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Nzeyi v Bank of Uganda and Another (Constitutional Petition No. 42 of 2012)

Constitutional Court · [2020] UGCC 13 · 2020 Petition Dismissed ✦ AI-generated summary ↓ Download
Jurisdiction
Uganda
Case Type
Constitutional petition under Article 137 challenging the constitutionality of provisions of the Financial Institutions Act, 2004 and the Bank of Uganda's takeover, liquidation and sale of the National Bank of Commerce.
Decision
Petition dismissed; the challenged provisions of the Financial Institutions Act and the Bank of Uganda's closure and sale of the National Bank of Commerce were held not to be unconstitutional.

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Holding

The Constitutional Court dismissed the petition. It held that the challenged provisions of the Financial Institutions Act, 2004 empowering the Bank of Uganda to revoke a banking licence, take over management, wind up and sell a financial institution detrimental to depositors' interests are not inconsistent with the Constitution. Section 101's bar on staying winding-up proceedings limits a remedy but does not oust the court's jurisdiction. The right to a fair hearing under Article 28 may be satisfied by written representations and ongoing regulatory engagement, which the National Bank of Commerce received over 2009–2012; it was not condemned unheard. Allegations of high-handedness, misfeasance or irrationality were matters for judicial review or trial, not constitutional interpretation. No order as to costs.

Facts

The petitioner, a shareholder and director of the National Bank of Commerce (NBC), challenged provisions of the Financial Institutions Act, 2004 and the Bank of Uganda's conduct in closing NBC. From 2009 the Bank of Uganda's on-site examinations rated NBC unsatisfactory, finding core capital below the statutory minimum, insider lending exceeding statutory limits, and persistent losses. When the minimum capital requirement rose to UGX 10 billion in 2011 (and was to rise to UGX 25 billion in 2013), NBC repeatedly failed to comply. Over 2009–2012 the Bank of Uganda held meetings, issued directives and concluded a memorandum of understanding requiring a capital restoration plan, but NBC remained undercapitalised and weakened by shareholder disputes. On 27 September 2012 the Bank of Uganda took over NBC's management under section 88(1) FIA, revoked its licence, appointed a liquidator and sold its assets and liabilities to Crane Bank. The petitioner alleged the actions, done in one day, violated his property, fair-hearing and related constitutional rights.

Issues

  1. Whether sections 17(a), 28(5), 57, 77, 88, 89 and 102 of the Financial Institutions Act, 2004 are inconsistent with and in contravention of Articles 2, 26, 27, 28, 40, 40(3), 42, 44 and 162(2) of the Constitution.
  2. Whether the takeover, liquidation, revocation of banking licence, winding up, closure and sale of the National Bank of Commerce to Crane Bank was inconsistent with and in violation of Articles 2, 26, 27, 28, 40(2), 42, 44 and 162 of the Constitution.
  3. What remedies, if any, the petitioner is entitled to.

Orders

  • The petition is dismissed.
  • Each party to bear its own costs (no order as to costs).

Key headnotes

Constitutional Interpretation — Contextual Approach — Underlying Policy of Legislation
The Constitution is interpreted in light of the context in which a claim arises, and the principles and policies underlying impugned legislation are relevant in determining whether that legislation infringes the Constitution.
Bank Regulation — Revocation of Licence, Take-over and Winding Up — Constitutionality of Central Bank Powers
Statutory powers vested in the Central Bank to revoke the licence of, take over the management of, wind up and sell a financial institution whose continued operation is detrimental to depositors' interests are exercised in the public interest and are not inconsistent with the Constitution.
Right to Fair Hearing — Natural Justice — Sufficiency of Written Representations
The right to be heard under Article 28 of the Constitution does not invariably require an oral or formal hearing; written representations and sustained regulatory engagement may constitute a sufficient opportunity to be heard, and the intervention regime of the Financial Institutions Act affords a distressed institution that opportunity.
Ouster of Jurisdiction — Bar on Stay of Winding-Up Proceedings — Section 101 FIA
A statutory provision barring a court from staying winding-up or liquidation proceedings of a financial institution limits the remedy available to a party but does not oust the jurisdiction of the court and is not unconstitutional.
Protection from Deprivation of Property — Compulsory Acquisition — Application to Failing Financial Institutions
The protection in Article 26(2) against compulsory acquisition of property, as traditionally applied, does not extend to the regulatory takeover and closure of a failing financial institution, given the unique stature of such institutions and the moral hazard their failure generates.
Jurisdiction of the Constitutional Court — Cause of Action — Controversy Requiring Interpretation
A constitutional petition under Article 137 must disclose a genuine controversy requiring interpretation of the Constitution; merely alleging that an act, omission or law is inconsistent with an Article, without more, does not establish a cause of action, and the onus to prove such a controversy lies on the petitioner.
Judicial Review — Grounds and Proper Forum — Illegality, Irrationality, Procedural Impropriety
Complaints of high-handedness, bias, irrationality or misfeasance in a regulator's administrative decision are reviewable on the grounds of illegality, irrationality, procedural impropriety and manifest error in assessment, and the proper avenue is an application for judicial review in the High Court rather than a petition for constitutional interpretation.

