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Unconstitutionality of CBN cashless policy in six states and FCT

By Joseph Onele
26 October 2021   |   2:33 am
Barely two weeks ago, Justice Nnamdi Dimgba of the Federal High Court of Nigeria sitting in Awka, Anambra State delivered a landmark Judgment in the suit filed by Chijoke Ifediora against the Central Bank of Nigeria...

Onele

Barely two weeks ago, Justice Nnamdi Dimgba of the Federal High Court of Nigeria sitting in Awka, Anambra State delivered a landmark Judgment in the suit filed by Chijoke Ifediora against the Central Bank of Nigeria (CBN). The suit challenged the constitutionality of certain CBN circulars relating to cashless policy in selected areas in Nigeria. Specifically, the suit revolves around the discriminatory nature of two circulars issued by the CBN to financial institutions to implement a cashless policy to promote the use of electronic payment systems and reduction in the use of physical cash in six States (Anambra, Abia, Lagos, Ogun, Kano and Rivers) as well as the FCT. 

Background to the Suit
The CBN had through the circular dated April 20, 2017 directed financial institutions to charge 3% and 5% respectively for withdrawals above N500,000 for individual accounts and above NGN3,000,000 for corporate accounts. However, in the circular dated September 17, 2019, CBN extended the charge to lodgments (deposits) at a rate of 2% and 3% above the threshold for individuals and corporate accounts respectively. 

Ifediora, a lawyer based in Anambra State operates a savings account with Guaranty Trust Bank (GTB) Nigeria as well as other Banks in Nigeria. On January 7, 2020, he visited a Branch of GTB in Awka to deposit N600,000 into his account with the bank but was told by a staff of the bank that he would be charged 3% of the cash amount he had. When he inquired as to why such sum would be levied on the cash amount he had, he was shown a CBN Circular, which was pasted across the cash machine mandating the Bank to charge 3% for lodgment above N500,000. He further stated that he was prevented from making the lodgments except he paid the 3% of the cash amount. 

Consequently, he approached the Federal High Court seeking the determination of the Court as to whether the CBN cashless policy implemented through the CBN circulars dated April 20, 2017 and September 17, 2019 made applicable in six states of the Federation and the FCT, are not discriminatory, ultra vires (beyond powers), unconstitutional and illegal, in so far as they impose financial levies for bank withdrawals and lodgements on the residents of the affected States. He equally maintained that as a legal practitioner, he is obligated to observe the rule of law, foster the cause of justice and well within the ambit of the law to invoke the powers of our Courts on policies or actions of public institutions established to serve the public impartially.

Arguments on the Preliminary Objection and Suit
CBN filed a preliminary objection challenging the locus standi (legal standing) of the plaintiff to file the suit and argued that the suit does not disclose any substantial or tangible injury suffered by him that is over and above that suffered by the general public as a result of the alleged unconstitutional act of the CBN. CBN also maintained that he does not have the authority of all the citizens and corporate institutions residing in the six states and FCT to file the suit.

In addition to submitting that the plaintiff lacks the legal standing to file the suit, CBN contended that there is nothing in the suit that shows that CBN violated the constitutional rights of all citizens and corporate institutions residing in the six states and FCT by virtue of the implementation of the CBN circulars. CBN, therefore, argued that he is a meddlesome interloper and busy body who does not have any legal interest to protect in the suit. 

Attacking the suit on the merits, CBN contended that: (a) whilst the financial levies were imposed only on the resident of the affected states and the FCT with the intention to spread it to the entire federation, the said financial levies are not discriminatory; (b) the CBN has the powers to issue guidelines to financial institutions in line with its statutory objective of promoting monetary stability and a sound financial system pursuant to its enabling Act; (c) the CBN is not only statutorily empowered to issue guidelines to promote monetary stability and sound financial system, but also empowered to do all things that are incidental to the exercise of its mandate; and (d) the circulars in issues were designed to be implemented across the federation starting with the most economically viable states, which were the six states and the FCT named in the circulars.

In response to the CBN, the plaintiff argued that: (a) the manner in which the cashless policy of the CBN is being implemented through the circulars is unconstitutional and beyond the powers of the CBN; (b) the policy which taxes people’s funds when they seek to make withdrawals or lodgments in banks, and affecting the residents of the six states and the FCT, is discriminatory because in other States (excluded in the circulars) in Nigeria, such withdrawals or lodgments will not attract any charge or tax; (c) there is no moral or legal justification for a different set of policy to apply in different states of the Federation and not apply in other States; (d) the policy is biased against the residents of the affected states including Anambra where he resides; (d) the Court must not allow public institutions like the CBN to act arbitrarily and outside their powers; (e) he and his clients have suffered great adversity as a result of the CBN circulars and it on this basis the plaintiff has approached the court as a legal practitioner obligated to observe the rule of law and foster the course of justice, as well as invoke the jurisdiction of the court on the policies and actions of public institutions established to serve the public impartially; and (f) it is the duty of the Court to uphold the supremacy of the Constitution on all persons and authorities (inclusive government agencies) and the Court should declare the said circulars to be inconsistent with the Constitution and thereby, null and void.

