Stock - Cheque
The UAE's revised laws allow banks to release funds available in the issuer's account - even if it does not meet the entire amount. Yet, for now, banks seem reluctant... Image Credit: Agency

Dubai: Most banks in the UAE still prefer to bounce cheques in full rather than release whatever funds are in the cheque issuers’ accounts at the time. This is despite changes to the UAE law that allows such a release of whatever funds are in the account on submission of the cheques.

Banks’ reluctance to do so, however, is creating problems for everyone from business owners to landlords expecting payments from their tenants. In the property market, this is particularly affecting those landlords who issue annual leases on one- or two cheque payments.

For business owners too, the non-release of part of the funds owed to them is becoming a headache. “There have been instances when 50-60 per cent of the amount on the cheque are in the account, and they are not released,” said an owner of an F&B business in Dubai. “If that 50-60 per cent was released, it would help with my cashflow and I can pursue the rest of it. Now, with banks bouncing the entire amount, it takes a long time to collect owed funds.”

It was recently that the UAE took a decisive step to de-criminalise bounced cheques. In an instant, it rewrote the landscape for businesses and individuals alike. But the issue with banks is proving more than a pinprick.

According to a banker, “Where there are insufficient funds, the standard practice is to return the cheques until further clarity is given by the attorneys. We have had situations where cheques have been presented multiple times for partial payment as this is allowed by the law.

“However, the understanding of a new process takes time - we are hopeful that it will get streamlined soon.”

Landlords forced to wait

For now, apart from business owners, landlords too are finding this is a problem that’s becoming more frequent. “Especially on office or retail space leases, there have been issues with bounced cheques and not having any of the funds in the account made available,” said a landlord. “At a time when liquidity is tight, even partial funds are good. Unfortunately, banks think this is too much of a hassle.”

Where does the law stand?

“The law states the bank must make payment of the cheque ‘up to the available funds’ unless the beneficiary objects,” said Paul Blakeway, Senior Counsel at the law firm Taylor Wessing. 

The difficulty from banks will come in determining what can be classified as ‘available funds’.

- Paul Blakeway, Senior Counsel at the law firm Taylor Wessing

“For instance, accounts are required to maintain average minimum balances - so should a bank pay a cheque if there is a risk that the account is taken below the required minimum, and fines/charges would then apply?

“What would happen if the customer has outstanding loans, charges, or a minimum credit card balance with the bank?

“Is the bank entitled to retain monies to settle payments owed to it? This creates questions for banks, but also increases administration, so they may be waiting for further guidance, or waiting to see how the law is implemented in practice.”

Sort itself out

It could be that banks are waiting for precedents to be set, by the UAE courts, on how to handle the partial release instances. Banks continue to get feedback from their own legal counsels, and chances are that most are awaiting direction from the authorities.

A top official at bank had this to say: “We are still adhering to the concept of bouncing the cheques if there are insufficient funds. We have been told that there are some banks that are partially encashing, but we are guided by our own legal and compliance approvals.

"There has been some confusion amongst customers that have asked for partial funds, but we have referred the matter to the legal department."

One solution is there

Blakeway reckons there are half-way solutions to be had: “In any event, the changes to the law are helpful as partial payments can help the recipient manage their own cashflow.

"The removal of the obligation on the bank to seek permission of the account holder before making partial payment should also hopefully speed up payment and reduce the risk for court proceedings."

Would that be the next logical step?

Bounced cheques - from criminal to civil
The UAE Courts have actively implemented the changes in the law, which can be seen from the procedural changes and shift of bounced cheque cases in the courts from criminal action to civil action.

While courts have implemented such changes, one of the pre-requisites of filing a bounced cheque civil execution case is to submit a letter from the bank confirming there are no funds in the account, including any partial funds.

Thus, upon receipt of the bounced cheque memo, the beneficiary must re-visit the bank and request partial payment wherein the bank would issue the same as well as a partial settlement certificate.

There is a process for claiming the partial payment that is dependent upon and varies from bank to bank. The drawer of the cheque after receiving the insufficient funds statement from the bank, needs to follow the individual banks process to claim the partial payment.

- Beenish Batool Haider of Lex Consortia Legal Consultancy
Beenish Batool Haider

It is important to note that partial payment is subject to the availability of at least 5% of the cheque value in the issuer's account. There needs to be greater awareness around this aspect before the public can start benefitting further from this change in law.

- Beenish Batool Haider of Lex Consortia Legal Consultancy