Final settlement against bank loans

I was working with a company in Dubai when I took a personal loan from a local bank. The bank deducted the monthly payment with interest on the 30^th of every month when my salary was credited to my account. I had paid 16 monthly installments during that period. My old company deposited my final settlement amount along with a one month notice period salary in my account. The bank refused to release this amount and when I contacted them, I was informed that my account has been given to the recovery department. When I approached the recovery department, they refused to release the amount to me.

My new employer issued a salary transfer certificate and I submitted this to the bank along with my new visa. Additionally, my new employer deposited eight-days worth salary in the account. Despite all this, the bank is yet to release the amount. They are telling me that they will adjust the amount against my balance loan payment amount. Please advice if this is right. What legal recourse do I have?

It is understood that your previous employer paid your salaries at a designated bank which was then adjusting a part of the salary amount against paying off your debts along with the interests incurred on the same. Subsequently, on the termination of your employment contract your end of service benefits was also credited to the same account, pursuant to which the bank has now adjusted your end of service benefits against the debt you owe to the bank. The legal provisions pertaining to opening and maintenance of cash deposits in banks may be found in the Federal Law No 18 of 1993 on the Issuance of the Commercial Transactions Law (the “Commercial Transactions Law”).

Bank cash deposits have been described as having the nature of a commercial contract between an individual and a bank in Article 371 of the Commercial Transactions Law which states:

“(1) Bank cash deposit is a contract according to which a person hands over a sum of money by any means of payment to the bank which becomes liable to return it upon request or in accordance with the conditions agreed upon.

(2) The bank acquires the title to the money deposited and shall have the right to dispose thereof according to the requirements of his activity and shall be committed to pay the same to the depositor, however the payment shall be in kind of the deposited currency.”

Subsequently, a depositor has the right to dispose of the credit balance available in its account in accordance with Article 372 of the Commercial Transactions Law which states:

“(1) Money deposit shall be paid upon request unless otherwise agreed upon. At any time, the depositor shall have the right to dispose of the balance or any part thereof.

(2) This right may depend on a previous notification or on the maturity of a specified time.”

However, it is also within the rights of the bank to adjust or set off an amount deposited by a depositor to the bank against any loan that the depositor may have taken from the bank in order to clear off his dues in accordance with Article 373 of the Commercial Transactions Law which states: “Except for the deposit appropriated for investment, the cash deposit shall be considered a debt and may be set off against the debt which is due to the bank by the depositor, and any agreement to the contrary shall be considered void.”

Pursuant to your question, we assume that your debt was being operated in respect of a current account as defined under Article 390 of the Commercial Transactions Law which states: “The current account is a contract between two persons under which the rights and debts arising from their mutual relationship turns into account entries set off between them whereby the final balance at the closing account becomes merely a debt due for payment.”

However there are certain rules pertaining to the operation and management of Current Accounts which have been laid down under Article 394 of the Commercial Transactions Law which states: “The following shall be consequential to the contract of the current account:

(1) Transfer of the ownership of the monies and properties received and entered in the current account to the party who has received them.

(2) The entry of the commercial paper in the account is considered to be valid, however its value shall not be computed, if it is not paid at the time of maturity, and in this case it may be returned to its owner and its entry may be reversed as shown in clause (2), article (407).

(3) The entries in the current account as a whole is indivisible before the account is closed and the final balance is worked out.

(4) Setoff between one entry in the current account and another entry in the account itself may not be made.

(5) Entries in the current account may not extinguish the rights due to both parties in connection with the contract and transactions resulting from such entries.

(6) Each party to the current account may have the option at any time to dispose of his credit balance unless otherwise agreed.”

Pursuant to the aforementioned provisions of the Commercial Transactions Law, we are of the view that a bank is within its rights to set off any amounts deposited in your account against the payment of dues towards a loan taken from the same bank.

It is therefore recommended that you may refer to the terms and conditions of the agreement you entered into with the bank, pursuant to operation of your accounts in the bank, so as to ascertain if the bank was authorized to set off your end of service benefits against your personal loan. In the event you find a discrepancy in the same, you may consider initiating civil proceedings against the concerned bank for reimbursement of the amounts pertaining to your end of service benefits. You may take further advice from of a legal practitioner who may help you in this regard.