be avoided to rescind yourself with its related consequences that can become a problem for you. The above mentioned article is carefully devised by our Experts to provide you unmatched assistance. We hope this blog provides you with incite full information. For more related information on other related aspects, feel free to check out our Website as well.

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Frequently Asked Questions

Yes, a foreign entity can open business account in the UAE. The registration of any organisation in the UAE is generally an easier and cost-effective way.

The requirement for opening any bank account in the UAE vary from one bank to another. Although, the existence of a major director or shareholder is generally required.

A limited company should have a dedicated bank account because they have a separate legal entity.

The benefits of having business account includes tracking of the expenses, easy calculation of the tax liabilities as well as management of cash flow.

Yes you can open a business account in various major currencies of the world other than the UAE dirhams.

Every bank has a unique internal procedure and timetable for opening accounts. For an LLC or a Free Zone company, obtaining a bank account in the UAE normally takes 2 to 4 weeks.

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