Checks play a crucial role in financial transactions in Dubai, but using them requires a thorough understanding of the procedures, legal penalties, and practical advice. In this article, let’s explore how checks work in Dubai to ensure smooth financial management.
What is a check?
A check is designed to act as a commonly recognized payment/negotiable instrument in place of money. Federal Law No. (18) of 1993 promulgating the Commercial Transactions Law regulates the issuance and circulation of checks in the United Arab Emirates. Article (483) of the law defines a check as “an order issued by a person (the drawer) to a bank (the drawee) to pay on the date indicated (date of issue), a specific sum of money to the order of a third party (the payee or bearer), being the payee or bearer thereof.”
A duly completed and signed check gives the bank the authority to disburse the drawer’s money. The bank must pay the check even if the drawer objects, except in cases where the check is lost or the bearer becomes bankrupt. Therefore, a check is effectively an irrevocable payment instrument.
The issuer of the check must be aware that, under the law, a check must meet the conditions mentioned below.
What does a bank check in Dubai look like?
In accordance with Article (598) of the UAE Commercial Transactions Law, checks issued and payable in the United Arab Emirates must be drawn on a bank. Each bank provides account holders with checkbooks containing specially printed and highly secure forms - blank checks. Each check must display (a) the account owner’s name, (b) their account number, and (c) the check’s serial number (see image below).
Reading the composition of a check
In accordance with Article (596) of the UAE Commercial Transactions Law, a check must contain the following details:
(1) The word “check” written in the text of the instrument in the language in which the text is written;
(2) An unconditional order to pay a specific sum of money;
(3) The name of the bank required to make the payment (the drawee);
(4) The name of the person to whom or to whose order payment must be made (the payee);
(5) The place of payment;
(6) The date and place of issue of the check;
(7) The signature of the person who issued the check (the drawer).
The law does not stipulate that the absence of a date will render a check invalid. Thus, if the date is omitted, the date on which the check is presented for payment will be considered its date of issue.
In the absence of an indication of the place of payment on the check, the place mentioned next to the bank’s name will be presumed to be the place of payment; and if no place is indicated at all, it will be the bank’s head office. Similarly, if the place of issue is not specified, the check will be deemed to have been issued where it was actually signed (Article (597)).
Ensure that funds are available
In accordance with the laws and principles of good faith (Bona Fides), the drawer must bear in mind that they cannot knowingly issue a check if they know that they do not have, or will not have, sufficient funds in their account with the drawee on the date of issue. The drawer is required to deposit adequate funds to fully cover the amount indicated on the check, in accordance with Article (599). Any failure to provide such funds, whether partially or entirely, gives the payee the right to request a statement from the drawee (the bank) to use as evidence in any action they may consider bringing against the drawer.
Beware of bounced checks?
A bounced check, also called a “bad check” or “dishonored check,” is a check presented by the payee and rejected by the drawee bank in the following cases:
- When the bank indicates that the funds available in the drawer’s account on the date of issue are insufficient to cover the amount stated on the check, whether partially or entirely; the check is therefore rejected and annotated by the bank.
- When the bank receives an order from the issuer not to pay the check.
- When the drawer makes or signs the check in a way that prevents it from being paid, for example, by omitting or altering their signature.
- When the drawer’s bank account is closed before the issued check is presented for payment.
More reading: 2023: Bounced Checks in the United Arab Emirates
When exploring the world of checks in Dubai, it is essential to thoroughly understand the legal procedures, penalties, and practical advice. Choose an informed approach to maximize the benefits of this financial instrument while avoiding unnecessary complications.
Merritt Group
