Bank Guarantee Encashment Disputes in Bangladesh: Rights and Remedies (2026)

Bank guarantee encashment Bangladesh disputes: the 2026 position

Bank guarantee encashment Bangladesh disputes are decided less by who is right on the project than by what the guarantee says, when the demand arrived and which court is asked to intervene. A beneficiary holding an unconditional demand guarantee can, in most cases, turn it into cash within days. An applicant who believes the call is unjustified has a narrow window, a short list of arguments and a body of Appellate Division authority that treats bank guarantees as almost untouchable. Between them sits the issuing bank, which must pay a compliant demand and must not pay one that is not.

This guide focuses on the encashment fight itself. It explains how a call is made and examined, the disputes that arise between applicant, beneficiary and bank, the fraud exception and the limits of the "irretrievable injustice" argument in Bangladesh, the conflicting High Court Division decisions on section 7A of the Arbitration Act 2001, the guarantee rules in the 2025 public procurement documents, counter-guarantees and Bangladesh Bank's foreign-exchange rules, and a litigation strategy for each side. The basics of issuing and drafting a guarantee are covered in our companion guide to bank guarantees in Bangladesh.

Summary: A bank guarantee in Bangladesh is treated as an independent contract between the bank and the beneficiary. If a demand conforming to the guarantee is presented before expiry, the bank must pay, and the Appellate Division has long held that courts will not restrain payment except for fraud of which the bank has notice. Contract disputes, counterclaims and pending arbitration do not usually stop encashment. The live questions are whether the demand complies, whether there is clear fraud, and whether section 7A of the Arbitration Act 2001 offers interim protection, on which High Court Division benches currently disagree.

Key point: In Pubali Traders v Ministry of Food (9 December 2025) a Division Bench of the High Court Division restrained encashment of a US$1.19 million performance guarantee under section 7A of the Arbitration Act 2001 pending a challenge to the award, holding that the Appellate Division cases arose under Order 39 of the Code of Civil Procedure and that the Arbitration Act is a special law. Other benches have refused such relief in 2024 and 2025. Until the Appellate Division resolves the point, every bank guarantee encashment Bangladesh dispute linked to arbitration carries real forum risk on both sides.

At a glance

Swipe or scroll →

Table of Contents

How bank guarantee encashment Bangladesh law treats the bank's promise

Every guarantee involves at least three relationships: the contract between applicant and beneficiary, the guarantee between bank and beneficiary, and the counter-indemnity between applicant and bank. Bangladesh courts analyse the second relationship on its own terms. In Southern Solar Power v Bangladesh Power Development Board and ABP India v Power Grid Company of Bangladesh, as cited to the Court in a December 2025 Division Bench case, the High Court Division described a bank guarantee as an independent contract between the bank and the beneficiary, even though the bank enters it at the request of a third party.[2]

The Contract Act 1872 still supplies the vocabulary. Counsel and courts routinely start from section 126, which defines a contract of guarantee by reference to a surety, principal debtor and creditor.[1] But the commercial instrument that banks issue for tenders, advances and performance is usually a demand guarantee: a promise to pay on presentation of a demand, not a promise to pay only once default is proved. That distinction drives everything that follows.

The Appellate Division line

The leading authority is Uttara Bank v Macneill & Kilburn, 33 DLR (AD) 298, decided in 1981. As quoted by the High Court Division in 2025, the Appellate Division held that the contract to pay is "absolutely obligatory", that no direction can be made on the bank to withhold payment, and that the only exception is "fraud of which the bank has notice".[4] The Appellate Division adopted Lord Denning's reasoning in Edward Owen Engineering v Barclays Bank [1978], which holds that the bank is not concerned with whether the supplier has performed or is in default and must pay on demand if the guarantee says so.[4]

Later decisions have reinforced the rule. Smart Apparels v Hanvit Bank, 57 DLR (AD) 194, and Nuvista Pharma v National Board of Revenue, 65 DLR (AD) 302, are cited for the proposition that an injunction on a bank guarantee cannot be sustained, and Gooryonly (BD) Textile v Chatkar Information Holding, 54 DLR (AD) 70, is cited to the same effect.[2] [4] A decision reported at 17 BLD (AD) 49 adds that courts are reluctant to interfere with commercial transactions carried out through guarantees and that, if the applicant later succeeds in arbitration, its loss can be compensated in money.[3]

