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civil law

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November 11, 2017

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Is it illegal to charge interest when loaning someone money?

Question: I am a European citizen, living in the UAE. The company I own lent one of our suppliers some money as we had a good relationship before and we agreed that I shall be paid an interest of 20 per cent on top of the due amount. When I asked the supplier to pay the money, he threatened me and said I do not have the right to claim this interest and he said he can put me in jail. Now, I do not have the interest but he can give me the loan amount. I did not know it was a crime. What are my options?

Answer: In general, taking interests is a breach of the criminal law if it's between two individuals.

However, if it's between two companies or a corporate and an individual then it would not be a breach of the UAE Criminal Law, as Article No.409 of Law No. 3 of 1987 requires building such criminal charges when there is the question of dealings with interest between individuals. Still, the validity of the interest amount is subjected to questions and discretionary power of the civil courts. When these powers are applied, they would have the right to decide whether to accept such clauses.

In all cases, you have the right to file a civil case and request the full paid amount regardless of whether the civil court considers it to be a valid clause or not.

Also, note that Article (76) Of UAE Civil Transaction Law, stipulates that, "a creditor is entitled to receive interest on a commercial loan as per the rate of interest, stipulated in the contract. If such rate is not stated in the contract, it shall be calculated according to the rate of interest currently in the market at the time of dealing, provided that it shall not exceed 12% until full settlement."

Furthermore, Article (88) of the same law states that "where the commercial obligation is a sum of money which was known when the obligation arose and the debtor delays payment thereof, he shall be bound to pay to the creditors as compensation for the delay, the interest fixed in Articles (76) and (77), unless otherwise agreed."

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