CAIRO: Speaking at the second of a series of bank-related meetings this week organized by the American Chamber of Commerce in Egypt, Cairo University Professor and former Dean of its Faculty of Law, Samir El Sharkawy, said that the new check law will have benefits for banks and businesses despite a critical flaw in the latest amendment to the law.
El Sharkawy said that the latest amendment to the Commercial Law of 1999 effectively makes checks instruments of credit, contrary to the spirit of the original law that sought to make checks instruments of payment and an alternative to cash.
Until the new law was passed in 1999, checks were governed by archaic rules that dated back to the 19th century. The legal definition of a check was ambiguous, and as a result a variety of documents that represented a deferred payment obligation were legally considered checks. Stationary purporting to be checks were even sold in shops and were enforceable as such in courts.
The Commercial Law of 1999 clarified the definition of a check as a document that must be issued by a bank; the new law also required a check to be cashed only at a bank.
In addition,the new law allows a check to be presented at the bank prior to the date written on it,which eliminated the common practice of post-dated checks.
Prior to the new law, giving a bad check was considered a crime carrying a mandatory punishment of up to three years in jail. Banks therefore took postdated checks from their customers as a contingency against non-payment. The rampant use of checks in this manner resulted in a large number of court cases relating to unpaid checks.
The mandatory penalty of imprisonment was therefore replaced by either a fine and/or imprisonment at the discretion of the judiciary.Furthermore,giving a bad check was only considered a crime if it was given in bad faith.
Finally, if there are insufficient funds in the payee’s account when the check is cashed, whatever amount is available in the account may be drawn and the beneficiary may later claim the balance from the payee. In addition, the payee may settle the balance even if a case is pending in the courts.
“The foundations for the check that were created under this initiative had an international basis, said El Sharkawy, referring to the international convention held in Geneva in 1931 that set the standards for checks.
Under pressure from businessmen seeking an instrument equivalent to post-dated checks, parliament recently passed an amendment to the new law. The amendment introduced the socalled underlined check, which was allowed to be post-dated.
El Sharkawy, who was involved in drafting the original law, disassociated himself from the latest amendment. “I am innocent of this amendment, said El Sharkawy. “I personally believe it is a backward step in terms of the laws and principles that should be applied to checks.
El Sharkawy’s dissatisfaction with the amendment was echoed by one banker.
“The check had effectively become cash [under the Commercial Law of 1999], said Sahar Sallab, vice chairperson and managing director of Commercial International Bank. “The idea that a check could be taken as security or support from any customer for any type of credit had ended, except [now] if it is underlined. But there is nothing that prevents or dissuades a bank from making all its checks underlined. So we have accomplished nothing.
Another observer commented that the relative efficiency of the criminal courts compared to commercial courts drove banks and businesses to push for postdated checks to preserve the possibility of a criminal trial in the event of non-payment.
Despite the shortcomings of the latest amendment, El Sharkawy is confident that certain benefits of the original law have been retained.