Why independence has real commercial value

Independence is the reason a beneficiary accepts a bank guarantee instead of the applicant's own promise: if every call could be frozen while the parties argued about defects or delay, the instrument would be worth little more than a contract claim. In Unique Cement Industries v Bangladesh Bank (8 May 2025), the High Court Division treated performance guarantees, letters of guarantee, letters of credit and documentary credits as cognate instruments governed by the same autonomy principle.[4] Disputes about letters of credit therefore draw on the same authorities; our note on letters of credit and telegraphic transfers explains how LCs work in trade.

Performance, advance payment and bid guarantees: what each one secures

The three instruments most often called in Bangladesh serve different purposes, and the scope of a valid demand depends on which one is in play.

Bid guarantees and tender security

A bid guarantee secures the tenderer's commitment during the tender process. The BPPA standard tender document for national goods procurement, issued in October 2025 under the Public Procurement Rules 2025, requires tender security in the form of a bank draft, pay order or irrevocable unconditional bank guarantee from a scheduled bank in the prescribed form, payable promptly on the procuring entity's written demand and valid for at least 28 days beyond tender validity.[6] The guidance note caps the amount at three per cent of the official estimated cost.[6]

Forfeiture grounds are closed. The tender security may be forfeited if the tenderer fails to furnish performance security, furnishes performance security found to be unauthentic, refuses or fails to sign the contract, or engages in corrupt, fraudulent, collusive, coercive or obstructive practice.[6] The prescribed guarantee form adds withdrawal of the tender during validity and refusal to accept correction of arithmetic errors, and requires a demand accompanied by a written statement identifying the breach.[6]

Performance guarantees

A performance guarantee secures completion of the contract. Under the national goods document it is ten per cent of the contract price, must be furnished within seven working days of the notification of award by reference to Rule 123(7) of the Public Procurement Rules 2025, and must remain valid until 28 days beyond the intended completion date.[6] The national works document for contracts above BDT 5 crore sets the rate at five per cent of the contract price.[7] In both documents the proceeds are payable "unconditionally upon first written demand" as compensation for the contractor's failure to complete its obligations.[6] [7]

Advance payment guarantees

An advance payment guarantee secures repayment of a mobilisation advance. The works document provides for an irrevocable unconditional guarantee equal to the advance, recommends a maximum advance of ten per cent of the original contract price, and states that the guarantee amount is progressively reduced as the advance is amortised.[7] If amortisation is not complete 28 days before the guarantee expires, the contractor must extend it, and the guarantee is released once the advance is fully amortised.[7] A call for the face amount after substantial amortisation invites the argument that the demand exceeds the guarantee's reduced value.

The encashment process, step by step

In bank guarantee encashment Bangladesh practice, a call under a demand guarantee is a documentary exercise. The bank examines what is presented against what the guarantee requires. It does not investigate the project.

What a complying demand looks like

The BPPA performance guarantee form for goods is typical of Bangladesh public-sector wording. The bank undertakes to pay "without cavil or argument" up to the guaranteed sum on receipt of the procuring entity's first written demand, accompanied by a written statement that the supplier is in breach, "without you needing to prove or show grounds or reasons" for the demand. Any demand must be received at the stated office on or before the validity date.[6] A demand that omits the statement of breach, lacks authority, exceeds the cap or arrives late at the wrong office does not comply.

Commercial guarantees vary more widely. Some adopt the ICC Uniform Rules for Demand Guarantees (URDG 758); others are drafted from scratch; some contain conditions that require a certificate, an arbitral award or a court judgment. The guarantee text, not the label on it, decides what the bank must see. In Haji Traders v Aman Cement Mills (21 January 2024), the guarantee stated that the beneficiary's demand would be "conclusive proof of default" and that payment would be made within three calendar days. The High Court Division treated that wording as decisive in refusing to restrain encashment.[3]

