Bounced Cheques

Bounced Cheques in UAE

Article 599 of UAE Commercial Transactions Law (No 18 of 1993) prohibits cheque issuance unless drawer or individual issuing cheque has sufficient funds with the drawee or bank wherein the drawee may dispose money pursuant to an implicit agreement between two parties. Under the UAE legislation, a criminal offense is established when the drawer/cheque issuer is unable to honor its financial obligations. .

A cheque may also ‘bounce’ or be considered as ‘dishonored’ or ‘returned’ for other reasons such as:

A technical error e.g. signatures don’t match with bank or drawee’s previous records
Closure of the bank account before cheque encashment
Bank receives order from issuer to refrain from making the payment

For Corporate Cheques: who is liable?

For companies and partnership firms, partners and stakeholders are not held liable when cheques issued are not cleared due to insufficient funds. Criminal liability is borne by the authorized signatory, which is often a co-owner, partner or manager. Private funds of other parties have no bearing as to the cheque’s value; however, the value may be realized through disposal of company assets.

In the event that the cheque bounce is proved to be a direct result of fraud committed by partners or owners, it is likely for a case to be filed against company directors.

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