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Recovering Outstanding Business Payments in Bangladesh: Civil and Criminal Remedies

Introduction

The most effective way to recover an unpaid business debt in Bangladesh is rarely a single case. It is a planned combination of a formal demand, the right civil proceeding and, where the facts genuinely support it, a criminal complaint that puts lawful pressure on the debtor.

Unpaid invoices, bounced cheques and broken settlement promises are among the most common problems faced by suppliers, contractors, distributors and service providers. Courts are heavily backlogged, so the remedy chosen at the outset largely decides how fast, and whether, money is actually recovered.

This article explains the civil and criminal routes available to a creditor, how each works in practice, and how to choose between them.

First steps before any litigation

A strong file built in the first few weeks is worth more than any later argument in court.

Collect the paper trail. Contract or work order, purchase orders, delivery challans, invoices, ledger statements, emails and messages acknowledging the debt, and any cheques, promissory notes or guarantees.

Reconcile the account. Prepare a clear statement of the principal due, agreed interest or late-payment charges, and dates. Inflated or unclear figures weaken both civil and criminal cases.

Check the contract for a dispute clause. An arbitration clause usually means the dispute must go to arbitration rather than a civil court.

Send a lawyer's demand notice. A formal notice fixes the amount, sets a deadline and often produces payment or a settlement proposal. Where a cheque has bounced, the notice must meet the strict timelines of section 138 of the Negotiable Instruments Act, 1881 (explained below).

Watch the limitation clock. Under the Limitation Act, 1908, most suits for the price of goods, work done or money due must be filed within three years, generally running from the due date. A written acknowledgment of the debt signed by the debtor before the period expires restarts the clock (section 19), and so does a part-payment evidenced in the debtor's writing (section 20).

Assess the debtor. Identify bank accounts, land, vehicles, receivables and whether the debtor is an individual, a partnership or a company. A judgment against a debtor with no traceable assets has little value.

Civil remedies

Civil proceedings are the only route that produces an enforceable money decree for the full debt, including interest and costs. Their weakness is time.

1. Money suit for recovery

The standard route is a money suit under the Code of Civil Procedure, 1908 before the Joint District Judge or Assistant Judge, depending on the claim value.

What you get: a decree for the principal, contractual or court-awarded interest (section 34 CPC) and costs.

Cost: ad valorem court fees under the Court Fees Act, 1870, calculated on the amount claimed, plus lawyer's fees.

Summary procedure: where the claim rests on a negotiable instrument such as a promissory note or bill of exchange, a summary suit under Order XXXVII CPC may be available, depending on the court. The defendant then needs leave to defend, which shortens uncontested claims.

Interim protection: where the debtor is likely to dispose of or remove property to defeat the decree, the court may order attachment before judgment (Order XXXVIII CPC) or grant a temporary injunction (Order XXXIX CPC). These orders often bring a debtor to the table early.

Mediation inside the suit: after the written statement is filed, the court may refer the dispute to mediation under section 89A CPC. A settlement reached there is recorded as a decree and the court fee is refundable.

Practical reality: a contested money suit commonly takes several years at first instance, and appeals add more.

2. Execution of the decree

A decree is only paper until it is executed. Under Order XXI CPC the decree-holder can seek attachment and sale of the debtor's movable and immovable property, attachment of bank accounts and debts owed to the debtor, and in limited cases civil detention of a judgment-debtor who has means but refuses to pay. Execution is where advance asset-tracing pays off.

3. Arbitration

Where the contract contains an arbitration clause, the claim proceeds under the Arbitration Act, 2001. If a party files a suit despite the clause, the court must refer the matter to arbitration on application (section 10).

Advantages: party choice of arbitrator, confidentiality and usually a faster final decision than a contested suit.

Enforcement: an award becomes enforceable as a court decree once the period to apply for setting aside has passed, or that application is refused (section 44). Setting aside is available only on limited grounds (section 43).

Interim measures: the court can grant interim protection, including preservation of assets, before or during arbitration (section 7A).

4. Winding-up petition against a corporate debtor

A winding-up petition asks the Company Bench of the High Court Division to dissolve a debtor company because it cannot pay its debts. Its real value to a creditor is pressure. A solvent company facing a credible petition will usually pay or settle rather than risk a liquidator taking over its business.

