Bank lawsuit for Dh212,475 debt claim dismissed over lending rule breaches
Court finds financing exceeded Central Bank limits and bank failed to obtain required instalment guarantee cheques
The Abu Dhabi Commercial Court of First Instance ruled that a lawsuit filed by a bank against a client seeking payment of Dh212,475 in outstanding debt related to banking facilities was inadmissible. The court found that the bank had violated Central Bank instructions by granting financing that exceeded 20 times the client’s salary. It also failed to obtain guarantee cheques covering the number of instalments, relying instead on a single cheque for the total amount.
According to court records, the bank filed a lawsuit against the client, seeking repayment of Dh212,475, along with court expenses and legal fees. The bank stated that it had granted the client banking facilities in the form of Murabaha investment certificates worth a total of Dh673,339, including agreed profit. It argued that the client had breached his contractual obligations by failing to pay instalments on time, resulting in the outstanding claim.
The defendant submitted a memorandum supported by documents, arguing that the case should not be accepted because it did not meet the conditions stipulated in the Federal Decree-Law on the Central Bank. He requested that the lawsuit be dismissed.
In its ruling, the court said licensed financial institutions are required to obtain sufficient guarantees for all types of facilities granted to individual customers and private sole proprietorships. Such guarantees must be commensurate with the client’s income, any available collateral and the size of the facilities requested, in accordance with Central Bank regulations.
The court noted that regulations governing bank loans and other services provided to individual customers limit personal loans to no more than 20 times the borrower’s salary or total income. Banks and finance companies are also required to ensure that this limit is not exceeded.
The court found from the case documents that the defendant had obtained banking facilities in the form of Islamic Murabaha investment certificates, with a cost of Dh620,000 and an agreed profit of Dh53,339, bringing the total value to Dh673,339. The amount was to be repaid in 37 monthly instalments, while the only guarantee obtained by the bank was the customer’s salary.
It further noted that the defendant’s salary at the time the facilities were granted was Dh30,000, according to his salary certificate, while the Murabaha amount totalled Dh673,339, exceeding 20 times his salary.
The court affirmed that Murabaha contracts must be calculated at their full value, including profits, and that the original contract cost cannot be separated from the profit component. It also found that the bank had failed to comply with Central Bank requirements to obtain multiple cheques corresponding to the number of instalments, relying instead on a single guarantee cheque for the total amount.
The court therefore ruled the case inadmissible and ordered the bank to pay the court costs.