Review of Retail Supermarket Nig. Ltd v. Citibank Nig Ltd & CBN

Review of Retail Supermarket Nig. Ltd v. Citibank Nig Ltd & CBN

Following a decision of the Federal High
Court in Suit No: FHC/L/CS/1710/2013: Kasmal International Ltd v.
Central Bank Nigeria
, the Central Bank of Nigeria (CBN) issued a circular
dated January 15, 2016 to all Deposit Money Banks to the effect that stamp
duties at the rate of N50 for every payment of N1000 and above would be
applicable to all receiving accounts in the country with immediate effect.

The drastic decline in the price of crude
in the international market has adversely affected Nigeria’s economy in the
last few years due to its dependence on revenue from sale of crude oil to fund
its budget. Revenue from non-oil sectors have not been significant enough to
mitigate this harsh effect of fall in crude prices as the Federal and State
Governments have not been able to successfully diversify the nation’s economy
after decades of dependence on oil.
One of the major sources of non-oil revenue
for the Country is taxes and levies by Government at all levels. Accordingly,
the directive of the CBN is clearly an attempt to shore up revenue for the
Federal Government.
In 2013, Kasmal International Services Ltd
sued the CBN in Suit No: FHC/L/CS/1710/2013: Kasmal International Ltd
v. Central Bank Nigeria
 and the Deposit Money Banks in Suit
No: FHC/L/CS/1462/2013
. In both cases, judgement was awarded in favour of
Kasmal International Services Ltd to the effect that stamp duty of N50 was payable
on every deposit or fund transfer of N1000 and above; and the CBN and Deposit
Money Banks were obliged to implement the deduction.
Following the decision in
FHC/L/CS/1462/2013, Standard Chartered Bank Nigeria Ltd brought an appeal vide Suit
no: CA/L/437A/2017: Standard Chartered Bank Nigeria Limited v. Kasmal
International Services Ltd & 22 Others 
challenging the decision of
the lower court. The Court of Appeal upheld the Appeal of Standard Chartered
Bank and set aside the decision in Suit No: FHC/L/CS/1462/2013.
Despite these decisions, the policy of
deducting N50 for every bank transaction above N1000 has continued unabated. In
2016, Retail Supermarkets Nigeria Limited brought a fresh action against
Citibank and Central Bank of Nigeria vide Suit No: FHC/L/CS/126/2016:
Retail Supermarkets Nigeria Limited v. Citibank Nigeria Limited & Central
Bank of Nigeria
 wherein it challenged the collection of N50 surcharge
for every N1000 transaction. A summary of the case which is the subject of this
review follows.
Facts of the case
Retail Supermarkets Nigeria Ltd
(owners/operators of Shoprite retail outlets across Nigeria) instituted an
action against Citibank and Central Bank of Nigeria on the 8th of July, 2016
praying the Federal High Court for the following orders:
declaration that the provisions of the 2nd Defendant’s (CBN) circular reference
GEN/CBN/DMB/02/006 of 15th January, 2016 are inconsistent with Schedule 1 of
the Stamp Duties Act, Cap S8 Laws of the Federation of Nigeria and are invalid,
null and void;
order setting aside the provisions of the circular reference GEN/CBN/DMB/02/006
of 15th January, 2016;
order of perpetual injunction restraining the first Defendant (Citibank) either
by itself, its agents, servants, privies, assigns or any person claiming
through or deriving authority from it from taking any step to implement or from
