UAE Laws and Islamic Finance

Laws of the UAE and Islamic Finance

Collection of Commercial Paper in the UAE

 

The bearer of a commercial paper may endorse it to the bank as agent and by virtue of this endorsement the bank becomes an agent for collection of the value of the paper on the endorser’s account.

When the maturity date of the commercial date falls due, the bank must demand payment form the drawee of the writer.  If payment is made, the bank shall credit the value of the commercial paper to the customer’s account.  If payment is not made, the bank shall make representations or enter non-payment and in both cases the expenses shall be charged to the customer’s account.

The bank shall be liable for error or negligence in executing its agency.  The bank may stipulate that it shall be exempted from liability for delay in making representations and this stipulation shall be effective between the bank and customer unless the bank is accused of fraud or gross negligence.  Such a stipulation shall not be applicable to other endorsers.  The agency arising from an endorsement as agent shall not lapse upon the death or loss of competence of the endorser.

*Emirates Institute for Banking and Financial Studies, Legal Environment in the United Arab Emirates, Laws Relating to Banking

Article 446  of the Commercial Transactions Law, Federal Law No. 18 of 1993  (the “Law”)

The bearer of commercial paper shall endorse it to the bank as a mandatory endorsement under which the bank shall become a proxy in collecting the paper’s value in favor of the endorser.

Article 447 of the Law:

The bank shall on the date of maturity of a commercial paper claim payment from the drawee or the make.  If the payment is made, the banks shall enter the value of the paper in the credit side of the customer’s account and if the payment is not made, the bank shall make a protest or prove the nonpayment; and in both cases the fees shall be debited to the customer’s account.

Article 448 of the Law :

  1. The bank shall be responsible for error or negligence in the execution of its procuration.
  2. The bank may stipulate its exemption from responsibility for delay in making the protest.  The stipulation shall produce its effect between the customer and the bank unless fraud or a serious fault is ascribed to the bank.  This stipulation shall not apply to the rest of endorsers.

 

Article 449 of the Law:

Procuration resulting from a mandatory endorsement shall nto expire upon death or incapacitation of the endorser.

UAE Laws and Islamic Finance

Laws of the UAE and Islamic Finance

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