Bounced Cheque in the UAE: Legal Procedures and How to Recover the Amount

Executive Summary

Cheques are among the most important payment instruments used in commercial and financial transactions in the United Arab Emirates. However, when a cheque is returned because there are no funds or insufficient funds in the account, the cheque holder may have many questions about the steps available to recover the money owed.

Under Federal Decree-Law No. 50 of 2022 Issuing the Commercial Transactions Law, a lack of sufficient funds does not, by itself, automatically constitute a criminal offence as it did under the former legal framework. At the same time, the law provides cheque holders with a more direct method of recovery: a cheque bearing the bank’s confirmation that funds are unavailable or insufficient is an enforceable instrument that may, in principle, be executed compulsorily without first filing a substantive lawsuit to establish the underlying debt.

Nevertheless, certain acts involving cheques remain subject to criminal liability, including closing an account, deliberately withdrawing funds, unlawfully instructing the bank not to honour a cheque, or intentionally signing it in a way that prevents payment.

What Is a Bounced Cheque in the UAE?

A bounced cheque generally refers to a cheque presented by its beneficiary to the bank on its due date, only for the bank to find that the account does not contain sufficient funds to pay the cheque in full.

A cheque may be returned for several reasons, including:

• No funds in the account.
• Insufficient funds to cover the full cheque amount.
• Closure of the account.
• Freezing of the account in certain circumstances.
• Instructions not to honour the cheque.
• A mismatched or non-conforming signature.
• Other technical or banking reasons.

From a legal perspective, the reason for dishonour is particularly important because the applicable procedures and legal consequences may differ according to the reason recorded by the bank.

Is Issuing a Cheque Without Sufficient Funds Still a Crime in the UAE?

Not in every case.

The UAE legal framework has undergone an important change in its treatment of bounced cheques. The traditional criminalisation of merely having no funds or insufficient funds has

been removed, with greater emphasis placed on recovering the cheque amount through direct enforcement procedures.

Accordingly, a cheque returned solely because of insufficient funds does not automatically result in a criminal case against its drawer.

This does not, however, mean that every act relating to a cheque is now a purely civil matter.

The law continues to criminalise certain acts involving bad faith or deliberate conduct intended to prevent a cheque from being honoured.

When Can a Bounced Cheque Matter Become a Criminal Case?

Article 675 of the Commercial Transactions Law provides for penalties in certain circumstances, including where the drawer intentionally:

• Instructs or requests the bank not to honour a cheque outside the circumstances permitted by law.
• Closes the account before the cheque is presented for payment.
• Withdraws the entire balance, thereby preventing the cheque from being honoured.
• Deliberately causes the account to be frozen.
• Draws up or signs the cheque in a deliberately improper manner that prevents its payment.

These circumstances differ from a situation in which insufficient funds arise from an ordinary financial difficulty.

The bank’s stated reason for refusing payment and the circumstances surrounding the issuance of the cheque should therefore be examined before selecting the appropriate legal course of action.

Can the Cheque Amount Be Recovered Without Filing an Ordinary Lawsuit?

In important circumstances, yes.

Article 667 of the Commercial Transactions Law provides that a cheque bearing the bank’s confirmation that funds are unavailable or insufficient constitutes an enforceable instrument.

The holder may seek compulsory enforcement of the cheque, in whole or in part, and the provisions of the Civil Procedure Law govern its enforcement and related disputes.

This is one of the most significant changes to the UAE cheque regime. Where the legal requirements are satisfied, the beneficiary can apply to the execution judge rather than first bringing a lengthy substantive claim to establish entitlement to the debt.

What Are the Legal Steps for Recovering the Value of a Bounced Cheque?

Step 1: Present the Cheque to the Bank

The cheque must first be presented for payment to the bank on which it is drawn.

The law provides that a cheque becomes payable on the date shown on it as its date of issue and may not be presented for payment before that date.

It also provides that a cheque drawn inside or outside the UAE and payable in the UAE must be presented for payment within six months from the date indicated on the cheque.

Step 2: Obtain Proof of the Reason for Dishonour

If the cheque is not paid, it is important to obtain formal confirmation from the bank explaining the reason for non-payment.

