Canceling a cheque in the UAE can be a little confusing. This guide explains what you need to do, what you need to know, and what to avoid. Read more here.
Cheques are the most widely used means to withdraw money from bank accounts.
However, a cheque that has been cancelled cannot be used to do the same.
The issuer of the cheque can cancel it by providing a stop payment memo. This is an instruction given by the issuer to the bank to not pay the bearer the amount on the cheque.
What is a canceled cheque?
Canceling a cheque is known as “protest to a cheque” in banking terms. According to the new Commercial Transactions Law which came into effect on January 2, 2022, stop payment orders from the cheque issuer to the bank are no longer valid except under two specified conditions.
The amendment was made by the CBUAE to create awareness among cheque users on
topics like the decriminalization of issuing cheques without sufficient funds and
the criminalization of holding back from partial payment of the cheque amount.
Laws in UAE for cancelling process
According to the Apex bank, the Commercial Law was updated to keep up with the international changes.
The amendment also aims to provide an uncompromising legal framework for transactions
done through cheques. The modified law thus decriminalizes several cheque-related cases.
It also holds space to accommodate some unavoidable circumstances where the bearer or
issuer can ask the drawee bank to cancel the cheques provided by them.
The exceptions in the modified law are:
1. When a cheque is lost or stolen. If the issuer or bearer loses the cheque or checkbook, it can be canceled.
2. When the account holder goes bankrupt.
In the first scenario where a checkbook is stolen, misplaced or obtained through
fraudulent methods, the bearer or the issuer can request the drawee bank to halt the
payment. Only in these two cases can a cheque be canceled.
On every other occasion, the “protest to a cheque” remains invalid.
The amendments are meant to bring in some positive impacts on the banking system. The
law now can protect the interests of both the beneficiaries and the drawers by practicing
strict rules of justice and equality. The law also helps in enhancing the national economy by
improving international competition standards.
As part of the modifications made, confidentiality terms have also been redefined. As long
as the disclosure is made within the boundaries of the statement, a bank employee’s
a declaration that there is an insufficient fund for the value of the cheque/part of the value of a cheque is not considered a violation of banking secrecy. According to a note from the
CBUAE, “there is no breach in the banking secrecy if the bank employee’s statement is that
there is an insufficient fund, or that there is a part of it in the drawer’s/ client’s account to cash the cheque is confined to that only, without referring to other data.”
Why this new law is effective?
Also, as per the new law, when the bank provides the certificate of partial payment to the
beneficiary/bearer or states that there is an insufficient fund to cash the cheque, this is not the disclosure of the client’s account secrecy if the bank’s statement is restricted to that only, without providing other details.
The account holder cannot sue the bank for disclosing account confidentiality under these circumstances. However, bank employees can be punished if they refuse to cash a cheque without providing valid reasons. This is also applicable if the bank employee refrains from partial payment of the cheque refrain from issuing the partial payment certificate, or refrains from giving back the original cheque.
The legal and economic functions of the cheques can be assured by following the below-mentioned rules:
- When there are adequate funds available in the issuer’s account, the drawee bank is
obliged to pay the amount when the cheque is presented. The bank cannot refuse the
payment under this scenario, as this would affect the principal rights of the cheque
- The bank could refrain from processing the payment if it receives opposition to proceeding with the payment. Nevertheless, according to the new amendments that have been made, the scenarios in which this opposition can be made have been narrowed down to two, that is when a cheque is stolen or when there is a case of bankruptcy.
- Strong civil alternatives have been created to ensure that the cheque values are
collected in the fastest and simplest ways.
Obligating the bank to pay the cheque at least partially.
Making a cheque from the drawee’s bank account with insufficient funds is an
executive document to be implemented directly through the execution judges.