The Supreme Court of Uganda Upholds the Validity of Section 101(5) of the Financial Institutions Act, Which Bars Courts from Staying Liquidation Proceedings.

Legal brief of Humphrey Nzeyi v Bank of Uganda and Attorney General (Constitutional Appeal No. 01 of 2021) [2025] UGSC 20 (14 May 2025)

Duration

This decision was rendered on the 14th of May 2025.      

Areas of Law

Banking Law

Court

Supreme Court

Before

Justices Tibatemwa-Ekirikubinza, Tuhaise, Chibita, Musoke, Madrama, Bamugemereire, and Monica K. Mugenyi

Parties

1) Appellant: Humphrey Nzeyi

2) Respondents: Bank of Uganda (BOU) and Attorney General, MAKKS & Senior State Attorney.

Introduction

In a landmark decision, the Supreme Court of Uganda dismissed an appeal filed by Mr. Humphrey Nzeyi, a shareholder of the defunct National Bank of Commerce (NBC), against the Bank of Uganda (BOU) and the Attorney General.

The appeal challenged the constitutionality of BOU’s actions in closing NBC and transferring its assets to Crane Bank in 2012 and sought declarations that his constitutional rights had been violated.

This case tested the limits of constitutional interpretation, the powers of the central bank in financial regulation, and the enforceability of certain financial statutes under the Constitution. This decision reinforces the principle that constitutional interpretation must be distinguished from enforcement.

It upholds the legitimacy of regulatory action by financial institutions when executed lawfully and in the public interest even when it affects private interests.

Background

The appellant challenged the constitutionality of certain provisions of the Financial Institutions Act (FIA), 2004, and the actions of the Bank of Uganda (BOU) in closing, liquidating, and transferring assets of the National Bank of Commerce (NBC) to Crane Bank.

He alleged violations of his constitutional rights, including the right to a fair hearing (Article 28), right to property (Article 26) & right to privacy (Article 27).

The Constitutional Court dismissed the petition, holding by the majority that NBC was given several opportunities to rectify its undercapitalization and governance issues between 2009 and 2012, and BOU’s actions were consistent with its supervisory mandate under the FIA.

Legal issues

1) Whether the closure and liquidation of NBC by BOU violates the appellant’s right to a fair hearing under Article 28 of the Constitution?

2) Whether Section 101(5) of the Financial Institutions Act, which bars courts from issuing stay orders in liquidation proceedings, is unconstitutional?

3) Whether the appellant’s rights to property (Article 26) and privacy (Article 27) were violated?

4) Whether the Constitutional Court has jurisdiction to entertain the petition?

Highlights

The distinction between constitutional interpretation and enforcement is crucial; the Constitutional Court’s role is confined to interpretation.

Regulatory actions by financial authorities, when conducted within the framework of the law and in the public interest, do not necessarily constitute violations of constitutional rights.

Legislative provisions that limit court interventions during financial institution liquidations can be constitutional if they serve a legitimate public interest, such as maintaining financial stability.

Legal Issues and Resolutions

Issue 1: Whether the closure and liquidation of NBC by BOU violates the appellant’s right to a fair hearing under Article 28 of the Constitution.

The Court found that BOU had issued multiple notices and opportunities to NBC to comply with regulatory standards over several years. Due process was followed under the Financial Institutions Act.

The issue is resolved in the negative

Issue 2: Whether Section 101(5) of the Financial Institutions Act, which bars courts from issuing stay orders in liquidation proceedings, is unconstitutional.

The Court held that the provision was a reasonable limitation, intended to preserve financial stability and protect depositors. It does not violate the right to access courts.

The issue is resolved in the negative

Issue 3: Whether the appellant’s rights to property (Article 26) and privacy (Article 27) were violated.

The Court found no evidence of unlawful interference. NBC’s license was lawfully revoked due to non-compliance, and asset transfers were done under statutory authority.

The issue is resolved in the negative

Issue 4: Whether the Constitutional Court has jurisdiction to entertain the petition.

The Supreme Court affirmed that the Constitutional Court had jurisdiction to interpret constitutional provisions, though not to enforce rights unless a question of interpretation arose.

The issue was resolved in the affirmative.

Decision

On appeal, the Supreme Court, with Justice Tuhaise delivering the lead judgment, unanimously upheld the Constitutional Court’s decision. The key findings were:

a) There was no violation of constitutional rights, the Court found that BOU acted lawfully, with proper cause, and in the public interest.

b) The Court emphasized that the Constitutional Court’s jurisdiction lies in constitutional interpretation, not enforcement.

c)  The Court upheld the constitutionality of Section 101, which restricts courts from issuing stay orders during liquidation, affirming it as a reasonable limitation intended to protect depositors and maintain financial stability.

d) Sections not mentioned in the memorandum of appeal shall not be considered in the judgment together with Counsel’s submissions.

Conclusion

Appeal dismissed and each party is to bear its own costs.

By Sylivia Nandawula