LC Liabilities Are Also ‘Loans’; Cases Must Be Filed in Artha Rin Adalat: High Court
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| Supreme Court of Bangladesh |
In a case concerning this issue, the High Court dismissed the first appeal filed by Bank Asia Limited and another person. At the same time, the civil rule connected with the appeal was discharged and the stay order was vacated.
A bench of the High Court Division comprising Justice S. M. Quddus Zaman and Justice Tamanna Rahman Khalidi delivered the judgment on August 31, 2026. The case, Bank Asia Limited and another v. Jamuna Bank Limited, was disposed of as First Appeal No. 37 of 2022 and connected Civil Rule No. 463(F) of 2022. The judgment was published on the Supreme Court’s website on October 27, 2026.
Facts of the Case
According to the case record, at the request of its customer, Shah Amanat Iron Mart, Bank Asia Limited issued three LCs on October 13, 2013, in favour of M/S MAN Trading Corporation. The LCs concerned the supply of MS plates. Subsequently, Jamuna Bank Limited, acting as the negotiating bank, presented the relevant documents to Bank Asia.
Bank Asia accepted the documents and assured payment upon maturity. Relying on that assurance, Jamuna Bank paid the LC proceeds to the beneficiary on October 24, 2013. However, despite serving several notices, Bank Asia later failed to reimburse Jamuna Bank.
In these circumstances, Jamuna Bank filed a suit before the Chattogram Artha Rin Adalat seeking recovery of Tk 136,239,388. On October 31, 2021, the Artha Rin Adalat passed a decree for Tk 136,239,386, together with interest at the rate of 12 percent per annum.
Bank Asia’s Arguments
Bank Asia appealed to the High Court against the judgment of the Artha Rin Adalat. Counsel for the appellant argued that Bank Asia had not taken any loan from Jamuna Bank and had not stood as guarantor for any other loan. It was also claimed that no goods had been supplied against the LCs and that the underlying transaction involved allegations of fraud.
The appellant argued that Jamuna Bank could not file a suit for recovery of the LC proceeds before the Artha Rin Adalat and that the claim should instead have been brought before an ordinary civil court. It further contended that because Jamuna Bank had not created a forced loan, no loan liability had been established against Bank Asia.
On the other hand, Jamuna Bank argued that after accepting the LC documents and assuring payment upon maturity, Bank Asia could not deny its liability. Under the Artha Rin Adalat Ain, 2003, liabilities arising from LCs are also included within the definition of a loan, and suits for recovery of such amounts must be filed before the Artha Rin Adalat.
High Court’s Observations
The High Court held that clause (2) of section 2(c) of the Artha Rin Adalat Ain, 2003 defines as a loan any letter of credit or other financial arrangement issued or accepted as a liability by a financial institution on behalf of its customer. Therefore, the issuance of an LC creates a legally enforceable loan liability on the concerned bank. The negotiating bank is not required to create a separate forced loan for this purpose.
The court further observed that the agreement between the issuing bank and the negotiating bank is distinct from the contract between the seller and the buyer. Even if a dispute exists between the seller and the buyer, the issuing bank cannot avoid its payment obligation merely by relying on that dispute, unless the LC documents contain fraud or a legal defect.
In this case, no allegation of fraud or other legal defect in the LCs or related documents presented by Jamuna Bank was established. Rather, Bank Asia had accepted the documents and assured payment.
In this regard, the High Court referred to the Appellate Division’s decision in Md. Sekandar and another v. Janata Bank Limited and others, 22 BLC (Appellate Division), 2017, page 53. According to that decision, suits for recovery of loans by financial institutions must be filed before the Artha Rin Adalat, and liabilities arising from LCs are also included within the scope of loans.
Appeal Dismissed
Ultimately, the High Court held that by issuing the LCs and subsequently accepting the relevant documents and assuring payment, Bank Asia had incurred a loan liability under clause (2) of section 2(c) of the Artha Rin Adalat Ain, 2003. Accordingly, Jamuna Bank’s suit for recovery before the Artha Rin Adalat was legally maintainable.
The court found no reason to interfere with the decree of the Artha Rin Adalat. The first appeal was therefore dismissed, and the connected civil rule was discharged. The earlier stay order was also vacated. However, no order was made as to costs.
Legal Lessons
- LC liabilities may constitute loans: Under section 2(c)(2) of the Artha Rin Adalat Ain, 2003, a bank’s liability arising from an LC may be treated as a loan.
- A forced loan is not required: The negotiating bank does not need to create a separate forced loan to establish the LC liability as a loan.
- An LC is a separate contract: Disputes between the seller and buyer generally do not extinguish the bank’s payment obligation under an LC, although fraud or legal defects may be relevant.
- Proper forum: Suits for recovery of LC-related loans by financial institutions must be filed before the Artha Rin Adalat.
Case details: Bank Asia Limited and another v. Jamuna Bank Limited; First Appeal No. 37 of 2022; connected Civil Rule No. 463(F) of 2022; judgment dated August 31, 2026; relevant law: sections 2(c)(2) and 5 of the Artha Rin Adalat Ain, 2003.
