'Win for consumer rights': UAE court rejects bank's Dh1.3 million claim over missing guarantees
The ruling, issued on April 14, by the Second Commercial Circuit of the Court of Cassation, clarified that banks are not entitled to file debt recovery lawsuits unless proper and legally binding guarantees are in place, as stipulated in Article 121 (bis) of Federal Decree-Law No. 23 of 2022 — an amendment to the Federal Law No. 14 of 2018 governing the Central Bank and financial institutions.
The case revolved around a Murabaha agreement (Islamic financing structure) in which a bank demanded more than Dh1.3 million in unpaid dues from a customer. While the Court of First Instance initially dismissed the case, the Court of Appeal later ruled in the bank's favour.
However, following a cassation appeal filed by the customer's legal team from Awatif Shoqi Advocates & Legal Consultancy, the Court of Cassation overturned the appellate decision and reinstated the original dismissal, siding once again with the customer.
Legal consultant Dr Hasan Elhais, representing the defendant, welcomed the ruling and emphasised its long-term implications. He said: 'This decision reinforces the importance of securing legally sufficient guarantees before granting any lending facility."
He clarified that salary transfers — commonly used by banks as informal security — are not considered valid guarantees on their own. 'Unless supported by other binding legal instruments, salary transfers do not fulfil the legal requirement under Article 121 (bis),' Elhais explained.
He described the verdict as a major win for consumer rights. 'This precedent provides essential protection for individual borrowers and ensures that banks follow proper legal procedures before filing claims. It's a step forward for financial fairness and transparency.'
The ruling sends a strong message across the UAE banking sector: Without proper, documented guarantees that reflect the borrower's financial capacity and the size of the loan, debt recovery claims may not stand in court.
'This is a judicial victory not only for our client, but for all consumers in the UAE who may be exposed to unsecured financial demands,' noted Elhais, adding, 'The law is clear — no valid guarantee, no claim.'
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