Hasnat Karim, a dual British-Bangladeshi national and former professor-turned-businessman, and Tahmid Khan, a student at the University of Toronto, appeared before a magistrate court on Thursday.
Authorities were given permission to keep the suspects in custody to be interrogated for eight days, Dhaka Metropolitan Police spokesperson Masudur Rahman told CNN.
"They were not arrested on any specific charges but they were arrested on suspicion under Criminal Procedure Code," Rahman said.
Bangladesh law allows for detainment without charge under clause 54.
They are suspected to be involved in a terror attack that saw five gunmen storm a cafe and bakery in Dhaka's affluent district of Gulshan last month, killing 21. Four terrorists were also killed in the standoff while one was captured alive.
Terror group ISIS claimed responsibility for the attack through its media branch, Amaq.
They were hostages, families say
However, the families of the two suspects insist that they are innocent and were in fact hostages who survived the horrific attack. They say that they were detained immediately after the shoot out and never released.
The lawyer for Karim, Rodney Dixon, told CNN that Karim and his family were at the cafe to celebrate his daughter's 13th birthday.
He was forced by the attackers to walk in front of them as a body shield, which led to several witnesses reporting seeing him walking and talking with the gunman, Dixon said.
"The authorities have finally admitted that Mr. Karim is in their custody," a statement posted Thursday on a Facebook page
campaigning for his release said. "They have had more than sufficient time to make any inquiries. There is clearly no evidence to charge him and he should be let go without any further delay."
Another Facebook page devoted to student Tahmid Khan
has been keeping a daily count on how long his family has been waiting for news their son.
"Imagine how (your mother) would feel after 33 days of waiting to hear any news about you and wondering why you have disappeared when you were when a victim," a post said on Wednesday. "When the other hostages have proclaimed your innocence then why are you still being held?
Another message read: "We understand that the authorities need to investigate this matter thoroughly. We trust that they will soon conclude, as his fellow hostages have confirmed, that Tahmid is innocent."
Demand for transparency
On July 12, Amnesty International issued a statement
calling on authorities to clarify Karim's whereabouts.
"Hasnat Karim's family must immediately be told whether the Bangladeshi authorities are still holding him in custody and if so allow him contact with the outside world. They have already suffered a traumatic episode, and his enforced disappearance prolongs their ordeal," said Champa Patel, Amnesty International's South Asia Director.
"The Bangladeshi authorities have a poor track record when it comes to human rights in custody, with violations including torture and other ill-treatment, often to obtain 'confessions' and the denial of medical treatment," Champa Patel, Amnesty International's South Asia Director said.
In June, the government arrested over 14,000
in an extremism crackdown following a spate of attacks. However, most of those detained were believed to be petty criminals, not militants.
Chef mistaken for terrorist
There has been one confirmed case of mistaken identity during the attack. The cafe's chef Saiful Islam Chowkidar was shot and killed by police who believed he was a fleeing terrorist.
The victim had been wearing a restaurant uniform but was running away near the attackers when authorities stormed in.