Banking Licences Revocation And Sack Of Bank Directors: CBN’s Powers Get Court Affirmation

In recent times, the powers of the governor of the Central Bank of Nigeria as conferred by the Banks and Other Financial Institutions Act and the CBN Act in relation to the revocation of banking licences and sack of directors of a failing bank got the judiciary’s attestation and was put beyond pettifogging.
The ruling by Justice Charles Archibong of the Federal High Court in Lagos last week that the Central Bank of Nigeria has the authority to revoke the licence of the defunct Bank PHB Plc, now Keystone Bank Limited, may have again reaffirmed the powers of the CBN and its governor under the Banks and Other Financial Institutions Act (BOFIA), 2004.

Ruling on the suit challenging the revocation of the bank’s licence, and takeover of its assets by the Nigerian Deposit Insurance Corporation and the Asset Management Corporation of Nigeria, Justice Archibong averred that the CBN had acted within its powers under the relevant Acts, particularly Section 53 of BOFIA.

The judge upheld the arguments of counsel to CBN, Kola Awodein and Fabian Ajogwu, counsel to the federal government that the CBN had acted within its powers under its Act and BOFIA. He held that since documentary evidence available before him showed that Bank PHB had non-performing loans of N475 billion, with its liquidity ratio below 25 per cent and was showing signs of a failing bank in dire need of capital, this made the intervention of the apex bank imperative.

Justice Archibong further observed that CBN Act was an Act of the National Assembly, which empowers the CBN to intervene where it finds that depositors’ funds are in danger, adding that he did not find where in the suit or the law where the CBN acted beyond its powers or did not comply with the provisions of the law on revocation of banking licences of the bank. He dismissed the argument of the plaintiff that the CBN’s act of revocation was tainted with malice and held that “CBN cannot standby, once it is shown that depositors’ funds are in danger.”

The plaintiffs, who were the shareholders of Bank PHB, had filed the suit challenging the revocation of the bank’s licence and takeover of its assets by the NDIC and AMCON. Among the things they quarrelled with in the suit was that the apex court acted beyond its powers in the revocation of the bank’s licence. They also argued that the revocation was tainted with malice and urged the court reverse the action.
But the CBN and FG contended that the persons suing on behalf of the bank had no authority of any of the organs of the board or shareholders to sue and that the NDIC and AMCON were omitted in the suits when they sought relief against them. They also urged the court to dismiss the suit because the CBN acted within its powers under its Act and BOFIA.

The ruling was not the first time that the CBN would be receiving a judicial imprimatur on banks in the country. Further to the powers conferred on under Section 33, 35, and 36 of BOFIA, its governor, Mallam Sanusi Lamido Sanusi, in 2009 conducted a special examination into the affairs of all the banks and found that some of them were in a grave situation. He consequently removed their managing directors and executive directors and appointed replacements. They were accused of insider abuse and other offences ranging from recklessly granting loans totalling N700 billion that had gone bad.

The bank chiefs were further accused of failing to give a true and fair view of the state of the affairs of the banks to CBN by incorrectly importing false amounts of commercial papers under the Expanded Discount Window in the statement of assets and liabilities, offences contrary to and punishable under Sections 20(b) (7), 28 (1,2, and 3), 24 and 50 of BOFIA.

Not satisfied with the action, some shareholders of Union Bank of Nigeria Plc, by way of originating summons, filed an action against the central bank and its governor, specifically challenging its powers to replace their executive directors. The applicants argued that upon a proper construction of the powers conferred upon the governor by BOFIA, the governor had acted ultra vires, as the law only conferred powers on the governor to: (a) remove only one director at any given time. They contended that the actions of the governor were in breach of the Memorandum and Articles of Association of the bank.

In deciding the case, the presiding judge, Justice Mohammed Idris, resolved all the issues on the powers of the governor against the applicants. In affirming and upholding the governor’s powers, the court started by reiterating the paramount rule of statutory construction that a “statute is to be construed according to its manifest and expressed intention.”

According to the judge, “The words are to be understood by looking at the subject matter they are speaking of and the object of the legislature as words could produce different intentions in reference to a different set of circumstances whereby (sic) another would have been produced.”

The court, after reproducing all the relevant provisions of BOFIA, held that the use of the word ‘any’ in Section 35 of BOFIA meant that the governor was not restricted to exercising only one of the powers specified in sub-section 2 (which allows for the removal of directors, appointment of directors, capital injection, etc), “but could indeed exercise same or all of the power specified in sub-section 2 of Section 35 of BOFIA.”

The court also noted that the legislature had used the word “or” after the provisions of Section 35 (2) (d) (i), and Section 35 (2) (d) (ii) followed. The court agreed that while “or” was generally construed disjunctively, there are instances where it is necessary to read and in place of or, and vice versa in order to carry out the intention of the legislature, and avoid absurd or impractical results. It relied on the decision in Ndoma Egba v Chukwuogor.

The court noted that by Section 35 (2) (d) of BOFIA, the powers of the governor were exercisable, notwithstanding anything in any written law, or any limitation contained in the Memorandum and Articles of Association of the bank. The court, relying on the decision of the Supreme Court in NDIC v Okem Enterprises Ltd, held that “Where the word notwithstanding is used in a section of a statute as in sub-section (2) (d) of Section 35, it is used to exclude an impinging or impending effect of any other provision of the statute or subordinate legislation so that the said section may fulfill itself.” It further held that it cannot be correct that the legislature only intended to empower the governor to remove one and not several directors by the use of the singular word ‘director’ in Section 35 (2) (d) (i). “This is so because by Section 14 (b) of the Interpretation Act, which states that ‘words in the singular include the plural, and words in the plural include the singular’ clearly displaces that position.

The judge also referred to Apena v. NUPP and stated that in the context of which the word was used in Section 35 (2) (d) (i), the word “any” clearly indicates that there is no limit to the number of directors that the governor of the central bank is empowered to remove.

The court finally recognised that the general rule is that he who has the power to hire has the power to fire, “…even where the power to appoint is silent on the power to remove.” It referred to the provision of Section 11(1) of the Interpretation Act which provides that where an enactment confers a power to appoint a person either to an office or to exercise any functions, whether for a specified period or not, the power includes the power to remove or suspend him, as the decision in Okomu Oil Palm Company Limited v Iserhierhien.

“In my view, by virtue of the combined effect of the provisions of Sections 33 and 35 of BOFIA, the CBN governor is empowered to order a special examination into the books and affairs of a bank, and to intervene in the operation of a bank by removing and replacing the directors of a bank found to be in a grave situation by the central bank,” the judge held.


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