Bounced Checks & Mounting Debts in Dubai

In recent years, Dubai has witnessed a significant number of cases involving bounced checks, raising questions about the legal implications and potential consequences for individuals and businesses alike. Understanding the intricacies of UAE law concerning bounced checks is crucial for anyone navigating commercial transactions in this vibrant city.

What is a Bounced Check?

A bounced check, also known as a dishonored check, occurs when the bank refuses to honor a check due to insufficient funds in the drawer’s account or other reasons specified under UAE law. This often leads to legal repercussions, as checks are widely used in business transactions, rent payments, and other financial dealings across Dubai.

Under Federal Law Number 18 of 1993, which governs commercial transactions in the UAE, a check is defined as a commercial paper that orders a bank to pay a specified sum of money to the payee on a designated date. When the bank declines to honor such a check, it triggers a series of legal procedures that both parties must navigate.

Legal Ramifications of Bounced Checks

Previously, bounced checks in the UAE carried severe criminal penalties under the Penal Code, including potential imprisonment for the issuer. However, recent reforms introduced through Federal Decree Law No. 14 of 2020 have brought significant changes to this landscape. Notably, the law has decriminalized bounced checks due to insufficient funds, shifting the focus towards civil liabilities and legal remedies.

Legal Recourse and Enforcement

Article 635 bis  & Recovery

Under Article 635 bis of the amended Commercial Transactions Law. The beneficiary of a bounced check can initiate execution proceedings to recover the owed amount. This legal provision allows for the swift resolution of disputes through civil courts, ensuring that creditors can enforce their rights effectively. The court may order the seizure of the issuer’s assets, to satisfy the outstanding debt. The assets which can ordered are:

1. movable property
2. stocks & shares 
3. real estate

Civil vs. Criminal Liability

The distinction between civil and criminal liability in bounced check cases is crucial for understanding the legal implications. While criminal liability has been largely eliminated for bounced checks due to insufficient funds, individuals or businesses can still face civil lawsuits and financial penalties. It is essential for all parties involved in commercial transactions to ensure sufficient funds to cover payments.

Key Changes and Implications

Decriminalization

The amendment to the law means that bouncing a check due to insufficient funds is no longer a criminal offense punishable by imprisonment. Instead, it has become a matter of civil law, where the payee can pursue legal action to recover the owed amount through civil courts.

Legal Remedies

Article 635 bis of the amended Commercial Transactions Law now allows the beneficiary of a bounced check to file for execution proceedings against the issuer. This legal mechanism facilitates the recovery of the owed amount through the courts, ensuring that financial disputes are resolved effectively.

Execution Proceedings

Once a bank confirms the insufficiency of funds, the beneficiary can initiate execution proceedings under the Civil Procedure Law. This process enables the court to order the seizure of the issuer’s assets, including movable property, shares, and even real estate, to satisfy the debt.

Conclusion

For businesses and individuals in Dubai, understanding the implications of bounced checks is essential for mitigating financial risks and maintaining legal compliance. Proper adherence to commercial laws can prevent disputes by getting help from a Dubai legal consultant. Recent legal reforms have provided clearer avenues for resolving disputes and recovering owed amounts through civil procedures. For expert legal guidance on bounced checks and related matters in Dubai. Consult reputable law firms specializing in commercial law and dispute resolution.