No Court Order Needed in Freezing of Bank Accounts: An Analysis of the Legal Shift in the Court of Appeal Decision in Kuda MFB v. Amarachi Blessing

By Daze Nga, MCArb and Obinna Iroaganachi, MCArb

1.0. INTRODUCTION

The right to own movable property, including money, is firmly enshrined in the Constitution of the Federal Republic of Nigeria, 999 (as amended). As with many fundamental rights, however, this guarantee is not without limits. The Constitution permits lawful restrictions on this right, especially in situations where such limitations are clearly authorised by legislation.

Over the years, Nigerian Courts have grappled with the extent to which commercial banks and law enforcement agencies can interfere with an individual’s right to own property — particularly in the context of placing a lien on or ‘freezing’ bank accounts. A landmark decision in this regard is GT Bank v. Adedamola, where the Court decisively held that the Economic and Financial Crimes Commission (EFCC) cannot instruct a bank to freeze a customer’s account without first securing a valid court order. In that case, the EFCC had directed the appellant bank to place restrictions on the respondent’s account without obtaining a Court order. The Court held that this action was unconstitutional, and equally affirmed that it violated the respondent’s fundamental right to own property.

However, recent judicial decisions suggest a controversial shift in Nigerian jurisprudence. Courts — most notably the Court of Appeal — have begun to adopt a broader interpretation of the powers granted to law enforcement and regulatory agencies in relation to account restrictions. In Ipinloju v. EFCC & Ors, the Court of Appeal upheld the EFCC’s authority to issue a stop order on a bank account without first obtaining a court order. This decision was grounded in Section 6(5)(b) of the Money Laundering (Prevention and Prohibition) Act 2022, which empowers the EFCC Chairman, or an authorised officer of the EFCC, to place a stop order for up to seventy-two (72) hours where there is reasonable suspicion, during the course of an investigation, that the account is connected to criminal activity.

This evolving judicial trend has also found support in regulatory instruments issued by the Central Bank of Nigeria (CBN). Notably, CBN Regulations No. BPS/DIR/GEN/CIR/02/004 of June 11, 2015, and BPS/DIR/GEN/CIR/05/011 of September 13, 2018, empower commercial banks to place a lien on or restrict access to customer accounts on the grounds of suspected fraudulent activity. In the recent case of Kuda Microfinance Bank Ltd v. Mrs. Amarachi Kenneth Blessing, the Court of Appeal leaned heavily on these regulations, as well as on the bank’s ‘account opening agreement’ signed by the customer which authorized the bank to restrict the account on suspicion of fraud. The Court held that since the customer had contractually authorised the bank to restrict her account in cases of suspected fraud, a court order was not required.

A similar line of reasoning was adopted in Ipinloju v. EFCC & Ors,where the Court distinguished its earlier decision in GTBank v. Adedamola. It noted that the CBN Regulation of June 11, 2015, had not been brought to the Court’s attention in the Adedamola case and therefore could not have influenced that earlier judgment. As such, the Regulation provided a valid basis for the EFCC’s and the bank’s actions in Ipinloju.

This analysis examines the most recent decision of the Court of Appeal on the requirement for banks to obtain a court order before placing restrictions on a customer’s account. It clarifies the existing controversies on the subject and examines the Court’s reasoning in relation to the specific facts of each case. The decision also sheds light on the circumstances under which commercial banks may lawfully restrict a customer’s account without first obtaining a court order.

2.0. FACTS OF THE CASE

In the case, the respondent, Mrs. Amarachi Kenneth Blessing, discovered that access to her bank account with the appellant, Kuda Microfinance Bank, had been restricted when she attempted to make a cash transfer. The restriction was imposed by Kuda following a notification from Access Bank Plc, which informed Kuda that Mrs. Blessing’s account with Access Bank had been mistakenly credited with ₦5,000,000 (Five Million Naira). It was further reported that Mrs. Blessing subsequently transferred the entire sum to her Kuda account. Acting on this information and suspecting fraud, Kuda Microfinance Bank placed a restriction on the respondent’s account without first obtaining a court order.

