Cheque Bounce in 2025

Cheque

In simple words, a cheque is an order to a bank to pay a particular sum of money from the account of the issuer of the cheque, written on a specifically printed form. The issuer of the cheque is called the drawer, while the person to whom the cheque is issued is the bearer. The bank that holds and transfers the money for the drawer is called the drawee.

Federal Decree-Law No. 50/2022 Issuing the Commercial Transactions Law lays down various provisions regarding cheques. Article 514 of the law defines a cheque as a commercial paper with an order issued by the drawer to the drawee bank, to pay on the date fixed therein as the date of issuing a specific amount of money to a third person namely the beneficiary or to bearer.

Even with the advent of payment technologies and various online payment options, cheques continue to be widely used in the UAE, especially in the real estate sector. They provide a secure way to transfer money between two people. Due to the large expatriate community in the region, securing future payments becomes a hassle, which is solved by issuing cheques that can be paid as and when the payment is due. Furthermore, strict legislations around cheques and cheque bounce cases contribute in making cheques a reliable way to transfer money. Bounced cheques can result in both civil and criminal proceedings against an individual.

Essentials of a Cheque

Article 627 of the commercial transaction law lays down various conditions required to issue a valid cheque.

• The word ‘cheque’ must be written on the cheque, in the same language in which the details of the cheque is written.
• The payment of money must be unconditional
• The cheque must contain the legal name of the person (drawer) issuing the cheque
• The cheque must contain the legal name of the entity (drawee) obliged to make the payment to the bearer of the cheque.
• The place where the payment is made must be mentioned on the cheque
• Date and place of execution of the cheque must be mentioned in the cheque
• The cheque must contain the signature of the executor of the cheque, and which must be identical to the standard signature on record with the bank

Additionally, as per article 629 of the law, the bank must draw a cheque that has been issued and is due in the state. The cheque must contain the name and the account number of the account holder, i.e., the drawer of the cheque. The cheque must be encashed within 6 months of its issue, as per article 649 of the law.

If the cheque contains all the above-mentioned information, it will be issued by the bank without any hassle, unless the bank account of the drawer does not hold sufficient funds, as agreed in the cheque, or the bank has been issued a protest by the drawer, also known as an order for stop payment.

Dishonour of Cheque or Cheque Bounce

When a bank refuses to cash a cheque due to insufficient funds, a stop payment order or due to a cheque not meeting the essentials mentioned above, the cheque is said to have bounced, or dishonored.

Provisions governing cheque bounce cases have seen sweeping changes in the UAE in the past few years. Earlier, cheque bounce cases were treated as a grievous crime, and the drawer of the cheque faced possible jail time or fine. The older criminal provisions thus placed an undue burden on the UAE criminal justice system. The new laws have made significant changes in the treatment of cheque bounce cases. Cheque bounce cases can now be treated as civil or criminal cases, depending on the circumstances around the case.

Article 630 of the Federal Decree-Law No. 50 of 2022 states that no cheque must be issued unless the drawer has sufficient funds in his account that can enable the honoring of the cheque, in accordance with the agreement made at the time of issuing the check. As per article 648 of the law, if the account holds funds less than what is prescribed in the cheque, the bank may pay the available funds to the bearer of the cheque, unless the bearer rejects it. The drawer may issue a protest, or a stop order, to the drawee bank only in cases of loss of cheque, or bankruptcy of the drawer, as per article 651.

According to article 667 of the law, if a cheque is dishonoured as a result of insufficient funds in the bank account, the cheque will be considered an executive instrument, and the bearer has the right to execute the cheque by force, as per civil procedure laws.

Civil recourse in Cheque Bounce Cases

As per the new laws, cheque bounce cases in the UAE have evolved from a criminal offense to a civil matter with heightened financial penalties. Issuing a cheque with insufficient balance in the bank account does not automatically lead to criminal liability anymore. Instead of reporting to the police, in case of cheque bounce, one may now directly approach the court for an execution order for full payment, or the payment of the remaining amount, in cases where they have chosen to accept partial payment from the bank. This alternative ensures that the bearer of the cheque has a quicker way to recover funds.

Criminal Penalties and Jail Time

Cheque bounce will be considered a criminal offence in the following instances as per articles 673 to 684 of the Federal Decree-Law No. 50 of 2022:

• Lying about insufficiency of funds or leading to dishonour of cheques even though there are funds in the account, will lead to a fine of not less than 10% of the value of the cheque, with a minimum fine of AED 5000.
• Intentionally issuing a cheque with the knowledge that there is insufficient fund in the account leading to dishonour of cheque can lead to fines of not less than 10% of the value of the cheque, with a minimum of AED 1000. In case of repetition of the offence, the fine will be doubled.
• Instructing a bank to dishonour the cheque for fraudulent reasons, fraudulently closing the bank account or withdrawing the full balance before the presentment date, or intentionally causing the freezing of the account in any way will lead to imprisonment between 6 months to two years and/or fine of 10% of the cheque value, of a minimum of AED 5000. Repetition of the offence will cause the penalty to be doubled.
• Intentionally signing or executing the cheque in a way that will cause the rejection or the dishonour of the cheque will lead to imprisonment between 6 months to two years and/or fine of 10% of the cheque value, of a minimum fine of AED 5000. In case of repetition of the offence, the penalty will be doubled.
• Forging a cheque or tampering with the cheque to attribute it to a third party, knowingly executing such cheques, or knowingly accepting money issued as a result of such cheques will lead to a minimum imprisonment of one year, and a fine between AED 20,000 to AED 100,000. Similar punishment will be levied for committing any acts related to cheque forgery, such as importing, acquiring or selling equipment or software that is used in forgery crimes.
• ?fraudulently using or benefiting from a cheque that is drawn in the name of a third party or whose use is associated with a fraud will lead to a minimum imprisonment of one year, and a fine between AED 20,000 to AED 100,000.

The news laws around cheque bounce cases represent a significant step towards streamlining the legal process and reducing the burden on the criminal justice system. These changes also help in swifter recovery of funds, wherein the issuer of the cheques can focus on the return of money, rather than the stringent criminal liabilities that they were subject to earlier. The aggravated fines will serve as a deterrent of the crime, thus ensuring a fairer outcome to all parties involved. It is always advisable to seek guidance from the best lawyers in Dubai to handle cheque bounce cases effectively and ensure compliance with UAE laws.

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