Too many foreign investors getting entangled in lawsuits with local partners

The slow resolution of business disputes has resulted in a backlog of cases between foreign companies operating in Bangladesh and their business partners or stakeholders with 3,000 such lawsuits awaiting settlement as of March this year.

These cases, involving around Tk30,000 crore and pending with from trial courts to the Appellate Division, are filed on various grounds – company-to-company or company-to-person feuds, financial transaction, share transfer, ownership, breach of contract, fraud, issues over investment and supply of substandard goods.

When old cases pile up, legal battles involving foreign companies are on the rise.

In the first quarter of this year alone, 117 such cases were filed, compared to 427 in 2022, 374 in 2021, 256 in 2020, and 186 in 2019, according to data from the Supreme Court and the Solicitor Wing of the law ministry.

Experts and court sources have highlighted that there are approximately 40 lakh cases awaiting disposal amid a shortage of judges and courts nationwide. There is no dedicated court to try cases filed over disputes involving foreign companies.

Furthermore, the lack of skilled lawyers capable of handling such cases, mostly filed under the Companies (Bangladesh) Act, 1994, exacerbates the situation.

Out of these cases, about 1,200 are pending with the High Court and Appellate Division, and 1,800 with the trial courts. Some of the cases have been even dragging on for 20 years.

Experts say the slow pace of business case disposals raises concerns over the confidence of foreign investors and future investment prospects. The prolonged settlement process also disrupts the business environment while imposing significant financial burdens on the parties involved.

Syedur Rahman Ranu, president of the British Bangladesh Chamber of Commerce and Industry, said these case backlogs hurt the foreign direct investment (FDI).

"The FDI inflow to Bangladesh is usually low compared to other peer countries. One of the reasons is any commercial dispute in Bangladesh taking a long time to get resolved," he said.

The weak dispute resolution is evident in the data showing the rate of filing business dispute cases is higher than the rate of their settlement, regardless of whether they are related to foreign companies or not.

According to data from the Solicitor Wing of the law ministry, 7,309 cases were settled in 2022 while about 29,000 were filed.

In the previous year, 6,750 were disposed of and about 23,000 were filed. In 2020, 4,800 were settled and about 17,000 were filed.

The World Bank's Ease of Doing Business Index 2020 placed Bangladesh in 189th position among 190 economies in terms of Enforcing Contracts – an indicator that measured the time and cost to settle a commercial dispute and the quality of the judicial process.

Backlogs and delays

In 1998, Belgium-based multinational company Capgemini partnered with LeyodBD Ltd to do business in Bangladesh. By investing an initial amount of around Tk32 crore, Capgemini soon ran into a dispute with its partner.

In December 2000, the foreign company filed a case with the Dhaka Joint District Judge Court-5.

Barrister Shah Mohammad Ahsanur Rahman, a lawyer for the foreign company, said they got a judgement in their favour at the trial court in 2011. The Bangladeshi company then appealed to the High Court.

The High Court upheld the judgement of the trial court in 2014. An appeal was filed with the Appellate Division but it has not been resolved so far.

In 2013, Tosiana Xingsu, a Korean company manufacturing leather seat covers for motorcars in Keraniganj, Dhaka, made an upfront payment of Tk50 crore to purchase rawhide from the Hazaribagh-based company Enam Traders.

However, Enam Traders failed to deliver the raw material as agreed and did not refund the money.

In February 2014, the foreign company filed a lawsuit with a Dhaka court to recover the amount.

Barrister ASM Shahriar Kabir, the lawyer for Tosiana Xingsu, said the trial has been halted due to a stay order from the High Court.

As a result of this unresolved legal matter, the foreign company decided against further investment in Bangladesh, postponing its expansion plans, he added.

Company law expert Barrister Tanzib-ul-Alam told The Business Standard that the Companies Act clearly states that a separate tribunal should be set up in each district and an appellate tribunal in each division to deal with company-related cases.

The Act also has a provision for mandatory Alternative Dispute Resolution (ADR) procedures. "But none of it happened and resolving disputes is taking years," he said.

Besides, the High Court has only one bench for dealing company cases while at least four more benches are required, he added.

Md Jashim Uddin, president of the Federation of Bangladesh Chambers of Commerce and Industry, said most of the companies in the country are based in Dhaka and Chattogram divisions. Trade-related disputes are also high in these divisions.

As of March, there are 3,50,823 pending trade dispute cases in the country's courts involving around Tk2.5 lakh crore. Among these, around 3,16,823 cases are in trial courts, while 34,000 cases await resolution in the Supreme Court.

According to the Solicitor Wing of the law ministry, 1,02,208 cases are in Dhaka division, and 69,600 in Chattogram division.

No alternative to ADR

Company law expert Barrister Ajmalul Hossain QC said alternative dispute resolution is mandatory in developed countries to resolve commercial disputes through out-of-court arbitration.

Common ADR processes include mediation, arbitration, and neutral evaluation. These processes are generally confidential, less formal, and less stressful than traditional court proceedings.

Around 80 countries now mandate ADR to settle such disputes, including the US, the UK, Canada, Australia, Switzerland, and Singapore. But that is not happening in Bangladesh, Barrister Ajmalul added.

Many institutions have been established in various countries to implement ADR under the patronage of various commercial organisations and governments. But even if one or two institutions have been established in Bangladesh, there is no such move from the government.

Any new legal framework?

Commerce Minister Tipu Munshi told TBS that several meetings have been held with the law ministry, which is supposed to take an initiative for the quick resolution of these cases.

The government is also thinking of enacting a law keeping the provision of ADR for the settlement of trade disputes, he added.

Law Minister Anisul Haque said the courts have been directed to settle disputes and cases quickly. A significant number of cases have been settled in the last three years, and enactment of a new law on trade disputes is in progress.

In 2018, the commerce ministry requested the law ministry devise a policy for the speedy settlement of trade disputes.

The law ministry then requested the Bangladesh Law Commission to produce a draft in this regard. Accordingly, the commission has prepared the draft of the Commercial Dispute Settlement Act.

The draft was prepared by amending the Arbitration Act, said former Chief Justice ABM Khairul Haque, chairman of the Law Commission.

The aim is to build trust among domestic and foreign investors by resolving commercial disputes promptly through out-of-court arbitration, bypassing the complex procedures of the current judicial system, he added.

Justice Khairul Haque pointed out that if the law is passed, the speed of settling trade disputes will increase.