Legality and practicability of the guidelines on GSI: the Central Bank Of Nigeria got it right

Continued from last week Section 32 (1) of the CBN Act provides:

“The Bank may, subject as is expressly provided in this Act generally conduct business as a bank, and do all such things as are incidental to or consequential upon the exercise of its power or the discharge of its duties under this Act.” (Underlined is for emphasis)

Section 33 (1) (a) & (b) of the CBN Act provides:

“(1) In addition to any of its powers under this Act, the Bank may –

i. require persons and institutions having access thereto at all reasonable times, to supply, in such forms as the Bank may from time to time direct, information relating to or touching or concerning matters affecting the economy of Nigeria; and

ii. issue guidelines to any person and any institutions under its supervision.” (Underlined is for emphasis)

Section 42 (1) (b) & (c) of the CBN Act provides:

“(1) The Bank shall wherever necessary, seek the co-operation of and co-operate with other banks in Nigeria to –

i. ensure high standards of conduct and management throughout the banking system; and

ii. further such policies not inconsistent with this Act as shall in the opinion of the Bank be in the national interest.’’ (Underlined is for emphasis)

Section 45 (6) of the CBN Act provides:

“The Bank shall have power to prohibit any bank which fails to comply with any directive issued under this section, from extending new loans and advances and from undertaking new investments, until the bank complies with the directive to the satisfaction of the Bank; and may, in addition, levy fine as appropriate under the provisions of section 13 (5) of the Banks and Other Financial Institutions Act.’’

Section 61 (6) of the BOFIA Act provides: (1) The Bank shall have power to

supervise and regulate the activities of other financial institutions and specialised banks. (Underlined is for emphasis)

A Cursory look at the above provisions shows the powers of the CBN to issue guidelines such as the GSI and while creating these guidelines, it has not gone ultra vires of the powers given to it by the enabling Acts.

It is important to state that, the execution of the GSI Mandate is one of the requirements that must be fulfilled by an account holder seeking to obtain loan from Borrower Banks. The GSI Mandate operates only when a Customer is in breach of the Loan contractual obligation. It is only at this point that the CBN, as the regulator, steps in, with its fundamental purpose, that is, to promote a sound financial system in Nigeria. This is of course bearing in mind the utilitarian principle of making laws or issuing directives that are for the good of all as opposed to the benefits of a single party.

THE CBN AND ADJUDICATIONS

One of the views from certain quarters about these guidelines on GSI is that it usurps the power of Court especially as regards disputes. This view is far from the correct position, as same is misconceived as the guidelines on GSI recognize the power of Court and do not in any way interfere with the powers of Court. The guidelines on GSI recognize restrictions placed on accounts by the Court and excludes such from the GSI Trigger. We strongly maintain that the amount of loan and interest left unpaid cannot be in contest, since it is regulated by the Loan Contract. The only part that could be in dispute is the penal fees for default in repaying the loan which has been expressly excluded by the Guidelines on GSI.

In addition, there are penalties in place for the wrong use or trigger of the GSI. Moreover, there is no provision in the GSI Guidelines excluding any aggrieved party from seeking redress in a Court of Law.

The entire provisions that run through the pages of the guidelines has not in any remote way ousted or usurped the jurisdiction of the Courts to determine grievances that borrowers may raise from its application. In fact, it has further enthroned same. This position of ours has been re-emphasized in the case of THE MISCELLANEOUS OFFENCES TRIBUNAL & ANOR V. OKOROAFOR & ANOR (2001) LPELR – 3190 (SC) Pp. 62-63, Paras. D-D Per Karibi-whyte, JSC stated that:

“An ouster clause may be absolute whereby there is a total exclusion of the exercise of jurisdiction, or a limited ouster, where the exercise of jurisdiction is excluded only in certain situations. In considering the ouster provision the words used must be carefully construed to determine the effect intended. Hence where the words connote an ouster only in certain situations, the jurisdiction of the superior court is only excluded on the fulfillment of those conditions. Superior courts of record guard the exercise of their constitutional jurisdiction zealously with jealousy. Hence whereas they may tolerate the exclusion or restriction by statute of a personal right of access to the courts the language expressing such exclusion or restriction will be carefully watched by the courts, and will not be extended beyond its least onerous meaning. Only clear and unambiguous words will be allowed to have such effect”

See also; Sode v. A.-G., Federation (1986) 2 NWLR (Pt.24) 568 at p.577; Nwosu V. Imo State Environmental Sanitation Authority (1990) 2 NWLR (pt.135) 688; Fawehinmi V. Abacha (1996) 9 NWLR (Pt.475) 710.

