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SEC v. BIG TREAT PLC & ORS
CITATION: (2019) LPELR-46520(CA)
In the Court of AppealIn the Lagos Judicial Division
Holden at Lagos
ON THURSDAY, 31ST JANUARY, 2019Suit No: CA/L/88/2011
Before Their Lordships:
MOHAMMED LAWAL GARBA Justice, Court of AppealJOSEPH SHAGBAOR IKYEGH Justice, Court of AppealJAMILU YAMMAMA TUKUR Justice, Court of Appeal
BetweenSECURITIES AND EXCHANGE COMMISSION - Appellant(s)
And1. BIG TREAT PLC2. MS. PAMELA WU3. MR. STEVE WU4. HARRIES WU5. NEW FRONTIER ENG. & COMPANIES LTD6. SKYONE GROUP OF COMPANIES LTD
- Respondent(s)
RATIO DECIDENDI
(201
9) LP
ELR-46
520(
CA)
1. COMPANY LAW - SECURITIES AND EXCHANGE COMMISSION: Persons who are capital market operators under the Investment and Securities Act and subject to the regulatory supervision ofthe Securities and Exchange Commission"The grouse of the appellant is that the Court below should not have vacated the order (supra) on the preliminary objection by the respondents that the 1st respondent is not a registered capitalmarket operator performing specific functions in the capital market. Affidavit evidence in support of an originating summons, as in this case, represents pleadings in an action on originatingsummons vide Agbakoba v. I.N.E.C. (2008) 18 NWLR (pt. 1119) 489 at 549, Sea Ports and Ors. v. Migfo Nigeria Ltd. and Anor. (2012) 18 NWLR (pt. 1333) 555 at 609, N.N.P.C. and Ors. v. Famfa OilLtd. (2012) 17 NWLR (pt. 1328) 148, Uwazuruonye v. Governor of Imo State and Ors. (2013) 8 NWLR (pt. 1355) 28 at 56.Section 38(1) of the I.S.A. states in mandatory terms that no person, natural or artificial, shall carry on investments and securities business unless the person is registered under the I.S.A. and itsrules and regulations. Section 54 thereof reinforces compulsory registration of securities and investments of public companies and collective investment schemes with the appellant on pain ofpenalty and/or prosecution for non-registration. Registration of capital market operators is therefore a key element in the statutory regulatory scheme of the appellant and plays a significant rolein protecting investors by promoting baseline level of integrity among capital market operators and their personal dealing with investors and stability of the capital market as a securities marketombudsman with the powers to regulate issuers of securities for the protection of investors and for the sustenance of the capital market. (Company Securities: Law and Practice (second Edition)page 74 by Professor Abugu).Section 13 of the I.S.A provides thus -13.The Commission shall be the apex regulatory organization for the Nigerian capital market and shall carry out the functions and exercise all the powers prescribed in this Act and, in particular,shall:(a) regulate investment and securities business in Nigerian as defined in this Act;(b) register and regulate securities exchanges, capital trade points, futures options and derivative exchange, commodity exchange and any other recognized investment exchange;(c) regulate all offers of securities by public companies and entities;(d) register securities of public companies;(e) render assistance as may be deemed necessary to promoters and investors wishing to establish securities exchange and capital trade point;(f) prepare adequate guidelines and organize training programmes and disseminate information necessary for the establishment of securities exchanges and capital trade points;(g) register and regulate corporate and individual capital market operators as defined in the Act;(h) register and regulate the workings of venture capital fund and collective investments schemes in whatever form;(i) facilitate the establishment of a nationwide system for securities trading in the Nigerian capital market in order to protect investors and maintain fair and orderly markets;(j) facilitate the linking of all markets in securities with information and communication technology facilities;(k) act in the public interest having regard to the protection of inventors and the maintenance of fair and orderly markets and to this end establish a nationwide trust scheme to compensateinvestors whose losses are not covered under the investors protection funds administered by securities exchanges and capital trade points;(l) keep and maintain a register of foreign portfolio investments;(m) register and regulate securities depository companies, clearing and settlement companies, custodians of assets and securities, credit rating agencies and such other agencies andintermediaries;(n) protect the integrity of the securities market against all forms of abuses including insider dealing;(o) promote and register self-regulatory organization including securities exchanges, capital trade points and capital market trade associations to which it may delegate its powers;(p) review, approve and regulate mergers, acquisitions, takeovers and all forms of business combinations and affected transactions of all companies as defined in the Act;(q) Authorize and regulate cross-border securities transaction;(r) Call for information from and inspect, conduct inquiries and audit of securities exchanges, capital market operators, collective investment schemes and all other regulated entities;(s) Promote investor's education and the training of all categories of intermediaries in the securities industry;(t) Call for, or furnish to any person, such information as may be considered necessary by it for the efficient discharge of its functions;(u) Levy fees, penalties and administrative costs of proceedings or order charges on any person in relation to investment and securities business in Nigeria accordance with the provisions of theAct;(v) intervene in the management and control of capital market operators which it considers has failed, is failing or in crisis including entering into the premises and doing whatsoever theCommission deems necessary for the protection of investors;(w) enter and seal up the premises of persons illegally carrying on capital market operations;(x) in furtherance of its role of protecting the integrity of the securities market, seek judicial order to freeze the assets (including bank accounts) of any person whose assets were derived from theviolation of the Act, or any securities law or regulation in Nigeria or other jurisdictions;(y) relate effectively with domestic and foreign regulators and supervisors of other financial institutions including entering into co-operative agreement on matters of common interest;(z) conduct research into all or any aspect of the securities industry;(aa) prevent fraudulent and unfair trade practices relating to the securities industry;(bb) disqualify persons considered unfit from being employed in any arm of the securities industry;(cc) advise the Minister on all matters relating to the securities industry; and(dd) perform such other functions and exercise such other powers not inconsistent with the Act as are necessary or expedient for giving full effect to the provisions of the Act." (My emphasis)?The 1st respondent duly registered its securities with the appellant. Section 60 of the I.S.A. required the 1st respondent whose securities are