By Mohammed Lamloum Ratieb
Head of Litigation, Al Kabban & Associates Advocates and Legal Consultants
Introduction
Regulatory instructions issued by financial authorities influence almost every aspect of modern banking operations. Less frequently, however, do courts have occasion to determine the precise legal effect of those instructions when they become central to a private dispute between a bank and its customers.
In a judgment issued on 22 July 2026, the Dubai Court of Cassation addressed this issue directly. The Court considered whether a licensed bank was legally bound by an individual instruction issued by the Central Bank of the UAE requiring frozen customer funds to be transferred into suspense accounts on which a return would accrue at the prevailing market rate.
The bank argued that the Central Bank’s role was regulatory and supervisory, and that its correspondence could not independently create a private financial obligation in favour of the customers where no contractual provision or specific legislative text required the payment of interest.
The Court rejected that argument.
It held that instructions issued by the Central Bank within its statutory regulatory and supervisory powers are binding upon licensed financial institutions. More significantly, the Court characterised such instructions as mandatory rules connected to the UAE banking and financial order, which cannot be displaced by contractual terms, banking practices or the principle of freedom of contract.
Although the bank succeeded on a separate point concerning the prohibition against interest on accrued interest, the principal award of AED 3,483,847.31 in favour of the customers was upheld.
Background to the Dispute
The dispute arose from three bank accounts held by an individual customer and two companies under his ownership and control.
In November 2017, the Public Prosecution ordered the freezing of funds held in those accounts in connection with criminal proceedings. Following that order, the Central Bank instructed the bank to freeze the relevant balances and transfer them into suspense accounts on which a return would be calculated at the prevailing market rate.
The account holder was subsequently acquitted. The Public Prosecution later directed that the freeze be lifted, and approximately AED 24 million was ultimately released in 2025.
The customers commenced proceedings after the bank declined to pay the return which, they argued, should have accrued on the frozen funds in accordance with the Central Bank’s instruction.
The Court of First Instance dismissed the claim. On appeal, a three-member expert committee was appointed to assess the banking and financial issues. Relying on the expert findings, the Court of Appeal reversed the first-instance judgment and ordered the bank to pay AED 3,483,847.31, together with legal interest of 5% per annum from the date of the judicial claim.
The bank challenged that decision before the Dubai Court of Cassation.
The Bank’s Principal Argument
The bank’s position rested on the distinction between regulatory supervision and the creation of private legal obligations.
It argued that an obligation to pay interest must ordinarily arise from either:
- an express legislative provision; or
- an agreement between the parties.
The account-opening documents did not provide for interest on the balances in question. The bank therefore contended that the Central Bank’s letter was no more than an administrative direction and could not, by itself, create an enforceable financial entitlement in favour of the customers.
It also argued that the Central Bank had exceeded the scope of the Public Prosecution’s freezing order. While the Public Prosecution had directed that the funds be frozen, it had not ordered that any interest should accrue.
A further argument concerned a subsequent Central Bank letter issued in November 2018. That later correspondence maintained the freezing of the funds but did not repeat the earlier language requiring their transfer into suspense accounts earning a market-rate return. The bank submitted that this omission demonstrated that the earlier direction had been amended or withdrawn.
The bank also relied on a Central Bank circular addressing seven-day administrative freezes. They argued that any entitlement to interest should, at most, have been limited to that period.
The Court’s Treatment of Central Bank Authority
The Court of Cassation approached the dispute through the statutory position of the Central Bank within the UAE financial system.
It referred to the legislation governing anti-money laundering measures. This included the Central Bank’s role in implementing freezing decisions involving funds held by licensed financial institutions. It also considered the Central Bank’s wider powers to regulate, supervise and issue binding instructions to banks and other licensed financial institutions.
The Court concluded that the Central Bank is not merely an observational or advisory authority.
Within the scope of its statutory mandate, it possesses the power to issue instructions and regulatory directions which licensed financial institutions are required to follow.
The Court therefore treated the instruction to transfer the frozen balances into suspense accounts earning a market-rate return as having been issued within the Central Bank’s lawful regulatory and supervisory competence.
