Introduction
It is a well-established principle that the banker-customer relationship is fundamentally contractual, conferring customers with certain rights in respect of their accounts and imposing corresponding obligations on banks. Upon demand, whether by way of cheque, withdrawal via ATMs and other debit channels or transactions on the account, banks are obligated to honor every order placed by customers on their accounts as long as there is sufficient balance standing to the customer’s credit. In addition to these contractual rights, individuals are guaranteed the constitutional right to property under Section 44 of the 1999 Constitution of the Federal Republic of Nigeria, and this right extends to money lawfully deposited with a bank and the attendant right to access and deal freely with such funds.
Notwithstanding the above principle, the freezing of bank accounts by banks in Nigeria has become one of the most litigated banking issues in recent years. Both Federal and State High Courts across the country are inundated with actions for and arising from account freezes imposed in the name of fraud investigation, inter-bank disputes, regulatory compliance, and law enforcement directives. Yet, in many of these cases, the customer whose account was frozen is not usually made a party to the proceedings that directly affect their proprietary and contractual rights.
Legal Basis for Post-No-Debit and Account Freezing Orders
Under Nigerian law, a bank does not possess an inherent right to restrict or freeze a customer’s account at will. Any limitation placed on a customer’s access to their funds must be justified by law, contract, and/or a valid court order. Common justifications relied upon by banks usually include court ordered interim or interlocutory orders, directives from law enforcement agencies such as the EFCC or the police, compliance obligations under anti-money laundering and counter terrorism financing regulations, and internal risk management measures arising from suspected fraud.
Moreover, the extent to which a bank may lawfully freeze a bank account without prior judicial authorization was considered by the Court of Appeal in the case of Kuda Microfinance Bank Ltd v. Amarachi Kenneth Blessing (CA/EK/48/2024). In that case, the Court of Appeal held that banks in Nigeria may lawfully restrict customer accounts without first obtaining a court order where there is a report of fraud or suspicious activity, provided that the customer has contractually agreed to such measures. The Court reaffirmed that the banker-customer relationship is contractual and that parties are bound by the terms and conditions governing that relationship. The Court clarified that the constitutional right to property under Section 44 of the Constitution is not absolute, and temporary restrictions during investigations are lawful and valid. The Court further clarified that a bank, being regulated by the Central Bank of Nigeria (“CBN”) was required to comply with all its regulations and circulars that allow for the restriction of a customer’s account where fraud is reported.
The Basis for Unilateral Freezing by Banks
From both judicial authorities and regulatory practice, it is clear that banks may, in limited circumstances, impose unilateral post no debit order without a prior court order. Such circumstances are generally tied to express contractual terms accepted by the customer at account opening and regulatory obligations imposed by CBN, alongside the need to prevent dissipation of funds that are the subject of fraud reports or suspicious transaction monitoring. The regulatory foundation for this power is also reflected in the CBN Regulatory Framework for Bank Verification Number Operations and Watchlist for the Nigerian Banking Industry. Under Clause 2.1 of the Framework, where a bank receives a report of an alleged breach, the bank is required to investigate the alleged breach, and under Clause 2.2, place the customer’s account on Post-No-Debit. The bank is required to notify the customer through verifiable means within five business days and afford the customer an opportunity to present documentary evidence that may affect the bank’s decision within three business days. The breaches contemplated under the Framework include, among others, the receipt of proceeds of deception, the receipt of fraudulent proceeds, non-cooperation with efforts to reverse wrongly credited funds, and erroneous, multiple or duplicated payments or credits.
While these provisions clearly authorize banks to impose Post-No-Debit Orders at the investigative stage, they do not sanction “indefinite” freezes. Where investigations are contested or prolonged, a court’s order is required to legitimize such freeze. In practice, this is typically achieved through an ex-parte application for an interim order, followed by a return date that “may” afford the affected customer an opportunity to be heard.
What Affected Customers Can Do?
Customers whose accounts are frozen have several remedies available, including seeking for damages where applicable, under Nigerian law. They may also seek for declaratory or relevant injunctive orders to lift unlawful restrictions.
Where customers are not initially made parties to the proceedings that resulted in the freeze, they may apply for joinder to be made a party to the proceedings to assert their constitutional right to a fair hearing under Section 36 of the Constitution. Courts in Nigeria increasingly scrutinize these cases before granting a final order. For instance, the High Court of F.C.T in its appellate authority in Paulyn O. Abhulimen, S.A.N v. Zenith Bank Plc & Anor (FCT/HC/CV/2194/2024), held that magistrate courts did not have the jurisdiction to order the restriction of the claimant’s account and ordered payment of damages to the Claimant. The Court emphasized that, pursuant to Section 251 of the Constitution, matters relating to banker-customer transactions fall within the concurrent jurisdiction of the State High Court and Federal High Court, not magistrate Courts.
It is important to note, however, that there remains some debate as to whether magistrate courts may hear and determine applications for a Post-No-Debit Order where such applications fall within the defined statutory and monetary jurisdiction of the magistrate court.
Conclusion
While Post-No-Debit and account freezing orders are important tools for banks to prevent fraud and protect the integrity of the financial system, these powers are not absolute and must be exercised within the limits of law and judicial oversight. Customers whose accounts are affected, whether included or excluded from proceedings, have legal remedies, including request for joinder, declaratory relief, and injunctive orders.
Ultimately, Nigerian law and courts often seek to balance the legitimate interests of banks with the protection of customer property and access to justice. It is therefore essential that both banks and customers act within the purview of the law.
If you have any questions, please contact us at lawyers@royalheritagelaw.com.