registered with the appellant to submit on periodic orannual basis its audited financial statements and such other returns as may be prescribed by the appellant from time to time. Section 61 thereof require a public company such as the 1strespondent to establish a system of internal controls over its financial reporting and security of its assets to ensure the integrity of the company's financial controls and reporting by means ofpolicies, procedures and practices to ensure safety of assets, accuracy of financial records and reports, achievement of corporate objectives and compliance with laws and regulations on pain ofpenalty prescribed in Section 65 of the I.S.A., showing compliance with Sections 38(1), 54, 60 and 61 of the I.S.A. is mandatory or compulsory.For the avoidance of doubt, Section 315 of the I.S.A. defines "capital market operator" as any person, individual or corporate, duly registered by the appellant to perform specific functions in thecapital market.Rules 28 of the I.S.A. being subsidiary to the substantive provisions of the I.S.A. is subject to or undermined by the substantive provisions of the I.S.A. and the latter would prevail in the event ofany inconsistency or conflict between the former to the extent of the inconsistency or conflict, save that the rules thereof may be used only as a guide to the interpretation of the substantiveprovisions of the I.S.A. where there is ambiguity in the substantive provisions of the I.S.A. on the issue for the purpose of accommodating the object or scheme of the legislation vide A.-G., BendelState v. Aideyan (1989) 4 NWLR (pt.118) 646 at 668 and 671 and the cases (supra) especially Ewete v. Gyang at 753 to the effect that a subordinate legislation is prima facie ultra vires if it isinconsistent with the substantive provisions of the statute by which the enabling power is conferred or any other statute relying on the English cases ofRe Davis ex parte Davis (1872) 7 Ch. App.526 at 529, per James L.J; R. V. Bird ex parte Needes (1998) 2 Q. B. 340; Price v. Western London Investment Building Society (1964) 2 ALL ER 318 at 322 and Irving v. Askew (1870) LR 5 Q. B. 208at 211 per Hannen, J. cited on the issue by the appellant.It is trite that statutory provisions are construed together or harmoniously to give literal or grammatical effect to the scope of the spirit and letter of the statute vide Orubu v. INEC (1988) 5 NWLR(pt.94) 323 to the effect that in seeking to interprete a particular section or a statute or a subsidiary legislation one does not take the section in isolation but one approaches the question of theinterpretation on the footing that the section is part of a greater whole warranting every clause of the statute to be construed with reference to the context and other clauses of the statute so asfar as possible to make a consistent enactment of the whole statute. See the cases (supra) cited by the appellant. See again Akaighe v. Idama (1964) ALL NLR 317.Accordingly, Sections 13, 38(1), 54(1) and (5), 60, 61, 65 and 315 of the I.S.A. read together with paragraph 3 of the affidavit in support of the action establishes that the 1st respondent, an issuerof securities, having been duly registered with the appellant and was at all material times performing the specific function of issuing securities in the capital market was subject to the interventionof the statutory powers of the appellant as the pinnacle regulatory authority for the Nigerian capital market whose sole purpose is to ensure the protection of investors and to maintain fair,efficient and transparent capital market as well as reduction of systematic risk as stated in the preamble to the I.S.A. - the beacon-light to the powers of the appellant under the I.S.A. The learnedauthor, Professor Abugu, states aptly in his standard book - Company Securities: Law and Practice (supra) in pages 72 - 73 in that wise as follows-"Registration of securities market institutions and participants is one of the most potent instruments of investor protection as it enables the Commission to critically assess the fitness or otherwiseof all institutions and persons proposing to operate in the capital market. Ascertaining their suitability is critical to confidence building, given that any unscrupulous action could erode confidenceand destroy the fabric of the market. Registration demands that accurate and comprehensive information be sought and obtained from prospective registrants. Information submitted are requiredto be sworn to before a Commissioner for Oaths. Notwithstanding, the SEC endeavours to verify all information submitted to it. A satisfactory police clearance is required from all prospectiveindividual registrants to ensure that ex-convicts and criminals are not admitted into the securities market. Registration is a continuous process. All major changes or new information concerningthe registrant must be promptly communicated to the Commission. Certificates of registration issued are to be renewed periodically.In addition, the SEC's function of registering securities in the capital market, affords the Commission the opportunity of ascertaining the value and worthiness of the securities and the credibility ofthe issuer. In this way worthless securities are not brought into the market to defraud unwary investors and dampen confidence in the capital market. The maintenance of market ethics as well astransparency are paramount to the sustenance of confidence. As the watchdog of the capital market, the Securities and Exchange Commission constantly monitors market activities to forestallmanipulative and other illegal practices. In carrying out this function the SEC requires timely disclosure of information affecting securities, monitors trading activities of key company officials andgeneral trading activities on the floor of the Stock Exchange. It also carries routine checks on the activities and operations of market operators and the review of newspapers and other periodicalsto investigate any report suggestive of violation of securities laws. The SEC has a Surveillance and investigation Division to carry out this function and it ensures that the provisions of the Act andof its regulations are strictly adhered to and enforced. It has created an enforcement division whose duty is to ascertain whether or not a violation of the law has occurred and to recommendappropriate sanctions. Sanctions, in proven cases, take various forms depending on the severity of the violation. For minor offences, a warning might be appropriate while severe cases couldattract a suspension or withdrawal of license in which case the offender is barred from operating in the capital market. A Court injunction is also sometime sought or litigation instituted." (Myemphasis). The I.S.A. is therefore an effective method of preventing impropriety in the management of capital market by capital market operators through the appellant's intervention in thedecaying or paralyzing affairs of a company registered with the appellant as capital market operator in the capital market performing specific role of issuers of securities, such as the 1strespondent, which intervention is expected to arrest, minimize or forestall the drift