Decision of the Federal High Court
In dismissing the preliminary objection for lack of merit, Justice Dimgba of the Federal High Court held that having regards to plaintiff’s claims before the Court which includes rather unpleasant experience he suffers when he goes to his bank for financial transactions and being asked to pay the levies imposed as a result of the circulars, not only does he have the legal standing, but also that the suit qualifies as a public interest litigation, which the appellate Court has affirmed has been expanded by the Preamble 3 (e) of the Fundamental Right Enforcement Procedure Rules 2009, which provides that the Court shall encourage and welcome public interest litigations in human right field as well as ensure that no human right case is dismissed or struck out for want of legal standing. 

The Judge further rejected CBN’s argument that the Suit is invalid by reason of the plaintiff not having obtained the consent of those affected by the CBN’s policy in the affected states and the FCT and affirmed that the suit is not a representative action requiring the consent of other parties before an action can be filed or one requiring consent of all the affected residents or citizens. Justice Dimgba further held that even if such consent were to be a legal requirement, it does not lie in the mouth of the CBN to contest such as it rather lies in the mouths of those said to be affected and whose consent is argued to be a legal requirement to intervene to say that the plaintiff has no such consent and should therefore not speak for them through the legal proceedings.

In granting the declarations that the two CBN circulars and the charges emanating from the implementation of the circulars are unconstitutional given their discriminatory nature, as well as beyond CBN’s power as the circulars and have no lawful basis whatsoever as same were an indirect taxation attempt by the CBN to impose a charge/levy/tax on residents of the six states and FCT, Justice Dimgba eruditely declared that “the imposition of financial levies against the residents of the named six States and the FCT in the CBN circulars under review, for cash withdrawal and deposit transaction over the defined thresholds, is in substance an indirect taxation against these residents” and runs contrary to the statutory duty of the CBN to “maintain fiscal and monetary policy and the soundness of the nation’s financial system.”

Justice Dimgba further held that he saw no legal basis for CBN’s attempt to amass taxing powers as done through the two CBN circulars and that such taxing power is “not such that can be implied by an undue stretch of general regulatory powers conferred on an agency of the government by its enabling law, such as in this case…by the CBN Act and the BOFIA.” Justice Dimgba further declared the two CBN circulars discriminatory and contrary to the provision of Section 42 of the Nigerian Constitution (as amended).  
In affirming the supremacy of the Constitution of the Federal Republic of Nigeria 1999 (as amended) and its binding nature on all persons and authorities, including the CBN, Justice Dimgba stated that “any policy of CBN which is either designed and or implemented in a manner that conflicts with the Constitution and or cannot find accommodation with the relevant applicable laws, is liable to be interdicted by the courts.”

Understanding the need to respect the rule of law and constitutional supremacy, Justice Dimgba agreed with the plaintiff that the CBN policy in this wise was discriminatory and offended section 42 of the Nigerian constitution (as amended). Hence, the two cashless policy circulars were declared discriminatory and offending section 42 of the 1999 constitution. In his words: “This nation, as all civilized nations of the modern era, is governed by the rule of law. The rule of law demands that government institutions, such as the defendant in this suit, should provide rational justifications for policy choices they have made and not to act arbitrarily.”
COMMENTARY

The Judgment is a welcome contribution to our jurisprudence as it supports public interest litigation and access to justice for citizens. Justice Dimgba, in further underscoring or highlighting the importance of public interest litigation, re-echoed with words of the Court of Appeal in the case of Edun v Government of Delta State (2019) LPELR – 47464 (CA) held that public interest litigation assists in making the government of the day accountable and promoting the rule of law in a democratic setting, as well as “altering unfavourable laws and government policies.”

Though CBN is saddled with responsibility to promote a sound financial system in Nigeria and is empowered to do all such things as are incidental or consequential to the exercise of its power or discharge its duties under its establishing Act, it is opined that neither BOFIA nor the CBN Act as currently worded empowers CBN to expand the provisions of a substantive law. CBN, cannot on its own expand an enabling statute but must conform. As pronounced by the Justice Oputa (now of blessed memory) of the Supreme Court in Olaniyan v University of Lagos: “a corporation which is created under a Statute cannot do anything at all, unless authorised expressly or impliedly by the Statute or instrument declining its power. It simply has not got the vires or the powers or authority to act outside the Statute. If it so acts, the act will be held as ultra vires and declared null and void.”