Article 663 permits non-payment to be established by a statement issued by the drawee bank, specifying the date on which the cheque was presented.

This document is particularly important because the stated reason for dishonour may determine whether the cheque qualifies for direct enforcement and whether any additional criminal issues arise.

Step 3: Check Whether Partial Funds Are Available

One important point that is sometimes overlooked is that the absence of the full amount does not necessarily mean that nothing can be recovered.

Where the account contains part of the cheque amount, the law requires the bank to make a partial payment of the available balance unless the cheque holder refuses that payment.

When partial payment is made, the bank records the amount paid on the cheque and hands the holder the original cheque together with a certificate of partial payment. The holder retains the right to claim the outstanding balance.

Step 4: Open an Execution File

If the cheque was not honoured because funds were unavailable or insufficient, its holder may, subject to the legal requirements, apply to enforce it as an enforceable instrument.

The UAE Ministry of Justice provides an electronic service for registering an execution file. The main steps include logging in, submitting the application, paying the applicable fees, and obtaining the execution file number and notification details. The enforceable instrument and supporting documents must also be submitted.

The online procedures, fees and competent judicial authority may vary depending on the emirate and the court with jurisdiction over the matter.

Step 5: Take Enforcement Measures Against the Debtor

Once an execution file has been opened, the legally prescribed procedures begin to compel the debtor to satisfy the amount stated in the enforceable instrument.

Depending on the circumstances of the case and the decisions of the execution judge, the process may proceed to compulsory enforcement measures available under the Civil Procedure Law.

This makes it important to identify the debtor’s funds, bank accounts, sources of income and other assets against which enforcement measures may lawfully be taken.

What Happens if the Account Contains Only Part of the Cheque Amount?

Suppose the cheque amount is:

AED 200,000 While the available account balance is:

AED 60,000 The law permits partial payment of AED 60,000 unless the cheque holder refuses it.

If the partial payment is accepted, the holder retains the right to claim the remaining:

AED 140,000 Using the original cheque endorsed to show the payment and the bank’s certificate, in accordance with the applicable legal procedures.

This may allow the holder to recover part of the money promptly rather than leaving the available balance entirely untouched.

What if the Cheque Was Returned Because the Account Was Closed?

Account closure has particular legal significance.

In January 2024, the Ministry of Justice announced that the Authority for Unification of Federal and Local Judicial Principles had decided that a bank’s notation of “account closed” has the same effect as a lack of funds or insufficient funds for the purpose of treating a cheque as an enforceable instrument under Article 667.

At the same time, the Commercial Transactions Law provides for criminal liability where a person closes an account, withdraws the entire balance or deliberately causes the account to be frozen in the circumstances set out in Article 675.

As a result, certain cases may involve both:

Financial recovery and enforcement proceedings

and

Criminal liability for the same conduct, where the elements of the offence are established.

What if the Cheque Was Returned Due to a Signature Mismatch?

Not every case of a signature mismatch should be treated in the same way.

A difference in the signature may be an unintentional error; in other cases, it may be deliberate conduct intended to prevent payment of the cheque.

The law criminalises intentionally drawing up or signing a cheque in a manner that prevents its payment.

The facts and evidence must therefore be examined to determine whether the mismatch was an innocent mistake or intentional conduct.

What Is the Difference Between a Cheque Lawsuit and a Cheque Execution File?

There is an important distinction between the two.

Cheque Execution File

If the cheque meets the conditions for an enforceable instrument, its holder may proceed directly to enforcement to recover the amount.

The advantage is that the holder does not have to begin with a lawsuit to prove that the amount is due, because the law gives the cheque direct enforceability in these circumstances.

Substantive Lawsuit

A separate substantive claim may be necessary where there is a dispute about the underlying obligation, the reason for issuing the cheque, the terms of the transaction, or where the requirements for direct enforcement are not met.

The appropriate course of action therefore depends on:

• The reason the cheque was dishonoured.
• The nature of the relationship between the parties.
• The documents and contracts involved.
• The purpose for which the cheque was issued.
• The defences raised by the drawer.
• Any amounts already paid.

Does Labelling a Cheque a “Security Cheque” Prevent Enforcement?

Describing a cheque as a “security cheque” is not, by itself, always enough to resolve the dispute.

