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GUIDE TO IRANIAN MARKET

Checks are widely used as instruments of payment in the Islamic Republic of Iran. Foreigners transacting with Iranians or having a commercial presence within the territory of Iran, will probably find themselves resorting to this financial instrument. Hence, understanding the legal nature and usage of checks in the Iranian market, will assist foreigners in carrying out their business activities.

How does Iranian law define a check?
Are there specific laws regarding checks?
What are the particulars of a check?
Should the check be payable on sight?
What is the time-limit for demanding payment of a check?
What are the consequences of not observing the time-limit?
What types of checks are drawn in Iran?
Is the issuance of a check considered a commercial act?
Who is considered the holder of a check?
What are the regulations respecting bad checks?
Do bad checks entail punishment for the drawer?
Does the punishment also apply to conditional bad checks?
Is there any time-limit for filing a complaint against the drawer of a bad check?
Can a bad check be assigned to a third party?
What is the main procedure to be taken in prosecution of the drawer of bad checks?
What measures can be taken by the drawer in instances when the check is lost or stolen?
Are endorsers of a bad check also culpable?
Is prosecution possible regarding issuance of bad checks drawn on foreign banks?
As for the sum of a check, should it be only in Iranian Rials?

How does Iranian law define a check?

Are there specific laws regarding checks?

   Matters related to checks are defined under the regulations set out in Articles 310-317 of the Commercial Code and also in all the articles of the Check Law.

What are the particulars of a check?

   Checks are normally used in print form and should contain the date of issue and bear the signature of the drawer. A check can be a bearer's check, or may be made out in the name of a specified person or to his order. It can be transferable to a third party simply by endorsement on the reverse side.

Should the check be payable on sight?

   According to Articles 311 and 313 of the Commercial Code, the payment of a check can not be kept pending and should be cashed on sight. Therefore, a check should be paid immediately on presentation. Article 13 of the Check Law prohibits drawing of a post-dated check. Article 3 of the said law stipulates that on the date of issuance of the check, the drawer of the check must have an amount in the form of cash or credit equivalent to that indicated in the check, with the bank on which the check is drawn. He must not withdraw from the bank the whole or part of the amount on the basis of which he has drawn the check, or issue instructions to stop payment of the check.
   Checks should not be written in such a manner that the bank refuses payment on the grounds that the signature does not correspond to the specimen signature. In addition, there should be no crossings out in the text of the check or other discrepancies in the contents of the check. Where a condition has been stipulated in the text of the check, the bank shall disregard such a condition. If for lack or shortage of funds or for any other reasons the amount of the check can not be paid, the bank is obliged to issue to the beneficiary a non-payment certificate.

What is the time-limit for demanding payment of a check?

   If a check is payable where drawn, its holder should demand payment within fifteen days of the date of issue of the check. If it is drawn from one region on another in Iran, it should be claimed within forty-five days of the date of issue. With respect to checks issued abroad but payable in Iran, the time limit is four months from the date of issue. 

What are the consequences of not observing the time-limit?

   If the holder of the check fails to claim payment within the said time-limit, he forfeits his right of recourse against the endorser. In the event that the amount of the check is lost for reasons in connection with the drawee, the holder forfeits his legal right of recourse against the drawee as well.

What types of checks are drawn in Iran?

   There are four types as follows:
1. Ordinary Check (check-e-aaddi) is a check which is drawn by a person from his own current account on a bank. The holder of the check has no guarantee other than the credibility of the drawer.
2. Confirmed check (check-e-taeed shodeh) is a check which is drawn by a person from his own current account on a bank and payment of its amount is confirmed by the said bank.
3. Guaranteed check (check-e-tazmeen shodeh) is a check which is drawn by a bank, on the same bank, upon the request of the client and payment of its amount is guaranteed by the bank.
4. Traveler's check (check-e-mosaferati) is a check issued by a bank and its amount shall be payable at the branches of the said bank or by its representatives and agents.

Is the issuance of a check considered a commercial act?

