The uncomfortable truth about cheque bounce in the UAE.
Dishonouring a cheque is a criminal offence under the Criminal Code in the UAE. The most common reason for cheque bounce is usually “insufficient funds” in the account. The holder of an account is legally obliged to maintain sufficient funds in his account at all times to fulfil the cheque issuance by him.
However, in addition to this common reason for cheque bounce, there are other conditions that can result in the cheques issued cheques being dishonoured by the banks. It is crucial to know these circumstances in order to avoid criminal liability on your part.
A cheque may not be issued unless the drawer has with the drawee, at the time of drawing the cheque, funds which he can dispose of by cheque pursuant to an express or implicit agreement.
Nevertheless, the drawer for the account of others is personally liable towards the endorsers and the bearer, to the exclusion of all others, to provide the required consideration for payment.
Factors that cause a cheque being dishonoured in the UAE:
- Order to the bank to refrain from making the payment.
- Mismatching signatures or other technical errors.
- Closure of bank account before encashment of the cheque
- Insufficient funds in the bank account on the date of issuance of the cheque.
- As per the provisions of the civil transactions act, the drawer of the cheque retains the right to order the bank not to pay the cheque amount to the bearer in case the cheque has been lost or in case the bearer is bankrupt.
Intentionally mismatching the signatures on the cheque includes putting a signature on the cheque which is different than the one recognized by the bank or putting any other signature or mark that would make the cheque invalid.
Cheque bounce and Partial acceptance of amount:
It is also important to note that in the event that the account does not contain sufficient funds to settle the cheques, the recipient to whom the cheque is issued has the right to submit a request to the bank for payment of the remaining amount in the account as a partial payment.
The beneficiary must give written consent to the bank to receive the remaining amount. In such a case, the bank would endorse the amount paid to the beneficiary on the back of the cheque and retain the cheque. Furthermore, the beneficiary may request a certificate from the bank listing the remaining amount from the drawer of the cheque.
What happens if you have accepted a partial payment:
Suppose the beneficiary of the cheque accepts partial payments in relation to a bounced cheque. In that case, the same will be considered as consent by beneficiary; thereby, no criminal action can be pursued by the beneficiary against the drawer of the cheque.
It is therefore crucial to bear in mind that, after the partial acceptance of the cheque, the only legal action the beneficiary
can take would be a civil action to obtain the balance.