The courts consider the facts of the transaction, the relevant documents, the obligation secured by the cheque and whether the underlying debt is due.

UAE court judgments have addressed disputes concerning the enforcement of cheques said to have been issued as security. This highlights the need to examine the original agreement under which the cheque was issued rather than relying solely on how the parties described or labelled it.

How Long Does a Bounced Cheque Case Take?

There is no single fixed timeframe for all cases.

The duration depends on factors such as:

• The emirate.
• The competent court.
• How quickly the debtor can be served with notice.
• Whether an objection or enforcement dispute arises.
• Whether there are assets available for enforcement.
• Whether other cases are connected to the debt.
• Where the debtor and the debtor’s assets are located.

Where the law recognises a cheque as an enforceable instrument, this can eliminate a significant preliminary stage compared with having to bring a full substantive lawsuit before enforcement can begin.

What if the Person Who Issued the Cheque Has Left the UAE?

The debtor’s departure from the UAE does not, in itself, extinguish the debt.

In explaining the cheque-related legislative amendments, the Ministry of Justice referred to legal mechanisms for certain cases in which the cheque drawer is outside the country. The procedures vary according to the debtor’s location, the location of the debtor’s assets and the rules governing enforcement of judgments and enforceable instruments.

In these circumstances, it is important to establish:

• Does the debtor have assets in the UAE?
• Does the debtor own a company, real estate, accounts or other financial rights?
• Are there assets outside the UAE against which enforcement might be possible?
• In which country does the debtor reside?
• Can the instrument or judgment be recognised and enforced in that country?

Is There a Time Limit for Claiming the Cheque Amount?

Yes, and legal action should not be delayed.

Subject to specific exceptions, Article 670 of the Commercial Transactions Law provides that a cheque holder’s recourse claim against the drawer, endorsers and other parties liable for its amount will not be heard after two years have elapsed from the expiry of the period for presenting the cheque.

The same article also prescribes other periods for claims among liable parties and for actions against the drawee bank.

For this reason, a bounced cheque should not be left unattended for an extended period without assessing the appropriate legal procedure.

What Documents Are Important in a Bounced Cheque Case?

It is advisable to keep all documents relating to the cheque and the underlying transaction, including:

• The original cheque.
• A bank certificate or statement explaining the reason for non-payment.
• Proof of any partial payment.
• The contract in connection with which the cheque was issued.
• Invoices.
• Purchase orders.
• Receipts.
• Emails.
• WhatsApp messages or other correspondence relating to the debt.
• Any previous acknowledgement of the amount owed.
• Details of any partial payments made.

These documents may be especially important if a dispute arises concerning the underlying debt or the reason the cheque was issued.

What Should the Cheque Holder Do Immediately After a Cheque Bounces?

It is best to take a structured approach:

1. Obtain the original cheque and the bank’s statement.
2. Verify the officially recorded reason for dishonour.
3. Determine whether any partial balance can be recovered.
4. Keep all documents relating to the original transaction.
5. Avoid delays in light of the applicable legal time limits.
6. Identify the competent court or enforcement authority.
7. Assess whether the matter involves enforcement alone or also has a criminal aspect.

What Should the Cheque Drawer Do if the Cheque Is Dishonoured?

If a cheque you have issued is returned unpaid, it is important not to ignore the matter.

You should review:

• The amount actually due.
• The reason the cheque was dishonoured.
• Any amounts previously paid.
• The contract associated with the cheque.
• Whether there is a dispute over the other party’s performance of its obligations.
• Whether an execution file has been opened.
• The applicable deadlines for any objection or judicial procedure.

You should also avoid any action that could be interpreted as a deliberate attempt to prevent payment of the cheque in violation of the law.

The Role of Bin Nakhira & Partners in Cheque Disputes

A bounced cheque case may appear straightforward, but the appropriate legal route depends on the reason for dishonour, the underlying relationship between the parties and the available documents.

Bin Nakhira & Partners provides legal support to individuals and businesses in commercial and financial disputes. This includes reviewing bounced cheques, assessing enforceability, examining disputes concerning the underlying debt and representing clients before the competent judicial authorities.

Enforcement of judgments · Commercial litigation · Legal services

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