The new UAE law related to bounced cheques has been changed and is implemented accordingly. There are several pointers for issuing and accepting cheque payments for consumers and businesses.
For a transaction to be secure it is subject to the intention of the person drawing the cheque, and one cannot truly comprehend one’s intention unless presented. To secure the drawee from such intention of bad faith, the UAE had formulated certain amendments to the Commercial Transactions Law that decriminalizes bounced cheque cases, wherein the drawee will not have to undergo the hassle of first filing a Criminal Case against the drawer and then file a Civil Case to avail their funds, the drawee can directly proceed towards the execution against the drawer of the cheque.
What are the changes if you have accepted a cheque as payment?
- Commercially, if a cheque is not honored due to unavailable or insufficient funds, it remains an executive document that can be enforced directly by an appropriate judge in court.
- If the account balance is less than the amount on the cheque, the bank will be obliged to partially pay the amount after deducting the total amount available to the beneficiary.
New Rules in Case of Cheque Bounce
Crimes related to bounced cheques have been redefined. At the same time, mechanisms and alternatives to ensure the collection of payments through cheque have been announced through encouraging reconciliation and urging the payment of the value of the original cheque, while avoiding criminal lawsuits.
Cheques will remain tools of debt. Bounced cheques have been decriminalized. However, additional penalties will be imposed such as suspension of trade license and cancelling cheque book issuance.
While the new law aims to provide a streamlined mechanism for parties to agree to retrieve the funds of the cheque, the amendments include key changes to what constitutes a criminal offence when a cheque is dishonored, including:
- Forging cheques
- fraud committed by ordering the bank to stop payment on a cheque
- withdrawing the full balance from the account before the cheque date
- deliberately issuing a cheque or signing it in a manner that prevents its encashment
New Rules in Case of Cheque Bounce
Cheques have been used as payment guarantees that businesses now need to have a different approach to guaranteeing their dues.
Strategy for collection of dues and rentals will need to change. It’s better for businesses to consider a different approach to securing payments such as
- Notarized contracts
- Increasing the size of the first instalment to avoid any risk to the future ones
- Follow protocols of the credit control process.
- Keep the appropriate due diligence throughout the Account Receivable Process.
Khadija Rangwala
Legal Manager
legal1@convention360me.com