FREEZING OF BANK ACCOUNTS: JUDICIAL OVERSIGHT AND THE EMERGING BALANCE

INTRODUCTION

The question of whether a bank may lawfully restrict or freeze a customer’s account without first obtaining a court order has long occupied a central place in Nigerian banking and constitutional jurisprudence. For decades, the courts adopted a clear and consistent position: such interference with a customer’s funds could only be justified upon the authority of a valid court order. This approach reflected the dual imperative of preserving the sanctity of the banker–customer relationship and safeguarding the constitutional rights of account holders.

That settled position was brought into sharp focus by the decision of the Court of Appeal in Kuda Microfinance Bank Limited v. Blessing Amarachi. In that case, the Court appeared to recognize a limited departure from the traditional rule, holding that, in certain circumstances, a bank may temporarily restrict an account without prior judicial authorization. The decision rested on the combined effect of binding regulatory directives issued by the Central Bank of Nigeria and the contractual terms governing the relationship between the bank and its customer.

Subsequent decisions of the Court of Appeal have further illuminated this area of the law, revealing a nuanced judicial approach aimed at reconciling banks’ regulatory compliance obligations with the enduring constitutional protections afforded to customers. Taken together, these decisions suggest an evolving legal landscape, one that seeks to balance the realities of modern, technology-driven banking with the fundamental principles of due process and property rights.

THE EARLY JUDICIAL POSITION: COURT ORDERS AS PRE-CONDITION

In Nigeria, the relationship between a bank and its customer is primarily contractual. The bank undertakes to honour the customer’s mandate and ensure unfettered access to funds lodged with it, subject only to lawful exceptions. The unilateral decision by a bank to restrict, freeze, or otherwise deny access to a customer’s account without a valid court order has consistently been frowned upon by the courts as a breach of that contractual obligation and an infringement on the customer’s constitutionally guaranteed rights.

The right to property and the protection of same is entrenched in Section 44(1) which prohibits compulsory acquisition or interference with property save in a manner prescribed by law and upon the payment of compensation. Money in a bank account is recognized as a form of property; hence, a restriction of access to it without due process amounts to an unconstitutional deprivation.

In addition, Section 36 guarantees the right to fair hearing, requiring that no one should be punished or deprived of a right without being afforded the opportunity to be heard before a competent court. Freezing or restricting an account without a court order effectively amounts to imposing a penalty without recourse to judicial oversight.

Earlier Judicial Authorities that support the position

The Courts have consistently reinforced the principle that banks require a court order before restricting a customer’s account:

1. GTB Plc v Adedamola (2019) 5 NWLR (Pt. 1664) 30

The Court of Appeal unanimously dismissing the appeal, held that before a bank can freeze a customer’s account or place any form of restrain on any bank account, a bank must be satisfied that there is an order of court.

2. Polaris Bank Ltd V. Yayamu Global Services Ltd & Anor (2022) LPELR-57583(CA). 

Here, the Court of Appeal held that it is “settled and sacrosanct” that a bank requires a court order to freeze or restrain a customer’s account.

   The Judicial Disruption: Kuda Bank v Amarachi

While earlier judicial pronouncements insisted that banks must secure a court order before freezing or restricting a customer’s account, the recent decision of the Court of Appeal in Kuda v Amarachi has taken a nuanced view that recognizes banks’ obligations under the Central Bank of Nigeria Circular and the Terms and Conditions of the bank signed by customers at the point of account opening. 

Brief Facts of the Case

In Kuda Microfinance Bank Ltd v. Blessing Amarachi, the Respondent received N5,000,000 (Five Million Naira) in her Kuda account but was unable to withdraw it because Kuda had placed a restriction on the account. Kuda explained that the restriction followed a complaint from Access Bank Plc. that the funds were erroneously transferred.

Mrs. Amarachi sued at the Federal High Court, arguing that Kuda lacked the power to freeze her account without a court order, and that the restriction breached her constitutional right to own property. The Federal High Court agreed with her and ordered Kuda to unfreeze the account.

On appeal, Kuda argued that:

1. The restriction complied with a CBN circular on industry front desks, which empowers banks to block accounts when fraud complaints are received.
2. The account terms and conditions signed by Mrs. Amarachi allowed Kuda to suspend or freeze an account where fraudulent or suspicious activity was reported.