further implementing the 2nd Defendant’s circular reference GEN/CBN/DMB/02/006
of 15th January, 2016 in relation to the Plaintiff’s bank accounts.
The argument of the Plaintiff was that
implementation of the 2nd Defendants circular reference GEN/CBN/DMB/02/006 of
15th January, 2016 by the 1st Defendant i.e. deduction of the sum of N50 for
every deposit into its account from N1000 upwards would expose it to several
financial losses.
In arriving at its decision, the Federal
High Court (Coram: Obiozor J.) relied heavily on the Court of Appeal decision
in Suit no: CA/L/437A/2017: Standard Chartered Bank Nigeria Limited v.
Kasmal International Services Ltd & 22 Others 
 based on the
settled principle of stare decisis i.e. that lower courts are
bound by decisions of Superior Courts. In its decision, the Court of Appeal
held inter alia as follows (paraphrased):
court of law can only enforce and apply provisions of the law which are in
existence and in force in Nigeria;
is no provision in the Stamp Duties Act nor the Amendment to the Act conferring
powers on licensed banks in Nigeria to collect the sum of N50 for teller deposit
or fund transfer of N1000 and above. Accordingly, in the absence of any
contrary provision, the provisions of the Schedule to the Stamp Duties Act
especially item 4 clearly show that documents which evidence receipts of
monetary deposits by a bank are exempted from Stamp Duties Act. Thus, there is
no obligation to deduct stamp duty from deposits or transfers at all.
In view of the above decision of the Court
of Appeal, the Federal High Court in the case under review decided as follows:
declaration that the provisions of the 2nd Defendants circular reference
GEN/CBN/DMB/02/006 of 15th January, 2016 are inconsistent with the provisions
of the Stamp Duties Act Cap S8 Laws of the Federation of Nigeria, 2004 and are
invalid, null and void.
order setting aside the provisions of the 2nd Defendant’s circular reference
GEN/CBN/DMB/02/006 of 15th January, 2016.
order of perpetual injunction restraining the first Defendant (Citibank) either
by itself, its agents, servants, privies, assigns or any person claiming
through or deriving authority from it from taking any step to implement or from
further implementing the 2nd Defendant’s circular reference GEN/CBN/DMB/02/006
of 15th January, 2016 in relation to the Plaintiff’s bank accounts.
Nigerians have been moaning since the
commencement of the implementation of the CBN circular reference
GEN/CBN/DMB/02/006 of 15th January, 2016. Although the policy has been
perceived by many as bad, insensitive and illegal, there appears to have been
no public interest law suit challenging the implementation of the directive
which has now gone on for over one year. It is important to note that the case
in review is only for the benefit of Retail Supermarkets Nigeria Limited and so
no one else can benefit from the judgement as it was not a class action.
Invariably the deduction of illegal stamp duty charges will continue on all
other accounts in the Country. It is hoped that this decision will spur a more
definitive action on this issue to restrain all the banks from continuing with
the directive of CBN with regards to illegal stamp duties deduction from all
bank accounts. A class action by citizens will be more encompassing.
Corporate Governance & AML Practitioner

