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Principal outstanding on bank loan

Question: Four years ago, I took a loan from a bank and was paying the specified monthly instalment amount. However, it became clear to me upon checking the records that the principal outstanding had not diminished despite continuous payments of the instalments, without any default, for four years. A month ago, I stopped paying and asked the bank to review the account. But the bank told me to pay the overdue instalment, or else it would present the security cheque for encashment and lodge a complaint with the police. My question is, do I have any legal right to file a civil case against the bank, because according to my records, the principal amount that is still outstanding is much less than what is currently being claimed by the bank? Also, as soon as a civil lawsuit is filed against the bank, will the bank stop charging interest? Please advise.

Answer: Article (76) of the UAE Commercial Transaction Law states that a creditor is entitled to receive interest on a commercial loan as per the rate of interest stipulated in the contract. If such rate is not stated in the contract, it shall be calculated according to the rate of interest currently prevailing in the market at the time of dealing, provided that it shall not exceed 12 per cent until full settlement. Where the contract stipulates the rate of interest and the debtor delays payment, the interest on the arrears shall be calculated on the basis of the agreed rate until full settlement. (Article 77)

Article 88 states: Unless otherwise agreed, where the commercial obligation is a sum of money — the amount of which was known when the obligation arose and the debtor delays payment thereof — he or she shall be held liable to pay to the creditors, as compensation for the delay, the interest fixed in Articles 76 and 77.

You can file a Bank Expert Appointment Dispute Case, wherein you can request the court to hire an expert to check the account, calculate the loan, the interests and all related items.

The expert will calculate the simple interest on the total amount of loan only, not compound interest, (interest on interest is legally forbidden in UAE) as per the rate mentioned in the loan agreement. This simple interest is fixed on the loan and cannot be changed — irrespective of whether a case has been filed or not. If the expert finds any interest amount that is more than his calculation (such as interest on interest), then it will be declined and removed. The expert will calculate the interest from the date one stopped paying up and until the date the case is filed — according to simple interest rate.

As for the interest on the delayed payments, ‘It will be calculated as per the agreement, unless the contract does not specify the interest rate. So it is calculated according to the interest rate prevailing in the market at the time of the transaction, provided that in this case, it does not exceed 12 per cent, until the payment is completed’. (Cassation No 374/2011, commercial.)

It is also mentioned that: ‘There is nothing in the law that prevents banks from obtaining the accrued interest due on the loans they give to their clients, even if they exceed the principal amount of the loan, and this entails the obligation of the customer to implement the contract with the same conditions’. (Cassation No 596/2013, commercial.)

Purpose of issuing a cheque

Question: I have received a cheque with a high amount. However, the issuer of the cheque is refusing to honour it and I cannot file a lawsuit against him because there is no document stating what was the service availed against the cheque. My question is: Do I have the right to file a civil lawsuit? Will the court ask me what was offered in exchange for the cheque? Please advise.

Answer: The cheque is in itself a presumption of the reason for issuing it and for its legitimacy until its drawer proves to the contrary.

You have the right to file a civil case (performance order) against the drawer using the cheque, without any need to prove what the reason was for the issuance of the cheque. This is because the cheque is a fulfilment instrument and is based on an existing and legitimate reason for the obligation to honour its value. It includes in itself the reason for its release, even if the reason is not declared. This is because the reason behind the issuance of the cheque is to fulfil a debt owed to the person in whose favour the cheque was drawn. The terms of this performance order is to notify the drawer of the cheque about the payment of debt (Payment Obligation) by any approved means of notification specified in the regulatory note. The amount mentioned in the notification must not be less than what is required in the petition for issuing a payment order and five days after the delivery of the notification if the debtor has not cleared it, then you can file a case against the drawer to realise the amount of the cheque.

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The burden to prove the reason behind issuing the cheque falls on the drawer (not on you). He has to establish the evidence that there is no legitimate reason for the cheque to have been issued or that it is a security cheque or by proving the true reason for its issuance or by proving the beneficiary’s breach of his obligations arising from the original relationship for which the cheque was drawn or for any other reason.

It has been determined by the court that ‘the principle of the cheque is that it is a payment instrument and that it has a legitimate reason, but that does not prevent the drawer from proving otherwise by establishing evidence that the cheque had no reason or that it had a reason but is not legitimate or that its reason has been removed or not realised. Determining whether the cheque has an existing and legitimate reason for the drawer’s obligation to pay is the authority of the subject court’. (Cassation No 2013/468, commercial.)