The instruction did not conflict with any mandatory legislative rule and did not unlawfully interfere with an established right belonging to the bank. It was consequently binding and required implementation.
Central Bank Instructions as Mandatory Rules
The most significant aspect of the judgment is not simply the conclusion that the particular letter was binding.
It is the Court’s wider explanation of the legal status of Central Bank instructions.
The judgment states, in substance, that instructions and circulars issued by the Central Bank pursuant to its statutory powers form part of the mandatory regulatory framework governing the UAE banking sector. They are intended to protect the public interest, preserve financial stability and safeguard persons dealing with licensed financial institutions.
On that basis, the Court held that:
- licensed financial institutions must comply with Central Bank instructions issued within its lawful competence;
- contractual terms and established banking practices cannot override those instructions;
- parties cannot use freedom of contract to avoid mandatory banking regulations;
- a bank’s failure to comply may constitute a legal fault capable of giving rise to liability where loss results; and
- courts must apply relevant Central Bank instructions and may not disregard them in favour of inconsistent contractual provisions or banking customs.
This reasoning places Central Bank instructions at the intersection of regulatory law and private banking relationships.
Although the instruction originated within a regulatory framework, its breach was capable of producing enforceable civil consequences in a dispute between the bank and its customers.
The Relationship Between Regulation and Contract
The bank’s argument reflected a conventional contractual analysis: absent an agreement to pay interest, no financial obligation should arise.
The Court’s reasoning demonstrates why that analysis was incomplete.
Banking contracts do not operate independently of the regulatory framework governing licensed financial institutions. The rights and obligations of the parties may be affected not only by the wording of their agreement, but also by mandatory laws, regulations and legally binding supervisory instructions.
Where a contractual provision or banking practice conflicts with a mandatory Central Bank direction, the Court indicated that the regulatory rule prevails.
The significance of this principle extends beyond the payment of a return on frozen accounts. It may become relevant whenever a dispute concerns the interaction between:
- customer agreements and regulatory consumer protections;
- internal banking policies and Central Bank directives;
- contractual discretions and mandatory compliance requirements;
- established banking customs and supervisory instructions; or
- private financial arrangements and rules intended to protect the UAE financial system.
The judgment therefore reinforces the proposition that regulatory compliance is not separate from contractual performance. In regulated banking relationships, it may define the content and limits of that performance.
The Subsequent Letter Did Not Revoke the Earlier Instruction
The Court also rejected the argument that the Central Bank had withdrawn its original instruction through the later correspondence issued in November 2018.
The later letter did not repeat the requirement that the frozen funds be held in suspense accounts earning a market-rate return. However, it also contained no express or implied language revoking, amending or replacing the earlier instruction.
The Court held that the mere omission of the wording from subsequent correspondence was insufficient to establish that the Central Bank had abandoned its earlier direction.
This part of the judgment is practically important for regulated institutions.
A binding regulatory instruction should not be treated as withdrawn merely because later correspondence does not restate it. Unless the regulator clearly revokes or modifies the instruction, the original obligation may remain operative.
Why the Seven-Day Limitation Did Not Apply
The bank also relied on a Central Bank circular regulating freezes imposed directly by the Central Bank for a period not exceeding seven working days.
The Court distinguished that situation from the circumstances before it.
In this case, the underlying freezing decision had been issued by the Public Prosecution. The Central Bank’s role was to implement that decision in relation to funds held by a licensed financial institution.
The Court therefore concluded that the seven-day rule governing freezes initiated directly by the Central Bank did not apply to a prosecutorial freeze implemented through the Central Bank.
This distinction illustrates the importance of identifying:
- the authority that issued the original freezing decision;
- the statutory basis for that decision;
- the role performed by the Central Bank; and
- the particular regulatory provisions governing the form of freeze concerned.
Not every freezing measure is governed by the same procedural or temporal rules.
Did the Bank Benefit From the Frozen Funds?
The bank further argued that frozen or suspended balances could not be treated in the same way as fixed or investment deposits because the funds could not be freely used in its ordinary operations.
The Court rejected that contention.
