Bounced Cheque

Amendments to the UAE Commercial Transactions Law

Treatment of cheques in the UAE has been the subject of much controversy over the years. Historically, issuing a cheque without having sufficient funds to meet the payment has subjected the drawer to criminal prosecution often resulting in a severe penalty, including prison terms, in the UAE.

Dubai established a new Penal Order System in 2017 instigating changes to the treatment of dishonoured cheques and their issuers by providing a mechanism for specific offences to be settled outside of the criminal courts.

The Federal Decree-Law issued this week by the Council of Ministers, headed by His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President, Prime Minister and Ruler of Dubai, aims to introduce significant federal changes to the UAE Commercial Transactions Law. These include amendments aimed at avoiding criminal prosecution and streamlining recourse against a dishonoured cheque amongst others, throughout the Emirates.

The Decree-Law is expected to come into force in 2022.

Forthcoming amendments aim to expedite and streamline recourse against a dishonoured cheque including a mechanism for collection of the value of the bounced cheque in terms of which banks will be required to partially pay out the value of the cheque that is available in the corresponding bank account.

Additional penalties in respect of convicted persons are proposed, these penalties are to include:

  • cancellation of their cheque books and prevention of re-issuance of their cheque books for up to 5 years;
  • their suspension from professional or commercial activities in the Emirates; and
  • penalties for legal persons, which shall include license suspension or revocation of license in the case of repeat violations by entities in the Emirates.

The amendments also define circumstances in which a bounced cheque will be considered a criminal offence and aims to avoid prosecution for such infractions unless bad faith is present. Provision of an alternative to criminal proceedings should help to remove the stigma associated with bounced cheques and enhance debtor accountability.

Provisions relating to the opening of, and access to, joint bank accounts is to be amended to provide for circumstances in which an account holder passes away or loses legal capacity. The bank is then required to limit other account holders ability to withdraw from the account to the extent of such party’s share of the account balance at the date of such occurrence.

These amendments are a welcome development ensuring the protection of cheques as a viable payment instrument, as well as supporting the economic and commercial sectors in the Emirates.

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This article is based on publicly available information and given for informational purposes only. It is not intended as legal advice or as a comprehensive analysis of the matters referred to herein.

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