When a company is "unable to pay its debts". Inability to pay is a ground for winding up by the court (Companies Act, 1994, s.241(e)). Under s.242(1), a company is deemed unable to pay its debts in any of three situations:

Statutory demand unmet. It owes a creditor more than Tk 5,000. The creditor serves a signed written demand at the registered office, by registered post or otherwise. The company then neglects for three weeks to pay, to secure the debt to the creditor's reasonable satisfaction, or to compound for it. The creditor's lawyer or authorised representative may sign the demand (s.242(2)).

Decree unsatisfied. Execution of a court decree or order in the creditor's favour is returned unsatisfied in whole or in part.

Insolvency proved. It is proved to the court's satisfaction that the company cannot pay its debts, taking contingent and prospective liabilities into account.

The official Bengali text of s.242 sets the threshold at Tk 5,000. Some older commentaries still state Tk 500.

Who may petition. Any creditor may petition, including a contingent or prospective creditor (s.245). A contingent or prospective creditor must give security for costs and show a prima facie case.

Procedure in outline.

Serve the s.242 demand and wait three weeks.

File the petition under ss.241(e), 242 and 245. Attach the demand, proof of service and the documents proving the debt.

At the hearing the court may dismiss the petition, adjourn it, make an interim order, or order winding up and appoint a liquidator (s.249). An Official Liquidator then takes control of the company's assets and affairs.

Effect of the petition and the order.

Commencement relates back. Winding up by the court is deemed to begin when the petition is filed (s.247), not when the order is made.

Interim protection. Once a petition is filed, the court may stay other suits against the company and grant injunctions (s.248).

Stay of proceedings. After a winding-up order, or the appointment of a provisional liquidator, no suit may begin or continue against the company without the court's leave (s.250).

Mortgaged or empty company. The court cannot refuse winding up merely because the assets are mortgaged for their full value, or because the company has no assets (s.249 proviso).

Admitted debts succeed. In Company Matter No. 54 of 2023 (judgment of 23 October 2025), the respondent never disputed or objected to the amount claimed. The petition was allowed and an Official Liquidator appointed.

Where the creditor is a bank.

Artha Rin Adalat first. The Artha Rin Adalat Ain, 2003 is the special law for loan recovery. The Companies Act supplements it but does not displace it (A.N. Sharif Uddin v. Ornate Services Ltd., 76 DLR 378). Banks are "duty bound to file Artha Rin Suits and Execution Cases".

Directors cannot use winding up to freeze recovery. In Company Matter No. 613 of 2025 (order of 5 November 2025), the directors of a defaulting textile company petitioned to wind up their own company and sought a stay of the bank's cases. The High Court Division refused that stay, so the bank could continue its Artha Rin execution and cheque cases. It instead stayed the winding-up petition until the bank had recovered its dues.

Mortgage debt alone is not enough. An unpaid mortgage debt is not by itself a ground for winding up (Bangladesh Shilpa Bank v. S.S. Mujibullah, 29 DLR 7).

An unsatisfied decree is. A bank holding an unsatisfied Artha Rin decree falls within s.242(1)(b), and can use the prospect of winding up as added leverage.

Practical implications for a trade creditor.

Strengths: faster than a money suit, no ad valorem court fee, and strong pressure on directors. It works best against a solvent company that can pay but will not.

The debt must be undisputed. If the company raises a bona fide dispute about whether the debt exists or how much it is, the petition will be dismissed. The creditor is then left to a suit or arbitration. Winding up is not a way to try a contested claim, so written admissions of the debt are critical.

Benefit to the petitioner. A petitioner should be able to show that winding up will benefit it (Mazharul Haque v. Bulk Management (Bangladesh) Ltd., 48 DLR 453).

Insolvent debtors. Where the company is truly insolvent, unsecured creditors rank behind secured creditors and preferential claims such as government dues, so recovery may be small.

Abuse. A petition presented only to pressure payment of a disputed debt risks dismissal with costs.

The best use is an admitted or decreed debt owed by a company that is able to pay. A properly drafted s.242 demand often produces payment before any petition is filed.

