Bounced cheques and the legal issues to be aware of

NM-LAW-Bounced-cheques-and-the-legal-issues-to-be-aware-of

Whether during recessions or booms, there has seldom been a topic that gets as much attention as a bounced cheque in the UAE. From a legal perspective, therefore, it is imperative that the rights of the party that has been the recipient of the bounced cheque be protected and that the procedures are clearly spelt out.

It is in the works that the rights of the aggrieved party are protected under a clear and well defined legal framework. And it is this knowledge that should be empowering the affected party in question.

As per Article 401 of UAE Penal Code: “Detention or a fine shall be imposed upon anyone who, in bad faith, gives a draft [cheque] without a sufficient and drawable balance or who, after giving a cheque, withdraws all or part of the balance, making the balance insufficient for settlement of the cheque, or if he orders a drawee not to cash a cheque or makes or signs the cheque in a manner that prevents it from being cashed.

“The same penalty shall apply to anyone who endorses a cheque in favour of another or gives him a bearer draft, knowing that there is no sufficient balance to honour the cheque or that it is not drawable.”

The top court in the country has clearly declared that the bouncing of a cheque is a criminal offence when the issuer has issued one knowing that there are insufficient funds in the account. It is worth clarifying here that the oft used defence of providing the cheque as a guarantee and/or security deposit to close the deal is not considered valid. A special judiciary committee was also established in Dubai to investigate the matter of the bounced cheques relating to transactions that are mentioned in Article 5, which states “(a) The Judicial Control Authorities, including police stations, shall refer all cheque complaints to the Committee and (b) The Public Prosecution and Courts are not allowed to investigate the bounced cheques included in this Decree, and should suspend the hearing of any complaint or criminal case related to these cheques and refer the same to the Committee”.

It is imperative that the recipient of the bounced cheque be clear as to the steps needed to register a case procedurally. These include the registration of a complaint at the nearest police station prior to filing a case in the courts.

The case itself is not limited to an immediate resistance of the amount due, but also for compensatory damages as well, which the court can rule on depending on the vagaries of the case. It is important to note that while the penalty in the case of the bounced cheque resides with the judge, typically the sentence awarded is no less than three years.

This makes it all the more important for the affected party to seek immediate relief with the courts. In certain situations, an application may also be filed preventing the accused party from leaving the country. The courts have granted such ex parte applications when the accused has been deemed a flight risk. It stands to reason that the court will investigate the reasons for the issuance of the bounced cheque, and the transactional nature of the relationship. This includes – but is not limited to – examining the contracts that have been exchanged along with the cheques.

In certain cases, where it is clear that both parties were aware that the cheque was issued but without the intent of it being cashed, the court has referred it to civil litigation in order to determine the more contractual issues arising from the case.

And waiting for the verdict before ascertaining the criminal sentence that is recommended by the public prosecutor. Therefore it is imperative that the aggrieved party seek immediate legal advice in the event that this occurs, especially in light of the fact that the procedures that have been laid out have been made crystal clear.

There are clear procedural elements that need to be followed. And the nuances of the individual case are not material to the following of such procedures until such time that the case is registered at the court.

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