Dishonoring a cheque in the UAE can lead to potential legal consequences, including criminal charges and civil actions. Cheque fraud can be described as the ‘depositing of a fake or manipulated cheque’.
This can be done through various methods such as:
- Submitting fake cheques;
- Submitting manipulated cheques that have some of their details changed, such as the amount, date or beneficiary details etc.;
- Manipulating a cheque by use of ‘magic ink’, which disappears after some time allowing a fraudster to fill in certain details;
- Writing a cheque when one does not have sufficient balance to honour the cheque.
Cheque Bounce in the UAE:
Under article 401 of the Federal Law Number 3 of 1987 concerning the penal code and its amendments ( the ‘UAE Penal Code), ‘Imprisonment or fine shall be imposed on whoever draws in bad faith a cheque without sufficient and drawable funds or who after giving the cheque withdraws all or parts of the funds so that the remaining balance is insufficient to cover the amount of the cheque, or gives the order to the drawee to stop payment or if he deliberately writes or signs the cheque in such a manner as to make it non-payable.
The same sentence shall be imposed on whoever endorses to another or delivers to them a bearer draft knowing that it has no available sufficient funds in consideration thereof or that it is not drawable.
The penal action proceedings shall be terminated in case of payment or its withdrawal after the perpetration of the crime but before the settlement of the case by a decisive judgment; otherwise, stay of execution shall be ordered in case the court orders the withdrawal of the cheque book from the losing party and the prohibition to give him a new cheque book, according to the provisions of Article 643 of the Commercial transactions law, the public prosecutor shall notify this order to the Central Bank in order to generalize it for all banks. Should any bank violate this order, it shall be liable to pay a fine amounting to one hundred thousand Dirham’.
Dishonouring cheques invites both criminal and civil action. If a criminal complaint has been filed for cheque bounce, then such person against whom the criminal case has been registered will also have a travel ban issued against them until the case is finally decided and the relevant penalty, if any, has been imposed and complied.
A criminal complaint for cheque bounce in Dubai and Abu Dhabi might not invite an imprisonment sentence provided that the value of the cheque is below AED 200,000/- or AED 500,000/-, respectively, considering the said emirates. However, this said, a penalty of fines would still be imposed. A civil action, on the other hand, can also be filed to claim the cheque amount from the issuer.
Parties to cheque dispute may consider entering into a settlement agreement which can be later submitted before the court any time before the issuance of a final judgment and request for withdrawal of the case.
Similarly, if the case has not proceeded before the criminal court and is still in the investigation or complaint stage before the police, the parties can enter into a settlement and the complainant may proceed to withdraw the complaint.
It is also to be noted that the provisions concerning cheque bounce matters are to be revamped with the new changes set to be affected in 2020. The new amendments seek to enforce a minimum penalty of 10 per cent of the cheque value and also if the offence is repeated penalty will be doubled.
Recent Developments
Federal Decree-Law No. 50/2022 abrogated the provisions of Federal Decree-Law No. 14/2020, resulting in the Commercial Transactions Law being governed by Federal Decree-Law No. 50/2022.
- Limited criminalization: The scope of criminalization has been narrowed, and criminal actions will apply only to specific cases of bounced cheques involving intentional falsification, fraud, providing counterfeit cheques, and withdrawing account balances to prevent payment.
- Partial Payment of Cheque: Drawee banks are now required to make partial payment if the available amount is less than the cheque’s value, and the beneficiary can pursue legal measures to claim the remaining amount.
- Revised Penalties:
The penalties for bounced cheques have been updated under the new law:
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- Article 673: Whoever commits any of the mentioned acts shall be punished by a fine of not less than 10% of the value of the cheque and of a minimum of AED 5,000 (five thousand Dirhams) and not more than double the value of the cheque.
- Article 674: Whoever endorses or delivers a bearer cheque while knowing that it is unfunded or non-withdrawable shall be punished by a fine of not less than 10% of the cheque value and not exceedingly double the value. The penalty is doubled in case of recidivism.
- Article 675: Whoever commits certain acts, including ordering the drawee to refrain from cashing a cheque, shall be punished by imprisonment for not less than six (6) months and not exceeding two (2) years, and a fine of not less than 10% of the cheque value and not exceedingly double the value. The penalty is doubled in case of recidivism.
- Article 676: Whoever commits forgery or uses a forged cheque, among other acts, shall be punished by imprisonment for not less than one year and a fine of not less than AED 20,000 (twenty thousand Dirhams) and not exceeding AED 100,000 (one hundred thousand Dirhams).
- Confiscation of Seized Objects: Objects acquired or used in committing the crime may be confiscated, with exceptions for bona fide third-party rights.
- Prohibition on Commercial Activities: The court may prohibit convicted individuals from engaging in commercial or professional activities for up to three years if the crime is linked to such activities.
- Liability of Legal Persons: Persons in charge of actual management of legal entities may be held responsible, and legal persons may face fines, suspension, or revocation of licenses, with possible dissolution for recidivism.
- Ceasing of the Criminal Lawsuit: In certain cases, the criminal lawsuit for bounced cheques may cease if the full or outstanding value of the cheque is paid before compulsory execution procedures or reconciliation.
The issuance of Federal Decree-Law No. 31/2021 has abolished the previous law, Federal Law No. 3/1987, concerning the Penal Code.
Additionally, the government has taken steps to address the severity of punishments in small claims cases by implementing one-day courts. These courts, established in Abu Dhabi, Dubai, and Ras Al Khaimah, are designed to efficiently handle petty offences, ensuring a decision is reached within 24 hours and thereby reducing the backlog of cases in the Criminal Courts.
Furthermore, the Emirate of Dubai has introduced a new law pertaining to “Penal Orders.” This law is aimed at expediting the resolution of penal cases that involve fines, imprisonment, or both. Under this legislation, the public prosecution is authorized to issue penal orders, imposing fines up to half of the maximum limit allowed by the law, along with supplementary penalties, against those who have committed a crime. However, individuals have the right to challenge such orders by filing objections within a seven-day period.
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