5. Special recovery regimes

Banks and financial institutions recover loans through the Artha Rin Adalat (Money Loan Court) Ain, 2003, which is not available to ordinary trade creditors.

Pre-case mediation: the Legal Aid Services (Amendment) law now makes mediation at the district legal aid office compulsory before filing certain disputes in designated districts. As reported, these currently cover family, partition, pre-emption, rent and similar matters rather than ordinary commercial debts, but the list is expanding and should be checked before filing.

Criminal remedies

Criminal law does not exist to collect debts, but where a debtor has issued a cheque that bounces, or obtained goods or money by deception, it provides a lawful and often decisive source of pressure.

1. Dishonour of cheque: section 138, Negotiable Instruments Act, 1881

This is the most widely used and most effective recovery tool in Bangladesh. A cheque that is returned unpaid for insufficient funds, or for exceeding the arranged amount, exposes the drawer to prosecution.

The procedure is strict, and a missed deadline is fatal:

Present the cheque to the bank within six months of its date, or within its validity period, whichever is earlier.

Send a written notice demanding payment within 30 days of receiving the bank's dishonour information.

Allow the drawer 30 days from receipt of the notice to pay the cheque amount.

File a written complaint within one month after that 30-day period expires (section 141(b)).

Key features:

Penalty: imprisonment up to one year, or a fine up to three times the cheque amount, or both. Out of the fine realised, the court can pay the complainant up to the face value of the cheque (section 138(2)).

Presumption in the complainant's favour: the law presumes the cheque was issued for consideration (section 118(a)). The accused must rebut it.

Which court: after the Negotiable Instruments (Amendment) Act, 2026, a cheque above Tk 5 lakh is tried by a (Metropolitan) Joint Sessions Judge, and smaller cheques by a Metropolitan Magistrate or Magistrate of the first class (section 141(c)). The change widens the number of courts hearing these cases.

50% deposit for appeal: a convicted drawer cannot appeal without first depositing at least 50% of the cheque amount (section 138A). The High Court Division regularly allows the complainant to withdraw that deposit. This is a powerful practical lever.

Settlement: many cases settle once the accused faces trial. The High Court Division has repeatedly treated recovery of the cheque amount as a central purpose of these proceedings.

2. Cheating and criminal breach of trust: Penal Code, 1860

Where there is no cheque, a creditor may consider a complaint for cheating (section 420) or criminal breach of trust (section 406). These offences fit only the right facts. Our companion article, Crime or Commerce? When a Business Deal Becomes Cheating in Bangladesh, covers the subject in detail. The essentials are:

Deceit at the start. Cheating needs a dishonest intention when the money or goods changed hands. A later failure to pay is a breach of contract (Prof. Dr. Motior Rahman v. State, 3 SCOB [2015] AD 1; Penal Code s.415, Illustrations (f) and (g)).

No entrustment in a loan or sale. Money lent, or paid as a price, belongs to the recipient. Failing to return it is not breach of trust (Md. Reazuddin Ahmed v. State, 49 DLR (AD) 64).

Running-account dues are civil. Dues arising on settling accounts after years of trade "cannot form the basis of any criminal proceeding" (Syed Ali Mir v. Syed Omor Ali, 42 DLR (AD) 240). Part payment usually negates initial deception (Dewan Obaidur Rahman v. State, 4 BLC (AD) 167).

When it does fit. Delivery induced by a specific false promise of payment (Arifur Rahman v. Shantosh Kumar Sadhu, 46 DLR (AD) 180), or an advance taken for goods and diverted at once to another purpose (Sree Gopal Chandra Barman v. Md. Nasirul Hoque, 1 SCOB [2015] AD 35).

A bounced cheque alone is not cheating. It does not by itself make out section 420 (M.A. Sukkur v. Md. Zahirul Haque, 23 BLT (AD) 76). The remedy is section 138.

Outcome. A conviction does not produce a money decree, although the court may direct that all or part of a fine be paid to the victim as compensation (CrPC s.545).

Risk of misuse. A complaint that describes only an unpaid debt is likely to be quashed under CrPC s.561A. It can also expose the complainant to compensation under CrPC s.250, or prosecution for a false charge under Penal Code s.211.

Practical limits of the criminal route

The court's primary job is to decide guilt; recovery is a by-product of fine and settlement.

