Bounced checks, a financial concern discussed by both citizens and expatriates in the United Arab Emirates, remain a pressing issue in 2023. The implications of a bounced check in the UAE are far-reaching, affecting not only the individuals concerned but also reflecting the country's legal and financial landscape. In this article, we explore the key aspects of bounced checks, examining what you need to know to address this challenge in 2023.
What is a bounced check or a bad check?
A bounced check, often called a "bad check", refers to a check issued from a bank account that does not have sufficient funds to cover the amount stated on the check. In other words, when the beneficiary attempts to cash or deposit the check, it is rejected by the issuing bank due to insufficient funds.
Issuing a bounced check is a financial offense in many jurisdictions, and it can result in legal and financial consequences for the person or entity that issued the check. Penalties may include fines, additional bank fees, and, in some cases, criminal prosecution.
The term "bad check" is often used informally to describe this situation, referring to the idea that the check is as unsound or unreliable as wood.
Understanding the legal framework
The Emirates have strict laws surrounding bounced checks, and it is crucial for residents and businesses to understand the legal implications associated with such incidents. Issuing a bounced check is considered a criminal offense in the UAE. This falls within the scope of the Commercial Transactions Law, and the legal implications and penalties can be financially severe and intimidating for offenses considered more serious. Problems related to bounced checks can arise in various commercial transactions, including transactions between businesses, bank loans, real estate rentals or acquisitions, as well as transactions between individuals.
According to Federal Decree-Law No. (14) of 2020 amending certain provisions of Federal Law No. (18) of 1993 on Commercial Transactions, both criminal and civil legal proceedings may be initiated against the responsible party.
Many people tend to believe that, with the enactment of the Federal Decree-Law, they are entirely exempt from repaying the amount of the bounced check, but this is a misconception. The obligation to pay the check amount and the penalties remain in force until the full amount has been returned to the beneficiary or holder of the check.
Consequences of issuing a bounced check
When a check is rejected due to insufficient funds or other reasons, it triggers a series of legal actions. The person or company that issued the bounced check may face legal consequences, including fines and imprisonment. In addition, the relevant financial institution may impose additional fees for the bounced check, increasing the financial burden on the defaulting party.
Legal procedures and debt recovery
When a check is rejected, non-payment may be confirmed by a statement from the bank. The bank may not refuse to provide this statement, but it may request a period not exceeding three business days after presentation of the check to contact the person who issued it.
The holder of the check is not legally required to resolve the issue directly with the person who issued the check and may choose to initiate legal proceedings. These proceedings may take the form of a criminal or civil case.
Judicial proceedings in the event of a criminal offense
Following recent legislative amendments concerning checks, criminal proceedings may still be initiated and penalties may be imposed in specific cases set out in the Commercial Transactions Law. Outside these defined situations, the rejection of a check will not result in criminal consequences under the Penal Code.
Police complaint
To initiate proceedings following an unpaid check in Dubai, the holder must file a formal complaint through the police mobile application. After the complaint is filed, the police contact the check issuer, who may resolve the matter at the police station by paying the check amount. No further legal action is taken in that case. If the issuer needs time, they may request a period by depositing their passport, although this depends on the check amount. Filing a complaint automatically results in a travel ban/arrest warrant, which is lifted after the matter is resolved or after a sentence has been served.
The Public Prosecution
If the dispute over the unpaid check cannot be resolved at the police station, the complaint is transferred to the Public Prosecution before the court for further investigation. The Public Prosecution then makes decisions in the case after hearing the parties involved.
Based on the evidence presented before the court, the decision may involve bail, either by paying the value of the unpaid check or by depositing the debtor's passport or that of another guarantor. If bail is refused, the public prosecutor may order the drawer's detention until the court hears the case and issues its decision.
The Criminal Court
The criminal court examines the case details, the parties' arguments, and the available evidence. It assesses whether the constituent elements of the crime are present, namely the material act and criminal intent.
The material act (Actus Reus) means that the offender physically committed an act considered a crime by law, limited to the cases specified in the Commercial Transactions Law.
These acts constitute a crime only if accompanied by criminal intent (Mens Rea), meaning that the offender intended to cause financial harm to the complainant.
If both elements of the crime are present, the court may impose a penalty under Article 401 of the UAE Penal Code. This may take the form of a fine determined by the court, generally between AED 1,000 and AED 30,000, or more. The court may also sentence the offender to one to three years in prison.
Proceedings in civil disputes
The criminal court and the civil court operate separately. Therefore, a conviction issued by the criminal court constitutes only a penalty for issuing a bounced check or withdrawing funds after its issuance, leaving an insufficient balance to cover the check amount.
However, the criminal court may refer the civil claim to the civil court for consideration. The claimant may also bring their case before the civil court to assert their right to the disputed amount.
The civil court may be a competent judicial authority other than the courts. For example, in Dubai, the Rental Dispute Settlement Centre (also known as the Rental Committee) has jurisdiction to settle disputes between landlords and tenants.
After reviewing the evidence and facts presented by the parties, the civil court may require the drawer of the unpaid check to pay an amount equivalent to the value of the check or its unpaid balance. In the event of non-payment, their assets may be seized, and a new prison sentence may be imposed for failure to comply with the civil court's decision.
In the absence of ongoing disputes against the drawer of the unpaid check, once the prison sentence has been served, they are free to leave the country after recovering their seized passport.
Once the court concludes that the constituent elements of the crime have been satisfied, it is entitled, at its sole discretion, to decide which penalties to impose from among the options permitted by law.
Preventive measures and financial planning
In recent years, the UAE has recognized the need to address the challenges posed by bounced checks, and efforts have been made to streamline legal processes. In 2023, updates and reforms to the legal system could bring changes to how bounced checks are handled. Staying informed about these developments is essential for individuals and businesses operating in the UAE.
Given the serious consequences of bounced checks, individuals and businesses are advised to adopt preventive measures. This includes taking a diligent approach to financial planning and ensuring that sufficient funds are available to cover issued checks. Establishing open communication with creditors and negotiating payment plans can be decisive in avoiding financial pitfalls that lead to bounced checks.
Bounced checks remain a critical financial concern in the UAE, and understanding the legal implications is essential for both individuals and businesses. Staying up to date with legal reforms and preventive measures is crucial for maintaining financial integrity and avoiding the serious consequences associated with bounced checks.
For more information, please contact us by email:
support@merritt.ae.
Merritt Group
