UPDATE: The UAE government has clarified that the rule to decriminalise bounced security cheques only applies to Emiratis. Read the full story here
The UAE will no longer imprison expatriates who default on security cheques used to back up loans, local media has reported.
Following a royal decree in October last year, Emirati citizens were no longer jailed for defaulting on cheques, but the new rule did not apply to expatriates.
In the UAE, post-dated cheques are frequently used as a guarantee by businesses and individuals for everything from apartment rentals to multi-billion dollar deals.
"In line with the directives of Sheikh Khalifa... and in the spirit of fairness and equality, the courts have stopped as of last month accepting collateral cheques presented as a criminal tool against expatriate debt defaulters," Ali Khalfan Al Dhaheri, head of the legal affairs department at the Ministry of Presidential Affairs was quoted saying by The National.
The paper also quoted judge Jassem Saif Buossaiba, head of the judicial inspection department at the Justice Ministry, as saying: "Federal public prosecutions in the country have, indeed, released expatriate detainees as has been the case of their Emirati counterparts who were freed last October."
The move is in keeping with a decree by UAE President Sheikh Khalifa Bin Zayed Al Nahyan.
"The President’s instructions were that all defaulters including citizens and foreigners arrested or convicted for presenting dishonoured security cheques must be freed, any related cases being heard be suspended and any penalties handed down to these defaulters be annulled,” Buossaiba was quoted as saying by Dubai-based paper Gulf News.
However, lenders can still pursue civil cases to claim their dues from dishonoured cheques.
“They are still entitled to file cases with the civil courts to claim dues. Banks, financial firms and other lenders still have the right to present these security cheques to prove they are owed money by debtors,” Buossaiba said.
According to Gulf News, UAE Central Bank statistics show that of the 28.5 million cheques worth AED 1.2 trillion written in 2011 in the UAE, 1.6 million cheques worth about AED 55 billion bounced.
*With input from Reuters