«Legal control over the issuance of cheques» does not mean that an authority gives prior approval to every cheque before it is drawn. Rather, it refers to a framework of controls beginning with the statutory requirements of the instrument and the existence of funds available for payment, extending to the bank’s obligations when issuing cheque books and when cheques are presented for payment, and ending with civil, criminal, and judicial liability where these rules are violated.
First: When Is an Instrument Considered a Cheque under the Law?
Article 473 of the Trade Law specifies the particulars that a cheque must contain, the most important of which are:
- The word «cheque» written in the body of the instrument and in the language in which it is drawn.
- An unconditional order to pay a specified sum of money.
- The name of the drawee bank.
- The place of payment.
- The date and place of issuance of the cheque.
- The name and signature of the drawer.
Article 474 provides that an instrument lacking any of these particulars shall not be considered a cheque, subject to the exceptions specified by law in relation to certain particulars such as the place of payment or place of issuance.
Article 475 also provides that a cheque issued in Egypt and payable in Egypt may only be drawn on a bank, and that an instrument drawn in the form of a cheque on a non-bank entity or on forms other than those of the drawee bank shall not be regarded as a cheque for the purposes of these provisions.
Second: Funds Available for Payment Must Exist When the Cheque Is Issued
Article 497 of the Trade Law regulates funds available for payment and requires the drawer, or the person on whose account the cheque is drawn, to maintain with the drawee bank funds sufficient for payment of the cheque.
Funds available for payment are deemed to exist where, at the time the cheque is issued, the drawer has an amount of money due and payable by the bank that is at least equal to the value of the cheque and which the drawer is entitled to dispose of by cheque under the relationship existing with the bank.
Accordingly, the principal legal obligation falls upon the drawer: there must be funds available for payment at the time the cheque is issued, rather than merely an expectation that funds will be credited to the account at a later date.
Article 498 further provides that, where the existence of funds available for payment at the time of issuance is disputed, the burden of proving their existence lies with the drawer.
Third: The Offence Is Governed by the Trade Law, Not the Penal Code
One of the errors that continues to appear in some legal writings is attributing the offence of issuing a cheque without sufficient funds to the Penal Code. This had a historical basis under the previous legislative regime, but the law currently governing the matter is Trade Law No. 17 of 1999.
Article 534 penalizes any person who intentionally commits one of the following acts:
- Issuing a cheque without funds available for payment.
- Withdrawing all or part of the balance after issuing the cheque or otherwise disposing of it so that the remaining amount becomes insufficient for payment.
- Issuing an order to the bank not to pay the cheque outside the cases permitted by law.
- Drawing or signing the cheque in bad faith in a manner that prevents its payment.
The law also penalizes – subject to the conditions of the provision – any person who endorses a cheque to another by way of transfer of ownership or delivers a cheque payable to bearer while knowing that there are insufficient funds available for payment or that the cheque is not payable.
Fourth: Penalty for Issuing a Cheque Without Funds Available for Payment
Article 534 provides for imprisonment and a fine not exceeding EGP 50,000, or either of these two penalties, in respect of the principal forms specified by the provision.
In the event of recidivism within five years from the date of the final judgment in one of these offences, the Law increases the penalty in accordance with the provisions of the Article.
The legislator also permits settlement in the offences prescribed by Article 534, and settlement results in termination of the criminal proceedings. It may even result in suspension of execution of the penalty if concluded while the sentence is being served, even after the judgment has become final, subject to the conditions of the provision.
Fifth: When Is the Offence of Issuing a Cheque Without Sufficient Funds Complete?
As a general rule, the offence is connected to the act of issuing and delivering the cheque to the beneficiary with knowledge that there are no funds available for payment.
Accordingly, it is not correct to state that presentation of the cheque to the bank within the commercial time limit is what creates the offence. Presentation is a necessary procedure for demanding payment and establishing the bank’s position, but the commission of the basic form of the offence is linked to the act of issuance itself where its elements are satisfied.
The Court of Cassation has consistently held – in its principles concerning cheques – that the offence is established by delivering the cheque to the beneficiary with knowledge that there are no funds available for withdrawal, and that presenting the cheque to the bank is a material act aimed at obtaining payment of its value.
Sixth: Time Limit for Presenting the Cheque to the Bank
Article 504 of the Trade Law – in its current wording – provides that a cheque drawn in Egypt and payable in Egypt must be presented for payment within six months, commencing from the date stated on the cheque.
A cheque drawn outside Egypt and payable in Egypt must, under the provision, be presented within four months.
Nevertheless, expiry of the presentation period does not entitle the bank to refuse payment where the cheque is payable in Egypt and the funds available for payment remain in existence; Article 506 provides that the bank may not refuse payment in such case merely because the presentation period has expired.
Seventh: A Cheque Is an Instrument of Payment Even If the Parties Agree to Use It as Security
The basic legal nature of a cheque is that it is payable on demand. Accordingly, the drawer cannot, merely through an internal agreement with the beneficiary that the cheque is issued as «security» or «collateral», automatically alter the legal nature of the instrument where it satisfies the statutory elements of a cheque.
However, the instrument itself, its particulars, and the surrounding legal circumstances must always be examined, particularly given the differences between negotiable instruments liability, civil liability, and criminal liability.
Eighth: The Bank’s Liability When Delivering a Cheque Book
The Trade Law imposes specific obligations on a bank when it provides a customer with a cheque book.
Article 530 requires each cheque form in the book to include:
- The cheque number.
- The name of the bank or one of its branches.
- The name of the customer to whom the cheque book was delivered.
- The customer’s account number.
Article 533 also criminalizes the intentional delivery by a bank employee of a cheque book to a customer where the book does not contain the particulars required by Article 530, and makes the bank jointly liable with the convicted employee for payment of the financial penalties imposed.