Aggrieved by the actions of the appellant, the respondent instituted an action at the Federal High Court, Ado-Ekiti Judicial Division, seeking, among other reliefs, a declaration that the restriction placed on her account was unlawful, having been done without a valid court order. In its defence, the appellant argued that it was empowered to freeze or suspend a customer’s account based on its contractual terms, as evidenced by the executed account opening form labelled “Terms and Conditions” and admitted in evidence as Exhibit K1. These terms, the bank contended, expressly allowed it to restrict an account where “there is a report of, or our investigations reveal that you have engaged in, fraudulent or suspicious activity with your Kuda account”. The appellant further relied on CBN’s Regulations issued on June 11, 2015, and September 13, 2018, asserting that these regulatory frameworks authorised banks to restrict customer accounts in cases of suspected fraud.

On May 7, 2024, the Federal High Court ruled in favour of the respondent, holding that the restriction placed on her account by the appellant was unlawful, as it was imposed without first obtaining a valid Court order. Dissatisfied with this decision, the appellant lodged an appeal at the Court of Appeal, Ekiti Division. The appellant argued, among other things, that the trial Court failed to consider its terms and conditions which were mutually agreed upon by the parties, and the relevant CBN Regulations, which, as subsidiary legislations, empowered it to restrict accounts on suspicion of fraud even without a court order.

In response, the respondent maintained that both the CBN Regulations and the contractual terms cited by the appellant specifically addressed situations involving fraud. She argued that the present case, which concerned an alleged mistaken transfer of funds, did not fall within the scope of fraud or suspicious activity contemplated by those provisions. As such, the appellant’s reliance on them was misplaced.

3.0. DECISION OF THE COURT OF APPEAL

In reaching its conclusion, the Court of Appeal, Ekiti Division, held that the Federal High Court had failed to properly evaluate the evidence presented by the appellant, particularly the terms and conditions executed by the parties and the CBN Regulations cited in support of the account restriction. The appellate Court affirmed that the terms and conditions signed by both parties constitute a binding agreement and could not be disregarded. The relevant clause in the agreement reads as follows:

We reserve the right to close, suspend, freeze or limit access to your account if –

(a) The information we obtain from you does not comply with regulatory requirements

(b)You do not meet, or are in breach of the terms and conditions contained therein

(c)You create risk or possible legal exposure to us

(d)We are required to do so by law; or

(e)There is a report of, or our investigations reveal that you have engaged in fraudulent or suspicious activity with your Kuda Account.

The Court consequently held that the terms and conditions executed by the parties validly empowered the appellant to freeze the respondent’s account, even without first obtaining a court order.

In its reasoning, the Court of Appeal considered CBN Regulations No. BPS/DIR/GEN/CIR/02/004 of June 11, 2015, and BPS/DIR/GEN/CIR/05/011 of September 13, 2018. These Regulations permit financial institutions to place restrictions on customer accounts upon receiving a report suggesting suspected fraudulent activity. The Court affirmed that the regulations constitute subsidiary legislation and, as such, have the force of law, making them binding on financial institutions like the appellant.

Acknowledging the realities of modern banking, the Court highlighted the increasing digitization of financial transactions and the ease with which large sums of money can now be transferred across borders in a matter of minutes — often complicating efforts to trace or recover illicit funds. In response to these challenges, CBN issued the regulations. These Regulations are re-enforced in the account opening documentation, allowing the appellant to freeze accounts where fraud is suspected, pending further investigation. In this context, the Court observed in its judgment that:

“It is to be noted that the appellant as a financial institution is mainly an online banking platform for its customers. In the light of electronic banking regime applicable worldwide where billions of Naira or any other currency can be transferred electronically across the globe within seconds or minutes and with slim chance of recovery, some measures to safeguard ordinary citizens or corporations are needed and one of such measures could be in the activation and recognition of the terms and conditions in Exhibit K1 and the CBN Regulations empowering the bank to place a suspected account on restriction pending the outcome of any investigation.” 