Thus, since it is abundantly clear that there is nothing from the provisions of the guidelines having the implication of absolute or limited exclusion of the exercise of jurisdiction by the Courts over an executed GSI mandate, the guidelines cannot therefore be said to oust or exclude the adjudicatory powers of Courts.

CONTRACTUAL RELATIONS

The general legal relationship of bank and customer is contractual which requires the borrower to execute documents and offer security to the bank before utilizing the credit facility. Consequently, the parties are bound by the terms and conditions of the documents. It is in fair consideration of this that clause 3.2 of the Guidelines on GSI provides a waiver clause that ensures that the borrower waives his right that allows the creditor to act on his account(s) even in other banks, without seeking and obtaining his consent before any debit can be posted to his account.

The GSI is an agreement which recognizes that waiver clause and it serves as sufficient consent to waive the implied confidentiality obligation that other participating Banks owe to their customers (borrower). In order words, the consent of the borrower as expressed by signing the terms and conditions for the credit facility negates any provision of any contractual legal relations.

Upon executing the GSI Mandate Agreement with NIBSS, Participating Financial Institutions become necessary party to the GSI general agreement with the borrowers. Subsequently, the voluntary consent of a borrower to the terms and conditions of the agreement waives his rights of confidentiality with other participating financial institutions.

For all objective intents and valid purposes, the CBN guidelines do not in any conceivable way seek to regulate simple contracts and/or obligations binding the concerned banks and its customers, what it merely undertakes to achieve is to ensure the regulator bank’s effective collaboration with all other banks in Nigeria with the aim of making policies in the nation’s interest, as contained in Section 42 of the CBN Act and in further exercise of the powers conferred on it by Section 1 of BOFIA.

Besides, contractual obligations only take effect once the acts to which the parties have agreed begin to occur and, in this case, such obligations will arise the moment the loan is advanced to the customer by the crediting bank. Conversely, the execution of the mandate by the borrower as specified in the guidelines takes place even before the loan is given, it is a condition precedent to the grant of the facility to which the borrower has an unhindered option of walking away from. At that point, neither the prospective creditor (the bank) nor the would-be debtor (the borrower) is under any obligation of sorts, in fact, no contract has been entered by the parties. The mandate simply operates as a guarantee assuring the bank of the preservation of its pecuniary interest on the one hand and according the borrower knowledge of what is at stake should it be in default, and does not extend into the territories of the bank-customer contractual relationship itself.

To support this position, the decision in the case of DANGOTE GEN. TEXTILE PRODUCTS LTD & ORS V. HASCON ASSOCIATES NIG. LTD. & ANOR (2013) LPELR-20665 (SC), where the Court made recourse to the basic elements of a contract in establishing the existence or otherwise of a contractual obligation, is instructive. It held:

“The law relating to contractual obligation is only binding when there are offer, acceptance as well as consideration without which no valid contract can exist.” Per OGUNBIYI, J.S.C.

JOINT ACCOUNT ISSUES

The core plank of the guidelines on GSI is to improve credit repayment culture, and the creditor banks are required by Clause 3.2.2 (a) of the guidelines on GSI to properly educate borrowers about the GSI mandate, its implications and to enshrine same in their loan application process. In all cases where an eligible account holder (borrower) is a signatory to a joint account, the creditor bank is required to educate all the signatories to the joint account on the implications before the consent of the borrower is sought and obtained. Suffice therefore, to say that the GSI seeks to protect the rights of the non-defaulting party of a joint account by first educating the party before executing the agreement on the implications.

CORPORATE INTERESTS

Even though Clause 2.0 of the GSI Operational Guideline expressly specified the eligible account types, which clearly excludes corporate accounts save joint accounts, it is however unclear as to what happens when a borrower is a signatory to a corporate account which he is either a director or not. Two options seem practicable:

Where the borrower has control over the corporate interests of the corporation and can convince the corporation and the signatories to agree to the terms and conditions of the GSI agreement. In which case, it is feasible.

Where the borrower is merely appointed as a signatory to a structured corporation, which the borrower does not have control over. How then can the veil of incorporation be lifted? It would seem that the creditor bank would be handicapped in such circumstances.

In addition, banks by their very corporate nature have juristic personalities, they are an artificial creations of the law and before its eyes, they are legal entities capable of not only suing but equally being sued against in a Court of competent authority. A customer/borrower who wishes to challenge the receipt of the loan facility or who admits it but disputes the amount of the sum in the account upon which the GSI has been triggered, is not barred from ventilating such grievances in Court, besides the guidelines provide in Clause 3.2.1 that the content of the mandate must have been fully understood by the defaulter before execution.