to disaster or the dissipation of the assets and/or collapse of the mismanaged company for the protection ofinvestors thus fulfilling one of the most important schemes of the I.S.A.The Court below rightly acknowledged in its ruling in page 735 of the record that users of funds in the capital market constitute part of the capital market apparatus. Paragraph 3 of the affidavit insupport of the originating summons deposed inter alia in page 9 of the record that the 1st respondent has its securities registered with the appellant who exercises regulatory and enforcementactions over the 1st respondent as part of the appellant's statutory functions. Had the Court below taken into consideration these salient issues it would not have held that the 1st respondent doesnot perform specific role in the capital market.Having registered with the appellant as dealer in securities or issuer of securities in the capital market the 1st respondent's specific role of issuer of securities in the capital market makes the 1strespondent subject to the rules and the authority of the appellant under the I.S.A. which is entitled by Section 13(v) of the I.S.A. (supra), in particular, to intervene in the management and controlof capital market operators in distress or which the appellant considers has failed, is failing or in crisis by doing whatsoever the appellant deems necessary to arrest the drift for the protection ofinvestors in the capital market.It was thus held in the case of Farid Mikhail Faloughi and Ors. v. Alain Abdala Faloughi and Ors. (1995) 3 NWLR (pt. 384) 434 that the appellant's statutory powers can regulate the affairs ofcompanies engaged in effecting transfer of shares; and that where public companies are run by foreigners as shareholders, for example, the approval of the appellant was a condition precedent tothe transfer or intended transfer of any shares in the company concerned.The powers of control and intervention of the appellant under the I.S.A. also extends to private companies as is illustrated by the case of Societe Generale Bank Nigeria Ltd. v. S.E.C. unreportedCourt of Appeal judgment in appeal No. CA/L/434/98 (cited without date of delivery of the judgment in 'Companies Securities: Law and Practice' Second Edition page 98 by Professor Abugu) to theeffect that the regulatory powers of the appellant covers private companies even where there is alien participation in the sale or transfer of shares.In conclusion, I most respectfully hold that the Court below should not have vacated the interim preservative order made by it to protect the imminent collapse of the 1st respondent by theappellant who at all material times was exercising statutory powers under the I.S.A. to stem the tide of decay in the internal management of the 1st respondent as it affected investors in thesecurities registered by the 1st respondent with the appellant as a registered issuer of securities in the capital market thus playing the specific role of issuer of securities in the capital market andamenable to the control and regulation of the appellant under the relevant provisions (supra) of the I.S.A. vide Oni v. S.E.C. and Anor. (2013) 3 BFLR 246."Per IKYEGH, J.C.A. (Pp. 16-31, Paras. F-C) -read in context
(201
9) LP
ELR-46
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CA)
2. COMPANY LAW - SECURITIES AND EXCHANGE COMMISSION: Persons who are capital market operators under the Investment and Securities Act and subject to the regulatory supervision ofthe Securities and Exchange Commission"by the definition of the term "Capital Market Operator" in Section 315 of the Investment and Securities Act, 2007 (ISA), the 1st Respondent, which was duly registered by the Appellant to performthe specific function of issuing securities, in the capital market in Nigeria, is a capital market operator that is subject to the statutory regulatory supervision and control of the Appellant. This isborne out by the unchallenged averment in paragraph 3 of the Affidavit filed in support of the originating summons filed by the Appellant. Section 54 (1) of the ISA requires that all securities of apublic company, such as the 1st Respondent, shall be registered with the Appellant under the terms and conditions set out therein and regulations by it and in Subsection 5, says that no securitiesshall be issued, transferred, sold or offered for subscription by or sale to the public without prior registration by the Appellant. If a registered issuer of securities under ISA is not a Capital MarketOperator as defined by the Act itself, one would wonder who else is."Per GARBA, J.C.A. (Pp. 31-32, Paras. F-E) - read in context
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JOSEPH SHAGBAOR IKYEGH, J.C.A.(Delivering the
Leading Judgment): The appeal is from the decision of
the Federal High Court sitting in Lagos (the Court below)
whereby it set aside an ex parte order of injunction it had
issued against the 2nd – 6th respondents which had
restrained the 2nd – 6th respondents from obstructing the
appellant in the appointing of an interim management to
take charge of the day to day administration of the 1st
respondent with a view to preserving its assets and the
interest of its stakeholders on the ground that the 1st
respondent, not being a capital market operator, the
appellant could not intervene in its management and
control.
The case of the appellant, in brief, was that at all material
times the 1st respondent, a public quoted company, duly
registered with the appellant, performed the functions of
an issuer of securities which constitutes a specific and
important function of the 1st respondent as a capital
market operator whose audited accounts were usually
submitted to the appellant yearly for scrutiny and for other
regulatory actions by the appellant.
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That it was as a result of the appellant’s analysis of the
2008 audited accounts of the 1st respondent which it filed
with the appellant as issuer of securities showing the 1st
respondent was drifting into deplorable financial state that
necessitated the appellant’s intervention in the affairs of
the 1st respondent to ascertain the true financial position
of the 1st respondent and protect further depletion of its
assets that the appellant brought the action at the Court
below; in the course of which the appellant sought and
obtained the ex parte preservatory order of injunction in
question which was subsequently vacated by the Court
below on the ground that the 1st respondent was not a
capital market operator amenable to the control and
management of the appellant in times of financial distress.
Not satisfied with the decision of the Court below, the
appellant filed a notice of appeal with three (3) grounds of
appeal followed with a brief of argument filed on 22.06.11,
but deemed as properly filed on 05.12.17, containing the
sole issue for determination whether the lower Court was
right when it held that the 1st respondent is not a capital
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market operator because it does not play any specific role
in the capital market and as such, not registrable or subject
to the control of the appellant.
