Breach of Contract in Bangladesh: a commercial guide

A missed delivery date, withheld payment, defective performance or a notice that a counterparty will not perform can rapidly become more than an operational issue. Breach of Contract in Bangladesh is governed principally by the Contract Act, 1872, but the result rarely follows from a label alone. The contract’s language, the parties’ exchanges, the sequence of performance, the loss evidence, the chosen dispute clause and the applicable limitation period can each change the analysis.

The starting point is practical as well as legal: preserve the contract record, identify the obligation said to have been breached, establish what the business needs next and avoid an unconsidered election that compromises a remedy. The Contract Act distinguishes, among other matters, between a party’s refusal or inability to perform a promise in its entirety, delay where time is or is not essential, and a contract that has become impossible or unlawful to perform. It also supplies the central statutory rules on compensation and contractual penalties. [1]

This Insight explains the framework current as at 19 October 2026 for commercial readers. A breach of contract assessment should begin with the agreed text and the performance record, not an assumed remedy. It does not assume that familiar common-law labels decide a Bangladesh dispute, and it does not substitute for review of the relevant contract, governing law, sector rules and evidence.

Table of contents

The commercial question behind a breach

A useful breach of contract analysis begins with the business objective, not a pre-selected remedy. A buyer may require replacement supply to keep a production line moving. A supplier may need payment certainty before deploying further resources. A shareholder, lender or project sponsor may require preservation of an asset, a clear exit, or an expedited resolution process. Those objectives affect the notices to be sent, the evidence to secure and whether to continue performing.

The legal baseline is that an agreement enforceable by law is a contract. The Contract Act defines a proposal, acceptance, consideration, agreement, contract, voidable contract and a contract that becomes void. It also provides that proposals, acceptances and revocations are communicated by acts or omissions intended, or having the effect, to communicate them. Acceptance must be absolute and unqualified, subject to the statutory rule on prescribed methods. [1]

For a valid contract, section 10 requires free consent of parties competent to contract, lawful consideration and a lawful object, and says that the agreement must not be expressly declared void. Competence, consent, coercion, undue influence, fraud, misrepresentation, mistake and lawful objects are addressed in the same statutory scheme. [1] A payment dispute may therefore contain a prior formation or validity dispute. A party should not describe every commercial disagreement as non-performance before testing whether there is a concluded and enforceable agreement and what its terms are.

In practice, record discipline is often decisive. The signed agreement and each amendment should be assembled with purchase orders, scopes of work, specifications, milestone certificates, invoices, delivery documents, correspondence, meeting notes and any contractual notices. The aim is not merely to create a chronology. It is to establish the operative obligation, the trigger for performance, the agreed standard, any dependency on the other party, the date of alleged default and the contractual response already taken.

Where a transaction spans a master agreement, work orders, an email chain and a later variation, the first question may be which document governs a particular obligation. The Contract Act allows performance of conditions or acceptance of consideration to constitute acceptance in appropriate circumstances, but this does not remove the need to identify precisely what was accepted. [1] In a live dispute, a careful document map is preferable to relying on internal recollection or a single, isolated email.

Formation, scope and proof

Contract performance is reciprocal in many commercial arrangements. The statutory rules recognise this. Where reciprocal promises are to be performed simultaneously, neither promisor need perform unless the reciprocal promisee is ready and willing to perform its reciprocal promise. Where the contractual order is fixed, it governs; otherwise, the order required by the nature of the transaction applies. A party that prevents the other from performing may make the contract voidable at the other party’s option and may face compensation for the resulting non-performance. [1]

These provisions explain why a simple allegation such as “the supplier did not deliver” may not settle liability. Was a required letter of credit, approval, access, mobilisation payment, technical instruction or site readiness condition met? Did the agreement make one obligation conditional on another? Did the alleged claimant prevent performance? The answers should be found in the agreed text and contemporaneous evidence, not inferred from a broad sense of unfairness.

The distinction between an obligation and a commercial expectation also matters. A forecast, target or discussion point may be commercially important without becoming a binding promise. Conversely, a concise commitment can be enforceable if the statutory requirements and the facts establish it. This is especially relevant where deal teams negotiate through messages and circulate drafts before signing. Parties should identify the intended moment of commitment, signature authority, the relationship between a signed contract and prior correspondence, and any express conditions precedent.

