Unlike other countries worldwide, the laws of the United Arab Emirates (“UAE”) allow for criminal penalties to be imposed on those persons drawing bounced cheques. Article 401 of the UAE Federal Penal Code provides that the drawer of a bounced cheque should be sentenced to detention or fined. Such detention is for a period not less than one month and not more than three years, while the fine is for an amount not less than AED 1,000 and not more than AED 300,000 (fines are payable to the Court Treasury and not to the beneficiary of the bounced cheque).
Due to the severity of penalties, it has always been practical for creditors to obtain cheques from their debtors to secure payment. Such an approach adds a powerful deterrent to prevent non-payment in addition to the civil remedies already available to the creditors upon the default of their debtors. This is complemented by the fact that criminal proceedings are free of cost and are generally faster than civil proceedings.
When a debtor actually defaults, the creditor will have the right to file a criminal complaint for the bounced cheque along with a civil case for recovery. Although, as mentioned this approach gives creditors more security in recovery, it also has the additional consequences of allowing for extreme punishment for low value non-payments and placing stress on the UAE’s criminal legal system and its authorities due to the sheer quantity of bounced cheque cases.
The UAE legislators have always been well known for being proactive in recognizing market practices and practical issues. In a move to adjust the volume of cases which places stress on the Police, Public Prosecution and Criminal Courts, and to address the severity of penalties in low value claims, the UAE legislators have (a) created a new process to address minor crimes such as bounced cheques in an expedited manner by the establishment of “One Day Courts”; and (b) amended the circumstances in which certain bounced cheques are to be punishable by detention.
With regard to the One Day Court, laws have been enacted which provide that certain simple crimes (including bounced cheques) should be dealt with expediently and a decision on such crimes should be issued within 24 hours (hence the name). These courts have been established in the Emirates of Abu Dhabi, Dubai and Ras Al Khaimah and appear to have been successful in significantly lessening the load on the Criminal Courts which will have the impact of allowing those more serious crimes to move through the system.
In addition, the Emirate of Dubai has introduced a new law concerning “Criminal Orders”. This law allows the Dubai Public Prosecution to issue criminal orders to sentence offenders of certain “simple crimes” to fines only (without detention). Objections may be filed to challenge such orders within 7 days. Such objection will refer the matter to the Criminal Courts and the normal procedures shall be applicable.
In practice, the bouncing of a cheque of AED 200,000 or less is categorized as a “simple crime” holding the penalty of a fine not exceeding AED 5,000 to AED 10,000. Accordingly, the drawers of bounced cheques for a value of AED 200,000 (or less) can be sentenced by the Dubai Public Prosecution directly (without being referred to Courts), however, the sentence shall be for a fine only which does not exceed AED 5,000 to AED 10,000 (in practice).
It is not difficult to see the reasoning behind this taking into account the majority of cheques for an amount of AED 200,000 or less would typically be personal cheques (for rent for example) or cheques drawn by Small and Medium Enterprises (SMEs) for small business transactions where a more limited penalty can be said to be suited to the crime taking into account the value.
One of the main reasons cheques are widely trusted and used in the UAE is the fact that such cheques are criminally protected with a potential detention (or a fine). This compels cheque drawers to strive to honour their cheques upon their maturity. Since bounced cheques for amounts of AED 200,000 (or less) are no longer punishable by detention in the Emirate of Dubai, the power in holding these cheques has been limited.
To maintain this power, and where appropriate, it would be sensible to ask business counterparts to only provide cheques for amounts higher than AED 200,000 in order to maintain the potential detention sentences warranted to bounced cheques