Ed’s Note – Article was first published here.
New CBN Guidelines For Banks On The Treatment Of Dishonoured Or Dud Cheques – Bolanle Oduntan, Esq.

New CBN Guidelines For Banks On The Treatment Of Dishonoured Or Dud Cheques – Bolanle Oduntan, Esq.

The Central Bank of
Nigeria has issued new guidelines to all banks on dishonoured or dud cheques.
It is instructive for individuals and businesses to understand these guidelines
which take effect from 28th June, 2016 and the consequence of issuing dud
As reported in the media,
the CBN has installed additional regulatory measures against the issuance of
dud cheques by individuals and corporate customers in other to strengthen the
confidence and integrity of negotiable instruments issued within the country.
The key points to note in the new CBN Guidelines are that all banks are
mandated to;

Perform status check on all potential
customers to ensure they are not dud cheques issuers before granting credit
facilities to them or opening an account for them,
Forward the details of cheques issued by a
customers and returned “insufficient funds” whether presented over the
counter or through a licensed Credit Bureaux and the Credit Risk Management
System (CRMS) on monthly basis,
Cancel all unissued cheque books of
customers who have issued dud cheques three (3) consecutive times or more
across banks, and
Prevent all inter-bank cheques issued by such
customer for a period of five (5) years.
The guidelines  also
provides that the details of offending customers will be listed in the database
for a period of five (5) years from the date of submissions after which the
name will be eligible for removal. Also subsequent default following a removal
of an offenders name from the list will attract a permanent listing of such
defaulter in the Credit Bureaux database and such defaulter can only be removed
from the listing with the approval of the Central Bank.
It is also worth noting
that, the principal legislation criminalising the issuance of dud cheques
is the 1977 Dishonoured Cheques (Offences) Act. The rather
brief law makes it an offence for any person anywhere in Nigeria to induce
the delivery of any property or to purport to settle lawful obligations by
means of a cheque which when presented within a reasonable time is dishonoured
on the grounds that no funds or insufficient funds were standing to the credit
of the drawer of the cheque. This law has however been sparsely tested with the
sad consequence that there are professional debtors who obtain services under
the pretense that the cheques they issue will consequently be honoured by the
The crux and key
provisions of the Dishonoured Cheques (Offences) Act are as follows:
Section 1
of the Act makes it an offence to obtain delivery of goods or credit by means
of a cheque that, when presented for payment not later than three months
after the date of the cheque
, is dishonoured on the ground that no funds or
insufficient funds were standing to the credit of the drawer of the cheque in
the bank on which the cheque was drawn;
An individual found guilty of this crime is
liable to imprisonment for two years, without the option of a fine;
A body corporate found guilty of this crime
is liable to be sentenced to a fine of not less than N5,000. Note that a
minimum fine is prescribed by the law; a judge may apply discretion to increase
the fine applicable on a case by case approach; and
The Act in Section 2 however
provides for the lifting of the corporate veil where the offence involves a
body corporate. It provides that “where the offence is committed by a body
corporate is proved to have been committed with the consent of or connivance
of, or to be attributable to any neglect on the part of any director, manager,
secretary or other similar officer, servant or agent of the body corporate (or
any person purporting to act in any such capacity), he, as well as the body
shall be deemed to be guilty of the offence and may be proceeded
against and punished in the same manner as an individual.
For businesses in general,
one of the factors considered when investors seek out promising ventures to
invest in, is the creditworthiness of the business (and in some cases that of
it key principal actors such as directors and principal members). What
creditworthiness says about a company is a company’s ability to meet its
financial obligations and pay its debts and the main way to improve on
creditworthiness is to pay bills and meet financial obligations on time.
Issuing a dud cheque is certainly not a way to achieving this.
At a time when direct and
foreign portfolio investment has plunged, importation of foreign capital
declined to a low of $647.1 Million in the 2nd Quarter of 2016 (according to Financial Times) and with the country officially in a
recession, it is important to note that future investments in Nigeria (when we
are able to come out of this recession) will come with even tougher scrutiny
and due diligence by investors, commercial banks and prospective business
The truth is that being a
serial debtor with an open display of opulence, is fast becoming an acceptable
trend. Start-ups looking to raise capital investment will among other
considerations undergo even greater scrutiny; not just the business
operations and financials but also its principal members to determine the
viability of prospective investments.
Five years is a long time
to have an individual or a corporate entity listed as an issuer of dude
cheques, in other words, as a person or organisation that chronically does not
honour its financial and business obligations. A lot of business goodwill and
credibility can be lost within this period with deep financial consequences.
Large businesses already
have internal credit rating systems, this move will go further by providing an
even larger pool of data to work with. Finally, this move by the CBN, coupled
with existing BVN infrastructure will ultimately help with a better enforcement
of existing laws as the appropriate prosecuting agencies will have a credible
list of offenders for prosecution.

 ‘Bolanle Oduntan is a corporate lawyer, litigator and ADR
practitioner. He advises start-ups, SMEs, multinational companies and
provides legal support and expertise. He practices in Lagos the commercial
capital and business nerve center of Nigeria and indeed West Africa.
If you have any question about this post, please contact ‘Bolanle,
your solicitors or financial advisers.
This article does not constitute legal or financial advice nor does it create a
contract between the reader and the writer.
Ed’s Note – This article
was originally published here
Photo Credit – here 

Tochukwu Chikwendu – CBN OTC Fx Futures: Understanding The Derivatives Market

Tochukwu Chikwendu – CBN OTC Fx Futures: Understanding The Derivatives Market

By: Tochukwu Chikwendu
 The Central Bank of
Nigeria (CBN) recently removed the peg on Nigerian currency (Naira) and
officially announced a floating rate. The implication therefore is that the
value of Naira will be determined by the forces of demand and supply. In its
announcement, the CBN introduced an over- the-counter (OTC) Foreign Exchange
(FX) Futures, a derivatives product which will help open up the market and
encourage foreign investments.