Capacity and authority require the same care. A company may dispute whether the signatory had authority; a group may dispute which entity contracted; an individual may have acted as agent rather than principal. These are fact-specific matters. The Act’s general rules do not permit a reliable answer without the parties, documents and surrounding facts. That uncertainty should be addressed early, because it can influence both remedies and the correct respondent.

Written form can also carry consequences beyond proof. For arbitration, the Arbitration Act, 2001 requires a written arbitration agreement, whether as a clause within a contract or as a separate agreement. The statute treats signed documents, exchanges including letters, telex, telegram, fax or email, and certain unchallenged pleadings as capable of satisfying the writing requirement. [4] It is prudent to retain the full message chain, headers, attachments and versions rather than only screenshots or extracted quotations.

Breach of Contract in Bangladesh: identifying the legal event

The Act does not provide an exhaustive statutory taxonomy using every commercial-law label sometimes seen in international contract discussions. It does, however, give direct rules for particular events. Section 39 addresses a party that has refused to perform, or disabled itself from performing, its promise in its entirety. The promisee may put an end to the contract unless it has, by words or conduct, signified acquiescence in its continuance. [1]

That rule makes the response to repudiatory conduct consequential. If the receiving party accepts continued performance after a total refusal without reserving position, the statutory consequence may be different from ending the contract. Whether conduct amounts to refusal or self-disabling in its entirety, and whether subsequent conduct amounts to acquiescence, are questions that depend on the contract and evidence. A notice should therefore state the factual position and reservation clearly rather than apply a label alone.

Delay has its own statutory framework. Under section 55, where a party promises to do something by a specified time and the parties intended time to be of the essence, the unperformed contract becomes voidable at the promisee’s option upon late performance. If time was not intended to be essential, the contract does not become voidable merely because of delay, though compensation for loss occasioned by delay may be available. If a promisee accepts late performance in a case where the contract is voidable for lateness, it cannot claim compensation for the delay unless it gives notice of that intention when accepting the late performance. [1]

The commercial implication for a breach of contract is straightforward: do not treat every date as automatically terminating, and do not accept late performance casually if there is a material damages position. The phrase “time is of the essence” may be relevant, but its legal effect cannot be assessed in isolation from the whole contract, the subject matter, the parties’ conduct and applicable law. The primary statutory text confirms the intention test; it does not provide a universal checklist for every industry or transaction. [1]

Section 56 must also be separated from an ordinary breach. An agreement to do an act impossible in itself is void. A contract becomes void when, after it is made, an act becomes impossible or unlawful because of an event the promisor could not prevent. The section separately provides compensation where a promisor knew, or with reasonable diligence might have known, the act was impossible or unlawful and the promisee did not. [1]

Commercial contracts often call their risk-allocation provisions “force majeure” clauses. The effect of such a clause is not determined by its heading. It depends on its wording, the event, notice requirements, mitigation or alternative-performance provisions, risk allocation and its interaction with section 56. The statutory text alone cannot establish whether any particular disruption qualifies or whether a clause shifts a risk. That is an issue to assess beside the relevant facts and contract, not after a generic declaration of force majeure.

The Act also recognises that parties may replace, rescind or alter a contract. If they agree to substitute a new contract, or rescind or alter the original, the original need not be performed. It further allows a promisee to dispense with or remit performance, extend time, or accept a different satisfaction in accordance with section 63. [1] A commercial settlement, variation, side letter or waiver can therefore change the dispute landscape. Parties should identify whether a proposed “commercial solution” is intended to be non-binding discussion, a temporary concession or a legally operative variation.

Protecting position when performance fails

The first response should be measured, documented and aligned with the commercial goal. This does not mean delaying every decision. It means avoiding actions that inadvertently accept defective or late performance, terminate without a contractual or statutory basis, waive a notice requirement, or impair the ability to prove loss.