How URDG 758 structures the call

URDG 758 came into force on 1 July 2010, replacing URDG 458, and contains 35 articles.[10] Article 2 defines a guarantee as any signed undertaking providing for payment on presentation of a complying demand, a definition Bangladesh counsel have relied on and the High Court Division has applied to local guarantees.[1] [4] Under URDG 758 a complying demand must be supported by a statement indicating in what respect the applicant is in breach, the guarantor has five business days after presentation to examine it under Article 20, and a guarantee with no expiry date terminates three years after issue.[10]

Two further URDG features matter. Where the beneficiary demands "extend or pay", the guarantor may suspend payment for up to 30 calendar days while the applicant decides whether to extend. If the guarantee expires while force majeure prevents presentation or payment, it is extended for 30 calendar days.[10] Neither rule applies unless the guarantee incorporates URDG 758. Bangladesh Bank requires authorised dealers to observe internationally accepted best practice guided by the latest URDG, UCP and ISP, but that is a regulatory standard for banks, not an automatic incorporation of the rules into every guarantee.[8]

From demand to debit

The issuing branch receives the demand, checks signatures and authority against the guarantee, and notifies the applicant. In Haji Traders, the bank received the beneficiary's letter dated 18 December 2019 and wrote to the applicant the next day asking it to deposit the guaranteed amount.[3] That notice is often the applicant's first warning. The bank then pays from its own funds, debits any cash margin, and looks to the applicant under the counter-indemnity for the balance.

Disputes between applicant, beneficiary and bank

Most disputes fall into one of four patterns, and each needs a different response.

Applicant against beneficiary: the "unjustified call"

The applicant says there was no breach, or that the beneficiary caused the delay or owes unpaid bills. These are contract arguments. In Kamrul Ashraf Khan v Bangladesh Chemical Industries Corporation (9 July 2025), a fertiliser carrier blamed warehouse refusals, pandemic disruption and unpaid bills. The High Court Division held that a bank guarantee is a separate contract that can be encashed at any time before expiry and refused to interfere, noting that the carrier did not allege fraud.[1] The contract arguments survive; they simply belong in the damages claim or arbitration, not in an application to freeze the guarantee.

Applicant against bank: "do not pay"

A bank that refuses a complying demand on the applicant's instruction breaches its own undertaking. A bank that pays a demand which plainly does not comply, however, may lose its right to reimbursement. Section 145 of the Contract Act 1872 entitles a surety to recover from the principal debtor "whatever sum he has rightfully paid under the guarantee".[11] The applicant's strongest letter to the bank is therefore not a plea about the merits but a specific, documented explanation of why the demand fails the guarantee's own terms.

Beneficiary against bank: refusal or delay

Beneficiaries also face banks that delay, negotiate or refuse. Unique Cement Industries v Bangladesh Bank is the clearest recent example. The beneficiary demanded payment of a Tk 50 lakh guarantee on 20 December 2015, well before its April 2016 expiry. The bank did not pay, an injunction was obtained in the meantime, the guarantee expired while the injunction was in force, and the bank cancelled it.[4] In May 2025 the High Court Division held that the demand had been made in time, that the injunction "was not an informed decision" in light of Appellate Division authority, and that the bank had no ground to refuse payment.[4]

The remedy was unusual. Holding that sections 45 and 49 of the Bank Companies Act 1991 give Bangladesh Bank power to issue mandatory and prohibitory directions to banks, the Court directed it to take effective action for encashment within 30 days.[4] A regulatory complaint followed by a writ can therefore be a route to payment.

Disputes involving public authorities and revenue guarantees

Guarantees are also given to customs and tax authorities, often to release goods. In Perfetti Van Melle Bangladesh v Commissioner of Customs, the High Court Division stayed an order directing the bank to encash a customs guarantee of about Tk 13.98 lakh, on condition that the importer file a statutory appeal under section 196A of the Customs Act 1969.[5] Where the beneficiary is a public authority acting under statute, writ and statutory appeal routes may be available. Nuvista Pharma, however, shows that even in revenue cases the Appellate Division resists injunctions on the guarantee itself.[4]

Fraud, unconscionability and irretrievable injustice in Bangladesh courts

The single recognised exception in bank guarantee encashment Bangladesh law is fraud. The way it is framed matters: the Appellate Division spoke of fraud "of which the bank has notice", and the High Court Division has repeated that formulation in 2025.[1] [4] The fraud must relate to the demand or the guarantee transaction and must be clear enough that the bank knows of it before paying. A disputed allegation that the beneficiary is wrong about breach is not fraud.

