When you avail a personal loan or apply for a credit card in the UAE, the concerned bank will make you sign a blank cheque towards security deposit. In many countries around the world, issuance of dud cheques as well as defaulting on a bank loan or credit card dues are categorized under civil and commercial offences. Hence, criminal courts are not involved in the matter.
However, the legislative approach to the issue of bounced cheques in the UAE is very different than most other advanced countries. Article 401 of the UAE Penal Code says that an individual who issues a cheque with insufficient balance – causing the same to bounce – can face imprisonment of one month to three years, or a fine of a minimum of AED 1,000.
As such, in accordance with the UAE Penal Code, issuance of a bounced cheque is deemed a punishable criminal act. So, one would be signing his own prison sentence if he knowingly or unknowingly issues a signed cheque, which he cannot honor. Furthermore, he would be nurturing a mistaken notion if he believes that he would be out of prison after serving the jail term for this lapse on his part because until his debt is cleared he may continue to languish in jail.
Though a bounced cheque normally entails a minimum of one month to a maximum of three years in jail as per the UAE laws, the actual reality is far from it because a debtor won’t be set free from his financial liabilities even after he has done his jail term. There are many cases where expatriates who were jailed for issuing dud cheques are still languishing in the local jails even after completing the prescribed prison term, solely because their debts have not been cleared yet.
Here one should remember that a bank collects a signed cheque as security deposit at the time of issuing a credit card or a loan purely in a bid to put pressure on the loanee in case he defaults on repayment of loan or credit card dues. So, if a customer fails to repay his loan or credit card dues in the UAE, the entire process goes roughly as delineated below.
Let us assume that a borrower has defaulted on a loan or credit card payment. Then the bank recovery squad will start hounding him and keep on following up with him insisting that he repay the loan immediately. If there is no prompt and positive response from the defaulter, then the recovery team will present the security deposit cheque in the bank for clearance.
If there is insufficient balance in the borrowers account, the cheque will definitely bounce. Based on this development, the bank will initiate a criminal case for the bounced cheque. A person with a criminal case against him in the UAE cannot leave the country, nor can he get his visa cancelled or transferred. If the defaulter somehow manages to abscond or leave the country, the immigration police will issue a notification to arrest him.
Once such an alert is issued, the defaulter won’t be able to enter or leave the UAE or any other GCC country without getting arrested. And if he is arrested, he will get a jail term. Even after completing the jail term, the defaulter won’t be freed from his financial liabilities and he may continue to languish in jail – until the debt is cleared.
This happens due to the lack of a functional insolvency law in the UAE. However, it is learnt that a draft of the much-needed insolvency law is awaiting approval of the Ministry of Justice. Once it is approved by the ministry, the draft legislation will have to get necessary approvals from the council of ministers, the Federal National Council and finally the President’s office, before it is enacted into law.