The Court of Appeal upheld Kuda’s arguments, holding that both the CBN circular and the agreed terms were binding. It ruled that banks are empowered to restrict accounts once fraud or suspicious activity is reported. The court reasoned that in the electronic banking era, where huge sums can be transferred instantly with little chance of recovery, such restrictions are necessary safeguards. It further held that the right to own property under Section 44 of the Constitution is not absolute, and that a temporary restriction pending investigation is not unconstitutional. Accordingly, the appeal succeeded.

The Rationale Behind the Court’s decision

The Court of Appeal’s decision in the above case shall be discussed on the two grounds upon which the Court based its decision: the CBN circular and the Terms and Conditions between the bank and the customer.

Firstly, the Court of Appeal placed considerable weight on the regulatory framework established by the Central Bank of Nigeria (CBN). As the apex regulatory authority for the financial sector, the CBN is empowered under the Central Bank of Nigeria Act, 2007 and the Banks and Other Financial Institutions Act (BOFIA) 2020 to issue guidelines, circulars, and directives that are binding on all banks and financial institutions in Nigeria.

In line with its mandate to protect the integrity of the financial system, the CBN Circular on the establishment of industry fraud desks was issued on 11^th June 2015 and 13^th September 2018. The underlying objective for issuing the circular was to develop a framework that enables an expedited response to fraud complaints in the banking industry. The Circular was issued to reduce fraud risks in electronic money transfers in the Nigerian financial ecosystem. One of the designated services to be rendered by the Industry Fraud Desks (established by the Circular) is to block and/or place No Debit restrictions on accounts upon receipt of a fraud complaint. The rationale is simple: with electronic banking, fraudulent funds can be dissipated across multiple accounts in seconds, making recovery practically impossible if immediate measures are not taken.

By recognizing the binding force of this circular, the Court of Appeal affirmed that banks do not always need to await a court order before acting; instead, compliance with regulatory directives issued by the CBN constitutes a lawful basis for temporarily restricting an account. This represents a departure from earlier jurisprudence that emphasized strict judicial oversight.

Secondly, the Court of Appeal also relied heavily on the principle of sanctity of contract. When Mrs. Amarachi opened her Kuda account, she accepted the bank’s terms and conditions as part of the contractual framework governing their relationship. Among those provisions was a clause empowering Kuda to suspend, freeze, or limit access to an account if suspicious or fraudulent activity was reported. The Court reasoned that such contractual terms are binding on both parties once freely entered into.

Importantly, the Court framed the restriction not as a unilateral abuse of power by the bank, but as the lawful exercise of a right expressly conferred by contract. Since Mrs. Amarachi agreed to those terms, the Court held she was bound by them.

Recent 2025 Decision

The Court of Appeal most recently in FBN & Anor v DKN Investment Ltd & Anor reaffirmed its earlier decision that banks cannot unilaterally freeze customer accounts without a Court Order.  This development marks a significant rebalancing between the regulatory compliance obligations of financial institutions and the protection of individual rights guaranteed under the Constitution.

Brief facts of the case

Sometime on the 20^th of January, 2012, the Chief Magistrate in Benin City, Edo State made an order granting the Commissioner of Police access to inspect and take copies of the ledger and record in respect of the account number of the 1st Respondent which the 1st Respondent holds with the 1st Appellant. The order was made to aid the Police in their investigation of a case of threat of kidnapping and obtaining money by false pretense that was purportedly linked to the account number of the 1st Respondent. The same order was served on the 1st Appellant. The 1st Appellant while acting on the order, froze the account number of the 1st Respondent.

The Contrast between the Amarachi’s case and the FBN’s case

These recent decision stand in sharp contrast with the Court of Appeal’s decision in Kuda v Amarachi. However, the crucial distinguishing factor; one that much of the public commentary seems to overlook, is that the facts of the two cases are not on all fours. It is a settled principle of law that a case is only an authority for what it actually decides, and by the doctrine of stare decisis, a decision only serves as binding precedent where the material facts are the same. In Ugwuanyi V. Nicon Insurance Plc. Applying this to the present discussion, the facts in Kuda v. Amarachi and FBN v. DKN Investment Ltd are quite different.