What fraud looks like in practice

Arguable fraud cases involve a demand asserting facts the beneficiary knows to be false: a statement of breach after a completion certificate, a call for advance sums already amortised, or a forged or altered instrument. The evidence must be documentary and contemporaneous. Bangladesh courts have not, in the decisions reviewed for this guide, granted relief on the basis of inference or suspicion.

Irretrievable injustice and special equities

Applicants often import the Indian "irretrievable injustice" or "special equities" exception. Indian Supreme Court decisions such as U.P. State Sugar Corporation v Sumac International (1997) and Dwarikesh Sugar Industries v Prem Heavy Engineering Works (1997) recognise it, but set a high bar: the applicant must show that recovery from the beneficiary would be impossible after payment, and the fraud limb requires fraud that is egregious and vitiates the very foundation of the guarantee.[13]

The Bangladesh position is narrower. The 2024 and 2025 High Court Division judgments reviewed for this guide, and the Appellate Division decisions they cite, describe fraud as the "only exception" and do not recognise irretrievable injustice as a freestanding ground.[1] [4] Indian authority may be persuasive, but cash-flow pressure, reputational harm and debarment risk have not been treated as sufficient. The more credible argument is a combination: clear fraud, plus evidence that the beneficiary is insolvent, offshore or otherwise unable to repay.

Unconscionability

Some common law jurisdictions allow restraint of unconscionable calls short of fraud. That doctrine has no established footing in bank guarantee encashment Bangladesh case law, and it should be raised, if at all, alongside a fraud or compliance argument rather than in place of one.

Section 7A of the Arbitration Act 2001: the split in the High Court Division

Most performance and advance payment guarantees sit under contracts with arbitration clauses. Section 7A of the Arbitration Act 2001 allows the court to grant interim measures before, during and after arbitral proceedings, and its clauses (gha) and (uma) have been read as including restraint orders.[2] Whether those powers extend to encashment of a bank guarantee is the most contested question in bank guarantee encashment Bangladesh litigation today.

The restrictive line

In Haji Traders v Aman Cement Mills, a Division Bench discharged a rule and vacated a stay on a Tk 1 crore guarantee. It held that the guarantee was "totally an independent condition" with no nexus to the arbitration clause, that no injunction could be granted against encashment of such an instrument, and that section 7A could not be used against the issuing bank because the bank was not a party to the arbitration agreement and the guarantee was not the "subject matter" of the dispute.[3]

In Kamrul Ashraf Khan v BCIC, another Division Bench upheld a District Judge's refusal of a section 7A injunction in July 2025, applying Uttara Bank and Nuvista Pharma and holding that the only exception is fraud of which the bank has notice.[1] Single Bench decisions in Southern Solar Power and ABP India took the same restrictive view.[2]

The protective line

In Pubali Traders v Ministry of Food and Disaster Management, decided on 9 December 2025, a different Division Bench reached the opposite result. A wheat supplier had given a five per cent performance guarantee of US$1,196,107.50 in 2010. An arbitral tribunal rejected both sides' claims in February 2025 but stated that the respondent "may encash" the guarantee. The Ministry wrote to the bank to encash it without first enforcing the award.[2]

The Court held that the Appellate Division cases arose under Order 39 of the Code of Civil Procedure and did not govern section 7A, because the Arbitration Act is a special law that prevails over general law. It followed the earlier Division Bench decision in Summit Bibiyana Power v Bangladesh, 5 CLR (HCD) 354, preferred it over the Single Bench decisions, and restrained the beneficiary from encashing until the District Judge decided the application to set aside the award, which it directed be resolved within six months.[2]

What the split means for strategy

Three practical points follow. First, the protective decisions restrained the beneficiary, not the bank, and linked relief to a specific arbitral step, such as constituting the tribunal or deciding a challenge to the award. Second, Pubali Traders turned on the existence of an award that itself dealt with the guarantee, so the beneficiary was effectively enforcing an award without going through section 44.

