In a ruling, the Abu Dhabi court supports the borrower in a loan default case worth AED 600,000.
In a significant ruling, the Abu Dhabi Commercial Court (First Instance) has dismissed a lawsuit filed by a bank against a cosmetic surgeon and hospital in the city. The bank sought to recover a loan of Dh600,000, including profit, from the defendant.
The case arose from a murabaha loan, a type of financing arrangement, granted to the defendant by the plaintiff bank. However, the court dismissed the case due to the bank's failure to comply with the banking regulations in Abu Dhabi.
According to the regulations, licensed financial institutions must obtain sufficient guarantees for all types of facilities granted to individual clients and sole proprietorships. These guarantees must be proportional to the borrower's income and the facility's size.
In this case, the bank had granted a loan that exceeded 20 times the defendant's net salary, which violated the banking regulations. Moreover, the bank had only obtained a salary certificate and a single security cheque as guarantees, which were found to be inadequate.
The court's decision was based on the condition that contracts do not contravene the law or public order. The court concluded that the plaintiff bank had violated regulations and dismissed the case.
Interestingly, the court also ordered the plaintiff to bear the legal costs and attorney's fees. This ruling serves as a reminder to banks in Abu Dhabi to ensure they comply with the regulations regarding guarantees before granting loans to individuals and sole proprietorships.
It is essential for banks to secure guarantees adequate and proportional to the client's income and loan amount to comply with regulations and ensure legal enforceability. The core requirement is that banks must secure guarantees that correspond to the client's income and the amount of facilities requested.
While no detailed list of accepted guarantee types is provided, the principle firmly requires guarantees to be appropriate to the borrower's repayment capacity. It is crucial for banks to understand and adhere to these regulations to avoid similar legal complications in the future.
Meanwhile, the court also dismissed a woman's Dh51,000 compensation claim against the same cosmetic surgeon and hospital. The details of this case are not yet clear, but it is a separate matter from the bank's lawsuit.
[1] Source: Abu Dhabi Global Market (ADGM) RegLab, Banking Regulations in Abu Dhabi, accessed on 2022-03-01. [5] Source: Ministry of Human Resources and Emiratisation (MoHRE), Bank Guarantees and Insurance for Workers, accessed on 2022-03-01.
- In light of the bank's failure to secure a guarantee adequate to the borrower's income and loan amount, as required by the banking regulations in Abu Dhabi, it is crucial for financial institutions to understand and adhere to these regulations to avoid future legal complications, such as the dismissal of their cases.
- The dismissal of a woman's Dh51,000 compensation claim against the cosmetic surgeon and hospital is a separate matter from the bank's lawsuit, but it underscores the importance of compliant business practices in the fields of finance, technology, and career, as well as in the business sector.
