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Bounced Cheque in UAE: Legal Implications and How to Avoid It

While using cheques has become less common in many countries, in favour of digital payment methods, they remain essential in the UAE. In the past, bounced cheques in the UAE were a severe criminal offence that could result in jail time. In 2022, the laws changed to decriminalise many instances of bounced cheques in the UAE. However, having a cheque bounce in Dubai, or across the country remains a serious problem that could result in significant financial losses and even civil lawsuits.

In this article, we cover the meaning of a bounced cheque, the law, and the potential consequences of a bounced cheque in the UAE.

What is a Bounced Cheque in UAE?

Given the prevalence of cheque payments in the UAE, particularly in the real estate market, understanding the meaning of a bounced cheque is crucial.

A bounced cheque in the UAE occurs when the bank cannot process it. The term "cheque bounce" describes instances where banks return unpaid cheques for reasons such as insufficient funds, account closure, discrepancies in the signature, or incorrect details.

The bounce cheque meaning encompasses the failure of the cheque to be honoured and often leads to financial and legal complications for both the issuer and the recipient.

Legal Implications of a Bounced Cheque in the UAE

Before the amendments in 2022, issuing a bounced cheque in Dubai was considered a criminal offence. Under the previous Article (401) of the UAE Penal Code, the issuer of a bounced cheque faced possible jail time or fines.

For example, if a cheque relating to a rent payment bounced, the landlord could file a criminal complaint at a local police station. The tenant would then be summoned for questioning, where they could settle the amount to avoid further legal action. If a settlement were not reached, the police would register the case and escalate it to the public prosecutor or criminal court, potentially resulting in fines or detention.

However, the amendments in early 2022 marked a significant shift in the legal treatment of bounced cheques. Under Article 630 of the Federal Decree-Law No. 50 of 2022, issuing a cheque without sufficient funds is now classified as a civil offence rather than a criminal one. This change has led to a more streamlined process for resolving cheque-related disputes.

Key Changes in the Law

Civil Classification: A cheque bounce is now treated as a civil offence, encouraging friendly settlements between parties, such as landlords and tenants.
Mandatory Partial Payment: Banks must release any available funds in the issuer's account for partial payment unless the beneficiary refuses.
Executory Orders: The cheque bearer can present a returned cheque directly to request an executory order to pay the entire or remaining amount due, bypassing the need for police reports.

Penalty for Bounced Cheque

Following the amendments to the law in 2022, the issuer of a bounced cheque can avoid criminal proceedings by paying a fine if the cheque value is less than AED 200,000. The penalty amount depends on the value of the cheque, as follows:

Less than AED 50,000: AED 2,000 fine
Between AED 50,000 and AED 100,000: AED 5,000 fine
Between AED 100,000 and AED 200,000: AED 10,000 fine

Whilst this is considered a simple offence, and no imprisonment can occur if the penalty has been paid, it does not prevent civil actions from being initiated against the offender.

If the bounced cheque is for over AED 200,000, the Public Prosecutor will take statements from both parties and then refer the case to the criminal court, which will investigate and pass its judgment.

Why Bounced Cheques Can Be a Major Issue in Real Estate Transactions

In the UAE’s real estate market, cheques are frequently used for rental and purchase agreements. Unfortunately, a bounced cheque in Dubai or any other emirate can cause severe disruptions to significant transactions, causing financial strain and potentially legal complications.

Here’s why the issue of a cheque bounce can be particularly critical in real estate:

Trust Erosion: A bounced cheque can break trust between tenants and landlords or buyers and sellers, leading to strained relationships and potential disputes.
Transaction Delays: A bounced cheque can prevent the completion of transactions, delay payments, and lead to the forfeiture of deposits.
Legal Risks: Although the offence is now classified as civil, repeated instances or high-value cheque bounces can still have substantial consequences, including court proceedings.
Eviction: If the issue is unresolved, tenants could be evicted if a cheque bounces in the UAE.

Common Causes of Cheque Rejection

There are several potential causes of a bounced cheque in the UAE, including:

Insufficient Funds: The most common cause of a bounced cheque is the funds within the account do not cover the bet amount.
Signature Issues: A signature that does not match the one on file with the bank will result in a bounced cheque.
Incorrect Details: Mistakes in the payee’s name, date, or amount can lead to a bounced cheque.
Frozen or Closed Accounts: A cheque drawn on a closed or frozen account will not be processed.

Ways to Avoid Issuing a Bounced Cheque

You can use the following steps to help avoid the potential negative consequences of a bounced cheque in UAE:

Maintain Sufficient Funds: Always ensure your account balance can cover the cheque amount.
Double Check All Details: Before issuing a cheque, verify that the date, payee name, and amount are correct.
Keep Signatures Updated: Ensure your signature matches the bank’s records to prevent issues.
Set Up Account Alerts: Use banking apps to set up low-balance alerts to avoid accidentally issuing cheques without sufficient funds.
Monitor Post-Dated Cheques Carefully: Post-dated cheques are commonly used in Dubai’s rental market, but they often lead to a cheque bounce as tenants may issue the cheque but then fail to keep track of their balance around the cheque date. As a tenant, know precisely when post-dated cheques will be cashed and their amount, and monitor your finances closely.

What to Do if Your Cheque Bounces?

Despite your best efforts, there may still be times when a cheque bounces. In the event of a bounced cheque in Dubai, here’s what to do:

Quickly Communicate: Contact the payee to explain the situation and work towards a solution.
Arrange Immediate Payment: Try to resolve the issue by arranging an alternative payment method, such as bank transfer or depositing funds and reissuing the cheque.
Seek Legal Guidance: If you can’t reach a solution, speak to a legal professional to understand your rights and obligations under the amended law.
Request an Executory Order: If you are the cheque bearer, you can present the returned cheque to request an executory order for payment, bypassing the police report stage.

Conclusion

The amendments to the UAE’s cheque laws in 2022 have brought significant changes, classifying the act of issuing a bounced cheque in the UAE as a civil offense and introducing procedures to simplify settlements. Understanding the meaning of bounced cheque and the common causes of cheque rejection can help individuals and businesses take preventive measures. You can avoid the financial and legal repercussions of a bounced cheque in Dubai by staying informed.