This constitutes the direct legal control established by the Trade Law in relation to the issuance of cheque books.
Ninth: Is a Bank Prohibited from Giving a Cheque Book to a Defaulting Customer?
The Trade Law does not contain a general rule providing that every defaulting customer, or every customer whose cheque has previously been dishonored, is automatically prohibited from obtaining a cheque book.
There may be banking policies and controls governing customer risk management and the use of payment instruments, but such policies should not be transformed into a general statutory rule without identifying their regulatory source.
The express prohibition established by the Trade Law appears in the case of recidivism; Article 537 permits the court to order withdrawal of the convicted person’s cheque book and prohibit them from obtaining new cheque books for a period determined by the court, and the Public Prosecution is responsible for notifying all banks of that order.
Tenth: The Bank’s Obligations When a Cheque Is Presented for Payment
The bank’s role is not limited to carrying out the debit transaction. The Law regulates a number of obligations and sanctions connected with handling the cheque after presentation.
Among the acts penalized by Article 533 where intentionally committed by a bank employee are:
- Falsely stating that there are no funds available for payment or that the available funds are less than they actually are.
- Refusing payment in bad faith despite the existence of full or partial funds available for payment and the absence of a valid objection.
- Refusing to provide the statement required by law concerning non-payment.
- Violating the mandatory particulars required in cheque books.
Accordingly, the bank does not monitor the «intention of the drawer» when every cheque is drawn, but it bears specific legal obligations when administering the account, paying cheques, and documenting its position concerning them.
Eleventh: The Bank’s Liability for a Forged or Altered Cheque
Other provisions of the Trade Law regulate liability where the drawer’s signature is forged, the cheque is altered, or the cheque book is lost.
Liability in this context depends on the nature of the forgery, the extent of the fault attributable to the customer or the bank, whether the bank exercised due care in verifying the drawer’s signature, and whether the customer preserved the cheque book with the required degree of care.
Accordingly, there is no rule making the bank liable for every forged cheque, nor may the bank automatically be exempted from liability merely because the customer had custody of the cheque book.
Twelfth: An Order to Stop Payment of the Cheque
The drawer may not order the bank to stop payment of the cheque merely because a commercial dispute has arisen with the beneficiary.
Article 534 treats an order to stop payment – outside the cases permitted by law – as one of the criminalized forms of conduct.
The general rule is that a cheque is an instrument of payment, and after delivering it the drawer may not unilaterally obstruct its payment except within the legally prescribed limits and exceptions.
Thirteenth: Criminal Intent and Knowledge of the Absence of Funds
The offence prescribed by Article 534 is an intentional offence, and its application requires knowledge of the circumstance that renders the cheque non-payable according to the form of conduct charged.
Where a cheque is issued without funds available for payment, the central issue is the drawer’s knowledge, at the time of issuance, that there are no funds available for payment.
An express admission by the drawer is not required to establish such knowledge; it may be inferred from the circumstances of the case and the evidence presented in accordance with the general rules of criminal evidence.
Fourteenth: Is Formal Notice to the Drawer Required Before Criminal Proceedings Are Initiated?
The Trade Law does not make formal notice or demand upon the drawer a general condition for establishing the offence prescribed by Article 534.
The offence is based on the act of issuance or any of the other acts enumerated by the provision, and its existence does not depend on a subsequent demand that the drawer deposit the necessary funds.
Nevertheless, the procedures relating to presentation of the cheque and proof of non-payment remain important in practice for evidentiary purposes and for pursuing negotiable instruments and civil rights.
Fifteenth: The Difference Between Control over the Cheque and Liability for Its Issuance
The legal protection of cheques can be divided into three levels:
- Legal control over creation of the cheque: Through its mandatory particulars and the requirement that it be drawn on a bank and on the bank’s own form.
- Banking control over its use: Through the rules governing cheque books, payment, documentation of non-payment, and liability for certain errors by bank employees.
- Subsequent judicial control: Through adjudication of criminal offences and negotiable instruments and civil disputes arising from the issuance, circulation, or non-payment of the cheque.
Thus, the law does not subject every issuance of a cheque to prior banking approval, but instead establishes advance rules and subsequent liabilities designed – as far as possible – to preserve the cheque as a reliable instrument of payment.
Sixteenth: Key Precautions When Issuing a Cheque
- Ensure that funds available for payment exist when the cheque is issued.
- Do not issue or sign blank cheques except where the legal risks are fully understood.
- Do not issue a stop-payment order unless there is a legal basis permitting it.
- Safeguard the cheque book and prevent unauthorized persons from accessing or using it.
- Notify the bank promptly if the cheque book is lost or unauthorized use is discovered.
- Review the cheque particulars before delivery and ensure that the amount, date, beneficiary, and signature are correct.
- Retain documents relating to the reason for issuing the cheque as they may be important in civil or commercial disputes.
Conclusion
Legal control over the issuance of cheques in Egypt is based on an integrated framework governed primarily by Trade Law No. 17 of 1999. This framework begins with the requirements necessary for an instrument to acquire the legal status of a cheque, followed by the requirement that funds available for payment exist at the time of issuance, extends to the bank’s obligations concerning cheque books and payment, and ends with civil and criminal liability where the law is violated.
The most important point is that Article 497 regulates the existence of funds available for payment, while Article 534 criminalizes issuing a cheque without such funds or committing the other acts that prevent its payment. Presentation of the cheque to the bank is not what creates the offence, and current criminal liability should not be attributed to the Penal Code instead of the Trade Law.
Accordingly, proper use of a cheque rests on three essential elements: validity of the instrument, availability of funds at the time of issuance, and refraining from any subsequent intentional act that obstructs payment in violation of the law.