A useful immediate workstream normally includes the following steps:

1. Stabilise the facts. Preserve the executed contract, amendments, relevant communications and proof of delivery, payment, performance or non-performance. Identify the first missed obligation and all later events.
2. Check the operative clauses. Review definitions, scope, payment, acceptance testing, service levels, change control, notices, cure rights, suspension, termination, limitation of liability, insurance, dispute resolution and governing law clauses together. A termination clause cannot safely be read apart from notice and cure provisions.
3. State a coherent position. A notice may need to identify the breached obligation, the required cure, deadline, reservations and any election to continue, suspend or end performance. Its form and delivery should comply with the notice clause. Avoid alleging fraud, dishonesty or regulatory wrongdoing unless there is a sustainable factual and legal basis.
4. Manage mitigation and evidence of loss. Section 73 directs that, when estimating loss, the means that existed to remedy the inconvenience caused by non-performance must be taken into account. [1] The response team should document reasonable alternatives, replacement procurement, safeguards and the cost of each.
5. Protect the dispute route. Identify whether the agreement requires negotiation, escalation, mediation, arbitration or court proceedings, and whether urgent preservation measures need consideration. Do not let commercial discussion obscure a limitation deadline.

A contractual tender of performance can matter too. Section 38 provides that, if a promisor makes an offer of performance that the promisee does not accept, the promisor may not be responsible for non-performance or lose contractual rights, provided the offer satisfies statutory conditions including that it is unconditional, at a proper time and place, and gives a reasonable opportunity to verify ability and willingness to perform. [1] In a supply or project dispute, the record of a proposed tender, inspection opportunity or rejected delivery can consequently be significant.

The same caution applies to partial performance. A party may accept some work, goods or payment while disputing the rest. The legal consequences will turn on the contract and the terms of acceptance. Clear correspondence can reduce uncertainty: identify what is accepted, what remains disputed, whether acceptance is provisional and which rights are reserved. Silence is not a universal waiver rule, but unclear conduct is rarely helpful when a dispute later turns on election or acquiescence.

Compensation, agreed sums and monetary recovery

Section 73 is the principal statutory rule on damages for breach. It entitles the party suffering from a broken contract to compensation for loss or damage that naturally arose in the usual course from the breach, or that the parties knew, when contracting, was likely to result. It excludes compensation for remote and indirect loss. The statute also directs consideration of the means that existed to remedy the inconvenience caused by non-performance. [1]

The business task is therefore evidential as well as conceptual. A claimant will generally need a credible chain from obligation, through breach, to loss, with records supporting the amount claimed and the efforts made to contain it. For a goods dispute, relevant evidence may include the contract price, replacement price, availability and timing. For a services or project dispute, it may include milestones, notices, remedial work, dependency records and the basis for any additional cost. The statute’s illustrations show that a loss which feels commercially consequential may still be too remote on the statutory test. [1]

The contractual label “liquidated damages” does not displace section 74. Where a contract names an amount payable on breach or contains another stipulation by way of penalty, the complaining party is entitled, whether or not actual damage is proved, to reasonable compensation not exceeding the named amount or stipulated penalty. The Act expressly says that increased interest from the date of default may be a penalty. [1] An agreed sum therefore establishes a ceiling, not an automatic entitlement to the full figure in every case.

This has drafting consequences. A carefully drafted agreed-sum provision should identify the triggering breach, calculation method, cap, whether the remedy is exclusive or cumulative, interaction with other damages, and any notice or certification mechanics. Commercial teams should also retain a contemporaneous rationale for the chosen figure. The contractual wording will matter, but a provision cannot be evaluated solely by its label or by a spreadsheet prepared after a dispute arises.

Where a party has rightly rescinded a contract, section 75 provides a statutory entitlement to compensation for damage sustained through non-fulfilment. [1] This does not mean that every decision to stop performance is a rightful rescission. The right to rescind, the method of exercising it, any cure process and the effect of an agreed termination regime require close examination. A premature or unsupported termination can itself create exposure.

It is also important to separate a claim for an unpaid contractual debt from a claim for compensation for breach. The legal and evidential routes may overlap, but the pleaded obligation, available defences and limitation analysis can differ. This Insight cannot determine that distinction for an individual contract. Parties should avoid describing all money claims as “damages” when the agreement and facts may point to a different cause of action.