While it may be argued that the CBN has delegated power to make subsidiary regulations for the specific purposes captured under the enabling statutes to give full effect to the objects of such statutes as well as empowered to make rules and regulations for the operation and control of all institutions under its supervision, CBN needs to exercise caution in issuing any rules, regulations, guidelines or administrative directives pursuant to BOFIA or other applicable law(s), by ensuring such are not made ultra vires (beyond powers) and contrary to the provisions of Nigerian Constitution.

Globally, the roles of a central bank are well recognised. The apex bank, no doubt, is a significant player in a nation’s economy which includes focusing on monetary policy and is usually aimed at maintaining an inflation rate within an agreed band or target, amongst other mandates. In developing countries, monetary authorities also introduce incentives to encourage customers to drive financial inclusion. However, in Nigeria, there appears to be a scope creep going on at the CBN. Nigeria’s apex bank appears to be fixated on championing revenue generation for the government. To the CBN, it matters little if it means harming the CBN’s own monetary policy objectives and driving the economy into an avoidable economic slowdown. As aptly captured by Justice Dimgba, ”The aim of the policy as explained in the defendant’s website is to promote virtual and electronic payment systems and to reduce or eliminate the proliferation of physical cash within the economy. If this is so, why then is the circular of 17/09/19 targeting and penalising cash lodgements and deposits, and not limited to cash withdrawals as was the initial policy of 20/04/17? The imposition of financial levies on cash lodgements in my view appears counterintuitive and opposed diametrically to the idea of cashless Ness, which the defendant is said to be promoting.”

Further highlighting the inconsistency in CBN’s cashless policy in targeting six states and FCT, Justice Dimgba opined: “One may want to ask: what is so inherently unlawful in a resident of a state like Kano or Lagos or Anambra States making a cash deposit or withdrawal over N500,000 in a bank, that such a resident needs to be penalized with a surcharge of 2% and 3% of the said deposit/withdrawal, but is not so unlawful and worthy of penalization when a resident of a state like Kaduna or Edo or Enugu not named in the circulars make such a deposit and or withdrawal, when it is the same legal tender that is used in the entire federation?”

Putting the point more succinctly, Justice Dimgba noted instructively that “this aspect of the policy, imposing financial levies on lodgements/deposits, in my view, appears unreasonable…I have reviewed the policy document as contained in the website of the defendant (CBN) as well as the implementing circulars and I am unable to see any rational and objective justification for the selective imposition of financial penalties against residents of the named six states and the FCT for making cash withdrawals and lodgements/deposits over the stipulated threshold.”

As well noted by Justice Dimgba, the CBN cashless policy penalising deposits of over NGN500,000 rather than promote cashless economy, in fact encourages the proliferation of cash, particularly for traders and other day to day business people who would rather keep the cash they have realised from their daily business operations with them than lodging same into their bank accounts and be required to pay financial levies of 2% and 3% of the amount by which they have exceeded the daily threshold, depending on if they were individual or corporate persons. For instance, paper money will cost Nigerians almost nothing to hold or keep at home, except for the risk of theft and robbery. However, converting paper money into bank deposits will cost depositors (in terms of high-interest rates), a development that sends harmful signals to the global gospel of financial inclusion. Hence, the contradiction and conflict of intention/purpose brought in by the imposition of an e-payment charge is what makes the CBN’s cashless policy confusing to many.

For most businesses, there are surging complaints of high transaction charges that come with online as well as machine transactions. This is discouraging to the masses and poses a challenge to the implementation of the cashless policy. Beyond the high cost of transactions, there are also complaints of inadequate POS machines or systems malfunctioning, all of which pose more threats to the ease of doing business in Africa’s biggest economy. There is also another argument that the financial institutions in Nigeria are not adequate to carry out the many responsibilities of a cashless society. CBN also needs to factor the high rate of illiteracy in the country in implementation of its future policies. Many in remote villages are not financially literate enough to understand how cashless transactions work. Rather than penalise cash depositors with a view to encouraging cashless adoption, CBN should consider incentivising deposits of Naira towards a cashless economy.

In our considered view and riding on the back of the erudite decision of Justice Dimgba, rather than cherry pick states who end up facing salient pain of Nigeria’s cashless policy, CBN needs to be more strategic and intentional about the expansion of many more electronic media such as ATMs and Point of Sales systems (POS) in the country for the economy to be affected and positively impacted by the cashless policy. As noted by Justice Dimgba, while the cashless policy geared towards the “reduction or elimination of physical money (cash) circulating” in itself is not an entirely bad concept, it is imperative for the CBN to ensure that the policy is “designed and implemented in a manner that is lawful and…and the implementation must not be such that exceeds the powers of the CBN.”

Going forward, the CBN needs to be more focused on ensuring its policies help promote a sound financial system and not stiffen economic growth or make life more unbearable for Nigerian citizens.