Nigerian Deposit Insurance Corporation Vs Financial Merchant Bank Ltd (1997)
LAWGLOBAL HUB Lead Judgment Report
UWAIS, C.J.N.
This is an appeal from the decision of the Court of Appeal holden at Lagos which reversed the ruling of the Federal High Court sitting at Lagos. The facts, which are common ground, may be stated as follows:
By Government Notice No.1 published in the Official Gazette of the Federal Republic of Nigeria No.1 Volume 81 of 21st January, 1994, the licences of the Financial Merchant Bank Ltd. (the respondent herein) and one other Bank were revoked by the Governor of the Central Bank of Nigeria and the appellant was appointed their liquidator.
The revocation was declared to be in accordance with the powers of the Governor under Section 12 of the Banks and Other Financial Institutions Decree No. 25 of 1991 (hereinafter referred to as “BOFID”). The reason for exercising the power was given in the Gazette Notice to be “the grave financial condition of the banks which culminated in the total erosion of their capital obligations to their depositors and creditors, various actions were taken by the regulatory authorities to halt further deterioration, including calls on the shareholders to capitalise the banks which has (sic) failed.”
By a deed of appointment, the Governor of the Central Bank, in exercise of his powers under Section 38 subsection (3) of BOFID, appointed the Nigeria Deposit Insurance Corporation (the appellant herein) as a provisional liquidator to the respondent. The deed of appointment gave the powers of the provisional liquidator, in addition to those given to it by the Company and Allied Matters Act, Cap. 59 of the Laws of the Federation of Nigeria, 1990 (hereinafter referred to as “CAMA”), to be thus:-
“(a) To take immediate possession, and establish control over all the property assets, records and the whole affairs of the bank.
(b) To take or defend proceedings in the name of the bank.
(c) To give valid receipts for all moneys and execute all conveyances, deeds, assurances and things which may be deemed proper or desirable.
(d) To execute and deliver any deeds or instruments and to convey, assign or otherwise assure the properties of which it is appointed liquidator (sic) or any part thereof or any interest therein.
(e) To make and effect all repairs and insurances which are necessary for the protection or improvement of the properties and assets of the bank.
(f) To demand and recover all income or debts due or owed to the Bank by action distress or otherwise.
(g) To do all such other acts and things as may be considered to be incidental or conducive to any of the matters or powers hereof or derived under any law which it lawfully may or can do as a Liquidator of the bank.”
On the 4th March, 1994, the appellant presented a petition before the Federal High Court (Eigbedion, J.) praying as follows:-
“(i) That the Financial Merchant Bank Limited may be wound-up by the Court under the provisions of the Companies and Allied Matters Decree, 1990, as amended by section 38(4) of BOFID.
(ii) Or that such other Order may be made in the premises as shall be just. ”
On 8th March, 1994, the appellant brought an ex parte application praying the trial court for an order to advertise the petition filed for winding-up in accordance with the provisions of Rule 19 of the Companies Winding-up rules, 1983, (S.1. 45 of 1983 now Cap. 59 of the Laws of the Federation of Nigeria, 1990).
The application sought that the petition be advertised in the Official Gazette of the Federal Republic of Nigeria, one National Daily Newspaper and a newspaper circulating in Lagos State. The application was granted on being heard.
Consequently, the petition was advertised in the issue of the Guardian Newspaper of 19th April, 1994. It was then that the respondent became aware of the petition brought by the appellant.
On the 26th April, 1994, the respondent brought an application on notice in the matter asking Eigbedion, J. to make an order:-
“Staying proceedings and striking out the petition herein on the ground that this Honourable Court has no jurisdiction to entertain same, as it is not brought by the proper party in compliance with Section 410 of the Companies and Allied Matters Decree, 1990 and Sections 37 and 38 of the Banks and Other Financial Institutions Decree, 1991.”
After hearing the respondent’s application, the learned trial Judge delivered his ruling on 28th June, 1994 dismissing it. Thus holding that the petition was competent and that it was properly before him.
The respondent felt aggrieved. He, therefore, appealed against the ruling to the Court of Appeal (Kalgo, Ayoola and Pats-Acholonu, J.J.C.A.). In the lead judgment delivered by Kalgo, J.C.A. with which the other learned Justices concurred, the learned Justice held as follows:-
“It is very clear to me that with the appointment of the respondent as provisional liquidator of the appellant company, all the powers of the director are determined and the provisions of Section 422(9) of CAMA are applicable to the situation. This, therefore, means that as soon as the respondent was appointed a provisions (sic) liquidator of the appellant by the Governor of the Central Bank under Section 38(3) of BOFID, the powers of the directors of the appellant company ceased until the Federal High Court orders the continuance thereof. There was no such order made in this case.