Recovery through section 138 is capped by the face value of the cheque. Interest and the rest of the account still need a civil claim.

Trials and appeals can still take years, though the 50% deposit rule reduces the incentive to appeal for delay.

Practical implications compared

Civil remedies recover the whole debt but slowly; criminal remedies move debtors faster but recover less and carry more risk if misused.

Securing payment from dealers and trade customers

For a manufacturer or distributor selling on credit, the cheapest recovery is the one prepared before the goods leave the warehouse. The steps below make payment more likely, and they make every remedy described above faster and stronger if a dealer defaults.

1. A written dealership or distribution agreement

Many disputes arise from relationships that run on trust and verbal terms. A signed agreement, properly stamped under the Stamp Act, 1899, should cover:

Credit terms: a credit limit per dealer, the credit period, and the right to stop supply once dues are overdue or the limit is reached.

Interest on late payment: an agreed rate, which a court can award as contractual interest.

Balance confirmation: an obligation on the dealer to sign periodic statements of account.

Retention of title: ownership of the goods stays with the seller until they are paid for. The Sale of Goods Act, 1930 lets the parties decide when property passes.

Set-off and adjustment: the right to apply security deposits, incentives, commissions and returns against outstanding dues.

Termination and exit: what happens to stock, dues and security on termination, with a final reconciliation.

Notices and disputes: a fixed address for notices, which is essential for section 138 and s.242 demands, and an arbitration clause or chosen court.

2. Security that works without a court

3. Credit controls in daily practice

Know the customer. Before granting credit, collect the trade licence, TIN and BIN, the proprietor's NID, bank details and trade references. For a company dealer, search its RJSC records for directors and existing charges.

Keep the paper trail clean. Every delivery should be backed by an invoice and a delivery challan signed and sealed by the dealer. These documents decide most recovery cases.

Take payment through banks. Payment by bank transfer, cheque or mobile financial services leaves a record. Cash collected by sales staff is the most common source of disputed accounts.

Obtain signed balance confirmations. A written acknowledgment of the balance, signed before the limitation period expires, starts a fresh three-year period (Limitation Act, 1908, s.19). It also helps establish an admitted debt for a winding-up petition.

Enforce the credit limit. Stop or reduce supply as soon as a dealer exceeds the limit or the period. Unpaid balances that keep growing are the hardest to recover.

Act early on default. Send a demand notice within weeks, not months. Where the dealer is a company, the notice can also serve as a s.242 statutory demand.

4. Rights of an unpaid seller over the goods

While goods remain in the seller's possession or in transit, the Sale of Goods Act, 1930 gives an unpaid seller rights over the goods themselves (s.46):

a lien, which allows the seller to retain goods still in its possession until paid (s.47);

stoppage in transit, which allows the seller to stop goods already dispatched if the buyer becomes insolvent (s.50); and

a right of resale in the circumstances the Act allows (s.54).

These rights are most useful when a dealer's financial difficulty becomes apparent while orders are still being dispatched.

Good documentation also shapes any later criminal case. As our companion article explains, cheating turns on what was represented when the goods were supplied. A written order recording the dealer's payment commitment makes deceit provable if it existed. If it did not, the documents give a clean civil claim.

Choosing a strategy

In most cases the strongest position is to run the remedies together rather than choose one.

A bounced cheque plus a larger running account: file the section 138 complaint within time to secure fast pressure on the cheque amount, and a money suit (or arbitration) for the balance, interest and costs. The two proceedings are independent and can run side by side.

A company debtor that does not dispute the debt: a statutory demand followed by a winding-up petition is often the quickest route to payment.

A disputed claim with an arbitration clause: start arbitration promptly and seek interim protection of assets from the court.

Signs the debtor is moving assets: apply at once for attachment before judgment or an injunction; delay is the creditor's biggest enemy.

Avoid misuse of criminal law. A criminal complaint over a purely contractual dispute is likely to be quashed and can damage the creditor's credibility in the civil case, as the decisions collected in our companion article show.

When a criminal case is advisable

A criminal case is worth filing only when the facts fit the offence. Used in the right case it is the quickest lever available. Used in the wrong case it delays recovery and invites a counter-case.

