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  • AMENDMENTS TO COMMERCIAL LAW WITH REGARD TO DISHONORED CHEQUES TRANSACTIONS

    • 12-Nov-2020

    The UAE Cabinet has approved amendments to the Federal Law No. 18 of 1993, commonly known as Commercial Transactions Law. The approved Decree-Law shall come into force in the year 2022 and the provisions shall apply when the Decree-Law is published in the Official Gazette.

    The new provisions aim to discourage criminal proceedings against people and businesses for cheque bouncing cases. The amendments provide fast and advanced civil mechanisms to collect the outstanding payments. They facilitate related procedures through encouraging reconciliation and urging the payment of original cheque as the condition for minimizing criminal charges.

    Redefined Offences

    The amendments redefine the criminal offences related to cheques to include:

    • Counterfeiting cheques
    • Fraud by giving an order to the bank not to cash the cheque without any right.
    • Withdrawing the entire balance before the date of issuing the cheque.

    The criminalization presently in the Penal Code has been removed for intentionally writing or signing the cheque in a way that prevents it from being cashed or issuing cheques without balance, except for the instances mentioned in the Decree-Law.

    Mechanisms and Alternatives envisaged in amendments for Collection

    • The aim of these mechanisms and alternatives is to ensure that payments are collected by cheque quickly.
    • Banks now have to partially pay the amount of cheque value from the available funds in the bank account of the issuer to the beneficiary.
    • The beneficiary has the right to submit a direct request to the execution judge in the Court to execute the funds in the event of bouncing.
    • The bounced cheques become an executive document to be executed directly by an appropriate judge in Court.
    • Related procedures through encouraging reconciliation.
    • Payment of original cheque value will be a basis for the expiry of the criminal case or the suspension of the punishment.

     

    Ancillary Penalties

    1. For Convicted Persons
      • Cancellation of their cheque books
      • Preventing them from obtaining new one for a maximum period of five years
      • Halting their professional or commercial activities. They will also be suspended from practising professional or commercial activities
    2. Additional penalties for legal persons other than banks and financial institutions,
      • Financial fine,
      • The suspension of licenses to practice economic activities for six months,
      • The revocation or dissolution of the licenses of legal persons who repeat violations.

    Joint Accounts

    When a joined account is opened between two or more people and if one of the account holders dies or loses legal control, the other person shall notify the bank within ten days of the date of death or disqualification. From the date of notification, the bank must limit the ability to withdraw from the joint account within a party’s share of the account balance on the day of death or loss of eligibility. The bank must stop allowing withdrawing from that person’s share until the successor is appointed.

    Conclusion

    The Federal amendment is a move for UAE to keep up with global best practices and to boost business confidence by enhancing the competitiveness of the national economy and increasing its attractiveness. It constitutes a qualitative step and an important motivation to support the economic, legislative and social sectors, which would contribute to achieving the strategic objectives aimed overall societal development. This is a positive step for both defaulters and creditors.

    Cheques may be an outdated method of payment, but it is unlikely that the practice of using cheques in the UAE will end with the new amendment. The banks and landlords will not stop demanding cheques from their borrowers and tenants. A cheque serves as a tool of pressure to bind the debtor to make the outstanding payments and evidence before the courts. They will continue to serve as an important instrument in commercial transactions.