UAE amends laws on Cheque Bounces

November 24, 2021by Admin0

The UAE Central Bank, the Ministry of Economy, and the Ministry of Justice announced a new Federal Decree No. 14/2020 (“Decree”) on September 27th, 2020[1], which in effect amends the Commercial Transaction Law No. 18 of 1993 (“C T Law”) by partially decriminalizing on cheque bounce due to insufficient funds. The majority of the amendments deal with Commercial Cheque Rules and further inter alia repeals Article No.s 401, 402, and 403[2] of the UAE Penal Code.

Salient features of the decree

The amended Article Nos. 641(1), (2) and (3) of the C T Law, makes only the following acts of the drawer of a cheque a criminal offence amounting to dishonouring of cheque and the same would attract criminal consequence:

  • Where a drawer instructs the bank not to encash the cheque presented by the beneficiary[3];
  • Where a drawer closes the account or withdraws the entire balance before the date the cheque becomes payable;
  • Where a drawer deliberately and knowingly issues a cheque despite having an inactive or dormant account at the time of such issuance;
  • Where a drawer deliberately signs a cheque in a manner such that it is rendered unpayable;
  • Where a drawer deliberately and knowingly endorses or delivers a bearer cheque despite having insufficient funds in his account;
  • Where a drawer wilfully forges a cheque, or uses a counterfeit cheque, and receives funds through such means.

The amended Article 641 makes all the above-mentioned acts punishable with a fine or imprisonment[4], however, the burden of proof is still debatable and untested.

Duty cast on the Drawee Bank

The decree by way of Article No.s 635 and 617 of the C T Law casts the following duties on the bank:

  1. Unless the bearer denies partial payment, a bank must make a partial payment of the cheque even when there are insufficient funds in the account to realize the entire amount;
  2. The bank must notify the UAE Central Bank in the event of insufficient funds, caused (a) when a drawer has emptied an account (b) when a cheque has been partially paid.

Where a bank refuses to make a partial payment or refuses to make payment of a cheque despite having sufficient funds in the account, it may attract a fine of AED 5,000 or 10% of the cheque value whichever is higher, and can go up to a maximum fine of twice the amount of cheque.

Decree vis-a-vie corporates and Individuals

  • As the criminal liability in the dishonoured cheque is partially waived off, it will not only play a critical role in enhancing the commercial trust between individuals and corporates, but it will also encourage further funding and corporate confidence in dealing with cheques in the UAE.
  • Where a crime is committed in the name of a corporation, the natural person in charge of the said corporation is not criminally accountable unless it can be proved that (a) he/she was aware of the crime or (b) it was committed for personal gain or (c) for the benefit of third parties.
  • Once a bank certifies that the account has insufficient funds, the beneficiary of a bounced cheque is empowered to use the dishonoured cheque as a civil executive deed under the Federal Civil Procedures Code No 11 of 1992. This would enable filing civil execution case against the drawer immediately, with a right to seize the drawer’s moveable and immovable assets. At the same time, the decree also protects the drawer from the criminal court’s wide discretionary power.
  • Where a crime is committed in relation to, or in the course of conducting business, the court may prohibit the convicted from conducting business for up to three years.

The court has the power to smear the goodwill of convicted for any of the aforementioned crimes by publishing their name, profession, and address in two highly reputed and circulated newspapers in the UAE.

Conclusion of cheque bounce

By treating the cheque as an executive deed, the new amendments protect and balance the interests of both the beneficiary as well as the drawer of the cheque in as much as the wide discretionary jurisdiction of the criminal courts to criminalise any instance of dishonouring of cheque regardless of the basis of its issuance has been curtailed to a large extent. Both individuals, as well as the corporate sector, will benefit from these amendments as it provides enhanced flexibility in terms of regulating the economic, business, trade, and investment activities in the UAE.

NOTE: The preceding is only a summary or overview of the new decree and does not constitute legal advice in any way.

[1] It will be enforceable January 2, 2022 onwards.

[2] These Articles criminalize the act of drawing cheque in bad faith, without having sufficient funds in the account, writing cheques in a manner which makes them unpayable and ordering the drawee bank to stop payment.

[3] Exception to this is when such instruction is given with respect to a lost cheque, bankruptcy or when the cheque is rendered stale.

[4] A fine of not less than 10% of the cheque’s value for acts mentioned at 1, 2, 4 and 5. The fine is subject to a minimum of AED 5000 and a maximum of twice the amount of cheque, and/or imprisonment of not less than 6 months for acts mentioned in 1, 2 and 4; and subject to a minimum of ADE 1000 and a maximum of the value of cheque for act mentioned in 5. Act mentioned at 6 attracts a penalty of AED 20,000 to 100,000 and minimum imprisonment term of 1 year.


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