Direct Debit Mandates As A Substitute For Post-Dated Cheques In Oman

Introduction

Post-dated cheques (PDCs) have long served as a key repayment and security instrument in Oman's lending market. However, the introduction of the National Payment Systems Law issued by Royal Decree No. 8 of 2018 ("NPSL") and its Implementing Regulations (Central Bank of Oman Decision No. 1/2019) has created a modern legal framework that enables direct debit mandates as an alternative means of payment.

This development raises an important question: can an irrevocable direct debit mandate legally and practically replace post-dated cheques for the full tenor of a loan facility?

1. Legal Basis for Substitution

Under Article 61 of the Implementing Regulations, a payer may authorize a beneficiary to debit funds directly from the payer's account — either in fixed or variable amounts — through a revocable or irrevocable direct debit authorization.

Article 63 further provides that an irrevocable authorization requires both the payer's written application and the beneficiary's approval. Once executed, such authorization may be revoked or suspended only with the written consent of both parties. The drawee bank may unilaterally revoke it only in limited cases, such as the payer's death, incapacitation, or account freeze.

This framework enables banks, particularly in non-salary transfer lending, to require borrowers to execute irrevocable direct debit mandates, ensuring the bank's continuing right to debit installments during the loan period.

2. Criminal and Civil Enforcement

Article 63 of the NPSL also establishes criminal penalties for misuse or default under irrevocable direct debit mandates. Any person who issues a direct debit order without sufficient funds, or obstructs its settlement without lawful reason, is subject to imprisonment for one to two years and a fine between OMR 100 and OMR 500.

In addition to criminal sanctions, the same provision entitles the beneficiary to seek civil recovery equal to the unpaid amount, including accrued revenues and compensation as determined by the court. From an enforcement perspective, this treatment closely parallels that of dishonoured cheques under Article 356 of the Penal Code (Royal Decree No. 7 of 2018), which prescribes equivalent penalties for drawing cheques without sufficient funds.

Reinforcing Regulatory Oversight

The Central Bank of Oman (CBO) has recently reinforced this framework through its Regulation of the Returned Direct Debit and Cheques System (issued 26 September 2023 and published in Official Gazette No. 1513). The Regulation, adopted under the Banking Law (RD 114/2000) and the National Payment Systems Law, establishes a unified mechanism for monitoring and managing returned instruments.

Licensed banks must report data on returned cheques and direct debits and contribute to a central "warning list" of account holders with multiple returns. Under Article 9 of the Regulation, banks must withdraw chequebooks, refuse to open current accounts, and suspend direct debit services for one year for customers listed on that warning list. Non-compliance may attract administrative fines of up to OMR 20,000.

This measure underscores the CBO's commitment to strengthening payment discipline and enhancing transparency across Oman's banking system—further aligning direct debit enforcement with the well-established cheque regime.

In practice, some Omani banks have begun adopting a dual approach, requiring borrowers to sign an irrevocable direct debit mandate alongside a single security cheque covering the facility amount, thereby expanding enforcement options in case of default.

3. Enforceability Before the Courts

The Implementing Regulations specify the mandatory elements of a valid direct debit authorization under Article 64, including:

• a clear indication of revocability status (revocable/irrevocable);
• details of the payer and beneficiary;
• the drawee bank's name and logo;
• payment amount, frequency, and dates; and
• the payer's signature.

Provided these formalities are observed, a direct debit authorization executed in proper form constitutes admissible evidence before Omani courts. It may serve as the basis for both civil and criminal proceedings against defaulting borrowers, much like dishonoured PDCs.

4. Judicial Precedent

At present, no published Omani court decisions specifically address enforcement of direct debit mandates. Nevertheless, given the statutory framework under the NPSL and its Implementing Regulations, there is a strong legal foundation to support their enforceability—provided banks maintain comprehensive documentation evidencing borrower consent and compliance with regulatory requirements.

5. Legal and Practical Considerations

While the NPSL provides a clear legislative pathway for the use of irrevocable direct debit mandates, their practical application in Oman remains at an early stage. Judicial interpretation will likely evolve as enforcement cases emerge.

To mitigate risk, banks should:

• ensure that the direct debit mandate is expressly irrevocable and cannot be withdrawn without the bank's written consent;
• include all statutory particulars required under Article 64; and
• align the wording of mandates with facility and account documentation to avoid inconsistencies.

Until greater judicial precedent develops, lenders may prefer to continue using post-dated cheques in parallel with direct debit mandates as an additional layer of protection.

Conclusion

The legal framework introduced by the National Payment Systems Law and reinforced by the CBO's 2023 Regulation of the Returned Direct Debit and Cheques System provides a robust statutory basis for using irrevocable direct debit mandates as a repayment and enforcement tool comparable to post-dated cheques.

Properly drafted and executed, such mandates afford both civil and criminal remedies in cases of borrower default and reflect Oman's ongoing shift toward digital, transparent, and data-driven financial regulation. While judicial application will ultimately shape practical outcomes, the current law offers sufficient certainty for banks to begin integrating direct debit mandates into their lending documentation as a modern, compliant alternative to traditional cheque-based security.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.