Dubai: The value of cheques has come under scrutiny in the UAE, and businessmen say they would prefer cash as an alternative form of payment.
The debate of cash versus cheques was sparked after a prominent Emirati businessman took to Twitter to explain that cheques are no longer regarded as a secure way to receive payment.
Abdul Rahman Lootah commented that cheques have now lost their credibility “and it is no longer a major crime to issue a cheque without sufficient funds”. He also pointed out that the issuer of cheques no longer faces a jail term but will be penalized with a fine, which has inadvertently led to large number of bounced and dishonoured cheques reported in the emirate of Dubai.
In the case of bounced cheques, the complainant (drawee) can file a criminal case against the drawer.
Ashish Mehta, managing partner of Ashish Mehta and Associates, told Gulf News that cases of bounced cheques are usually referred to the criminal court, “but if the drawee files a civil claim memo in the first hearing of the criminal court proceedings, he can request the criminal court to also look into the civil claim.”
“Based on this, the criminal court may pass both orders in the criminal and civil claim, or may refer the civil claim made by the drawee to the civil court. On the other hand, the [complainant] is entitled to file a separate civil case if he intends to do so.”
However, drawers (writers) of cheques with non-sufficient funds (NSF) will not face imprisonment according to a 2017 law issued by His Highness Shaikh Mohammad Bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai.
Legal Order Law No (1) of 2017 states that people with bounced cheques worth less than Dh200,000 can be punished by prosecution without the case being referred to the judges, with the payment of a maximum fine of Dh10,000.
When a dud, or bounced cheque is issued, the penalties are divided as follows:
- Bounced cheque worth Dh1 to Dh50,000: Dh2,000 fine
- Bounced cheque worth Dh50,001 - Dh100,000: Dh5,000 fine
- Bounced cheque worth Dh100,001 - 200,000: Dh10,000 fine
Since the law was implemented in December 2017, Dubai Public Prosecution has settled 30,618 cases of bounced cheques between November 2017 and the end of 2018.
Ahmad Shaikhani, Senior Vice President of Pakistan Business Council, told Gulf News that the bounced cheque law has a very serious impact on the business society of the UAE.
“On the one hand, it sometimes creates a threat to businessmen but on the other hand, it creates the sense of security for doing business in the UAE. Since the economy is on the softer side, the impact of bounced cheques are very much a threat to the local market because local businesses are on rent, and they can close and run away any time if they lose money.”
When compared to filing a criminal case in court, Shaikhani pointed out that it is quite a lengthy procedure for the holder of the bounced cheque as it also requires the processing of lawyer fees and court fees.
“The bounced cheque is already lost money, and to recover it would require businessmen to invest more, which is not very cost effective in the current scenario,” he said. “The policy [seems to be] more in favour of the defaulter rather than in favour of the claimant."
Ali Sultan Al Haddad, founder of Al Haddad law firm and chairman of Lawyer Business Group in Dubai, pointed out there are two ways a cheque default victim can get their money back.
“They can either make a settlement with the defaulter or start a civil case against the defaulter,” he said.
In the first instance – when the money owed is less than Dh200,000 – the defaulter would only be required to pay a fine and the cheque beneficiary can make an out-of-court settlement with the defaulter.
“Sometimes the cheque defaulter agrees for a settlement as he may have responsibilities here in the UAE and would not want to go to jail for this,” he said, emphasising that there is an important point to be noted.
“We know that the maximum jail term is up to three years. But this is for one case only. In the case of one person having three different cheque default cases – and he has defaulted on all three – his jail term can go up to nine years. Remember for each case the jail term is between one and three years.
“But in the instance of say a rental case, where multiple cheques have been issued and the cheque bounces, the jail term can be limited to just three years even though there are multiple cheques involved.”
After the criminal case is settled and the fine is paid, the claimant can continue the process of claiming the full amount of their money by filing a civil case against the person who issued the dud cheque.
Devanand Mahadeva, director of Goodwins Law Corporation, said: “The law differs between Emirates. As per the Federal Law, cheque bouncing is a criminal offence, but the money owed has to be claimed through the Civil Courts. Filing a criminal case in the Criminal Courts for cheque bouncing does not ensure your money back.”
“The beneficiary has to file a civil case. The court will then issue an order and that will be executed. With this order, basically assets owned by the defaulter will be sold to encash the assets and pay back the beneficiary," said Mahadeva.
If the Civil Court rules in favour of the plaintiff, the accused could be asked to:
- Pay full value of the cheque.
- Pay 12 per cent interest starting from the issue date.
- Pay legal charges.
- Face travel ban.
- Have assets frozen until final judgement.
However, for dishonoured cheques worth more than Dh 200,000, the drawee has to face regular criminal proceedings in the Public Prosecution. At the discretion of the judge, a hefty fine, imprisonment or both may be imposed, as mentioned in Article 401 of the Penal Law.
Indian businessman Ram Buxani, a veteran entrepreneur and chairman of 60-year-old business conglomerate ITL Cosmos Group in Dubai, said: “There are certain grey areas that need to be taken care in the system. According to me, the punitive punishment laid out by the government for cheque defaulters is not enough. The law needs to be made more stringent.”
Rizwan Sajan, chairman of Danube, said: “In our company, we see a one per cent bad debt from defaulters. Earlier, there was a fear of cheques bouncing. Because of this, people would file a complaint with police and the defaulter would run away fearing jail term. Luckily that fear has been removed now with the new laws coming into place.”
However, he pointed out that there are two sides to the coin.
“As business people, we are trusting buyers and give out our material. But we are not always lucky for the cheque to be realised. The civil case that we file to chase our money back takes some time to close. And this period is enough for the defaultor to run away. So there must be a fast track system to ensure the civil cases are closed quicker than they are being done now,” added Sajan.