SHARJAH, UAE- A dispute over a $218 million bounced cheque signed by the founder of stricken private equity firm Abraaj and another executive has been settled, ending criminal proceedings against the two men, lawyers from both sides said on Tuesday.

The statements by the two lawyers came after a United Arab Emirates (UAE) court sentenced Abraaj founder Arif Naqvi and the other executive to three years in prison. 

"Under UAE Criminal Law, charges based on bounced cheques get extinguished once parties reach a settlement. Accordingly, the parties will apply to the court and the public prosecution to withdraw the cases," Naqvi's lawyer Habib al-Mulla told Reuters.

The case in the emirate of Sharjah related to a cheque for 798.9 million dirhams ($218 million), signed by Naqvi and Rafique Lakhani, and written to Hamid Jafar, another founding shareholder in Abraaj.

"The parties have agreed terms for the resolution of the current proceedings before the Sharjah Criminal Court relating to a dishonoured cheque issued by Mr Arif Naqvi and another individual," said Jafar's attorney Zafer Oghli, a partner at Al Tamimi & Company.

"As a result, all criminal proceedings relating to this case have been discontinued."

The lawyers did not give details of the settlement.

Dubai-based Abraaj has filed for provisional liquidation in the Cayman Islands after months of turmoil related to a row with investors over the use of their money in a $1 billion healthcare fund. Liquidators are also seeking to sell its investment management business.

Naqvi, who is outside the country and was not available to comment, is the single biggest shareholder of Abraaj Holdings, which owns the firm's investment management business. Lakhani could not be reached for comment.

Karachi-born Naqvi established Abraaj with only $60 million in 2002 and built it into a $13.6 billion emerging market champion. He helped attract money for healthcare investments from the Bill & Melinda Gates Foundation and U.S. pension funds.

But late last year four investors questioned Abraaj on the use of their money in a healthcare fund, which spiralled into a crisis for the firm, triggering management shake-ups, a halt in fund raising, a regulatory probe and provisional liquidation. 

($1 = 3.6728 UAE dirham)

(Reporting by Hadeel Al Sayeghl; Additional reporting by Saeed Azhar; Editing by Mark Potter) ((Saeed.Azhar@thomsonreuters.com; +971 44536787; Reuters Messaging: saeed.azhar.reuters.com@reuters.net))