Dubai: On September 27, 2020, President His Highness Sheikh Khalifa bin Zayed Al Nahyan issued a federal decree law, amending some of the articles and clauses in the federal law that deals with cases of issuing of cheques and bounced cheques - Federal Law No. (18) of 1993 Concerning the Commercial Transaction Law.
What are the changes to the laws governing bounced cheques and how will they affect the payer and the payee of a cheque that is dishonoured? Here is all you need to know.
While Federal Decree Law No. (14) of 2020 is quite detailed in the amendments that will be made to certain provisions of the Commercial Transaction Law, Gulf News spoke to legal experts to find out what the biggest changes are to the laws governing bounced cheques, that will affect the majority of the UAE’s residents.
Partial payment of cheques
One of the biggest amendments announced has been related to the option for partial payments of cheques. While earlier a cheque would bounce if the complete amount to honour it was not available in the cheque writer’s account, after the amendments are implemented, banks will be required to fulfil partial amounts of the cheque as well.
Jihene Arfoui, in-house legal adviser at Danube Group, broke this legal change down for Gulf News readers.
“This means that if a cheque has been issued for Dh100,000 and the cheque writer’s account only has Dh80,000 available for payment against the cheque, the bank is required to pay Dh80,000, unless the cheque bearer rejects the option for partial payment,” she said.
“All the amendments in the federal decree law provide mechanisms and alternatives that ensure that the cheque value is collected in the fastest and simplest way possible, including this provision of obligating the bank to partially fulfill the cheque after deducting the full amount available to the beneficiary,” Jihene said.
All the amendments in the federal decree law provide mechanisms and alternatives that ensure that the cheque value is collected in the fastest and simplest way possible, including this provision of obligating the bank to partially fulfill the cheque after deducting the full amount available to the beneficiary.
This is mentioned in Article 617 of the law, which states: “Where the fund for payment is less than the value of the cheque, the drawee shall partially pay the value of the cheque up to the available fund unless the bearer rejects partial payment. In the case of partial payment, upon each partial payment, the drawee shall initial the back of the cheque confirming the partial payment and give back the original of the cheque to the bearer along with a certificate to that effect.”
The drawee mentioned above can refer to any person or entity that is paying the money to the cheque holder, like a bank or any other financial institution. The bearer of the cheque is the individual to whom the amount is due.
Stricter penalties for writing bounced cheques
Another crucial change to the laws, according to Abeer Sharif, a lawyer with Dubai-based Prestige Advocates and Legal Consultants, is how those issuing a bounced cheque will be penalised.
“Any person convicted with issuing cheques without sufficient balance will be deprived from getting cheque books from the banks for a period of five years. Also, they will need to pay a fine of not less than 10 per cent of the cheque amount – with a minimum of Dh5,000 and a maximum of twice the amount of the cheque – or imprisonment of six months to two years,” Abeer said.
Additionally, the professional or commercial activities of convicted individuals may also be suspended for up to six months. In case of repeated offences, the professional or commercial activities may also be revoked, or the offender may be forced to declare bankruptcy, if the cheque was issued on behalf of a corporate entity.
This is different compared to the original law, which imposed a financial penalty ranging from Dh2,000 to Dh10,000, depending on the amount mentioned on the cheque.
A bounced cheque is considered an ‘executive deed’
One of the most significant legal changes to how bounced cheques will be processed is stated in Article 635 of the amendment.
The cheque holder does not have to issue a claim and go through proceedings in order to claim the amount of the bounced cheque. He or she can simply approach the executive judge, present the cheque and ask for the execution of the assets or bank accounts of the person who issued the cheque.
“A cheque, which bears the drawee’s stamp as non-paid for unavailable or insufficient fund, shall constitute an executive instrument as per the Executive Regulation of the Federal Law No. (11) of 1992 and its bearer shall have the right to demand the coercive enforcement, wholly or partially,” according to the Article.
What does it mean to consider a bounced cheque as an ‘executive instrument’?
“The cheque holder does not have to issue a claim and go through proceedings in order to claim the amount of the bounced cheque. He or she can simply approach the executive judge, present the cheque and ask for the execution of the assets or bank accounts of the person who issued the cheque,” Abeer said.
This provision will help cheque bearers save time and money, as they can ask the court to enforce and execute on the cheque issuer’s accounts and assets, in order to get the amount claimed, according to Arfoui.
“As the plaintiff will be able to apply for the execution of the amount without going through the different levels of judicial proceedings, this will not only reduce the pressure on criminal and civil courts, but also boost business confidence,” Arfoui said.
However, it is important to note that this provision will lead to a slight change in the way cases of bounced cheques are processed. When a cheque is dishonoured, it can lead to both a civil and criminal case. This provision will slightly change the way the civil case is processed, as the cheque holder not longer needs to submit a claim and prove his or her case through court proceedings. Making the bounced cheque an executive instrument allows the holder to directly approach the court and ask for enforcement proceedings.
To read our detailed guide on what happens when someone issues a cheque that is dishonoured, click here.
When will the changes be implemented?
Amendments mentioned in the Federal Decree Law No. (14) of 2020 will be applicable from January 2, 2022.