Relying on Section 315 of the Investments and Securities
Act, 2007 and the preamble thereto read with Sections 13,
54(1), (5), 60, 61 and 65 thereof, the appellant contended
in the brief that had the Court below drawn the fine line of
distinction between Rule 28 of the Securities and Exchange
Commission Rules made pursuant to the Investments and
Securities Act (I.S.A.) and the cases of Olalomi Ind. Ltd.
v. NIDB Ltd. (2009) 16 NWLR (pt. 1167) 266 at 299 –
300, Aqua Ltd. v. Ondo State Sports Council (1988) 4
NWLR (pt. 90) 622 at 624 – 625, Chief Awolowo v.
Shehu Shagari (1979) 6-9 SC 37 at 67 – 68, No-Nail
Cases Propriety Ltd. v. No-Nail Boxes Ltd. (1944) 1
KB 629 at 637, IGP v. Fawehinmi (2002) 7 NWLR (pt.
767) 606 at 671 enjoining the Court to give effect to clear
words of a statute, the Court below having conceded in part
of its decision in page 735 of the record of appeal (the
record) that the 1st respondent is a user of investors’ fund
in the capital market it was bound to hold that the 1st
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respondent being the issuer of securities falls within
category 2 of user of funds as it brings securities into the
market for sale which is a specific and fundamental role
within Section 315 of the I.S.A. and thus a capital market
operator performing specific function in the capital market,
therefore the Court below erred in holding otherwise; that
based on the contention (supra) the decision of the Court
below vacating its interim order in question was wrong;
and that the appeal ought to be allowed and the said
decision of the Court below set aside.
Only the 1st respondent filed brief of argument. It was filed
on 21.03.16, but deemed as properly filed on 05.12.17. The
1st respondent argued in the brief that Sections 54 (1) and
315 of the I.S.A. read with Rule 28 thereof envisaged
registration of capital market operators to perform specific
functions, not the registration of securities per se,
therefore the Court below was right in holding that the 1st
respondent whose securities were registered with the
appellant is not a capital market operator as it was not
registered as a capital market operator under Part iv of the
I.S.A. read with Section 38 thereof; consequently,
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it was urged that the Court below was right in construing
the relevant provisions of the I.S.A. grammatically together
in accordance with their plain meaning and thus arrived at
the right conclusion that the 1st respondent having not
been registered as a capital market operator with the
appellant the latter could not regulate the affairs of the
former and thus rightly vacated the interim order of
injunction in question citing in support the cases of
Egolum v. Obasanjo (1999) 7 NWLR (pt. 611) 355 at
393, C.B.N. v. Ukpong (2006) 13 NWLR (pt. 998) 555
at 571, A. – G., Kwara State v. Abolaji (2009) 7 NWLR
(pt. 1137) 199 at 216, Okulate v. Awosanya (2000) 2
NWLR (pt. 640) 530, Kalu v. Odili (1992) 6 NWLR (pt.
240) 1 at 16, Black’s Law Dictionary, 8th Edition 713;
upon which the 1st respondent urged that the appeal
should be dismissed.
The reply brief filed on 12.02.18, but deemed as properly
filed on 28.11.18, reiterated the arguments contained in
the appellant’s brief and added that Rule 28 of the I.S.A.
being a subsidiary legislation cannot override the
substantive provisions of the I.S.A. and that counsel’s
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address cannot replace evidence citing in support the cases
of Chukwuemeka v. F.R.N. (2016) 2 NWLR (pt. 1495)
120 at 143, Omisore v. Aregbesola (2015) 15 NWLR
(pt. 1482) 205 at 308, Odeneye v. Efunuga (1990) 7
NWLR (pt. 164) 618 at 635, Ewete v. Gyang (1997) 3
NWLR (pt. 496) 728 at 735; and that the word “shall” in
Section 38(1) (b) of the I.S.A is a word of command vide
Black’s Law Dictionary, 6th Edition, page 1375 read with
the case of Ibrahim v. Lawal (2015) 17 NWLR (pt.
1489) 490 at 525.
Paragraphs 3 – 8 of the affidavit in support of the
originating summons which is contained in pages 9 – 10 of
the record of appeal (the record) is to the effect that the 1st
respondent as well as the 5th – 6th respondents are
companies directed and controlled by the 2nd – 4th
respondents who are expatriates or foreigners showing the
1st, 5th – 6th respondents have foreign control and
colouration. Paragraph 3 thereof, in particular, deposed
thus –
“The Respondent is a public quoted company and the
Issuer of securities to the public and duly registered
with the Applicant as such Incorporated under the
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laws of the Federal Republic of Nigeria having its
registered office at Plot CL 2A, Ikosi Road, Oregun
Road, Lagos and as such, it has its securities
registered with the Applicant who exercise regulatory
and enforcement actions over it as part of its
statutory functions.”
What prompted the intervention of the appellant in the
affairs of the 1st respondent and its findings thereon are
deposed to in paragraphs 10 – 12 of the affidavit in support
of the action on the originating summons in pages 10 – 15
of the record thus -
“Investigation of Big Treat PIc
10.Sequel to the Applicant's analysis of the 2008
Audit Accounts of the 1st Respondent which it filed
with the Applicant and the whistle blowing of
concerned individuals, the management of the
Applicant approved an inspection of the 1st
Respondent. The report of the inspection carried out
by the officers of the Applicant culminated in the
issuance of some directive to the 1st Respondent by
the Applicant.
11.The Applicant also gathered information from the
stakeholders of the 1st Respondent that the 1st
Respondent was further drifting into deplorable
financial state which necessitated
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the Applicant to carry out a further investigation on
the 1st Respondent to ascertain these allegations
Findings
12. A further investigation was carried out on the 1st
Respondent by the Officers of the Applicant on 10th -
13th August 2010 and the findings of investigation
were as follows, that:-
Wrongful/Fraudulent Transfer of 1st Respondent’s
Funds to other Companies owned and run by the 2nd
and 3rd Respondents-
i. There have been huge transfers and payments of
various sums of monies from the accounts of 1st
Respondent to Skyone Co. Limited, New Frontiers
Engineering Limited, and Skyone Group of
companies. . There were also instances where the 2nd
Respondent used single signatory mandate to transfer
funds from the 1st Respondent's account to New
Frontiers Engineering, a company owned by the Wu
family. Now shown to me and marked as Exhibits 1a,
1b, 1c, 1d, 1e, 1f, 1g, 1h, 1i and 1j are the transfer
letters sent to the various banks by the 2nd
Respondent and 3rd Respondents which were solely
signed by each of them.
ii. Upon inquiry on these transfers, the Applicant was
informed that the transfers were in respect of
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services rendered and goods invoiced by the 1st
Respondent. It was however established that the 2nd
Respondent is the Managing Director or alter ego of
the four mentioned companies.
