Abu Dhabi court rejects bank’s nearly Dh950,000 loan case over regulatory breach

The Abu Dhabi Commercial Court has dismissed a bank’s lawsuit seeking to recover Dh949,938 from a woman and her guarantor, ruling that the lender failed to comply with central bank regulations requiring adequate guarantees for loans.

The bank had filed a case demanding that both defendants jointly repay the outstanding loan amount, along with 9 per cent annual interest from the date of default until full settlement, in addition to legal fees and expenses.

According to court records, the loan was granted to the first defendant, while the second defendant signed as a guarantor. The bank submitted documents including a loan agreement, account statement and a copy of the guarantee in support of its claim.

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However, the court found that the bank had not secured any valid guarantees from either the borrower or the guarantor at the time the credit facility was granted.

In its reasoning, the court cited Article 150 of Federal Decree-Law No. 6 of 2025 concerning the Central Bank and regulation of financial institutions, which obliges licensed financial entities to obtain and retain sufficient guarantees for all credit facilities extended to individuals or sole proprietors.

The court stressed that failure to obtain such guarantees renders any related claim inadmissible before courts or arbitration bodies.

It further clarified that banks are not permitted to rely on a single cheque covering the full loan amount unless the loan is repayable in one instalment and within a capped limit. In cases where repayment is structured in instalments, lenders must obtain multiple cheques matching the number and value of instalments, with total coverage not exceeding 120 per cent of the loan value.

The court noted that the case file was devoid of any evidence that the bank had complied with these requirements, either by securing guarantees or obtaining multiple cheques as mandated.

While reaffirming that contracts are binding on both parties, the court emphasised that contractual terms must not violate applicable laws or public order. It held that the bank’s failure to adhere to regulatory requirements constituted a breach of the law.

Accordingly, the court ruled the claim inadmissible and ordered the bank to bear the legal costs.