1. In Kuda v. Amarachi, the customer’s account was restricted following a complaint of fraud. The bank relied on the CBN circular setting up fraud desks, as well as the terms and conditions of the customer’s account. Both the CBN directive and the contractual provisions were raised and considered in court.
2. In FBN v. DKN Investment Ltd, on the other hand, neither the CBN circular nor the bank’s terms and conditions were pleaded or relied upon. The issue before the Court of Appeal was whether a bank, without a court order and without pointing to any regulatory or contractual authority, could lawfully freeze a customer’s account. The court held that it could not, and that a court order was required.

This distinction is important. Amarachi should not be read as giving banks a blanket right to freeze accounts without a court order. It is authority only for situations where the bank can point to its terms and conditions and a binding CBN directive, particularly where fraud or suspicious activity is alleged. By contrast, FBN v. DKN Investment Ltd makes clear that in the absence of such regulatory or contractual backing, a bank cannot act unilaterally and must seek a court order.

Seen this way, the two decisions are not in conflict. Each was decided on its own facts, and together they show the courts’ careful approach in striking a balance between banks’ regulatory responsibilities and the protection of customers’ constitutional rights.

Key Implications for You

For corporate organizations, these lines of decisions clarify that banks do not have an unfettered right to freeze accounts, but may lawfully do so where there is clear regulatory backing and contractual authority. Where an account restriction is imposed pursuant to a valid CBN directive, particularly in response to alleged fraud, and supported by the bank’s terms and conditions, the courts are increasingly inclined to uphold such action by the bank.

Businesses operating in highly regulated sectors should pay close attention to the terms and conditions governing their bank accounts. Clauses permitting temporary restrictions in cases of suspected fraud are not merely administrative provisions; they can have significant operational and cash-flow consequences, and courts are prepared to enforce them where properly invoked.

At the same time, the recent reaffirmation in FBN v. DKN Investment Ltd serves as an important safeguard for corporate customers. Where a bank cannot point to a specific regulatory directive or contractual provision authorizing its action, a court order remains mandatory before any account can be frozen. In such cases, affected businesses retain strong grounds to challenge unilateral restrictions.

For companies in the communications and aviation sectors, where uninterrupted access to funds is often critical for licensing fees, regulatory charges, fleet operations, and cross-border transactions, these decisions underscore the importance of proactive risk management. This includes ensuring clarity in banking documentation, maintaining robust internal controls to avoid fraud triggers, and seeking early legal advice when account restrictions arise.

Ultimately, the evolving jurisprudence reflects a careful balancing act: enabling banks to comply swiftly with regulatory obligations while protecting corporate customers from arbitrary interference. Understanding where that balance lies is essential for businesses seeking to protect both their operational continuity and their legal rights.

Conclusion

The recent decisions of the Court of Appeal demonstrate that the law on the freezing of bank accounts in Nigeria is neither rigid nor one-sided. Rather, it reflects a careful judicial effort to balance two competing imperatives: the need for banks to comply promptly with regulatory directives aimed at safeguarding the financial system, and the constitutional obligation to protect customers from arbitrary interference with their property and right to fair hearing.

Amarachi’s Case does not confer a blanket authority on banks to freeze accounts at will. Its significance lies in recognizing that, where a bank acts pursuant to a binding regulatory directive and clear contractual authority, particularly in response to allegations of fraud, the courts may regard such temporary restrictions as lawful. Conversely, FBN v. DKN Investment Ltd reaffirms the enduring principle that, in the absence of such regulatory or contractual justification, judicial oversight remains indispensable.

When properly understood, these decisions are not contradictory but complementary. Together, they underscore that the legality of an account restriction will always turn on its factual and legal foundation. For both banks and their customers, the message is clear: regulatory compliance must be anchored in lawful authority, and the protection of constitutional rights remains a central consideration.

Ultimately, the emerging jurisprudence signals a mature and pragmatic approach, one that accommodates the realities of modern banking and fraud prevention while preserving the fundamental protections that underpin trust in the financial system.