Third, the restrictive decisions remain good law, and the Appellate Division has not yet resolved the conflict. Any section 7A application should rest on fraud or non-compliance evidence, not the arbitration point alone. Our guide to whether a performance guarantee can be stopped sets out the first-hours checklist for contractors.

Injunctions in civil suits and writ petitions

Outside arbitration, an applicant usually files a civil suit for declaration and seeks a temporary injunction under Order 39, rules 1 and 2 of the Code of Civil Procedure. The ordinary tests of prima facie case, balance of convenience and irreparable loss apply, but in guarantee cases the Appellate Division authorities effectively replace them with the fraud test. Our guide to temporary injunctions in Bangladesh explains the general procedure; this section focuses on what is different for guarantees.

Ad interim orders and expiry

Applicants sometimes obtain an ad interim order before the beneficiary is heard. That order is fragile, and it does not end the exposure if the guarantee expires while it is in force. In Unique Cement, an injunction obtained in January 2016 was later described as not an informed decision, and the beneficiary's December 2015 demand was enforced in 2025 even though the guarantee had expired in April 2016.[4] In bank guarantee encashment Bangladesh practice, a beneficiary should therefore make a complying demand as soon as it is entitled to, and an applicant should not treat a short-term order as a solution.

Writ jurisdiction against public beneficiaries

Where the beneficiary is a ministry, statutory corporation or revenue authority, the applicant may consider a writ under Article 102 of the Constitution, particularly if the call follows an order made without lawful authority or in breach of a statutory procedure. Perfetti Van Melle shows the Court staying an encashment order on condition that the statutory appeal be filed.[5] Writs are not a route to reopen contractual disputes, and disputed questions of fact remain a common ground for rejection, as the bank argued in Unique Cement.[4] TRW's constitutional and writ litigation practice advises on these routes.

Public Procurement Rules 2025: contract conditions before a call

Public-sector guarantees deserve separate attention because the standard contract documents impose conditions on the procuring entity that do not appear in the guarantee itself. The October 2025 BPPA standard tender documents were prepared under the Public Procurement Act 2006 and the Public Procurement Rules 2025, and are expected to be used without alteration.[6] [7] Our guide to the 2026 public procurement amendments covers the wider reforms.

Notice and the fourteen-day trigger

Under the general conditions of contract for goods, the procuring entity must notify the supplier of any claim made against the bank issuing the performance security. It may claim if, for fourteen days or more, the supplier is in breach and has been duly notified, or has not paid an amount due after due notice.[6] The works conditions add a third trigger, failure to extend the security's validity, and provide that if no reason exists to call the security it is discharged after the completion certificate.[7]

Why these conditions matter in an encashment dispute

These are obligations between procuring entity and contractor. The bank is still bound by its unconditional undertaking, and a demand that matches the guarantee will normally be paid even if the procuring entity skipped a contractual notice.

The conditions are relevant in three ways. They support a damages or arbitration claim for wrongful call. They can be evidence for a fraud argument where the procuring entity certifies a breach it has never notified. And they give the contractor a basis to seek relief against the procuring entity under section 7A, as distinct from relief against the bank. In bank guarantee encashment Bangladesh public contracts, the contractor's file should record every notice, or its absence.

Counter-guarantees and Bangladesh Bank rules

Cross-border bank guarantee encashment Bangladesh disputes often involve chains: a foreign bank issues a counter-guarantee to a Bangladeshi bank, which issues a local guarantee to the beneficiary. Each link is independent.

FEPD-1 Circular No. 32 of 2 September 2026

Bangladesh Bank's consolidated circular on loans, overdrafts, guarantees and external borrowings replaced FE Circular No. 34 of 2 September 2025 and is valid for one year from issue.[8] [9] It states that guarantees on behalf of residents in favour of non-residents, and on behalf of non-residents in favour of residents, are regulated under sections 3, 4, 5, 18 and 20 of the Foreign Exchange Regulation Act 1947.[8]

Several provisions bear directly on encashment:

