The law related to cheque bounce has undergone a change in recent times in the UAE. The law on cheque bounce in the UAE is codified in the Federal Law No 18 of 1993 concerning commercial transactions law (Commercial Transactions Law).

The changes to the Commercial Transactions Law have been brought about by introduction of Federal Decree Law No. 14 of 2020 which amended and modified the Commercial Transactions Law.

The changes are significant and amongst others, narrow the scope of criminality in cheque bounce cases. Penalties for violations have also undergone revisions. The key changes introduced by the Federal Decree Law No. 14 of 2020 are as follows.

Limiting Criminality

One of the most key changes introduced is that the insufficiency of funds leading to bouncing of cheque will no longer lead to a criminal action. Instead, the bearer has the right to request for partial or full recovery of funds through an execution under Article 635. The court may then issue an order against the issuer of the cheque to make payment of the full cheque or part thereof, to the bearer.

In addition to the above change, the new law also limits the instances under which a person could be imprisoned for cheque bounce related crime.

Under Articles 641 bis (2) and 641 bis (3) of the Commercial Transactions Law, as amended by the Federal Decree Law No. 14 of 2020, a person could be punished with imprisonment ranging between 6 months to 2 years and fines if any of the following acts are committed:

1. Ordering or requesting the drawee before the due date, to not pay the cheque he has issued (except those set out in Articles 620 and 625)

2. Closing the account or withdrawing all the funds before issuing a cheque or before presenting it to the drawee for payment, or having a frozen account.

3. Deliberately writing or signing a cheque so that payment is prevented.

4. Forging or faking a cheque, or imputing it to a third party by changing particulars through addition, deletion or other means set out in Article 216 of Federal Law No. 3 of 1987, with the intent of causing harm to a third party and using it in respect of what it was forged for.

5. Knowingly using a counterfeit or forged cheque.

6. Knowingly accepting monies which has been paid by a forged or fake cheque.

7. Wrongfully using a cheque whose use is related to a fraud or which is drawn in name of a third party or wrongfully benefitting from such cheque.

8. Knowingly importing, manufacturing, acquiring, possessing, selling, offering or presenting equipment, tools, technological programs, information or data used in forgery.

Partial Payments

The updated Commercial Transactions Law also permits the drawee to make partial payment of the funds unless the bearer refuses under Article 617.

This will take place in a situation where the funds available are less than the value of the cheque. In this case, the drawee would write the amount of each partial payment on the back of the cheque and the bearer will receive the original cheque and a certificate of such payment.

Penalties

The penalties for offences related to cheque bounce have also been revised under the updated Commercial Transactions Law. For instance, any endorsement or delivery of a bearer cheque to a third-party while knowing that the cheque is unfunded or non-withdrawable is punishable with fine of at least 10% of the value of the cheque (subject to a minimum of AED 1,000) and not more than twice the value of the cheque.

If a person, having been convicted under Articles 641 bis (1) and 641 bis (2) does not hand over the cheque book to the concerned bank within 15 days, despite a court order instructing him to do so, he will be subject to a fine of up to AED 100,000.

Conclusion

Decriminalizing the offence of bounced cheque is a welcome move by the Government of UAE and could help in making the process of cheque collection more efficient and advantageous to both drawer and bearer of cheques.