Diversion of 1st Respondent's proceeds of Sale
iii. The sales proceeds of some sales outlets and
branches of the 1st Respondent were remitted into
banks accounts other than the 1st Respondent. These
facts were established by the minutes of the 1st
Respondent's management meetings and ledger
accounts of the 1st Respondent. The sales reports,
minutes and ledger accounts are annexed hereto as
Exhibits 2a.b, 3 and 4.
iv. The 2nd Respondent confirmed that sales proceeds
from Owerri and Aba outlets of the 1st Respondent
were remitted directly into Wema bank Account No.
0851008163219. This account was solely operated
and run by the 2nd Respondent's brother (3rd
Respondent) who is an Executive Director Eastern
Region of the 1st Respondent. The Wema Bank
Account mandate is hereto annexed as Exhibit 5.
v. The 2nd Respondent also confirmed that sales
proceeds from the Port Harcourt factory/sales outlet
w e r e r e m i t t e d i n t o W e m a A c c o u n t N o .
0851008163227. According to the 2nd Respondent,
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Account No. 0851008163219 is used for the running
of the Eastern Regional operations, while Account No.
0851008163227 serves as collection account only and
the balances in the said account are usually
transferred to the main company account.
Unilateral Withdrawals of Fund by the 2nd and 3rd
Respondents
vi.The present system of control of the 1st
Respondent allows a single signatory mandate to the
account of the 1st Respondent, a publicly quoted
company and also, sales proceeds are spent directly
from a branch/region without proper integration into
the main revenue base of the company.
Lack of Forgery of Vouchers to facilitate payment of
funds to Skyone Group of Companies and others.
vii. The Applicant seeking to verify some questionable
transactions, an account officer (Mr. Azeez Kehinde)
was caught writing, backdating and forging
signatures on two payment vouchers to support the
payment of the sum of N12 Million in favour of
Skyone Group of Companies.
viii. The 1st Respondent engages in transactions
involving huge sums of money without proper
documentation and in certain situations the cheques
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were raised for several millions of Naira without
using payment vouchers. At other times, payment
vouchers were used wi thout any form o f
authorisation, checking or approvals. Now shown to
me and marked as Exhibits 6a, 6b, 6c, 6d, 6e and 6f
are the said payment instruments.
ix. The 2nd Respondent is in the habit of holding
signed blank cheques. The officers of the Applicant
also noted that the officers of the 1st Respondent
signs and accepts blank cheques from each other.
Unilateral Corporate decisions by 2nd Respondent
x. The 2nd Respondent is in the practice of
unilaterally taking major decisions such as
acceptance of loans from banks and other
organisations without observing due process. Most of
these commitments were supposed to be by board
decisions. An examination of the board minutes of the
1st Respondent presented by the Company Secretary
revealed that these decisions were never taking at the
1st Respondent's board meetings. Now shown to me
and marked as Exhibits 7a, 7b, 7c, 7d, 7e, 7f, 7g and
7h are the said minutes of the board of the 1st
Respondent.
xi. The decisions/transactions referred to in ix above
were in respect of companies wholly 'owned by the
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1st and 2nd Respondents and these companies have
no affiliation(s) whatsoever with the 1st Respondent.
Now shown to me and marked as Exhibits 8a, 8b, 8c,
8d, 8e, 8f, 8g, and 8h are documents evidencing huge
financial transactions involving the four companies
wholly owned by the 2nd – 4th Respondents.
Abuse of Internal Control System
xii. The 1st Respondent does not have any form of
internal control system and or mechanism in place.
The production process, the inventory management
and the payment system is subjected to any
established form of checks and balances. It was also
revealed that financial and other transactions were
initiated and concluded without any form of
acceptable controls. The head of internal control
system left the company in manner that is yet to be
properly explained by the management of the 1st
Respondent. Presently, a System Audit Officer is
saddled with internal control responsibility.
Reckless sacking of Personnel by 2nd Respondent
xiii. The 1st Respondent has in the past six (6)
months experienced a staff turnover of more than 300
(Three Hundred) workers (including principal officers
and
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directors) indicative of the fact that the company is
facing a going concern problem. Now shown to me
and marked as Exhibit 9 is the list of the said staff
turnover.
False and unapproved Board of Directors Composition
xiv. A review of some of the Board minutes referred to
above and presented by the Company Secretary
revealed that the following persons constituted
members of the Board of Directors: -
a. Alhaji Rabiu I. Rabiu - Chairman
b. Ms Pamela Wu - Managing Director
c. Mr. Harries Wu - Executive Director
d. Mr. Steve Wu - Executive Director
e. Mr. Clem Baiye - Director
xv. Upon request of the Company's CAC form C02 to
confirm appointment of the directors, the 1st - 4th
Respondents failed to make same available. However,
in the course of discussion with one Mrs. J. T. Oyetan
(Company Secretary), the officers of the Applicant
were informed that the Corporate Affairs Commission
did not approved the amended form C02 appointing
Alhaji Rabiu I Rabiu and Clem Baiye who have been
sitting on the board of the 1st Respondent for over
one year. This means that the 1st Respondent was
operating without an effective board.