• Foreign contractors in Bangladesh. An authorised dealer may, without prior approval, issue a guarantee, bid bond or performance bond on behalf of a non-resident in favour of a resident if it holds a back-to-back guarantee from an overseas bank covering the amount. A Taka guarantee needs a Taka-equivalent foreign-currency counter-guarantee with cover for exchange-rate movement.[8]
• Local project authorities. Foreign-currency bonds issued on behalf of residents to local project authorities are, on invocation, paid only in Taka equivalent, although payment may be made in foreign currency through RTGS where the tender documents require it.[8]
• Resident partners of foreign awardees. A provision added by FEPD-1 Circular No. 31 of 27 August 2026 lets authorised dealers issue foreign-currency guarantees or SBLCs on behalf of resident entities for foreign companies awarded international tenders, provided the underlying arrangements cover reimbursement on invocation and the exposure is secured by collateral or counter-security.[8]
• Export guarantees. Remittance to an overseas beneficiary on invocation of an export performance bond is permitted subject to reporting to Bangladesh Bank.[8]
• Prior approval cases. Other guarantees on behalf of foreign-owned companies or non-residents in favour of residents need prior approval, and the application must explain how the bank will be reimbursed if the guarantee is invoked.[8]

How counter-guarantees change the dispute

When the local guarantee is called, the Bangladeshi bank will normally pay the beneficiary and immediately call the counter-guarantee. Under URDG 758, a guarantee issued subject to URDG at the counter-guarantor's request makes the counter-guarantee subject to URDG too, but not the other way round.[10] A foreign applicant facing a call therefore has two fronts: the local demand in Bangladesh and the counter-guarantee demand in the foreign bank's jurisdiction, which may have its own fraud test. Restraining one without the other rarely helps. Lenders taking overseas guarantees as security should also read our analysis of overseas bank guarantees and SBLCs.

After payment: recovery and reimbursement

Once the bank has paid, the dispute moves to money. The applicant's position depends on whether the call was justified under the underlying contract, not on whether the bank was right to pay.

The bank's recourse

Section 140 of the Contract Act 1872 gives a surety who has paid all it is liable for the creditor's rights against the principal debtor, and section 145 implies a promise by the principal debtor to indemnify the surety for sums rightfully paid.[11] [12] In practice, the bank's facility documents and counter-indemnity give it wider contractual rights, and an unpaid liability may be pursued through the money-loan regime explained in our guide to the Artha Rin Adalat.

The applicant's recovery claim

An applicant that believes the call was wrongful pursues the beneficiary for damages or restitution, in arbitration if the contract so provides. The 17 BLD (AD) 49 reasoning, that a successful applicant can be compensated in money, is the reason courts refuse to freeze the guarantee, and it is also the applicant's route to recovery.[3] The claim should be quantified against the actual loss, not simply the guaranteed sum, and limitation should be diarised from the date of payment.

Commercial courts

The Commercial Court Ordinance 2026, now the Commercial Courts Act 2026, lists transactions by banks and financial institutions among commercial disputes and provides for mandatory pre-suit mediation and a 90-day trial timetable from the date set for final hearing.[14] Check whether a guarantee claim falls within that jurisdiction, and how urgent relief interacts with mediation, before filing.

Litigation strategy for bank guarantee encashment Bangladesh disputes

The following sequence reflects how TRW approaches a live call, for either side. Speed matters, because a bank can pay within days of a demand.

Swipe or scroll →

For applicants and contractors facing a performance guarantee call

• Lead with compliance. The strongest argument is that the demand does not meet the guarantee's own terms. It works with the independence principle, not against it.
• Prove fraud with documents. Completion certificates, payment records, amortisation statements and correspondence carry weight. Allegations do not.
• Choose the respondent carefully. Relief against the beneficiary linked to an arbitral step has fared better than orders against the bank.

