Can I get respite from repaying loan if I am on a 50% pay cut?

Question: I have a personal loan worth DhDh70,000 with a bank in Dubai. I got a deferment on payment in June for four months as I was on a 50 per cent pay cut due to the coronavirus pandemic. But my company has still not restored our full salaries yet and my bank is not ready to extend the deferment. I can pay the loan only if I am paid in full. What legal help can I get?

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Answer: Pursuant to your query, it may be noted that upon availing a personal loan (the Loan) from the bank (the Bank), you become liable and responsible to pay the instalments (the EMI) on a timely basis even if your salary has been reduced.

It may be noted that regardless of whether your salary has been reduced or whether you salary has been reinstated, you are still liable and responsible to repay the Loan. In the event of a default on your part, the Bank’s claim for outstanding amounts against you shall subsist.

Further, the Bank may try to invoke all the conditions for securing repayment of the Loan set forth in the ‘Personal Loan Agreement’ in the event of a default, which may include encashment of a security cheque issued by the borrower in favour of the Bank against the Loan.

Based on the assumption that at the time of availing the Loan, you had issued a security cheque to the Bank, the Bank may choose to deposit it for collection upon recurring non-repayment of the EMI.

Thereafter, in the event of your bank account not having the requisite balance as the cheque amount, the security cheque will be dishonoured.

It should be noted that in the UAE, the dishonour of a cheque is a criminal offence. This is in accordance with Article 401 of Federal Law No. (3) of 1987 related to issuance of the Penal Code, which states: “Detention or a fine shall be imposed upon anyone who, in bad faith, give a draft (cheque) without a sufficient and drawable balance or who, after giving a cheque, withdraws all or part of the balance, making the balance insufficient for settlement of the cheque, or if he orders a drawee not a cash a cheque or makes or signs the cheque in a manner that prevents it from being cashed.

"The same penalty shall apply to any one who endorses a cheque in favour of another or gives him a bearer draft, knowing that there is no sufficient balance to honour the cheque or that it is not drawable.”.

In furtherance of the above, it may be noted that pursuant to Law No. (1) of 2017 the ‘Criminal Order Law’, if the cheque amount is less DhAED 200,000, the punishment may be by fine and the fine may vary between Dh2,000 and Dh10,000, depending on the cheque amount.

In view of the foregoing, it may be prudent on your part to approach the Bank to negotiate and revise the repayment terms of the Loan until your salary gets reinstated by your employer.

The revision of the repayment terms would depend on the mutual understanding between you and the Bank and also the policy of the Bank on the repayment of personal loans.

Ashish Mehta is the founder and Managing Partner of Ashish Mehta & Associates. He is qualified to practise law in Dubai, the United Kingdom and India. Full details of his firm on: www.amalawyers.com. Readers may e-mail their questions to: news@khaleejtimes.com or send them to Legal View, Khaleej Times, PO Box 11243, Dubai.

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