Breach of Contract Laws in Bangladesh
A Comprehensive Legal Treatise on Jurisdiction, Costs, Remedies, and the Strategic Ranking of Creditors in Insolvency.
I. Introduction to the Contractual Legal Framework
The legal architecture governing contractual obligations in Bangladesh is a sophisticated amalgam of colonial-era statutes, evolved common law principles, and modern legislative amendments designed to address the complexities of a growing emerging market. At its core, the substantive law is anchored in the Contract Act, 1872, which defines the formation, performance, and breach of contracts. However, the operational reality of enforcing these rights is dictated by a constellation of procedural laws, primarily the Code of Civil Procedure (CPC), 1908, the Specific Relief Act, 1877, and the Civil Courts Act, 1887.
For legal practitioners, corporate entities, and foreign investors, understanding the mechanism of breach of contract in Bangladesh requires more than a cursory reading of the statutory text. It demands a deep appreciation of the Civil Courts (Amendment) Act, 2021 and the recent Civil Courts Ordinance of 2025, which have radically altered the pecuniary jurisdiction of the courts, thereby shifting the forum for mid-market commercial disputes.
Furthermore, the interplay between civil litigation and corporate insolvency—governed by the Companies Act, 1994—creates a strategic dichotomy for creditors: whether to pursue a money suit for damages or to initiate winding-up proceedings to force a debtor’s hand. This treatise dissects the procedural lifecycle of a breach of contract claim, from the mandatory pre-litigation notices to the final execution of a decree.
II. The 2025/2026 Legislative Landscape
The last 12 months have seen sweeping reforms in the Bangladeshi judiciary, specifically impacting commercial litigation.
1. Civil Courts (Amendment) Ordinance 2025
This Ordinance has formally abolished the title "Assistant Judge". The lowest tier of the judiciary is now designated as the "Civil Judge", and the next tier as "Senior Civil Judge". While the jurisdiction remains pecuniary, the nomenclature in all plaints must be updated immediately to avoid technical defects.
2. Commercial Court Ordinance 2026
To fast-track economic recovery, the government has promulgated the Commercial Court Ordinance. This creates specialized tribunals for B2B disputes, separating them from the general civil case backlog. Complex contract breaches involving amounts over a certain threshold may now mandatorily fall under this jurisdiction.
III. The Substantive Law of Breach
3.1 Nature of Breach
Under the Contract Act 1872, a breach occurs when a party fails to perform their respective obligations without a lawful excuse. Bangladesh law recognizes two primary forms:
- Actual Breach: Failure to perform when performance is strictly due.
- Anticipatory Breach: Repudiation before the time for performance has arrived (Section 39). The innocent party may sue immediately or wait for the contract date.
3.2 Limitation Periods (The "Ticking Clock")
The Limitation Act, 1908 acts as a substantive gatekeeper. If you miss these deadlines, your right to sue is extinguished forever (Section 3).
| Nature of Suit | Limitation | Trigger Point |
|---|---|---|
| Money Suit (Damages) | 3 Years | When contract is broken. |
| Specific Performance | 1 Year | Date fixed for performance or notice of refusal. |
IV. The Jurisdictional Landscape (2025/2026)
One of the most consequential developments is the shift in Pecuniary Jurisdiction. Prior to the 2021/2025 updates, small claims often clogged higher courts. The current hierarchy for filing an Original Suit is detailed below. Filing in the wrong court will lead to the return of the plaint.
Civil Courts Hierarchy
Court of Civil Judge
Appeal lies to the District Judge.
Court of Senior Civil Judge
Appeal lies to the District Judge.
Court of Joint District Judge
Appeal lies to the District Judge.
Court of Joint District Judge
CRITICAL: Appeal lies directly to High Court.
V. Procedural Guide: Instituting the Suit
Step 1: The Legal Notice. While not explicitly mandatory for private contracts, serving a legal notice is highly recommended to establish a clear "Cause of Action". For Government disputes, Section 80 of the CPC makes a 2-month notice mandatory.
Step 2: Filing. The Plaint is filed with the Sherista (Administrative Office). Upon acceptance, the court issues Summons to the defendant.
Step 3: ADR. Under Section 89A, mediation is mandatory after the Written Statement is filed.
VI. Litigation Costs & Fee Calculator
Filing a money suit requires payment of court fees under the Court Fees Act, 1870. The system is Ad Valorem (based on value), but with a crucial ceiling that favors large commercial claims.
The Court Fee Formula
- Rate: Approximately 2.5% of the Claim Value.
- The Cap: Maximum fee is 50,000 BDT.
- Note: Whether you sue for 1 Crore or 100 Crore, the court fee never exceeds 50,000 BDT.
Court Fee Calculator
VII. Remedies for Breach
1. Monetary Damages
Based on Hadley v Baxendale. You are entitled to damages for loss that naturally arose from the breach.
2. Specific Performance
Governed by the Specific Relief Act 1877. Discretionary remedy compelling performance (e.g., land sale). Not granted if money is an adequate remedy.
VIII. Corporate Insolvency & Creditor Ranking
If the defaulting party is a limited company, creditors face a strategic choice: pursue a Civil Suit for a decree, or initiate Winding Up proceedings to force a settlement.
The "Inability to Pay" Test (Section 242)
- It owes a sum exceeding 5,000 BDT.
- A statutory demand is served via registered post.
- The company fails to pay within 3 weeks.
Creditor Priority (Section 325)
It is crucial to cite the correct provision in your winding up petition. In the current Companies Act, 1994, Section 325 is the key provision for creditor priority. It mandates that the "rules in insolvency" shall prevail in the winding up of an insolvent company. This effectively imports the hierarchical ranking of debts (the "Waterfall") used in insolvency law into corporate liquidation.
Preferential Payments
Before any other debts are paid, the liquidator must satisfy:
• Government Taxes and Revenues (due within the last 12 months).
• Wages/Salaries of clerks and servants (services rendered in the last 4 months).
• Wages of laborers and workmen.
Secured Creditors (Fixed Charge)
Creditors holding a fixed mortgage or charge on specific assets (e.g., land, machinery) generally stand outside the liquidation to realize their security.
Floating Charge Holders
Debenture holders secured by a floating charge on the company's general assets.
Unsecured Creditors
This includes most Contract Breach Claimants, trade suppliers, and service providers. They are paid pari passu (proportionately) from whatever assets remain after the above categories are satisfied.
IX. Execution of Decrees
Winning the suit is only half the battle. Enforcement requires filing an Execution Case under Order XXI of the CPC.
- Attachment and Sale: The court can seize bank accounts, land, or movable property and auction them.
- Police Assistance (2025 Update): Under the new CPC amendments, civil courts can explicitly order law enforcement agencies to assist in delivering possession of immovable property.
How LegalSeba LLP Can Assist You
As a top-tier corporate law firm in Bangladesh, LegalSeba LLP specializes in complex breach of contract claims, debt recovery, and corporate insolvency. We guide local and foreign claimants through the intricate legal maze of the Bangladeshi judicial system.
Trade Debt Recovery
Strategic issuance of Legal Notices and filing of Money Suits under the new pecuniary jurisdiction to recover dues swiftly.
Winding Up Petitions
Aggressive representation in the High Court for winding up insolvent debtor companies under Section 242 and 325.
Foreign Claimant Support
Full Power of Attorney (POA) representation for foreign entities, ensuring you don't need to fly to Bangladesh for every hearing.