For beneficiaries and employers

• Present a perfect demand. Use the exact form, signatory, statement of breach and office address the guarantee specifies, and present it well before expiry.
• Keep the record honest. A statement of breach that contradicts your own certificates is the evidence an applicant needs for fraud.
• Follow contractual notices. In public contracts, issue the notices the general conditions require before calling, even if the bank would pay without them.
• Escalate a refusing bank. A timely demand survives expiry, and Bangladesh Bank has powers under the Bank Companies Act 1991 that a court can direct it to use.[4]

For issuing banks

• Examine the documents, not the dispute. Payment of a complying demand is required; payment of a non-complying one risks the right to reimbursement.[11]
• Report regulated invocations. Foreign-exchange guarantees carry reporting duties under FEPD-1 Circular No. 32.[8]

Comparing the routes to relief

The table below compares the main procedural routes in a bank guarantee encashment Bangladesh dispute. On a phone, scroll it sideways.

No route reliably freezes a properly drafted demand guarantee. An applicant's realistic goal is to stop a non-complying or fraudulent demand, or to hold the position while an arbitral step is taken; a beneficiary's is a demand that leaves no room for either argument. TRW's banking and finance litigation practice and construction claims and project disputes practice act on both sides of these disputes.

What to watch in 2026 and 2027

Three developments will shape bank guarantee encashment Bangladesh practice over the next year. First, the conflict between Pubali Traders and the restrictive section 7A decisions needs resolution by the Appellate Division. Second, the new commercial courts will begin hearing banking disputes, and their approach to urgent relief will matter. Third, Bangladesh Bank's consolidated circular expires in September 2027 unless reissued, and its 2026 additions show the rules are still moving.[8] [14]

If a guarantee has been called, or a call is expected, the first 48 hours decide most of the options. Contact TRW with the guarantee, the demand and the contract. For background, see our overview of banking law in Bangladesh.

Frequently asked questions

Can a Bangladesh court stop a bank from paying under a guarantee?

Only in narrow cases. Appellate Division authority since Uttara Bank v Macneill & Kilburn holds that the bank must pay a timely demand and that the only exception is fraud of which the bank has notice. Some High Court Division benches have granted relief under section 7A of the Arbitration Act 2001, but others have refused.[1] [2]

Does starting arbitration stop encashment of a bank guarantee?

No, not automatically. Courts have held that a guarantee is independent of the arbitration clause. In Pubali Traders (December 2025), however, the High Court Division restrained encashment of a performance guarantee pending a challenge to an award that itself dealt with it.[2] [3]

Is irretrievable injustice a ground to stop encashment in Bangladesh?

It is recognised in Indian case law, but the Bangladesh decisions reviewed here describe fraud as the only exception. Applicants relying on irretrievable injustice should combine it with clear evidence of fraud.[1] [13]

What makes a demand under a bank guarantee compliant?

It must match the guarantee's terms: the right form and signatory, any required statement of breach, an amount within the cap, and receipt at the stated office before expiry. The BPPA standard forms require a first written demand with a written statement that the contractor is in breach.[6]

What happens if the guarantee expires while an injunction is in force?

A demand made before expiry may still be enforced. In Unique Cement (May 2025), the High Court Division directed Bangladesh Bank to secure encashment of a guarantee that had expired during an injunction, because the demand was timely.[4]

How much is the performance security in Bangladesh public procurement?

Under the October 2025 BPPA documents, it is ten per cent of the contract price for national goods contracts and five per cent for national works contracts above BDT 5 crore.[6] [7]

Does URDG 758 apply automatically to Bangladeshi guarantees?

No. It applies when the guarantee incorporates it. Bangladesh Bank requires banks to follow best practice guided by URDG, UCP and ISP, and courts have used the URDG definition of a demand guarantee as a reference point.[4] [8]

Can a Bangladeshi bank issue a guarantee backed by a foreign counter-guarantee?

Yes. Under FEPD-1 Circular No. 32 of 2 September 2026, a bank may issue a guarantee for a non-resident in favour of a resident without prior approval if it holds a back-to-back guarantee from an overseas bank covering the amount.[8]

Can a beneficiary force a bank to pay a guarantee?

Yes. A beneficiary can sue on the guarantee, and in Unique Cement the High Court Division directed Bangladesh Bank, under sections 45 and 49 of the Bank Companies Act 1991, to take action for encashment within 30 days.[4]

Can the bank recover from the applicant after paying?

Yes, for sums rightfully paid. Section 145 of the Contract Act 1872 implies a promise by the principal debtor to indemnify the surety, and section 140 gives the surety the creditor's rights after payment.[11] [12]