Legislation cited (31)

  • Constitution of Uganda 1995 art.2
  • Constitution of Uganda 1995 art.26
  • Constitution of Uganda 1995 art.27
  • Constitution of Uganda 1995 art.28
  • Constitution of Uganda 1995 art.40
  • Constitution of Uganda 1995 art.42
  • Constitution of Uganda 1995 art.44
  • Constitution of Uganda 1995 art.126
  • Constitution of Uganda 1995 art.137
  • Constitution of Uganda 1995 art.161
  • Constitution of Uganda 1995 art.162
  • Financial Institutions Act 2004 s.4
  • Financial Institutions Act 2004 s.12
  • Financial Institutions Act 2004 s.17
  • Financial Institutions Act 2004 s.28(5)
  • Financial Institutions Act 2004 s.34(8)
  • Financial Institutions Act 2004 s.57
  • Financial Institutions Act 2004 s.77
  • Financial Institutions Act 2004 s.82
  • Financial Institutions Act 2004 s.87
  • Financial Institutions Act 2004 s.88
  • Financial Institutions Act 2004 s.89
  • Financial Institutions Act 2004 s.99
  • Financial Institutions Act 2004 s.100
  • Financial Institutions Act 2004 s.101
  • Financial Institutions Act 2004 s.102
  • Financial Institutions Act 2004 s.126(2)
  • Financial Institutions Act 2004 s.128(1)
  • Bank of Uganda Act (Cap 51) s.6
  • Bank of Uganda Act (Cap 51) s.40(3)
  • Financial Institutions (Revision of Minimum Capital Requirements) Instrument No. 43 of 2010

Cases cited (18)

  • R v Wholesale Travel Group Inc [1991] 3 SCR 154
  • Minister of Employment and Immigration v Chiarelli [1992] 1 SCR 711
  • Baku Raphael Obudra and Another v Attorney General (Constitutional Appeal No. 1 of 2003)
  • Ismail Serugo v Kampala City Council and Attorney General (Constitutional Appeal No. 2 of 1998)
  • Wycliffe Kiggundu v Attorney General (Civil Appeal No. 27 of 1993)
  • Davis Wesley Tusingwire v Attorney General (Constitutional Petition No. 2 of 2013)
  • Rev Bakaluba Peter Mukasa v Betty Nambooze (Constitutional Appeal No. 4 of 2009)
  • National Council for Higher Education v Anifa Kawooya Bangirana (Civil Appeal No. 4 of 2011)
  • Mpunga and Sons Transporters Ltd v Attorney General (Civil Appeal No. 17 of 2001)
  • Russell v Norfolk (1949) 1 All ER 109
  • Kimani Waweru and 4 Others v Central Bank of Kenya and 7 Others [2018] eKLR
  • Richardson and David Ltd v Kenya Deposit Insurance Corporation and Another [2015] eKLR
  • Kenya Deposit Insurance Corporation v Richardson & David Ltd and Central Bank of Kenya (Civil Appeal No. 66 of 2016)
  • Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB 223
  • Thugitho Festor v Nebbi Municipal Council (Miscellaneous Application No. 15 of 2017)
  • Onyaro John Owiny v Kitgum Municipal Council (Miscellaneous Cause No. 7 of 2018)
  • Emirates Africa Link v National Bank of Commerce, Amos Nzeyi and Another (Civil Suit No. 73 of 2012)
  • Kanyeihamba and 320 Others v Amos Nzeyi, Amama Mbabazi and 2 Others (Civil Suit No. 361 of 2010)
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