Abu Dhabi court sides with borrower in Dh600,000 loan default case

Abu Dhabi: The Abu Dhabi Commercial Court (First Instance) has rejected a lawsuit filed by a bank against a client who had defaulted on a loan worth Dh600,000, noting that the plaintiff bank violated regulations by failing to secure adequate guarantees, and had granted the defendant a loan exceeding 20 times his total salary.

In detail, the bank filed a lawsuit against the client, seeking to compel him to pay Dh572,474 along with legal interest at 12% from the due date until full settlement. The bank stated that the defendant had obtained a loan of Dh600,000, in addition to a murabaha facility, and had failed to pay the agreed installments.

In its reasoning, the court stated that licensed financial institutions are required to obtain sufficient guarantees for all types of facilities granted to individual clients and sole proprietorships. The court added that bank guarantees must correspond to the client’s income and the amount of facilities requested, in accordance with regulations.

It further noted that no claim or lawsuit regarding loans or credit facilities granted to an individual or sole proprietorship may be entertained by competent judicial authorities or arbitration bodies if the bank has not obtained the required guarantees.

The court found from the case documents that the defendant had obtained a banking facility in the form of a murabaha loan from the plaintiff in the amount of Dh600,000 excluding profit (total financing including profit amounting to Dh684,539.

The documents and the expert report showed that the only guarantees the bank had obtained from the defendant were a salary certificate and a single security cheque. The court pointed out that the banking loan regulations stipulate that a personal loan amount must not exceed 20 times the borrower’s salary or total income.

The court further noted that, while contracts are binding on the parties (“the contract is the law of the parties”), this is conditional upon the contract not contravening the law or public order.

The court observed from the defendant’s salary certificate that his net salary was Dh19,362, yet the plaintiff granted him a loan exceeding 20 times his salary—whether calculated on the principal loan amount or including murabaha profit.

Moreover, the plaintiff took only one security cheque and failed to comply with the banking loan system, which requires multiple post-dated cheques covering the installments.

Accordingly, the court concluded that the plaintiff bank had violated the regulations, and ruled to dismiss the case, ordering the plaintiff to bear the legal costs and attorney’s fees.