Meaning of Derivatives
Derivatives (Futures,
Forward, Swaps, Options and Swaptions) are bilateral contracts or payments
exchange agreement whose respective values are derived from the value of an
underlying asset or underlying reference rate. This means that the value of a
contract entered into today will be determined on a future date based on market
For instance, if Party A
enters into an arrangement with Party B to buy 1,000 barrels of oil at US$40
per barrel (pb) in 6 months in anticipation that price will spike to US$50
within the period; the value for such contract is determined by
market position of the commodity at the end of the 6 months. Thus,
the price at the end of the 6 months will determine the value added to the
X-ray of Futures and
Forwards Contracts
Futures are exchange
traded forward contracts with standardized terms. Their price is determined by
market price. Futures contracts are highly regulated by an exchange, thus
counterparties’ credit risk are largely minimized as such is borne by the
exchange. To prevent credit risk, the exchange ensures that parties post
Initial Margins (IM)[1] before they are allowed to transact on the floor of the
exchange. Counterparties, in addition to IM, are also required to mark the
market daily by posting Variation Margin (VM)[2] with the exchange. An
Illustration will aid the understanding of the concept of IM and VM. Recall our
Party A and B example; Party A wants to buy oil at US$40pb in 6 months and
Party B also wants to sell at that price despite the future price of the
commodity. The buy side approaches the exchange[3] which links it with the
sell side. Assuming the contract sum is US$40,000, the exchange will mandate
the counterparties to post at least US$2,500 each as IM. At the close of each
trading day, depending on the market movement, any counterparty the market
moved against will be required to post a VM. Thus, if at the close of Day 1
(D1) trading, oil price moved down to US$35pb, a cash call will be made on
Party A to post US$5,000 to mark the market and bring the price to US$40pb
which he contracted to pay in 6 months and vice versa.
Forwards on the other hand
are OTC negotiated i.e. they are bilaterally negotiated between participants
upon flexible terms. They mature over time based on the need of the parties.
Counterparties to Forward contracts generally do not mark the market since
there is no exchange to regulate the conduct of counterparties. The paucity of
regulation, exposes Forward contracts counterparty’s credit risk.[4].
Counterparties in both
Futures and Forward contracts, settle their trade positions at the end of the
contract period. Settlement could be physically or cash settled (traditionally,
Futures are cash settled while Forwards are physically settled). Following our
illustration, for Futures contracts cash settlement, if  at the end of the
6 months the price of oil had risen to US$50pb, the exchange will pay US$10pb
being the difference between the contract and spot price of the commodity to
Party A. On the other hand, if the price of oil at settlement date was US$30pb,
the exchange will give the difference to Party B. In Forwards (physical)
settlement, if the oil market price was US$45pb at the last trading day of the
6 months, Party A will hand over US$40,000 to Party B who will then make up the
difference and purchase the contracted 1000 barrels. Alternatively, if the
price was down to US$30 pb, Party A will still hand over the same US$40,000 to
Party B, the US$10 made by Party B on each barrel constitutes the risk
FX Futures are derivatives
contracts traded on an exchange where the delivery of underlying currency is
the subject matter of the contract. In the United States, FX Futures are traded
on the International Money Market of the Chicago Mercantile Exchange as well as
other licensed Exchanges. To replicate this, the CBN in its Revised
Guidelines for the Operation of the Nigerian Inter-Bank Foreign Exchange Market