Advisable when:

A cheque has bounced and every section 138 deadline can still be met: presentation within six months, notice within 30 days, and complaint within one month after the 30-day payment period. This is the strongest case for criminal action. The 50% deposit rule for appeals and the presumption of consideration both favour the creditor.

Delivery was induced by a specific false promise, for example goods released on an assurance of payment within days that was refused at once (Arifur Rahman).

An advance was taken and diverted at once to a purpose never intended, with nothing supplied (Sree Gopal Chandra Barman).

Entrusted property was misused: goods pledged or held as agent, or money collected for the creditor, sold, substituted or kept.

Post-dated cheques or a written undertaking given in a settlement were deliberately stopped or dishonoured.

Not advisable when:

The claim is the unpaid balance of a running account or a long trading relationship (Syed Ali Mir).

The debtor has made part payments or rescheduled, which usually negates deceit at the start.

The debt is a loan or sale price with no false representation when the money was paid (Reazuddin).

The only purpose is pressure. Such cases are routinely quashed under CrPC s.561A and can lead to compensation under s.250 or prosecution under Penal Code s.211.

Even where a criminal case is right, it rarely recovers the whole claim. Interest and any balance beyond the cheque amount still need a civil suit or arbitration filed alongside it.

When a winding-up petition is advisable

A winding-up petition is the most effective tool against a company that can pay but will not. It is the wrong tool for a disputed claim.

Advisable when:

The debtor is a company and owes more than Tk 5,000.

The debt is admitted or decreed: acknowledged in writing, confirmed in reconciled accounts, or embodied in a decree or arbitral award that remains unsatisfied (s.242(1)(b)).

The company is solvent and trading, so the threat to its business, banking relationships and directors creates real pressure to pay.

A statutory demand under s.242 has gone unanswered for three weeks, with no dispute raised in reply.

The company is ignoring a decree, and winding up offers a faster route than lengthy execution proceedings.

Not advisable when:

The company has raised, or can credibly raise, a bona fide dispute about the existence or amount of the debt. The petition will fail and costs may follow.

The company is already hopelessly insolvent with assets fully charged to banks, so that unsecured creditors would receive little.

The creditor is a bank whose primary route is the Artha Rin Adalat. Winding up can supplement that route, but does not replace it (A.N. Sharif Uddin).

The debtor is an individual or partnership, against whom the Companies Act does not apply.

Practical sequence

For most unpaid commercial debts, this order of steps works best:

Send a lawyer's demand notice. Where the debtor is a company, frame it so that it also serves as a s.242 statutory demand.

If a cheque bounces, start the section 138 timetable immediately.

If the debt is admitted and the debtor is a solvent company, consider a winding-up petition after the three-week period.

If the debt is disputed, file a money suit or begin arbitration, and seek attachment before judgment if assets are at risk.

Keep criminal complaints under the Penal Code for cases with clear evidence of deceit or misappropriation.

The common thread is timing. Limitation periods, the one-month window under section 141(b) and the 30-day notice rules leave little room for delay.

How Justice Corner can help

Justice Corner acts for creditors at every stage of recovery.

Assessing the claim. We review the contract, invoices, correspondence and cheques, confirm limitation, and identify the strongest forum: suit, arbitration, winding up or a cheque-dishonour complaint.

Notices that meet the deadlines. We draft demand notices and section 138 notices so that the strict time limits are met and nothing is lost on a technicality.

Protecting assets early. We trace the debtor's assets and apply for attachment before judgment, injunctions, or interim measures in support of arbitration.

Running parallel proceedings. Where the facts support it, we file the cheque-dishonour complaint and the money claim together, so that each strengthens the other.

Enforcement. We execute decrees and arbitral awards against bank accounts, receivables and property, and document any settlement so it is binding and enforceable.

Securing the next deal. We draft dealership and distribution agreements, guarantees, security documents and dispute clauses for manufacturers and distributors. These make future recovery quicker and keep disputes in the right forum.

Early advice often decides the outcome. Contact Justice Corner for a consultation.

This article is general information on the law of Bangladesh as at the date shown above. It is not legal advice. Statutes and procedure are amended from time to time, and every case turns on its own facts and documents.

Cases referred to