Specific performance, rescission, cancellation and injunctions

Money is not the only potential response. The Specific Relief Act, 1877 permits specific performance of a contract, in the court’s discretion and subject to the Act, where, for example, the act forms all or part of a trust, no standard exists for ascertaining actual damage, pecuniary compensation would not afford adequate relief, or it is probable that compensation cannot be obtained. The Act presumes, unless the contrary is proved, that breach of a contract to transfer immovable property cannot be adequately relieved by money, while breach of a contract to transfer movable property can be. [2]

Specific performance is not a substitute for a damages claim in every commercial dispute. The Act excludes, among other things, a contract for which money is an adequate remedy; one involving minute or numerous details or personal qualifications such that the court cannot enforce material terms; uncertain terms; a revocable contract; and a contract involving a continuous duty extending beyond three years. [2] The question is remedy-specific and fact-specific.

The Bangladesh Supreme Court’s published case index records, in a specific-performance matter, that the plaintiff had to prove a concluded contract and readiness and willingness at all material dates to perform its part; it also records a limitation finding under Article 113. [7] That is a useful reminder that seeking performance requires the claimant’s own position to be evidenced. It is not a broad prediction of the outcome of any other claim.

Rescission and cancellation are different statutory concepts. Under section 35 of the Specific Relief Act, a person interested in a contract in writing may seek rescission in specified circumstances, including where the contract is voidable or terminable by the claimant, or where it is unlawful for a cause not apparent on its face and the defendant is more to blame. Section 39 permits a person facing a written instrument that is void or voidable, and who reasonably apprehends serious injury if it remains outstanding, to seek an adjudication and cancellation; the court’s power is discretionary. [2]

Injunctions can also be relevant where a monetary award later would not protect the commercial position. The Act permits a mandatory injunction, in the court’s discretion, where compelling acts is necessary to prevent breach of an obligation and the court can enforce those acts. However, it prohibits an injunction to prevent breach of a contract whose performance would not be specifically enforceable, among other statutory restrictions. [2] Urgency, notice, evidence, the relief sought and the dispute clause must be assessed quickly. No generic article can establish whether interim relief will be available on a particular record.

Litigation, arbitration and mediation routes

Bangladesh’s civil courts have jurisdiction to try suits of a civil nature unless their cognisance is expressly or impliedly barred. That general position in section 9 of the Code of Civil Procedure, 1908 does not answer court selection, territorial jurisdiction, valuation, court fees, limitation, statutory forums or procedural requirements in a particular case. [5]

An effective arbitration clause may alter the forum analysis. Section 10 of the Arbitration Act, 2001 provides that where legal proceedings are brought on a matter covered by an arbitration agreement, a party may apply for referral before filing its written statement; if the court finds the arbitration agreement exists and is not void, inoperative or incapable of being performed, it shall refer the matter to arbitration and stay the proceedings. [4] The clause, the nature of the claim, the parties and the procedural timing require attention from the outset.

The Arbitration Act also addresses interim protective measures. Section 7A permits the High Court Division in international commercial arbitration, and the court in other arbitration, to make specified interim orders, subject to the statutory framework, including measures concerning preservation, property, injunctions and receivers. [4] This does not make relief automatic. It does mean that a party concerned about assets, evidence or the subject matter of the dispute should identify the arbitral route and potential interim protections without waiting for merits correspondence to become entrenched.

Mediation can arise after a civil suit has begun. Under section 89A of the Code of Civil Procedure, after written statement and attendance conditions are met, the court must mediate or refer the dispute for mediation, subject to the stated exception for suits under the Artha Rin Adalat Ain, 2003. The statutory process is described as flexible, informal, non-binding, confidential, non-adversarial and consensual. A mediated settlement is reduced to writing and may lead to an order or decree; if mediation fails, the suit proceeds from its prior stage. [5]

The current mediation landscape needs a qualification. The Legal Aid Services (Amendment) Act, 2026 creates a pre-case mediation framework for disputes specified in its Schedule. Its Schedule lists defined family, rent, partition, pre-emption, maintenance and certain cheque and dowry-related matters; it does not name ordinary commercial breach-of-contract claims as a general category. The provisions on mandatory pre-case mediation and the Schedule take effect only for the date and area that the Government specifies by Gazette notification. [6] The primary Act alone does not establish whether such a notification was in force for any particular locality on the date checked. A party should therefore verify the current Gazette position and the exact dispute category before treating pre-case mediation as mandatory or unavailable.