dated June 2016 (The Guidelines) stated that the OTC FX Futures will be traded
on the FMDQ OTC Securities Exchange. It is noteworthy to state that OTC FX
Futures as explained in Guideline 2.2.2 (non-standardised contract
with fixed tenors and bespoke maturity dates),
aligns more with Forwards
contract. It is the writer’s view that the CBN probably adopted OTC FX Futures
for convenience since the contract will be cash settled and FMDQ will act as an
Exchange with IM and VM mandate.
OTC FX Futures is a
welcome development in the Nigerian financial sector. The instrument is a sui
financial product that will help participants engage in FX ventures
without being inundated by currency fluctuations. The major drawback in the
Futures contract market is the activities of speculators,[6] but the Guidelines
seems to have plugged that hole as Guideline 2.2.3 provides that “OTC
FX Futures sold by Authorised Dealers to end-users must be backed by trade
transactions (visible and invisible) or evidenced investment
.” The import
is that there must be evidence of a transaction that the end-user intends to
hedge before the authorized dealers will be allowed to take a trade position.
The CBN also, in Guideline
2.2.1, indirectly maintained that Naira will be the only legal tender
acceptable in Nigeria as Authorised Dealers are only permitted to offer
Naira-settled non-deliverable OTC FX Futures. The implication is that at the
end of the contract tenor, settlement will be (Naira) cash settled. The Naira
equivalent of the difference in the current and contract spot prices will be
paid to the counterparty who is in positive region of the trade. The
exception to Naira settlement is for a foreign investment after a Certificate
of Capital Importation (CCI) together with FMDQ OTC FX Futures Settlement
Advice is presented, Guideline 2.2.7.
Negotiating OTC FX Futures
Counterparties willing to
trade in OTC FX Futures will approach the FMDQ Exchange, an interface between
the buy and sell side, and decide on the positions and tenor of their trade.
The Exchange will provide the spot price at which the trade will be carried out
after the necessary KYC has been carried out to ensure that the
counterparties/dealers will comply with FMDQ’s trade regulations. If satisfied
with the KYC, the FMDQ Exchange, as part of its regulatory oversight, will
demand that counterparties post an IM (constituting at least 5% of the entire
contract sum) to hedge against counterparties’ default.
FMDQ Exchange as part of protective
mechanism, makes cash calls on the trade counterparties depending on the market
movements. The mark-to-market rate will be determined by the Inter Bank Foreign
Exchange Fixing (NIFEX). The FMDQ’s appointed agent, Nigeria Inter-Bank
Settlement System PLC (NIBSS) in charge of clearing the inter-bank OTC FX
Futures, is empowered to collect the IM and VM, and settle the party on the
maturity date. NIBSS is also empowered to settle the trade if one of the
counterparties decide to close out its position before maturity date.
It seems therefore that
the CBN has put a very strong mechanism in place to ensure that the OTC FX
Futures market minimise the disequilibrium in the FX market and cause the FX
rate to moderate and attract significant capital flows into the Nigerian
economy. It is hoped that all the holes are properly plugged to prevent
speculators from entering into this market as that will likely derive up the
dollar rate, defeating the CBN’s purpose of developing this market.
The Naira- settled OTC FX
Futures product is a welcome development which will be of tremendous benefit to
individuals and corporate entities that engage in FX businesses. It will also
present an opportunity to hedge against future market movements. Whilst
applauding the CBN for its policy, it is hoped that this will be sustained and
CBN will put good surveillance in place to ensure that market participants will
not engage in activities that could undermine the effectiveness of the
[1] IM is the percentage
(5% and above) of the contract sum deposited (at the contract start date) with
the exchange to hedge market movement from the day a party defaults in payment
of its VM to the day the counterparty’s position is eventually closed out. IM
cushions the exchange in the event a counterparty defaults in its obligation.
It prevents the exchange from using its funds to offset counterparties’ trade
positions. The amount of IM posted by counterparties may increase during high
market volatility.
[2] VM which is difference
between the contract and current market price at the close of any day’s
trading. A party whom the market moved against is required to post the amount
before the Day 2 trading.
[3] Because Futures are
exchange-traded, the parties are unaware of the counterparty taking the other
position of the trade.
[4] Since Forward contract
are largely unregulated, they are not the most reliable and efficient financial
instrument for hedging risks
[5] Settlement of both
Futures and Forward contracts are now mostly done in cash.
[6] Speculative trading
occurs when a market participant approaches the exchange to hedge a speculated
risk without possessing real risks i.e. hedging that the price of a commodity
will spike without actually having any intention of buying any commodity in the
Tochukwu is admitted to the Nigerian Bar, and holds an LLM in Corporate,
Finance and Securities laws from the New York University School of Law. Tochukwu has a strong interest for capital markets, securities
transaction and finance, with an ardour for dispute resolution, both in
the international and local sphere. Tochukwu is goal-driven, resourceful
and a natural team player.  Whilst Tochukwu’s career interest is in international business law and
transactions, he is also committed to worthy charitable courses, and has
offered his assistance on a pro bono basis in certain cases.
Ed’s Note- This article was originally posted here.