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Fraudulent Manipulation of Board and Breakdown of
Corporate Governance.
xvi. The officers of the Applicant also observed as
follows: -
a. Mr. Clem Baiye resigned his appointment from the
Board with effect from January 2010. Now shown to
me and marked as Exhibit 10 is a letter from Clem
Baiye (Director) dated 17th May 2010 resigning his
appointment.
b. Mr Harries Wu has been out of the country for
about a year and has not been attending board
meetings even before he travelled.
c. Alhaji Rabiu I. Rabiu, the Chairman of the board
who has not being attending the board meetings
regularly has also resigned his appointment as the
Board Chairman.
d. Arrangements were in place to appoint Ms Pamela
Wu as the Executive Chairman.
e. Consequent to the above, Ms Pamela Wu and Steve
Wu are the only board members running the 1st
Respondent.
f. Recently, a Managing Director (Dr. Nosike Agokei)
was engaged and barely 3 weeks, he resigned his
purported appointment. This prompted the officer of
the Applicant to interview Dr. Agokei and Mr.Clem
Baiye who was a former member of the company's
board of directors. Whilst Dr. Agokei described the
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situation in the 1st Respondent as that of a
"monumental fraud' and lack of corporate
governance, Mr. Baiye said he opted out of the board
because Ms Pamela Wu still runs the 1st Respondent
as a private company.
xvii. Mr. Steve Wu (3rd Respondent) who is
purportedly an Executive Director in the 1st
Respondent is equally managing the other three
companies (mentioned earlier) as Executive Director
(i.e. Skyone Company Limited, New Frontiers
Engineering Limited and Skyone Group of Companies
Limited).
xviii. After departure of Dr. Nosike Agokei, Ms Pamela
Wu single handed arranged to being in Mr. Nimish
Bhatnagar an Indian, who was a former Cinema
Manager as the new Managing Director.
xix. Ms Pamela Wu is perfecting a plan to perpetuate
herself as shadow Managing Director of the 1st
Respondent.
Now shown to me and marked as Exhibit 12 is the
investigation report carried out on the 1st
Respondent by the Applicant.
13. I know for a fact that the Nigerian Stock
Exchange on Tuesday, 5th October 2010 placed the
1st Respondent on technical suspension following the
1st Respondent’s failure to submit audited account
to
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the Exchange for the year ended 31st December 2009.
Now shown to me and marked as Exhibit 13 is the
Punch Newspaper publication of 6th October 2009 at
page 19 confirming the said suspension.”
Moved by the above allegedly deplorable state of affairs the
appellant obtained an ex parte order of the Court below to
arrest the drift of the 1st respondent into financial
doldrums in which the Court below issued among others
“an order of interim injunction restraining the 2nd – 6th
Respondents, their agents, servants or privies from
obstructing the appellant in the exercise of its statutory
oversight responsibilities to the 1st Respondent including
the appointing of an interim management to take charge of
the day to day administration of the 1st Respondent with a
view to preserving its assets and the interest of its
stakeholders pending the determination of the Motion on
Notice already filed in this suit” vide pages 581 – 582 of the
record.
The grouse of the appellant is that the Court below should
not have vacated the order (supra) on the preliminary
objection by the respondents that the 1st respondent is
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not a registered capital market operator performing
specific functions in the capital market.
Affidavit evidence in support of an originating summons, as
in this case, represents pleadings in an action on
originating summons vide Agbakoba v. I.N.E.C. (2008)
18 NWLR (pt. 1119) 489 at 549, Sea Ports and Ors. v.
Migfo Nigeria Ltd. and Anor. (2012) 18 NWLR (pt.
1333) 555 at 609, N.N.P.C. and Ors. v. Famfa Oil Ltd.
(2012) 17 NWLR (pt. 1328) 148, Uwazuruonye v.
Governor of Imo State and Ors. (2013) 8 NWLR (pt.
1355) 28 at 56.
Section 38(1) of the I.S.A. states in mandatory terms that
no person, natural or artificial, shall carry on investments
and securities business unless the person is registered
under the I.S.A. and its rules and regulations. Section 54
thereof reinforces compulsory registration of securities and
investments of public companies and collective investment
schemes with the appellant on pain of penalty and/or
prosecution for non-registration.
Registration of capital market operators is therefore a key
element in the statutory regulatory scheme of the appellant
and plays a significant role in protecting investors by
promoting baseline level of integrity among
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capital market operators and their personal dealing with
investors and stability of the capital market as a securities
market ombudsman with the powers to regulate issuers of
securities for the protection of investors and for the
sustenance of the capital market. (Company Securities:
Law and Practice (second Edition) page 74 by Professor
Abugu).
