Case note: Dubai Court of Cassation, Commercial Appeal No. 1479 of 2026, judgment dated 22 July 2026
A recent Dubai Court of Cassation judgment considers whether a bank must credit a return on customer funds frozen pursuant to prosecutorial and regulatory directions.
The Court held that a binding instruction from the Central Bank of the UAE requiring frozen balances to be transferred to suspense accounts accruing a return at the prevailing market rate was enforceable against the bank. It nevertheless removed a further award of 5% annual interest on the accrued return, holding that this would amount to prohibited interest on accrued interest.
The decision is relevant to banks, account holders and practitioners dealing with account-freezing measures, regulatory directions and claims for interest or investment return.
Background
The dispute concerned funds held in three bank accounts. Following an order issued by the Public Prosecution in connection with criminal proceedings, the Central Bank instructed the bank to freeze the balances, transfer them to suspense accounts and calculate a return at the prevailing market rate.
Following the account holder’s acquittal, the freeze was lifted and the underlying balances were released. The account holders subsequently brought proceedings seeking the return which they maintained should have accrued during the freezing period.
The Court of First Instance dismissed the claim. On appeal, a three-member expert committee was appointed to calculate the return. The Court of Appeal reversed the first-instance judgment and awarded AED 3,483,847.31, together with additional legal interest at 5% per annum from the date of the judicial claim.
The bank appealed to the Court of Cassation.
Binding effect of Central Bank instructions
The principal issue was whether the Central Bank’s instruction created an enforceable obligation to credit a market-rate return on the frozen balances.
The Court held that it did.
It reaffirmed that instructions and regulatory decisions issued by the Central Bank within its statutory supervisory authority are binding on licensed financial institutions. Such directions cannot be disregarded by reference to contractual terms, ordinary banking practices or the absence of an interest provision in the relevant account-opening documents.
The Central Bank’s instruction expressly required the balances to be transferred to suspense accounts on which a return would be calculated at the prevailing market rate. The bank was therefore required to implement that direction.
The original instruction remained effective
The bank argued that a subsequent Central Bank communication, which confirmed the continuation of the freeze but did not repeat the requirement to calculate a market-rate return, had withdrawn or amended the earlier instruction.
The Court rejected that argument. The omission of the relevant wording from the later communication was not sufficient, without more, to establish that the original instruction had been revoked. The later communication contained no express or implied withdrawal or amendment of the earlier direction.
The Court also distinguished the seven-working-day period applicable to freezes initiated directly by the Central Bank. In this case, the underlying freeze had been ordered by the Public Prosecution, while the Central Bank’s role was to implement that order through the regulated banking system. The seven-day limitation was therefore not applicable.
Calculation of the market-rate return
The Court upheld the lower court’s reliance on the court-appointed expert committee, which calculated the return by reference to prevailing market rates over the relevant freezing period.
On the evidence, the bank had not established that the frozen balances had been segregated from its other funds or that it had derived no benefit from retaining them.
The Court observed that freezing an account restricts the account holder’s ability to withdraw or dispose of the balance. It does not necessarily remove the funds from the bank’s possession or financial estate. Customer deposits ordinarily form part of the bank’s funds, while the customer retains a corresponding personal claim against the bank.
The Court therefore upheld the award of the market-rate return calculated by the experts.
No further interest on the accrued return
The Court reached a different conclusion regarding the additional 5% annual legal interest awarded by the Court of Appeal.
The amount of AED 3,483,847.31 did not represent the original account balances. It represented the return accrued on those balances during the freezing period.
Awarding further interest on that amount would therefore amount to interest on accrued interest, which is prohibited under Article 88 of the UAE Commercial Transactions Law.
The Court partially overturned the appeal judgment and removed the additional 5% interest, while preserving the award of AED 3,483,847.31.
Practical Significance
The judgment does not establish an automatic entitlement to a return whenever a bank account is frozen. The outcome turned on the express terms of a specific and binding Central Bank instruction.
For financial institutions, the decision highlights the importance of implementing regulatory directions precisely and maintaining a clear record of how frozen balances are treated. A later regulatory communication should not be understood as withdrawing an earlier obligation unless its wording supports that conclusion.
For account holders, any entitlement to a return will depend on the applicable regulatory directions, contractual documents, source of the freezing order and surrounding evidence. Expert evidence may also be required to determine the relevant rate and calculation period.
The judgment further illustrates the need to distinguish between the original principal, the return accrued on that principal, and any additional claim for default interest. That distinction may determine whether the claim is permissible or amounts to prohibited interest on accrued interest.
Conclusion
The Dubai Court of Cassation’s judgment draws a clear distinction between a market-rate return required under a binding Central Bank instruction and further interest claimed on that accrued return.
Where a regulatory direction expressly requires a return to be calculated on frozen balances, a licensed bank must comply with it. However, once that return has accrued and been quantified, an additional award of interest may be prohibited where it would amount to interest on interest.
The decision reinforces both the binding nature of Central Bank instructions and the statutory limits governing the recovery of interest under UAE commercial law.
DISCLAIMER
This publication is provided for general information only. It does not constitute legal advice and should not be relied upon as such. The outcome of any matter will depend on its particular facts, documents and applicable law. Specific legal advice should be obtained before taking or refraining from taking any action.