The Cheque as an Executory Instrument in UAE Legislation

12 October 2024

Glory Sony

The legal framework surrounding cheques in the United Arab Emirates (UAE) has evolved considerably in recent years, particularly with the enactment of Federal Decree Law No. 14 of 2020.

Dubai: This legislative development introduced substantial changes to how bounced cheques are treated, positioning cheques as executory instruments under specific conditions. These changes aim to streamline the enforcement process and provide clearer guidelines for resolving issues related to dishonored cheques.

Definition and Legal Basis

A cheque is a negotiable instrument that instructs a bank to pay a designated amount to the bearer upon presentation. In the UAE, under Article 667 of the UAE Commercial Transactions Law, a cheque that is dishonored due to insufficient funds or account closure is classified as an "executive instrument." This classification empowers the cheque holder to enforce payment through direct execution procedures, bypassing the need for a separate court judgment. The law treats cheques as enforceable documents, similar to other executive instruments like contracts or judicial orders, allowing creditors to pursue payment directly through the legal system.

Key Provisions

1. Executive Nature of Bounced Cheques:
Under the amended Commercial Transactions Law (specifically Article 635 bis), a cheque that is returned unpaid due to insufficient funds or related reasons is considered an executory instrument. This means the cheque holder can take immediate steps to enforce the payment, either in full or in part. The holder is entitled to demand enforcement through legal channels without the need for a civil lawsuit, significantly expediting the recovery process. This provision benefits creditors by allowing them to approach an execution judge to initiate the enforcement of the cheque, cutting down the time and complexities usually associated with lengthy court proceedings.

2. Procedural Framework:
The process for enforcing a cheque in the UAE is efficient and designed to facilitate rapid recovery. When a cheque is dishonored, the cheque holder must present the unpaid cheque to the execution court. The court then issues an execution order based on the cheque’s status. This streamlined approach eliminates the need for lengthy legal battles, allowing creditors to quickly secure the funds owed to them. The law enhances efficiency by enabling direct recourse to execution procedures, thus safeguarding the rights of the payee.

3. Civil vs. Criminal Liability:
One of the most significant reforms introduced by the 2020 amendments is the decriminalization of bounced cheques in cases of insufficient funds. This shift removes criminal penalties for issuers of cheques that bounce due to financial shortfalls, transforming the matter into a civil issue. Issuers are now only subject to civil liabilities, meaning they must pay the amount due without facing criminal charges. However, the law retains provisions for criminal liability in certain cases, such as fraudulent manipulation of accounts, intentional dishonoring of cheques, or issuing cheques from closed accounts. These criminal provisions are outlined in Articles 675 and 683 of the UAE Commercial Transactions Law.

Execution Procedures

The execution of a cheque as an executory instrument involves a defined procedural framework:

• Cheque Presentation: The cheque must be presented to the bank within its validity period to maintain the right to claim its value. This is an essential step in ensuring that the cheque holder’s claim remains valid.
• Filing for Execution: The holder of the bounced cheque can file for execution by submitting the dishonored cheque and any supporting documents to the execution court. If necessary, documents must be translated into Arabic for legal purposes.
• Debtor Notification: The debtor (the cheque issuer) is notified of the enforcement claim. If no resolution is reached within the stipulated timeframe—typically 15 days—the execution proceedings commence, allowing the creditor to recover the amount owed.

This process offers creditors a more straightforward, faster method to recover funds compared to traditional civil litigation, thereby reinforcing trust in cheques as a secure method of payment.

Conclusion

The UAE’s treatment of cheques as executory instruments marks a significant shift in how the law approaches dishonored cheques. By streamlining the recovery process and reducing the criminal penalties associated with bounced cheques, the law aims to foster a more reliable environment for financial transactions.

These changes not only benefit creditors by providing a quicker path to recovering funds but also contribute to a more efficient and trustworthy commercial landscape in the UAE. By decriminalizing certain aspects of cheque dishonoring while retaining penalties for fraudulent activities, the law strikes a balance between protecting the rights of creditors and minimizing unnecessary criminalization of financial issues.