CBN in Big mess as Lagos Based Company demans N2.2BN over forex policy



A Lagos-based oil trading firm Stallionaire Nigeria Limited has dragged the Central Bank of Nigeria, (CBN), before a Federal High Court sitting in Lagos, alleging that it incurred a huge financial loss due to what it described as harmful foreign exchange policies by the apex bank.

Consequently, the company is demanding for the sum of N2, 203,964,065.36 as general damages from the loss it said it suffered from the forex policy of the apex bank.

The company, in its statement of claims, alleged that as an indigenous company with its head office in Lagos commenced business in 2012 with about 200 staff in its employment, dealing with the importation and marketing of petroleum products. The plaintiff stated that the petroleum products which it deals on are categorised as “eligible transaction” as defined in the CBN’s manual and circular.

The company said the products are thus eligible imports for bid and sale of Foreign Exchange by the CBN to the company through an “authorised dealer” and in a FOREX market controlled and regulated by the apex bank.

The plaintiff added that there is also the parallel market also called black market and that importers of products not listed as “eligible transactions” as defined by the CBN’s regulation purchase FOREX at the parallel or black market, outside the defendant’s grip of approvals.

It was further stated that under the law and regulations, the plaintiff would be unable to buy to FOREX it needs for its huge imports without the defendant’s approval of the application for processing eligible transactions is done through Form Ms and Letter of Credit (LC) with the CBN agreeing by holding out and approving to sell FOREX from “CBN source” and at the rate which it advises daily.

“The defendant and its accredited inspection agents process and approve FORM Ms and the defendant approve the issuance of LC’s thereupon, all with the approved rates, value and quality of imports. If these approvals were not in place and communicated to it by the defendant or its agents in the regulation process, through its authorised dealers, the plaintiff would not be able to embark on the importation of petroleum products.

The plaintiff stated that the defendant is the sole supplier of FOREX for ‘eligible transactions’ and controls the market by allocating FOREX to individual customers based on approved Form Ms and approval for LCs it grants each applicant under “eligible transactions” through authorised dealers, the commercial banks.

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It was further stated that FOREX sales by the defendant (CBN) are not immediate, but at the end of each transaction cycle after sales, and proceed taken from the market.

Thus, the approval rate in FORM Ms is used to determine the cost of the product and fix the price at which the plaintiff sells to its customers. Any material change in this rate creates huge losses on the transaction.

The plaintiff stated that transaction under the FOREX regime is based on documented credit and requires the establishment of LC or Bills for collection.

“The plaintiff would therefore normally import on credit while payment is remitted to its oversea suppliers’ bank through its bankers (authorised dealer) in Lagos when the defendant sells FOREX to the plaintiff as detailed on Form M and transmitted to the foreign suppliers who reviews and upon agreement and satisfaction with the terms, ships the goods to the plaintiff for sale in Nigeria.

It was further stated that the gap between the time of approval of Form M and the time FOREX is sold by the CBN may result in minor depreciation or appreciation of the Naira against the foreign currency, due to the daily interplay of market forces , but this is usually very slight, at about N2 or thereabout. This is usually anticipated and this factored into prices computation to avoid loss.

The plaintiff said it has run this credit transaction model for three years with its bankers and the defendant, which has the monopoly on official FOREX transactions under the documentary credit model used for import of goods listed as “eligible transactions”.

Stallion Nigeria Limited said against the background of this transaction model, it secured facilities of $30 million from Fidelity Bank plc, $30 million from Union Bank Plc and $5milllion from First Bank plc to shore up its petroleum products import business.

The plaintiff added that it applied to the defendant for sale of dollars through the three commercial banks (authorised dealer) after having opened Form Ms and secured the defendant’s approval for the LCs they sent to the foreign suppliers under “eligible transactions”. The foreign suppliers only shipped goods on the strength of this documentation from the defendant as sovereign comfort.

