Tk12,000cr stuck in interbank legal battles over LC guarantees
One such case is a 23-year-old dispute between Uttara Bank and Sonali Bank that began in 2002 over 57 post-dated cheques issued by Chattogram Tobacco Company.
Already struggling under a huge non-performing loan crisis and a severe demand slump, Bangladesh's banking sector faces another challenge: escalating legal battles between banks.
Rising disputes over Inland Bill Purchase (IBP) facilities and Letter of Credit (LC) bank guarantees have entangled over Tk12,000 crore in Money Loan Courts countrywide, signalling a breakdown in inter-bank trust.
One such case is a 23-year-old dispute between Uttara Bank and Sonali Bank that began in 2002 over 57 post-dated cheques issued by Chattogram Tobacco Company.
Keep updated, follow The Business Standard's Google news channel
Chattogram-based Prime Global Ltd presented the cheques to Uttara Bank and obtained IBP financing against them. The cheques were drawn on Sonali Bank accounts, which endorsed each as "Good for Payment" and later reconfirmed the assurance in writing.
Relying on the assurance, Uttara Bank extended around Tk15.46 crore in IBP financing to Prime Global. But all 57 cheques were dishonoured between November 2002 and February 2003.
Uttara Bank subsequently filed a case with a Dhaka money loan court in 2003, seeking around Tk17.88 crore. The court issued a decree against Sonali Bank in 2006.
Sonali Bank challenged the decree in the High Court in 2007, but its petition was dismissed. It then appealed to the Appellate Division, which upheld the verdict in August last year.
The Money Loan Court has yet to implement the decree, leaving Uttara Bank unable to recover the money. Repeated calls and text messages to Sonali Bank Managing Director Shawkat Ali Khan seeking comment on the matter went unanswered.
Mohammad A (Rumee) Ali, former chairman of AB Bank, said many countries use arbitration tribunals to settle such disputes, while courts in developed countries often require parties to pursue alternative dispute resolution (ADR) before litigation.
"Bangladesh could adopt such mechanisms," he said, calling for clear guidelines empowering the central bank to act against banks whose conduct leads to such disputes.
Tk12,000cr stuck in legal battles
Data from the Supreme Court and money loan courts show that 7,354 such cases, involving nearly Tk12,000 crore, were pending nationwide as of June. Four money loan courts in Dhaka accounted for 3,634 cases involving Tk6,500 crore.
Banks filed around 578 lawsuits against other banks in January-June this year, involving nearly Tk2,000 crore. The number was 843 in 2025, involving around Tk2,000 crore; 715 in 2024, Tk1,200 crore; 1,123 in 2023, Tk2,500 crore; and 1,223 in 2022, Tk3,000 crore.
Despite the volume of litigation, case disposal remains very low.
Supreme Court data show that only 72 cases involving around Tk300 crore were disposed of in 2025, compared with just 26 cases involving about Tk80 crore in 2024.
When can a bank sue another bank
IBP is a commercial financing facility offered by banks. Under the facility, banks provide cash or advance payment against bills or documents to individuals or suppliers soon after goods are delivered, typically against a domestic LC or a sales contract.
Imran Ahmed Bhuiyan, banking and company law expert, told TBS that Section 2(c)(2) of the Money Loan Court Act 2003 covers liabilities arising from IBP, guarantees, indemnities, LCs and other financial arrangements.
He said LCs are widely used in domestic and international trade, where one bank may act as a guarantor for another. In domestic trade, banks commonly use the IBP system.
"Such arrangements may involve two local banks or a local bank and a foreign bank," he said. "If the guarantor bank fails to pay the negotiating bank, the latter can file a case to recover the outstanding amount."
Banks can also sue over indemnities. For instance, one bank may issue a written indemnity guaranteeing payment to a customer or settlement of an LC bill, he added.
"If the customer receives the money but fails to repay, the bank that made the payment can sue the indemnifying bank to recover the amount," said the expert.
First inter-bank lawsuit
Velvet Textile Mills opened an LC through City Bank's Principal Office in Motijheel in 2001 to purchase cotton from Square Yarn, a cotton producer. The LC was worth around $40,000.
Square Yarn maintained its banking relationship with Mercantile Bank's Motijheel Main Branch. City Bank was the issuing bank, while Mercantile Bank was the negotiating bank.
After the shipment, Square Yarn sent the shipping documents to City Bank through Mercantile Bank. City Bank found the documents in order and assured Mercantile Bank that payment would be made within 120 days.
Based on that assurance, Mercantile Bank paid $40,000 to the seller. However, City Bank failed to reimburse Mercantile Bank even after three years.
Mercantile Bank subsequently filed a case against City Bank in Dhaka Money Loan Court-1 in 2004 to recover the outstanding amount.
In 2006, the court issued a decree in favour of Mercantile Bank for around Tk35 lakh, including interest, and City Bank subsequently paid the amount.
A lawyer who represented Mercantile Bank told TBS that it was the first case in Bangladesh in which one bank sued another under the Money Loan Court Act 2003.
MA Shahjahan, then manager of Mercantile Bank's Main Branch, said domestic LCs were also denominated in US dollars at the time. "Bangladesh Bank made taka mandatory for domestic trade transactions only about six months ago."
Slow case disposal
In 2013, Jamuna Bank sued Premier Bank at the Chattogram Money Loan Court. Jamuna Bank had guaranteed four LCs opened by a businessman to import goods from abroad and is seeking around Tk8 crore. Court officials said the case is still pending.
In early 2023, Premier Bank filed a case against Bangladesh Krishi Bank with Dhaka Money Loan Court-1, seeking Tk9 crore. Court sources said Krishi Bank had acted as guarantor for a customer's LC but failed to make the payment on time. The case remains unresolved.
What BB says
Bangladesh Bank spokesperson and Executive Director AriefHossain Khan said the Arbitration Act provides for resolving disputes between banks.
He said such disputes sometimes arise over LCs, but cases are not necessarily filed solely against the bank. The party involved in the underlying transaction is also made a defendant.
"When the court finds the bank liable, it issues a decree against the bank," he said. "The Bangladesh Bank has issued guidelines to help resolve such disputes, but their disposal ultimately falls under the courts' jurisdiction."