The Court also distinguished the present case from earlier decisions such as Savana Chemical Industries v. EFCC & Ors and GTB v. Adedamola & Ors, in which it was held that Section 34 of the Economic and Financial Crimes Commission (EFCC) Act, 2004 requires a court order before an individual’s bank account can be restricted. The Court of Appeal clarified that those decisions were not applicable in this instance, as the case did not involve the application of Section 34 of the EFCC Act. The restriction in question was based on contractual terms and CBN regulations, not an EFCC directive.

The Court relied on its earlier decision in Ipinloju v. EFCC & Ors, where it held that an account restriction imposed pursuant to both an EFCC directive and the applicable CBN regulations was not unlawful. On that basis, the Court found that the restriction placed on the respondent’s account by the appellant was lawful and justified. It further held that the respondent’s suit was premature, as she ought to have awaited the outcome of the ongoing investigation before approaching the Court.

In reinforcing its position, the Court of Appeal in our instant matter criticized the trial Court for failing to consider the binding effect of the account opening terms and conditions, as well as the legal force of the CBN Regulations. It held that this oversight amounted to a miscarriage of justice. Accordingly, the Court of Appeal dismissed the respondent’s suit and awarded costs of ₦100,000 in favour of the appellant.

4.0. CRITICAL REFLECTIONS

In summary, the Court of Appeal held that the restriction placed on the respondent’s bank account by the appellant, though effected without a court order, was lawful. The Appeal Court in arriving at this decision, relied primarily on the account opening form executed by both parties, which contained a clause authorising the appellant to restrict the account in situations where there is suspicion of fraudulent activity. Additionally, the Court relied on the CBN’s Regulations which empower financial institutions to impose restrictions on customer accounts upon receiving reports of suspected fraud.

Notably, neither the account opening form nor the applicable CBN Regulations made the appellant’s power to restrict a customer’s account — where there is suspicion of fraud — conditional upon obtaining a court order.

It is important to emphasize that the right to acquire and own immovable property, and to be protected from the compulsory acquisition of such property, is a constitutionally guaranteed right available to every Nigerian. The 1999 Constitution of the Federal Republic of Nigeria provides that:

“Subject to the provisions of this Constitution, every citizen of Nigeria shall have the right to acquire and own immovable property anywhere in Nigeria.”

Furthermore, section 44(1) of the Constitution reinforces this right by stating:

No moveable property or any interest in an immovable property shall be taken possession of compulsorily and no right over or interest in any such property shall be acquired compulsorily in any part of Nigeria except in the manner and for the purposes prescribed by a law that, among other things…

The wordings of sections 43 and 44 of the 1999 Constitution suggest that the right to own movable property in Nigeria, though constitutionally protected, is not absolute. A citizen’s movable property may be compulsorily acquired or restricted where such action is authorised by law. In this context, several statutory instruments empower regulators and law enforcement agencies to approach the Courts for ex parte orders to restrict (temporarily) bank accounts suspected of being used for fraudulent activities.

One notable example is section 34(1) of the EFCC Act, 2004, which empowers the Chairman of the EFCC or any officer authorised by him to apply to a Court ex parte for an order to restrict a bank account, where there is suspicion that the funds in that account are proceeds of an offence under the Act. Another example is section 97(1) of the Banks and Other Financial Institutions Act, 2020 (BOFIA), which confers similar powers on the Governor of the CBN. The provision states:

97.—(1) Notwithstanding anything contained in any other enactment, where the Governor has reason to believe that transactions undertaken in any account with any bank, specialised bank or other financial institution are such as may involve the commission of any criminal offence under any law, the Governor may make an ex-parte application for an order of the Federal High Court verifying on oath the reasons for the Governor’s belief, and on obtaining such Court order direct or cause a direction to be issued to the manager of the bank, specialised bank or other financial institution where the account is situated or believed to be, or in the alternative to the head office of such bank, specialised bank or other financial institution directing the bank, specialised bank or other financial institution to freeze the account.