Section 13 of the I.S.A provides thus -
13.The Commission shall be the apex regulatory
organization for the Nigerian capital market and shall
carry out the functions and exercise all the powers
prescribed in this Act and, in particular, shall:
(a) regulate investment and securities business in
Nigerian as defined in this Act;
(b) register and regulate securities exchanges, capital
trade points, futures options and derivative exchange,
commodity exchange and any other recognized
investment exchange;
(c) regulate all offers of securities by public
companies and entities;
(d) register securities of public companies;
(e) render assistance as may be deemed necessary to
promoters and investors wishing to establish
securities exchange and capital trade point;
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(f) prepare adequate guidelines and organize training
programmes and disseminate information necessary
for the establishment of securities exchanges and
capital trade points;
(g) register and regulate corporate and individual
capital market operators as defined in the Act;
(h) register and regulate the workings of venture
capital fund and collective investments schemes in
whatever form;
(i) facilitate the establishment of a nationwide system
for securities trading in the Nigerian capital market
in order to protect investors and maintain fair and
orderly markets;
(j) facilitate the linking of all markets in securities
with information and communication technology
facilities;
(k) act in the public interest having regard to the
protection of inventors and the maintenance of fair
and orderly markets and to this end establish a
nationwide trust scheme to compensate investors
whose losses are not covered under the investors
protection funds administered by securities
exchanges and capital trade points;
(l) keep and maintain a register of foreign portfolio
investments;
(m) register and regulate securities depository
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companies, clearing and settlement companies,
custodians of assets and securities, credit rating
agencies and such other agencies and intermediaries;
(n) protect the integrity of the securities market
against all forms of abuses including insider dealing;
(o) promote and register self-regulatory organization
including securities exchanges, capital trade points
and capital market trade associations to which it may
delegate its powers;
(p) review, approve and regulate mergers,
acquisitions, takeovers and all forms of business
combinations and affected transactions of all
companies as defined in the Act;
(q) Authorize and regulate cross-border securities
transaction;
(r) Call for information from and inspect, conduct
inquiries and audit of securities exchanges, capital
market operators, collective investment schemes and
all other regulated entities;
(s) Promote investor's education and the training of
all categories of intermediaries in the securities
industry;
(t) Call for, or furnish to any person, such information
as may be considered necessary by it for the efficient
discharge of its functions;
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(u) Levy fees, penalties and administrative costs of
proceedings or order charges on any person in
relation to investment and securities business in
Nigeria accordance with the provisions of the Act;
(v) intervene in the management and control of
capital market operators which it considers has
failed, is failing or in crisis including entering into
the premises and doing whatsoever the Commission
deems necessary for the protection of investors;
(w) enter and seal up the premises of persons illegally
carrying on capital market operations;
(x) in furtherance of its role of protecting the
integrity of the securities market, seek judicial order
to freeze the assets (including bank accounts) of any
person whose assets were derived from the violation
of the Act, or any securities law or regulation in
Nigeria or other jurisdictions;
(y) relate effectively with domestic and foreign
regulators and supervisors of other financial
institutions including entering into co-operative
agreement on matters of common interest;
(z) conduct research into all or any aspect of the
securities industry;
(aa) prevent fraudulent and unfair trade practices
relating to the securities industry;
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(bb) disqualify persons considered unfit from being
employed in any arm of the securities industry;
(cc) advise the Minister on all matters relating to the
securities industry; and
(dd) perform such other functions and exercise such
other powers not inconsistent with the Act as are
necessary or expedient for giving full effect to the
provisions of the Act.“ (My emphasis)
The 1st respondent duly registered its securities with the
appellant.Section 60 of the I.S.A. required the 1st
respondent whose securities are registered with the
appellant to submit on periodic or annual basis its audited
financial statements and such other returns as may be
prescribed by the appellant from time to time. Section 61
thereof require a public company such as the 1st
respondent to establish a system of internal controls over
its financial reporting and security of its assets to ensure
the integrity of the company’s financial controls and
reporting by means of policies, procedures and practices to
ensure safety of assets, accuracy of financial records and
reports, achievement of corporate objectives and
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compliance with laws and regulations on pain of penalty
prescribed in Section 65 of the I.S.A., showing compliance
with Sections 38(1), 54, 60 and 61 of the I.S.A. is
mandatory or compulsory.
For the avoidance of doubt, Section 315 of the I.S.A.
defines “capital market operator” as any person, individual
or corporate, duly registered by the appellant to perform
specific functions in the capital market.
Rules 28 of the I.S.A. being subsidiary to the substantive
provisions of the I.S.A. is subject to or undermined by the
substantive provisions of the I.S.A. and the latter would
prevail in the event of any inconsistency or conflict
between the former to the extent of the inconsistency or
conflict, save that the rules thereof may be used only as a
guide to the interpretation of the substantive provisions of
the I.S.A. where there is ambiguity in the substantive
provisions of the I.S.A. on the issue for the purpose of
accommodating the object or scheme of the legislation vide
A.-G., Bendel State v. Aideyan (1989) 4 NWLR
(pt.118) 646 at 668 and 671 and the cases (supra)
especially Ewete v. Gyang at 753 to the effect that a
subordinate legislation is prima facie ultra
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vires if it is inconsistent with the substantive provisions of
the statute by which the enabling power is conferred or any
other statute relying on the English cases ofRe Davis ex
parte Davis (1872) 7 Ch. App. 526 at 529, per James
L.J; R. V. Bird ex parte Needes (1998) 2 Q. B. 340;
Price v. Western London Investment Building Society
(1964) 2 ALL ER 318 at 322 and Irving v. Askew
(1870) LR 5 Q. B. 208 at 211 per Hannen, J. cited on the
issue by the appellant.
It is trite that statutory provisions are construed together
or harmoniously to give literal or grammatical effect to the
scope of the spirit and letter of the statute vide Orubu v.
INEC (1988) 5 NWLR (pt.94) 323 to the effect that in
seeking to interprete a particular section or a statute or a
subsidiary legislation one does not take the section in
isolation but one approaches the question of the
interpretation on the footing that the section is part of a
greater whole warranting every clause of the statute to be
construed with reference to the context and other clauses
of the statute so as far as possible to make a consistent
enactment of the whole statute. See the cases (supra) cited
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by the appellant. See again Akaighe v. Idama (1964) ALL
NLR 317.
Accordingly,Sections 13, 38(1),54(1) and(5), 60, 61,65 and
315 of the I.S.A. read together with paragraph 3 of the
affidavit in support of the action establishes that the 1st
respondent, an issuer of securities, having been duly
registered with the appellant and was at all material times
performing the specific function of issuing securities in the
capital market was subject to the intervention of the
statutory powers of the appellant as the pinnacle regulatory
authority for the Nigerian capital market whose sole
purpose is to ensure the protection of investors and to
maintain fair, efficient and transparent capital market as
well as reduction of systematic risk as stated in the
preamble to the I.S.A. - the beacon-light to the powers of
the appellant under the I.S.A.
The learned author, Professor Abugu, states aptly in his
standard book – Company Securities: Law and Practice
(supra) in pages 72 – 73 in that wise as follows–
“Registration of securities market institutions and
participants is one of the most potent instruments of
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investor protection as it enables the Commission to
critically assess the fitness or otherwise of all
institutions and persons proposing to operate in the
capital market. Ascertaining their suitability is
critical to confidence building, given that any
unscrupulous action could erode confidence and
destroy the fabric of the market. Registration
demands that accurate and comprehensive
information be sought and obtained from prospective
registrants. Information submitted are required to be
sworn to before a Commissioner for Oaths.