For readers deciding where to start a dispute conversation, TRW’s public [practice directory][8] includes a Disputes field, and its [contact page][9] provides an enquiry route. The contact page asks users not to send confidential, privileged or time-sensitive information through the initial route. An initial enquiry should therefore be limited to high-level context until appropriate engagement arrangements are in place.

Limitation: act before a claim becomes time-barred

Limitation is a central risk in breach disputes. Section 3 of the Limitation Act, 1908 requires a suit, appeal or application instituted after the prescribed period to be dismissed even if limitation is not raised as a defence, subject to the Act’s provisions. [3] It is not safe to assume that a continuing commercial conversation stops time or that a without-prejudice negotiation removes the need to protect a deadline.

The Schedule contains provisions that are particularly important in contract matters. Article 113 prescribes one year for specific performance: from the date fixed for performance, or, if no date is fixed, when the plaintiff has notice that performance is refused. Article 114 prescribes one year for rescission of a contract, running from when the facts entitling the plaintiff to rescind first become known. [3]

For compensation for breach of an express or implied contract not in writing registered and not otherwise specially provided for, Article 115 prescribes three years. Time runs when the contract is broken; for successive breaches, from the breach sued upon; and, for a continuing breach, when it ceases. Article 116 prescribes six years for compensation for breach of a contract in writing registered, from the point at which the period would begin for a similar unregistered contract. Section 23 separately states that, in a continuing breach, a fresh limitation period begins at every moment while the breach continues. [3]

These provisions should not be reduced to a simple “one, three or six year” chart. Correct classification can depend on the remedy, the instrument, registration status, the pleaded cause of action, the date fixed for performance, notice of refusal, whether breaches are successive or continuing, and whether another specific statutory provision applies. The primary legislation establishes the categories; it cannot determine their application to an individual contract without its facts. Diary the earliest plausible deadline, preserve the evidence establishing it and obtain matter-specific advice promptly.

Contract design and dispute readiness

The best time to manage breach risk is before performance begins. A commercially usable contract makes the obligation observable: who must do what, by when, to what specification, against which dependencies, and with what evidence of acceptance. It also makes the response to failure legible without forcing the business to reconstruct the deal from informal messages.

For new or renewed contracts, parties commonly benefit from addressing the following points with precision:

• Scope and acceptance: define deliverables, specifications, acceptance criteria, test process, rejection rights and the effect of partial acceptance.
• Programme and dependencies: identify dates, milestones, who supplies information or access, and whether time is intended to be essential for particular obligations.
• Change control: state who may instruct a change, when it becomes effective, pricing and schedule consequences, and how the baseline is updated.
• Payment and security: link invoicing and payment to objectively verifiable milestones where appropriate, and distinguish a payment dispute from a performance dispute.
• Notices and cure: set a workable notice address, delivery method, deemed-receipt rule, cure process, suspension rights and termination mechanics.
• Risk events: specify the agreed treatment of disruption, illegality, approvals, third-party dependencies and force majeure events; do not rely on the heading alone.
• Remedies and limits: draft agreed-sum, limitation and exclusion clauses in language that reflects the commercial allocation and recognises the statutory framework on compensation and penalties.
• Disputes and proof: choose a coherent court or arbitration route, seat and procedural mechanism where relevant; preserve a clear hierarchy between the agreement, schedules, purchase orders and communications.

Good drafting does not remove the need for judgment when facts change. It does narrow the room for later argument about what was promised and how a party had to respond. During performance, a short written reservation, approval, extension or waiver can be as important as the original clause. The Contract Act’s rules on time, novation, alteration and remission make informal operational decisions capable of legal significance. [1]

For a business facing a live dispute, the immediate priority is to align the contractual record, operational response and legal route before positions harden. The next step should be proportionate: protect a deadline, preserve relevant information, pursue a workable cure or settlement where it serves the business, and escalate where the contract and facts justify it.

Frequently asked questions

Informational notice

This Insight is general information, not legal advice. It is current as checked on 19 October 2026 and is not tailored to any contract, transaction, dispute, party, industry or limitation deadline. Legal outcomes depend on the contract, evidence, applicable law, procedural setting and current official materials. Do not send confidential, privileged or time-sensitive information through an initial public contact route.