It observed that freezing an account restricts the customer’s ability to withdraw or dispose of the balance. It does not necessarily remove the funds from the bank’s possession or financial estate.
The judgment also relied on the legal nature of ordinary bank deposits. Money credited to a customer account is not ordinarily retained as physically segregated banknotes held for that particular customer. The deposited funds enter the bank’s estate, while the customer acquires a personal claim against the bank for an equivalent amount.
The Court noted that the bank had not proved that the frozen funds had been segregated from its other liquidity or that it had derived no benefit from them during the freezing period.
It therefore upheld the expert committee’s use of prevailing market rates when calculating the return due under the Central Bank’s instruction.
The Court’s Distinction Between Return and Compound Interest
The judgment is also significant because the bank achieved partial success on a separate issue.
The Court of Appeal had awarded the customers:
- AED 3,483,847.31, representing the return calculated on the frozen funds; and
- additional legal interest of 5% per annum on that award from the date of the judicial claim.
The Court of Cassation held that the principal award represented accrued interest or return relating to an earlier period. Imposing a further 5% interest charge on that amount would therefore amount to interest on accrued interest.
Article 88 of Federal Decree-Law No. 50 of 2022 concerning the Commercial Transactions Law prohibits a creditor from claiming compound interest or treating interest on accrued interest as supplementary compensation.
The Court consequently set aside the additional 5% interest while preserving the principal award of AED 3,483,847.31.
This distinction should be clearly understood. The Court upheld the customers’ entitlement to the market-rate return required by the Central Bank instruction. It did not permit further legal interest to accrue on the amount representing that return.
Practical Implications for Licensed Financial Institutions
The judgment carries several practical implications for banks and other institutions regulated by the Central Bank.
First, regulatory correspondence should not be treated as merely administrative without examining its statutory basis, language and intended effect.
Secondly, compliance teams must consider whether individual instructions issued in relation to particular accounts or transactions create continuing operational obligations.
Thirdly, contractual silence does not necessarily mean that no obligation exists. A mandatory regulatory instruction may supplement or override the contractual arrangements between the institution and its customer.
Fourthly, later regulatory correspondence should be reviewed carefully before being interpreted as modifying an earlier instruction. Clear revocation or amendment may be required.
Finally, a failure to comply with binding Central Bank instructions may expose an institution not only to regulatory consequences but also to civil liability where the breach causes identifiable loss to a customer.
Implications for Banking Litigation
For banking litigators, the judgment provides important guidance on how courts may approach disputes involving Central Bank directives.
The central question will not always be whether the parties expressly agreed to the obligation in dispute. Courts may also examine:
- whether the Central Bank acted within its statutory powers;
- whether the instruction was mandatory or merely advisory;
- whether it was directed generally or to a particular institution;
- whether the instruction remained in force;
- whether the bank complied with it; and
- whether non-compliance caused loss.
The judgment also demonstrates the importance of expert evidence in quantifying financial consequences. Once the Court accepted that the Central Bank instruction was binding, the expert committee’s assessment of the prevailing market return became central to determining the amount payable.
Conclusion
The Dubai Court of Cassation judgment provides an important clarification of the relationship between regulatory authority, contractual freedom and civil liability within the UAE banking sector.
Its significance lies in the Court’s confirmation that Central Bank instructions issued within the regulator’s statutory competence are not merely supervisory observations. They may constitute mandatory and enforceable rules which licensed financial institutions, contracting parties and courts are required to respect.
The judgment also provides an important qualification: while a customer may recover a return properly due under a binding regulatory instruction, additional interest cannot be awarded where doing so would amount to prohibited interest on accrued interest.
For licensed institutions, the decision reinforces the need to integrate regulatory instructions into contractual administration, account management and dispute strategy. For practitioners, it offers valuable guidance on how regulatory obligations may shape private rights and liabilities in future UAE banking disputes.
Author Biography
Mohammed Lamloum Ratieb is Head of Litigation at Al Kabban & Associates. He has more than 20 years of experience in the UAE legal sector and represents clients in complex commercial, banking and civil proceedings before the UAE courts. He has been a member of the firm since 2006.
