You and the law: Debt in the UAE

What is the law on bouncing a cheque?
Article 401 of the UAE Penal Code provides that bouncing cheques shall be punishable “by confinement or a fine to any individual who, in bad faith, draws a cheque which does not have sufficient provision, which could be withdrawn or which has a provision less than the amount of the cheque or who, in bad faith, after issuing a cheque, withdraws all or part of the provision and renders the balance insufficient to settle the amount of the cheque or, in bad faith, orders the drawee not to pay the value of the cheque or, in bad faith, draws or signs a cheque in such a manner as to prevent it from being paid”.
As soon as a cheque is bounced – so returned unpaid from the bank – then this is classed as a criminal act. The reasoning behind the cheque is not usually investigated.
However, a committee has been established under the auspices of the Dubai Courts solely for the purpose of investigating cheques related to real estate transactions.

What means does a UAE lender have to pursue the debt?
Typically, if the borrower has provided a cheque to the lender this will be the mainstay of any negotiations for the repayment of debt. Needless to say, the threat of restricting the freedom of the borrower sends a strong message to make amends.
Increasingly, lenders are seeing the need to prepare repayment plans where the liquidity of individuals and companies does not allow for immediate repayment. Interest payments can be reduced; in some cases a payment window can be given. In the event that no settlement is made, then the lender has to consider its rights with regard to both criminal and civil action.
If there is no bounced cheque involved, then a debt matter would be likely to be handled by the civil courts.

When is a bank, or other payee, entitled to cash a blank cheque?
There is no prescribed minimum or maximum, but in our experience we see cheques being cashed between 30 to 90 days from demand. Most banks will have issued terms and conditions associated with the financial service which it is providing. These are likely to give the bank discretion to decide when a “breach” of their terms has been committed thereby determining when they can deposit the cheque.

What are the penalties for bouncing a cheque?
The law states a cheque crime is punishable by confinement or fine. Punishment varies from case to case, and sentences are usually handed out for each cheque bounced.

Is the payee obliged to give the debtor a reasonable period of time to repay the debt?
It is commonplace that if the amount owing to the bank or other outlet is paid, the custodial sentence – or balance of the custodial sentence – is cancelled or waived. However, this is usually dependent upon the payee withdrawing their complaint and overall discretion still sits with the judge.

Is there an appeal process?
Criminal cases can be appealed in the UAE. There are two appeal courts; the court of appeal and the court of cassation. The defendant will either remain in custody during the appeal procedure, or can be released on bail pending appeal.  

If you receive a custodial sentence, will this cancel out your debt?
The criminal case is just that; it punishes the issuer of the cheque. However, it does not guarantee, reduce or enforce the repayment of the amount to the payee. The bank or outlet will have to take a civil case to recover the funds, usually once the criminal case has concluded.
From a practical perspective this can lead to further issues. For example, once someone has served a sentence for the bounced cheque they could face a civil case for the owed amount.
In the event that the court rules they must repay the amount and they are unable to do so, then the case can be referred to the criminal court as this is deemed a form of ‘contempt of court’. However the court will try to prescribe a payment plan where possible.

Are debtors automatically deported after concluding their jail sentence?
Deportation is at the discretion of the judge and is not normally associated with a cheque complaint. However some cheque complaints can be combined with other, for example, fraud-related offences which could result in deportation.

Is it possible to declare personal bankruptcy in the UAE?
There is no an allowance for personal bankruptcy under UAE Law. However there are certain provisions for “traders”. The UAE Civil Procedure Code does allow for the prevention of ongoing claims against individuals in the event that the court sees these to be futile. However examples of this are very rare.
There have been many discussions regarding bankruptcy laws in the UAE. There is no doubt that there needs to be more understanding of the relevant laws and perhaps the development of additional legislation in due course.

If a debtor skips the country, what will happen to their debt?
In the event that a debtor leaves the country the creditor can request that a criminal file is passed to Interpol for action overseas. If the case is referred to the UAE police, it is likely that it will stay on the system until it is removed by the complainant.

If a debtor skips the country, could they later transit through the GCC and UAE without facing arrest?
If the matter had been referred to the police, there is a risk for any debtor travelling through or diverted to the UAE or any GCC country that they would be detained on arrival if their name was on the system.
There is no prescribed time limit for removing the warrant. As far as the police are concerned, it will remain until the matter is closed. There have been several reported cases of people being arrested on their return to the UAE and GCC countries.

Are the laws in any other GCC countries radically different to the above?
They are largely similar but each country has its own legislation and enforcement regime.