The above statutory provisions are clear examples which establish that the right to own movable property and the constitutional protection against the compulsory acquisition of immovable property, are not absolute. Law enforcement agencies and regulators are empowered by various legislative instruments to apply to the courts for orders restricting bank accounts where there is suspicion of criminal activity. However, a close reading of these laws reproduced above reveal no suggestion that a regulator, security agency, or financial institution may unilaterally freeze or restrict a citizen’s bank account without first obtaining a Court order.

Nevertheless, the most recent decision of the Court of Appeal appears to carve out a distinction. It suggests that while law enforcement agencies such as the EFCC must comply with statutory provisions requiring a court order (as seen under section 34 of the EFCC Act), commercial banks and other financial institutions may not be held to the same standard in certain circumstances. In its reasoning, the Court in our instant case upheld that the relevant CBN Regulations relied upon by the appellant to constitute subsidiary legislation with binding legal force. Additionally, the Court held that parties were bound by the contractual terms contained in the executed account opening form, which explicitly authorised the bank to restrict, or even close, the respondent’s account where there is reasonable suspicion of fraudulent activity.

This line of reasoning appears to suggest that parties may, through contractual agreement, waive or curtail the exercise of constitutionally guaranteed rights, an implication that raises profound legal and constitutional questions. This decision raises critical questions about the intersection of contract law, regulatory directives, and constitutionally protected rights. Notably, it highlights a potential tension between the CBN Regulations relied upon by the Court and the provisions of Section 97 of the Banks and Other Financial Institutions Act (BOFIA) 2020, which appears to require the CBN Governor to obtain a court order before freezing or restricting a bank account. This raises the question of whether the CBN, under BOFIA, possesses the unilateral authority to freeze accounts and, by extension, whether it can delegate such a power to financial institutions if it does not itself lawfully hold that power. Top of Form

It is, however, important to emphasize that the validity of the relevant CBN Regulations, particularly in light of the provisions of BOFIA 2020, was neither contested by the parties nor examined by the Court in this case. Consequently, the CBN’s Regulations BPS/DIR/GEN/CIR/02/004 of June 11, 2015, and BPS/DIR/GEN/CIR/05/011 of September 13, 2018, along with other existing regulatory instruments issued by the CBN, remain valid and binding on financial institutions unless and until they are set aside by a court of competent jurisdiction or repealed through appropriate legislative or regulatory action. Bottom of Form

5.0. CONCLUSION

The Court of Appeal’s decision in the case under review marks a significant, and arguably controversial, interpretation of the legal framework governing the freezing of customer bank accounts by financial institutions. By affirming the validity of the relevant CBN regulations and giving effect to the contractual terms contained in the account opening form, the Court has provided a measure of clarity on the scope of a bank’s powers in responding to suspected fraudulent activity.

This ruling of the Court of Appeal also raises broader legal and constitutional concerns, particularly with respect to the extent to which regulatory directives and private contractual agreements can limit, or potentially override, constitutionally guaranteed rights, such as the right to own and freely control movable property. The CBN Regulations in question remain valid and binding as subsidiary legislation. However, potential questions about their consistency with section 97 of BOFIA 2020, which requires obtaining a court order before restricting bank accounts, may still arise, particularly since the Court did not address or resolve this possible inconsistency in its judgment.

Importantly, the judgment reflects a judicial attempt to strike a balance between the evolving demands of modern banking, particularly the imperative to respond swiftly to suspected financial misconduct, and the enduring principles of due process and constitutional protection. While the decision currently serves as binding precedent for lower Courts, it remains open to reconsideration, particularly by the Supreme Court, which may ultimately be called upon to offer authoritative guidance on the scope of powers vested in financial institutions and regulators in this context. Accordingly, the legal framework on this issue cannot yet be considered settled and remains open to further judicial clarification and potential realignment. Until such clarification is made, the legal position remains fluid, and stakeholders including financial institutions, regulators, and customers must continue to navigate this sensitive area with caution, fairness, and fidelity to both the law and the public interest.

Source: BarristerNG