   No, it is not in its nature a commercial act and the drawer is not necessarily considered a merchant. However, certain provisions of the Commercial Code of Iran relating to bills of exchange, such as liability of the drawers and endorsers, apply also to checks.

Who is considered the holder of a check?

   The holder of a check is someone to whom or to whose order the check is drawn, or the bearer (in cases of checks to bearer) or their legal substitutes.

What are the regulations respecting bad checks?

   Checks drawn on Iranian banks and their branches abroad are considered as enforceable official documents. If the holder of a check presents the same to the bank but does not receive its amount, due to lack of funds or due to any other reasons, which culminate in not honoring the check and its non-payment, he may refer to the enforcement unit of the respective Registry Office and ask for collection of the amount of the bad check or the balance thereof, from the assets of the drawer. This is in accordance with the laws and regulations pertaining to the execution of enforceable legal documents. The beneficiary may also take measures for collecting the amount of the bad check through litigation.

Do bad checks entail punishment for the drawer?

   Yes, they do. The drawer of a bad check shall be sentenced to a punitive imprisonment ranging from six months to two years, plus a cash penalty equivalent to one-fourth of the sum of the dishonored check or to one-fourth of the short balance, at the time of presentation of the check to the bank.
Any person, despite knowing that his account is blocked, who draws a bad check, shall be sentenced to the maximum punishment. The holder of the check may claim the amount of the check, plus damages through the same court dealing with the criminal complaint. In this case, he should file a petition.

Does the punishment also apply to conditional bad checks?

   According to Article 13 of the Check Law, issuing a conditional, blank or post-dated check, as well as drawing a check as a guarantee or to secure credit is prohibited. The drawer of such checks, in the event of a complaint lodged by the beneficiary for non-payment of the amount, shall be sentenced to imprisonment ranging from six months to two years and/or a cash fine of 100,000 to 10,000,000 rials.

Is there any time-limit for filing a complaint against the drawer of a bad check?

   The offenses mentioned in the Check Law shall be subject to prosecution only upon the complaint of the holder of the bad check. If the holder of the bad check does not refer to the respective bank within six months from the issuance date of the check for its collection, or does not file a complaint within a period of six months from the issuance date of the non-payment certificate, he forfeits the right to lodge a criminal complaint.
In this case, he can only file a civil lawsuit in the court or, as stated earlier, refer to the respective Registry Office for collecting the sum of the bad check.

Can a bad check be assigned to a third party?

   Where after the filing of a criminal complaint, the plaintiff assigns the check or transfers his rights resulting from the check to another person in any manner whatsoever, criminal prosecution shall be stopped.

What is the main procedure to be taken in prosecution of the drawer of bad checks?

   The judicial authority handling the case is obliged primarily to obtain from the accused person, a cash security or bank guarantee equivalent to the sum of the bad check or the part thereof which is the subject of the complaint. Failure to deposit the security or guarantee, shall lead to detainment of the accused. The damages sought by the plaintiff can be compensated by the said cash security or bank guarantee, if the court rules in favor of the beneficiary.

What measures can be taken by the drawer in instances when the check is lost or stolen?

   The drawer or the beneficiary or their legal substitutes, on the grounds that the check is lost or stolen or forged or obtained by means of fraud or breach of trust or other crimes, may order to the bank in writing, not to pay the sum of the check to the holder. The instructor is obliged to file a complaint against the culprit, at most within one week from the day the matter is declared to the bank.

Are endorsers of a bad check also culpable?

   No. But their civil liability shall remain as before in accordance with the stipulations of the Commercial Code and other related laws and regulations.

Is prosecution possible regarding issuance of bad checks drawn on foreign banks?

   Checks passed in Iran on the branches of Iranian banks located abroad and resulting in issuance of a non-payment certificate shall be governed by the penal regulations of the Check Law. 

As for the sum of a check, should it be only in Iranian Rials?

No. The holder of a foreign currency bank account, may draw checks using the same currency as that of the account. Foreign currency checks are also subject to the provisions of the Commercial Code and the Check Law.

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