However, there is nothing in the provisions of BOFID to show that the powers of the directors are automatically transferred to the provisional liquidator. In my view this is where the learned trial Judge fell into the trap (sic) and treated the respondent as having “supplanted the directors” and so acted as the bank itself in filing the petition under Section 410 of CAMA. This is wrong assumption which is not backed up by any provision of the relevant law. What is more, without the act of the directors, in the circumstances of this case, the bank can be wound-up on the application of any or more of the persons or bodies listed under paragraphs (b) – (g) of Section 410 of CAMA, and under Section 38(2) of BOFID by the Central Bank Governor. In any case even if the respondent were to be entitled to file a petition, it can only do so in the name of the bank and not in its own name as provisional liquidator. It would not be right, therefore, to say that because the powers of the directors ceased after the appointment of the respondent as provisional liquidator, the bank cannot act for itself for the purpose of winding up of itself and so the liquidator had to take its place. This cannot be so and if it is intended that the provisional liquidator shall have the power to present a petition to wind-up the bank, the law would have said so clearly. It did not say so as the learned trial Judge did in his ruling now on appeal.” (Italics mine).
In the appeal before us the appellant formulated the following issues for our determination:-
“(1) Whether having regard to the combined effect of the provisions of Section 38 of BOFID, 1991 and Section 422 of the Companies and Allied Matters Decree 1990, (CAMD), the appellant did not step into the shoes of the respondent Board of Directors, thereby conferring it with the locus standi to present the winding up petition. (Grounds 1 and 2).
(2) Whether the learned Justices of the Court of Appeal were right when they held that the trial Judge was not entitled to look at the totality of the evidence before him in deciding the issue of the locus standi of the appellant to present the petition for winding up (Ground 3).
(3) Whether the respondent had the locus standi to bring the motion on notice dated 25th April, 1994 having regard to the fact that a Provisional Liquidator had been appointed pursuant to the revocation of its banking licence by the Governor of the CBN (Ground 4).”
While attacking issues Nos. 1 and 3 as not fully encompassing the questions raised by grounds 1,2 and 4 of the appellant’s appeal, the respondent formulated three issues in its brief of argument, which it contended are the issues that could possibly arise from the grounds of appeal filed by the appellant. The issues are:-
“1. Whether the locus standi to petition for the winding up of a bank can by implication or inference be acquired by the appellant in virtue of the provision of Section 38(3) of BOFID despite the fact that the statutory power in that behalf is not conferred on it by the provisions of Section 410 of CAMA and Section 38(1) and (2) of BOFID.
- Whether the learned Justices of the Court of Appeal were right when they held that the trial Judge was not entitled to look at the totality of the evidence before him in deciding the issue of the locus standi of the appellant to present the petition for winding up the respondent bank.
- Whether the appointment of a Provisional Liquidator of necessity (in all cases and especially) in this case, should terminate the power of the board in the name of the respondent bank to oppose a winding up petition presented by the appellant.”
It is significant that although the respondent attacked the first and third issues formulated by the appellant no preliminary objection has been raised nor have we been urged to either strike out or discountenance the issues. Be that as it may, I think the main question to be determined in this appeal, which will encompass all the issues formulated by the parties is: whether in view of the relevant provisions of CAMA and BOFID the appellant by virtue of its appointment has the power and legal standing to file a petition for the winding-up of the respondent.
But before considering that issue it is necessary first to determine the more crucial issue of whether the respondent, as personified by Otunba William Olufemi Ajayi who was the Chairman of its Board of Directors, has the locus standi, after the appointment of the appellant as a Provisional Liquidator, to bring the motion to stay the proceedings in the petition filed by the appellant.
The Court of Appeal held that on the appellant being appointed Provisional Liquidator the powers of the directors of the respondent ceased until the Federal High Court made an order restoring the powers to the directors. Learned counsel for the appellant, Professor Olawoyin submitted that upon the appointment of provisional liquidator, under the provisions of section 422 subsection (9) of CAMA, the respondent’s board of directors is supplanted by the provisional liquidator. He argued that since the court below had so found, then Otunba William Olufemi Ajayi had no locus standi to bring any motion on behalf of the respondent.
