Cheque cases in Dubai

In Dubai as per law No 1 of 2017 called Criminal Order Law the cheque cases, if its less than Dh200,000, cheque cases shall only be punishable by fine. This fine varies between Dh2,000 to Dh10,000 depending on the cheque value. Such decisions could be given by the prosecution within a very short amount of time without any need to refer  to the criminal courts.

However, one have to bear in mind that the complainant still has the right to file a civil case against you to claim the cheque value and an interest of 12 per cent starting from the cheque date. They could also request the court to enforce you to pay the court charges and legal costs.

The complainant also has the right to request the civil courts to cease your company bank account up to the amount of Dh200,000 until the civil case is decided. They may also, request the civil courts to issue a travel ban order on an urgent basis against you until the civil court issues its final decision and you pay back the money.

The UAE economy has historically relied more heavily on cheques for processing payments than electronic transfers. By way of illustration, the UAE Central Bank only introduced a Direct Debit System in October 2013, prior to which many banks insisted on a suite of pre-dated signed cheques in repayment of loans. Many UAE banks still require cheques to be provided as security for loans with those cheques being deposited (and often then bouncing) when the debtor fails to pay any loan instalments.

The UAE Federal Penal Code (Federal Law No. 3 of 1987) provides for criminal sanctions for any issuer of a bounced cheque. This is widely regarded as an outdated approach, creating a hostile environment for the conduct of business, particularly for finance directors and others who sign company cheques as part of their daily routine. Faced with the threat of imprisonment for dishonoured cheques, and prior to an effective insolvency regime being implemented in the UAE, it was not uncommon to hear of managers of SMEs fleeing the country rather than attempting to work through cash flow or insolvency issues. In many cases businesses find themselves in this position through no fault of their own where they are themselves awaiting payment.

The new Federal Bankruptcy Law (Federal Decree Law No. 9 of 2016) provided some relief by providing a modernised restructuring and insolvency framework, and allowing for a stay of criminal proceedings relating to bounced cheques which were issued prior to the commencement of a scheme of composition or restructure.

With effect from December 2017, new rules applicable in the Emirate of Dubai mean less people will need to fear the threat of jail time for bounced cheques. The rules came into effect under a criminal order issued by the Dubai Attorney General Essam Al Humaidan which sets out a number of minor offences to be recategorised as misdemeanours and subject to financial penalties of fines rather than incarceration.

This includes bounced cheques up to a value of AED200,000 with fines levied on a sliding scale:

  • AED2,000 fine for dishonoured cheques up to AED50,000
  • AED5,000 fine for dishonoured cheques between AED50,000 and AED100,000
  • AED10,000 fine for dishonoured cheques between AED100,000 and AED200,000

Rather than going through the court system, cases of bounced cheques falling within the scope of these new rules will instead be dealt with by the public prosecutor, relieving pressure on the Dubai court system and bringing about a speedier resolution for offenders. It is not clear how this might affect treatment of such offences in other areas of the UAE or apply in cross-emirate situations.

While this is not a decriminalization of bounced cheques in general and does not remove the threat of jail and criminal prosecution in the case of fraud or larger cheques, these new rules do represent another step forward in the modernisation of Dubai and the UAE as a business friendly jurisdiction and are another debtor-friendly measure to be welcomed by SMEs and those handling cheques in their daily business. How this plays out in practice does remain to be seen however, in particular whether banks will be motivated to conduct more thorough credit checks before issuing loans and whether creditors will still look to pursue civil actions where criminal cases are not filed.