A Cheque, which is a negotiable instrument, is defined as per ARTICLE (483) of FEDERAL LAW NO. (18) OF 1993 COMMERCIAL TRANSACTIONS LAW, as “a commercial paper containing an order issued by the drawer upon a bank (the drawee) to pay in the date indicated therein, as being the date of issue, a specific sum of money to the order of a third person being the beneficiary or the payee”. Hence it is an unconditional order or a guarantee or can be considered as cash itself. The liability lies with the person who signed the cheque.

When a bank returns a cheque with the statement that there is an insufficient fund or closed account, it is called a cheque bounce. It is also termed as Dishonoured Cheque, Bad Cheque and Rubber Cheque.

In the UAE, dishonouring of cheque is a criminal offence. Thus, a cheque issued in bad faith is punishable. The punishment for the same may be either confinement or fine, or both depending on a case to case basis.

According to Article 401 of the Penal Code of the UAE, “A punishment of confinement or a fine shall be inflicted upon any person who, in bad faith draws a cheque without no existing or withdrawal provision, or after issuing the cheque, withdraws all or part of the fund so the balance becomes insufficient to settle the amount of the cheque, any person who endorses or delivers to another cheque payable to the bearer, whilst being aware that there are no existing funds covering its value, or it cannot be drawn, shall be liable to the same punishment”.

As per the revised version of Article 401 of the UAE Penal Code, dealing with the issuance of Cheques in bad faith under Law No.34 of 2005, the following clause was added by the legislator.
“The criminal case shall terminate if payment is made or assignment is established after the commission of the offence and before a final ruling is made in respect thereof. If this occurs after the ruling became final, its enforcement will be seized.”

Apart from the criminal proceedings, according to Article 246 and Article 710 of the UAE Federal Law No.5 of 1985 of the Civil Code, the creditor can commence a civil case against the defaulter, in which the drawee can realize the defaulted amount from the drawer.

Sunil Ambalavelil | Legal Consultant | Lead Partner

Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and for more detailed and specific opinion please write to me on