New regulation on Bounced Cheques and its Implications

Introduction

The UAE being a commercial hub with an expanding economy, cheques are one of the common forms of payments, regardless of the size of the transaction, and they are also used as a method of security. However, with cheques comes challenges such as bounced or dishonored cheques due to various reasons that can be deemed to be tantamount to a legal claim if the drawee desires to prosecute the drawer. Based on the case and particulars of the transaction, it can be civil or criminal.

On 27 September 2020, The Federal Decree No.14/2020 (the decree) was circulated by His Highness Sheikh Khalifa bin Zayed Al Nahyan revising and eradicating specific provisions of the Federal Law No. 18/1993 Concerning Commercial Transactions; generating a shift towards the illicit repercussions surrounding bounced cheques in the UAE. The revisions aim to alleviate enforcement options so that residents and corporate entities are mindful of the rights and liabilities to make sure they are not in a challenging spot.

The latest amendments to the decree will only come into force by January 2022. The rationale for this extended interval is to permit the market to understand the revisions to make the adjustments accordingly. It is said that the intention concerning these new rules is to ensure that drawers and drawees of bounced cheques are provided with further opportunities at reconciliation prior to a criminal lawsuit being commenced by the payee, making a civil action desirable to discourage criminal trials. Also posing as a substitute to guarantee that the payments are accumulated by cheque promptly.

A Few Amendments

Article 643 of the Decree states that if the defendant convicted by the court for crimes as prescribed by certain provisions of the law, the defendant shall have their cheque book withdrawn and will be prevented from acquiring new cheque books for a maximum of 5 years. If the convicted does not relinquish their cheque book within the stipulated period of 15 days to the bank, from the date of reporting to do so, they shall be subject to penalties. If the financial institution violates this order, they shall be subjected to a heavy penalty no less than AED 100,000 and no more than AED 200,000. Further consequences mentioned in the law for convicted persons consist of having their commercial license suspended or halted for a certain time frame, leading to revocation and dissolution of licenses if the offence is repeated.

As per Article 617(3) – The drawee shall inform the Central Bank of the particulars of the account holder, in accord with the guidelines and regulations published by the Central Bank to this effect, in any of the following cases:

• If the cheque has no adequate existing and withdrawable fund balance on its maturity date,
• If the drawer, after issuing the cheque, withdraws all the funds, making the cheque incapable of being cashed,
• If the drawee partly pays the value of the cheque amount, in accordance with Clause (2) of this Article.

Article 401 – 403 of the Penal Code had a very broad explanation by the criminal court towards the constitution of bounced cheques in respect of the drawers, as there was no exhaustive list pertaining to the categories of acts that constituted to be rendered bad faith. However, after the new Decree, Articles No.641(1) (2) and (3) specially formed a list, that if perpetrated by the drawer, will be deemed a misdemeanor of bounced cheque indictable by a criminal sanction. Nevertheless, the burden of proof remains of the parties to substantiate their innocence.

Article 641 of the Decree mentions the following as criminal acts surrounding criminal cheques:

• Intentionally and erroneously declaring there are no funds available for the payment of cheque, or that the funds available are less than the value mentioned on the cheque,
• Rebuffing in bad faith the disbursement of a cheque drawn on the bank where the fund is accessible to a bearer to whom a legitimate objection has not been made,
• Refusing in bad faith to issue the statement referred to in Article 632 of this Law.
• Denying partial payment of the cheque value, issuing a certificate to this effect, or giving back the original of the cheque as per the terms specified in (2) of Article (617) of this Law.

Article 641(Bis1) of the Decree denotes that, whoever endorses or delivers a bearer cheque while knowing that there are insufficient funds to pay such cheque or that such cheque may not be drawn, shall be subject to a penalty. The penalty shall be double in case of repetition.

Article 641 (Bis2) of the Decree mentions the following as criminal acts surrounding criminal cheques:

• If the drawer, prior to the due date, orders the bank not to cash the cheque amount to the drawer with the exemption of cases given for under Article 620 & 625,
• Closing the account or withdrawing all available fund therein before releasing the cheque or before presenting the cheque for payment or if the account has been frozen,
• Purposefully writing or signing the cheque in a way that makes it unpayable.

Article 641 (Bis3) of the Decree mentions the following as criminal acts surrounding criminal cheques:

• Forgery or counterfeiting of a cheque or attributing it to a third party by alternating details through addition, deletion, or other means with the purpose of damaging a third party.
• Knowingly using a forged or counterfeit cheque.
• Intentionally receiving funds paid through a forged or counterfeit cheque.
• Using a true cheque issued in the name of others, improperly profiting from it, or employing it in relation to a crime of fraud.
• Knowingly, importing, manufacturing, holding, selling, offering, or providing any tools, equipment, software, information, or data used in a crime of forgery as provided for in this Article.

Additionally, Article (643) Bis (1), Article (643) Bis (2), Article (644) Bis (1) and Article (644) Bis (2) reference further unlawful acts that surround criminal cheques.

 

Conclusion/ Observations

For the above, it must be noted that each criminal act has its own fine and penalty towards the nature of the criminal act as stipulated in the Decree. There can be seen a change towards the criminal association bordering cheques within the UAE, only through cases can it be commented as to whether the amendments, repeals, additions are beneficial or undesirable to the accused during the trail, and whether it punishes the convicted or simply diminishes the severity of the act. As the amendments will be enforced next year, this gives time for the economy and society to appropriately strategize. As cheque crimes are quite a common breach within the UAE, these procedures should offer some transparency towards the types of acts. These provisions will hopefully provide clarity to the bank concerning the procedures and process that would be associated to such criminal acts and to accordingly amend their banking policies.

We are in the line between longevity and outmodedness when it pertains to writing cheques; they are a common practice used by individuals, however the clearing process itself can take time and carry perils and maybe extra costly than other types of payment. It should be noted though as we are heading towards a digital era, cheques may be reflected as an outdated method of payment to some.

Globally, cheques are becoming less prevalent, though for now, the practice of using cheques is lingering in the UAE as it aids as an imperative tool and evidence in commercial and personal dealings, computerized dealings are progressively being encouraged to substitute hardcopy transactions and move to more electronic means of payments. As cheques and paper-based payments are being phased out as part of the international scheme to enhance efficiency and decrease paper waste, it might be in the future to see that financial institutions are no longer in need of paper procedures and favor mobile banking. Nevertheless, time will tell how the UAE progresses with the issuance of cheques and whether these amendments will stand as beneficial towards potential civil or criminal crimes surrounding illicit cheques.

It should be stated that the above is merely a synopsis of the decree and should not be instituted as legal advice, as practical impediments shall occur once the decree comes to force to obtain further clarity.