He cited the case of Central Bank of Nigeria v. Kotoye (1994) 3 NWLR (Pt.330) 66 in support and submitted that the motion on notice brought by the respondent is incompetent and therefore the whole of the proceedings pertaining to it in both the Federal High Court and the Court of Appeal, are incompetent and should be struck out.
Replying, Mr. Adesanya, learned counsel for the respondent, conceded that by both the general law and the provision of section 422 subsection (9) of CAMA the appointment of a liquidator, as has been done in this case under Section 38 subsection (3) of BOFID, automatically renders the Board of Directors functus officio because the powers of the Board are assumed by the liquidator. He, however, contended that the position cannot be the same when the remedy sought by the Board of Directors is to oppose a winding-up petition as filed in the present case by the appellant. He argued that the provisions of Section 38 subsection (3) of BOFID do not clothe the appellant with the powers of the Board of Directors of the respondent since the appellant is a provisional liquidator and does not have the powers of a liquidator under Section 422 subsection (9) of CAMA. He referred to the book – The Law of Receivers of Companies by Lightman & Moss, 2nd Edition at Pp. 18-22 and the case of In Re Union Accident Insurance Co. Ltd. (1972) 1 WLR 640.
It is true that the provisions of Section 422 subsection (9) of CAMA take away the powers of the directors when a liquidator is appointed. The provisions read:-
“(9) If a liquidator is appointed under this section, all the powers of the directors shall cease, except so far as the court may by order sanction the continuance thereof.”
Although, the heading to section 422 deals with the appointment of a liquidator simpliciter yet subsection (2) thereof provides for the appointment of a provisional liquidator. It seems to me, therefore, that the provisions of subsection (9) are applicable to both a liquidator and a provisional liquidator. I am strengthened in this view by the Statement on page 474 of Company Law and Practice in Nigeria by Dr. J.O. Orojo, 3rd Edition, that a provisional liquidator has the same power as a liquidator under Section 423 of CAMA to take into his custody or under his control all the property of the company to which he is a provisional liquidator. It follows, therefore, that on the appointment of a provisional liquidator the directors cannot exercise any of their powers unless the court grants them the leave to do so.
It is very clear from the record of proceedings in the Federal High Court that the respondent, acting through Otunba William Olufemi Ajayi, its Chairman, did not obtain the order of that court before bringing the motion on notice challenging the jurisdiction of the court to entertain the petition for winding-up. This violates the provisions of section 422 subsection (9) of CAMA. There is, of course a difference between a company and its Board of Directors. Although, in practice the latter is empowered to act on behalf of the former by the articles of association of the company and provisions of CAMA there are occasions when the company can act without the participation of the Board of Directors. For instance, the company can under the provisions of Section 63 subsection (5) of CAMA institute legal proceedings in its name and on behalf of itself if the board of director refuse or neglect to do so.
The question that arises from this is: did Otunba William Olufemi Ajayi act simply on behalf of the company, since it can only act through natural persons, or did he act as a member of the Board of Directors, whose powers have been suspended under Section 422 subsection (9) on the appointment of the appellant as provisional liquidator The answer to the question can be found in the affidavit in support of the motion on behalf of the respondent. The affidavit was sworn to by Otunba William Olufemi Ajayi. Paragraph 1 thereof states:-
“1. That I am the Chairman of the Board of Directors of the respondent bank and have the authority of the said Board to swear to this Affidavit in opposition to the winding-up petition herein.”
The affidavit was sworn to on the 26th day of April, 1994, that was after the appointment of the appellant on 21st January, 1994 as provisional liquidator of the respondent. It is clear, therefore, that the motion on notice was brought not on behalf of the company but on behalf of its Board of Directors. This is what Section 422 subsection (9) of CAMA provides that the directors should not do unless they obtain the leave of the Federal High Court to do so.
Since there is no evidence that they obtained the necessary leave, I have no doubt whatsoever that the Board of Directors acted contrary to the provisions of Section 422 subsection (9) in bringing the motion. Accordingly, I hold that in this connection the respondent has no locus standi to bring the motion, as it did, challenging the power of the appellant and the jurisdiction of the Federal High Court to respectively bring and entertain the petition for winding-up.
In the light of the foregoing, it is futile and unnecessary to consider the remaining issues for determination in this appeal. The result is that the appeal succeeds and it is hereby allowed. Both the decisions of the Court of Appeal and the Federal High Court are hereby set aside. The respondent’s motion on notice in the latter court dated 26th April,1994 is hereby struck out. There is no order as to costs since the appellant’s expenses as provisional liquidator are chargeable to the funds of the respondent.
Other Citation: (1997) LCN/2759(SC)