The plaintiff submitted the 7 different Form Ms through the three banks totalling 265, 537, 838,80 dollars while the CBN approved LCs to the tune of 100,749,306,705.00 dollars to be established in favour of the plaintiff’s suppliers on the listed approved Form Ms.

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“The transactions were consummated at the old exchange rate of N197 per dollar.”

Plaintiff averred that suddenly on June 15, 2016, the CBN issued a circular announcing a deliberate policy of floating of the naira in which it established a single market through the inter-bank foreign exchange market.

By this policy, the exchange rate of the naira to the dollar rallied at N280 to one dollar on the first day while the defendant has insisted that it will now pay N280 per one dollar as against N197 per dollar it earlier approved.

“At the time the CBN commenced the enforcement of this deliberate and conscious policy the plaintiff’s afore-stated transactions were already at post-sale stage and awaiting FOREX purchase from the defendants (CBN) as indicated in Form M. Soon after this announcement, the three authorised dealers informed us that it would now liquidate the outstanding sum on the LCs at N280 per dollar as against N197 to a dollar which the CBN prefix.

The plaintiff said the authorised dealers had no option than to comply with the CBN’s policy that FOREX already approved by the defendant pre-floating will now be purchased at post-floating rates even though goods had been imported and sold and FOREX awaited.

This new policy put the plaintiff in a deficit of N2, 203, 964, 065, 36 on the approved transactions.

Faced with the defendant’s hard position the plaintiff said Fidelity Bank wrote him demanding differential of N88, 167,325.95, while Union Bank and First Bank did the same, demanding the differentials in the transactions.

The plaintiff said he consequently wrote the CBN through a letter dated 11th July 2016 drawing the attention of the bank to the consequences of the wrongful retroactive application of the floating rate of N280 to transactions already approved at N197 which has created a gap of N80 per dollar.

In reply, the CBN through a letter dated August 3, 2016, denied that it agreed to sell dollars to the plaintiff at any rate, but however confirmed having the company’s Form Ms in its record but denied that imports any undertaking” to fund an import”

Consequently, the plaintiff asked for a declaration that the defendant’s power to regulate the foreign exchange market is subject to Rule of Law and Equity and not at large, capricious, whimsical or oppressive.

“A declaration that there is no regulation at all or which can be valid in laws and equity which empowers the defendant to sell foreign exchange to the plaintiff at a rate higher than the rates contained in the defendant’s Form Ms and approved letters for establishment of Letter of Credit, which it held out to the plaintiff and Which the plaintiff acted upon to import, fix prices and sell the relevant petroleum products.

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An order of mandatory injunction directing the CBN to restore the plaintiff back to its original position as per foreign exchange rates stated in the bank’s Form Ms approved letters of credit in all the transactions subject-matter.

Payment forthwith of the sum of N2,203,964,065.36 by the defendant being the sum representing the deficit caused by the CBN’s decision, the sum of N100 million as general damages as well as N10 million as the cost of the suit.

However, the CBN in its defence stated that its actions and policies were in line with its statutory mandate and in good faith for the benefit of the nation

The defendant states that it adjust the exchange rate to reflect prevailing economic realities adding that the action of First Bank, Union Bank and Fidelity Bank are normal procedure in compliance with the provisions of the extant Foreign exchange Manual which are obligatory, to seek clarification from the Director of Trade and Exchange Department if they are in doubt or for issues that require further clarification.

The defendant stated that the plaintiff’s accounts are not domiciled with it and as such the CBN could not have been in a position to open and approved Letter of Credit. The defendant is not an issuing bank for a commercial transaction of this nature in contention and that it does not allocate foreign exchange to individuals.

The defendant said that as an institution of the Federal Government of Nigeria vested amongst other things with the statutory powers of regulating, ensuring monetary and price stability, maintaining external reserves to safeguard the international value of the currency; promoting a sound financial system in Nigeria and acting as banker and provide economic and financial advice to the Government.

The defendant averred that the plaintiff is not entitled to the reliefs being sought

The defendant further averred that the plaintiff claims are baseless, gold-digging and meritless and should be dismissed with substantial cost.

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