Things you should know about Cheque Bounce in UAE

By Sakshi - 12 Sep 2021 Last Updated: 22 Oct 2021
Things you should know about Cheque Bounce in UAE

A bank cheque is one of the most prevalent forms of payment in the United Arab Emirates. One of the main reasons why bounced checks are so common in the UAE is because of this. A bounced cheque, also known as a dishonored or bad check, can result in legal action against the issuer, both civil and criminal. If you ever find yourself in a bind because a check you issued or received has been returned by the bank, here's what you should do. So without any further ado, let’s learn!

United Arab Emirates Cheque Bounce Law

 Article 401 of the UAE Federal Penal Code of 1987 governs the case of bounced Cheque in the UAE. According to the law:

  • “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.”
  • The same punishment will be imposed on anyone who endorses a check in another's favor or offers him a bearer draught while knowing that there are insufficient funds to honor the check or that it is not drawable.

The UAE's Cheque Bounce Law has been updated with New Provisions

  • The beneficiary now has the ability, under Article 617, to petition the bank for partial payment of the cheque based on the drawer's bank balance.
  • If financial institutions refuse to accept the beneficiary's request for partial payment of a check, they will be subject to criminal prosecution. They don't have any say in the matter.
  • If the beneficiary obtains a certificate from the bank showing there is insufficient funds in the drawer's bank, the dishonored check can now be considered as a civil executive deed under federal civil procedure code no. 11 of 1992. To put it another way, the beneficiary can now launch a civil execution case against the drawer, whose assets will be confiscated in order to recover the amount of the check.

What does it signify when a Cheque Bounces?

Cheques are commonly used in the UAE for both corporate and personal transactions. They are, in fact, the most often accepted means of rent payment in Dubai. While their acceptability is never a problem, they do have the potential to go bad.

When a check you issued bounces, is returned, or is dishonored, you may face civil and/or penal action. Now the question is when does a cheque in the UAE bounce or become a bad check?

Four Reasons for a Cheque being returned:

  • On the day of issue, there are no funds available in an amount equal to or greater than the amount of the check.
  • Mismatched signatures, no or incorrect dates, and overwritten or scrawled text are examples of technical faults.
  • Closure of the bank account prior to the encashment of the issued check(s).
  • The bank has been instructed to withhold payment on the cheque.

What are the consequences of a Bad Cheque?

According to a prior change to the rule on dishonored cheques, the drawer (person who draws the cheque) can be fined a minimum of AED 1,000 and sentenced to at least one month in prison in the UAE, depending on the amount of the cheque.

  • With the most recent change in 2021, any individual who endorses or issues a cheque in the name of another knowing that there is insufficient funds or that the cheque is not withdrawable will be penalized a minimum of 10% of the cheque value and a maximum of AED 1,000. If this offence is committed again, the penalty is doubled.
  • Defaulters will also face a six-month to one-year term if they do not comply with the modification.
  • Article 642 of the law currently specifies that the court has the right to publish the judgement in two local newspapers, together with the person's name, occupation, and residence (in English and Arabic). The defaulter is responsible for the costs of publication.

How to file a Cheque Bounce Case in UAE?

The One-Day Courts in Abu Dhabi, Ras Al Khaimah, and Dubai handle legal actions involving rejected Cheque. These courts resolve cases quickly, usually within 24 hours, ensuring a smooth and efficient process.

Bounced Cheque are still regarded a criminal offence in the UAE, despite the fact that jail is usually the last resort. This is one of the reasons why, regardless of which city of United Arab Emirates you are in, you're in, and reporting a bad check to the police should be your first step.

The procedure may be similar to that used in Dubai; however the fine amount and certain legal repercussions for bounced Cheque in Sharjah and other cities of United Arab Emirates may differ.

Charges for a Cheque Bounce in the United Arab Emirates

Cheques are used to make the majority of payments in the UAE. Despite the fact that the Direct Debit System has been developed, some people still write Cheque, and several banks require post-dated Cheque as security when accepting a personal loan.

  • In the first half of 2018, the UAE issued 12.06 million cheques, with 4.3 percent of those being dishonored (returned). The person who is found guilty of a bounced check will be sentenced to prison, and the amount of the fine will be determined by the court. The payer will be barred from travelling.
  • According to the new amendment of 2021, everyone who issues a check with insufficient funds in their account will be charged 10% of the cheque amount. If the offence is committed again, the penalty will be doubled.

Charges for Cheque Bounced in Dubai

The fees for bouncing a check in the UAE and Dubai are not the same. Cheque bounce cases will no longer be dealt with the criminal court in Dubai, according to a new law passed in 2017. It will be settled by the fines themselves, i.e. there will be no jail time for the issuer of a dishonored cheque, which is a huge relief for check payers. This new law only applies in Dubai. The rest of the UAE will follow customary law, which includes detention and fine payment.

  • In Dubai, if the amount on the check is less than AED 50,000, the penalties 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 latest Amendments in the law?

The bank is required to pay half of the sum and bounce the rest, according to a recent change to the law. The beneficiary can go to court and get the balance of the money if the check bounces.

Changes in the law that might become Appropriate in the future

The UAE Cabinet has approved changes to the Commercial Transaction Law relating to the legal consequences and penalties of a failed check. The new rule on bounced Cheque in the UAE, which is set to take effect in 2022, will:

  • Create alternate payment collecting methods through Dubai and other emirates' banks.
  • Decree bounced Cheque to become an executive document that can be directly executed by a court judge.
  • Reduce the number of criminal litigation by encouraging parties to reconcile.
  • To reduce the frequent occurrence of bounced cheques in the UAE, additional penalties such as suspension of commercial licenses or revocation of cheque books should be implemented.

How can I avoid having a Bounced Cheque?

To avoid fees and other complications associated with a bounced check, the payer must:

  • Before writing the check, double-check the account balance.
  • Make sure the signature on the check is correct.
  • Make sure the check is properly dated.
  • Fill in the blanks on the check without making any mistakes.

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. We this blog provided you with incite full information. The above mentioned article is carefully devised by our Experts to provide you assistance. For more related information on other related aspects, feel free to check out our Website as well.

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