In the UAE, cheques are widely used and are a popular method of payment. A cheque is a written order by an account holder instructing their bank to pay a specified sum of money to a named person or entity. A cheque is a legally binding document, and it serves as a guarantee of payment to the payee. 

In the UAE, cheques are governed by the provisions of Federal Decree No. 50/2022, the commercial transactions law. It must be noted that under the UAE laws bouncing of a cheque is considered a criminal offense and can result in legal action, fines and imprisonment.

The UAE recently issued several legislative reforms; one such change is the decriminalization of bounced cheques under the new Penal Code. The new Penal Code decriminalized the issuance of cheques with insufficient funds. However, it must be noted that the new Penal Code still provides recourse for bounced cheques which have been issued fraudulently.

What are the essential elements of a cheque?

Article 627 of the commercial transaction law lays out the essential elements that a cheque must contain, they are:

• The word cheque must be written in the body of the instrument in the same language that the instrument is written.
• An unconditional order of payment of specific amount of money.
• The name of the person obliged to make payment (drawee)
• The person to whom payment, or to whose order the payment should be made.
• The place of payment.
• The date and place of execution of the cheque.
• Signature of the cheque executor (drawer).

When is a cheque considered as a bounced cheque in the UAE?

As per the UAE laws, a cheque is returned or considered as a bounced cheque under the following instances:

• If there is non-availability of money which is equal to or greater than the amount of the cheque on the day of issue.
• Incorrect or mismatched signature, missing or incorrect dates and over writing on the cheque.
• If the bank account has been closed prior to the issuance.
• When the issuer instructs the bank not to cash the cheque.

What can you do if you have received a cheque with incorrect signature?

If you receive a cheque with an incorrect signature in the UAE, the first step is to contact the issuer of the cheque and inform them of the issue. They may issue a new cheque with the correct signature or take other corrective measures. If the incorrect signature was made in good faith and the issuer is willing to rectify the mistake, the matter can be resolved amicably without any legal action.

However, if the incorrect signature was made intentionally or maliciously you may take legal action to recover the amount owed to you. This involves filing a complaint before the competent authorities and initiating a civil lawsuit against the issuer. The court will then verify the signature and based on the court’s findings the court shall issue a judgment.

What is the penalty for dishonoring a cheque by signing incorrectly in the UAE?

The penalty for intentionally signing a cheque incorrectly in the UAE is provided under article 675 of the commercial transactions law, the law states that a person shall be sentenced to imprisonment for a period not less than 6 months and not more than 2 years and/or pay fine of not less than 10% of the value of the cheque, subject to the minimum AED 5,000 as provided under article 675 of the commercial transactions law.

In conclusion, when you receive a cheque with an incorrect signature, it is essential to take necessary steps to protect your interests. In the UAE if the court finds that the issuer has intentionally signed incorrectly on the cheque, the issuer will be subjected to criminal punishments.