Bounced Cheque in UAE Law

If someone issues a cheque in your favor, which you cannot cash due to it being returned by the bank, this is referred to as a bounced cheque.

What is The Bounced Cheque in UAE Law?

In UAE law, the bounced cheque is defined as one issued by the drawer in favor of the beneficiary against the drawee, where it turns out there is no sufficient balance in the drawee’s account, the bank, or the balance is insufficient to cover the cheque’s required amount.

Article 630 of the Federal Decree-Law No. 50 of 2022 stipulates that no cheque shall be issued unless the drawer has, at the time of issuing the cheque, funds available with the drawee that he can dispose of by cheque according to an explicit or implicit agreement.

The cheque owner is solely responsible to the endorsers and the holder to provide a counterpart for fulfillment. In case of denial, the drawer must prove that the drawee possessed sufficient funds at the time of the cheque’s issuance. Failing to prove this, the drawer is obliged to cover the cheque’s value.

9 Reasons a Cheque Becomes a Bounced Cheque

1. The absence of sufficient funds in the drawee’s account to cover the cheque.
2. Insufficient allocated funds for the drawer with the drawee to fulfill the cheque.
3. If the drawer requests the drawee not to cash the cheque issued, after drawing it and before it is cashed by the beneficiary.
4. The drawer closes the account or withdraws all the balance available with the drawee, or was aware of the account closure before issuing the cheque.
5. The drawer intentionally causes the balance to be frozen and prevents the cheque from being cashed.
6. The drawer deliberately writes or signs the cheque in a manner that prevents its encashment.
7. The drawee states that there are no sufficient funds to cover the cheque or that the funds are less than the cheque’s value.
8. The drawee, with malicious intent, refuses to pay the valid drawn cheque despite its validity.
9. The drawee refuses partial payment of the cheque, fails to issue a certificate thereof, and does not return the original cheque to the beneficiary for recourse against the drawer.

5 Legal Procedures for Recovering the Value of a Bounced Cheque

If a cheque is issued by the drawer in favor of the beneficiary, who then attempts to withdraw its value from the drawee, namely the bank, and finds there are insufficient funds, the following legal procedures must be undertaken:

1. Should there be no funds to cover the cheque or if the funds are insufficient, the bank is then required to partially pay the cheque’s value, provide the beneficiary with a certificate indicating partial fulfillment, and hand over the original cheque to the beneficiary for recourse against the drawer.
2. Given that a cheque serves as an enforceable document, the beneficiary has the right to claim against the drawer, endorsers, and any other obligors, provided the claim is made within the legal timeframe and full or partial value of the cheque has not been received.
3. The cheque holder must present a statement from the drawee indicating the date the cheque was presented, including a refusal to pay the cheque due to insufficient funds or lack thereof.
4. The cheque holder is required to notify the Central Bank about the account holder’s details if the cheque has no backing funds, if the backing funds are insufficient, if the drawer has withdrawn the backing funds after issuing the cheque, or if the drawee has only partially fulfilled the cheque.
5. In all cases, enforcement will be carried out against the drawer, with recourse to recover the cheque’s value, once it is submitted to the competent execution departments at the courts, where necessary legal actions for enforcement will be taken.

What are the Legal Consequences of Issuing a Bounced Cheque?

The legal consequences of issuing a bounced cheque, according to the provisions of Federal Decree-Law No. 50 of 2022 concerning the UAE Commercial Transactions Law, include the following points:

• If it is established that the bounced cheque was due to the drawer’s lack of awareness of their remaining balance, and their good faith is proven, no penalty will be imposed. Instead, the drawer is required to pay the full value of the cheque or the remaining portion.
• The UAE Commercial Transactions Law obligates the drawee, either a bank or financial institution, to pay the cheque value, even partially, contrary to previous laws which allowed the drawee the right not to cash the cheque due to insufficient funds.
• Article 675 of the UAE Commercial Transactions Law penalizes the drawer of a bounced cheque with imprisonment for no less than six months and not more than two years, and a fine not less than 10% of the cheque’s value, provided that this fine is not less than 5,000 dirhams and does not exceed twice the value of the cheque, or one of these two penalties, if the drawer commits any of the following actions:
• If the drawer requests or orders the drawee not to cash the cheque before its date, or if they close or freeze the account.
• Withdraws all the balance in the account before the beneficiary can cash the cheque.
• Deliberately issues or signs the cheque in a manner that prevents it from being cashed, such as causing a discrepancy between the amount written in numbers and in words.
• Omits one of the essential details in the cheque, making it unacceptable for the drawee to cash the cheque.

Frequently Asked Questions (FAQ)

Can a bank be obligated to partially pay the value of the cheque?

Yes, a bank can be obligated to partially pay the value of the cheque as per Article 648, in cases of insufficient funds. The law requires the drawee to partially fulfill the cheque’s value, provided that partial payment is endorsed on the back of the cheque. Additionally, the cheque holder must be given the original cheque and a certificate indicating partial fulfillment, enabling the holder to claim the remaining amount from the drawer.

How can a bounce cheque be cashed?

A bounced cheque can be cashed, either in full due to the absence of funds or partially due to insufficient funds, by claiming against the drawer or endorsers. This is contingent upon proving submission within the legally specified deadlines. Cheques are considered enforceable instruments that must be executed directly by the execution departments.

In conclusion, when engaging in financial transactions with any entity or individual, it is crucial to be vigilant against any actions or steps that may contravene the law. You might think you are complying with the law, only to be surprised by a violation.

We always advise our clients to familiarize themselves with the laws and regulations in the UAE, and we are always at your service to provide the correct legal support.

Should you encounter any legal issues and need assistance from a lawyer, you can click the WhatsApp button at the bottom of the screen to contact top lawyers specialized in cheques disputes.