For illustrative purposes only. Image Credit: Supplied

Abu Dhabi: Dishonoured security cheques can no longer be used to arrest defaulters and convict them, in keeping with a decree by the President His Highness Shaikh Khalifa Bin Zayed Al Nahyan, a senior official said on Tuesday.

“The President’s instructions were that all defaulters including citizens and foreigners arrested or convicted for presenting dishonoured security cheques must be freed, any related cases being heard be suspended and any penalties handed down to these defaulters be annulled,” Jassem Saif Bu Asseeba, head of the Judicial Inspection Department at the Ministry of Justice, told Gulf News.

Bu Asseeba stressed that this ruling only covers security or collateral cheques for the total amount of a loan, commodity or job which lenders require borrowers or contractors ask clients to sign and that other cheques submitted towards fixed-term payments can still be used to file a criminal case if they are dishonoured.

Bu Asseeba added the police, prosecution and courts immediately enforced Shaikh Khalifa’s orders since November. “Judicial and law enforcement authorities have stopped accepting bounce security cheques as a criminal tool against debt defaulters,” he said.

Bu Asseeba, however, clarified that the move does not mean the rights of lenders are compromised as “they are still entitled to file cases with the civil courts to claim dues. Banks, financial firms and other lenders still have the right to present these security cheques to prove they are owed money by debtors.”

According to official statistics issued by the UAE Central Bank, out of 28.5 million cheques worth Dh1.2 trillion written in 2011 across the UAE, 1.6 million cheques worth about Dh55 billion were dishonoured.

On average, one out of every 20 cheques written in 2011 was sent back by a bank marked “Refer to Drawer” or “Insufficient Funds”.

Although the Central Bank advises that issuing a blank cheque to banks as a surety for a credit card or a loan is illegal and violates the personal loans system in the UAE, banks are still demanding these security cheques.

Legal experts said making security cheques not enough to arrest defaulters and convict them partially allays fears of clients of banks and financial firms.

An expert suggested that banks and other financial firms be stopped from demanding these security cheques in the first place and if other cheques are dishonoured creditors be demanded to recourse to civil courts or normal insolvency procedures rather than resorting to a speedier course — filing a criminal complaint for a bad cheque.

Experts suggested there should be other legal courses for bad cheques such as withholding the passport of a defaulter, rescheduling the loan payments and granting the defaulters sometime to clear the issue.

Article 401 of the UAE Penal Code states: “Any person who writes a cheque with insufficient funds — causing it to be dishonoured — can face a jail term of one month to three years, or a fine of a minimum of Dh1,000.”