Notwithstanding, the SEC endeavours to verify all
information submitted to it. A satisfactory police
clearance is required from all prospective individual
registrants to ensure that ex-convicts and criminals
are not admitted into the securities market.
Registration is a continuous process. All major
changes or new information concerning the registrant
must be promptly communicated to the Commission.
Certificates of registration issued are to be renewed
periodically.
In addition, the SEC's function of registering
securities in the capital market, affords the
Commission the opportunity of ascertaining the value
and worthiness of the securities and the
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credibility of the issuer. In this way worthless
securities are not brought into the market to defraud
unwary investors and dampen confidence in the
capital market. The maintenance of market ethics as
well as transparency are paramount to the sustenance
of confidence. As the watchdog of the capital market,
the Securities and Exchange Commission constantly
monitors market activities to forestall manipulative
and other illegal practices. In carrying out this
function the SEC requires timely disclosure of
information affecting securities, monitors trading
activities of key company officials and general trading
activities on the floor of the Stock Exchange. It also
carries routine checks on the activities and
operations of market operators and the review of
newspapers and other periodicals to investigate any
report suggestive of violation of securities laws. The
SEC has a Surveillance and investigation Division to
carry out this function and it ensures that the
provisions of the Act and of its regulations are strictly
adhered to and enforced. It has created an
enforcement division whose duty is to ascertain
whether or not a violation of the law has
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occurred and to recommend appropriate sanctions.
Sanctions, in proven cases, take various forms
depending on the severity of the violation. For minor
offences, a warning might be appropriate while severe
cases could attract a suspension or withdrawal of
license in which case the offender is barred from
operating in the capital market. A Court injunction is
also sometime sought or litigation instituted.” (My
emphasis).
The I.S.A. is therefore an effective method of preventing
impropriety in the management of capital market by capital
market operators through the appellant’s intervention in
the decaying or paralyzing affairs of a company registered
with the appellant as capital market operator in the capital
market performing specific role of issuers of securities,
such as the 1st respondent, which intervention is expected
to arrest, minimize or forestall the drift to disaster or the
dissipation of the assets and/or collapse of the mismanaged
company for the protection of investors thus fulfilling one
of the most important schemes of the I.S.A.
The Court below rightly acknowledged in its ruling in page
735 of the record that users of funds in the capital
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market constitute part of the capital market apparatus.
Paragraph 3 of the affidavit in support of the originating
summons deposed inter alia in page 9 of the record that the
1st respondent has its securities registered with the
appellant who exercises regulatory and enforcement
actions over the 1st respondent as part of the appellant’s
statutory functions. Had the Court below taken into
consideration these salient issues it would not have held
that the 1st respondent does not perform specific role in
the capital market.
Having registered with the appellant as dealer in securities
or issuer of securities in the capital market the 1st
respondent’s specific role of issuer of securities in the
capital market makes the 1st respondent subject to the
rules and the authority of the appellant under the I.S.A.
which is entitled bySection 13(v) of the I.S.A. (supra), in
particular, to intervene in the management and control of
capital market operators in distress or which the appellant
considers has failed, is failing or in crisis by doing
whatsoever the appellant deems necessary to arrest the
drift for the protection of investors in the capital market.
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It was thus held in the case of Farid Mikhail Faloughi
and Ors. v. Alain Abdala Faloughi and Ors. (1995) 3
NWLR (pt. 384) 434 that the appellant’s statutory powers
can regulate the affairs of companies engaged in effecting
transfer of shares; and that where public companies are
run by foreigners as shareholders, for example, the
approval of the appellant was a condition precedent to the
transfer or intended transfer of any shares in the company
concerned.
The powers of control and intervention of the appellant
under the I.S.A. also extends to private companies as is
illustrated by the case of Societe Generale Bank Nigeria
Ltd. v. S.E.C. unreported Court of Appeal judgment in
appeal No. CA/L/434/98 (cited without date of delivery of
the judgment in ‘Companies Securities: Law and Practice’
Second Edition page 98 by Professor Abugu) to the effect
that the regulatory powers of the appellant covers private
companies even where there is alien participation in the
sale or transfer of shares.
In conclusion, I most respectfully hold that the Court below
should not have vacated the interim preservative
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order made by it to protect the imminent collapse of the 1st
respondent by the appellant who at all material times was
exercising statutory powers under the I.S.A. to stem the
tide of decay in the internal management of the 1st
respondent as it affected investors in the securities
registered by the 1st respondent with the appellant as a
registered issuer of securities in the capital market thus
playing the specific role of issuer of securities in the capital
market and amenable to the control and regulation of the
appellant under the relevant provisions (supra) of the I.S.A.
vide Oni v. S.E.C. and Anor. (2013) 3 BFLR 246.
On the whole, I find merit in the appeal and hereby allow it
and set aside the decision of the Court below vacating the
said interim preservative order and consequentially restore
the said interim preservative order for the protection of
investors of the securities registered by the 1st respondent
with the appellant. Parties to bear their costs.
MOHAMMED LAWAL GARBA, J.C.A.: I have read a draft
of the lead judgement by my learned brother Joseph
Shagbaor Ikyegh, JCA, and agree with him that by the
definition of the term "Capital Market
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Operator" inSection 315 of the Investment and Securities
Act, 2007(ISA), the 1st Respondent, which was duly
registered by the Appellant to perform the specific function
of issuing securities, in the capital market in Nigeria, is a
capital market operator that is subject to the statutory
regulatory supervision and control of the Appellant. This is
borne out by the unchallenged avernment in paragraph 3 of
the Affidavit filed in support of the originating summons
filed by the Appellant.Section 54 (1) of the ISA requires
that all securities of a public company, such as the 1st
Respondent, shall be registered with the Appellant under
the terms and conditions set out therein and regulations by
it and in Subsection 5, says that no securities shall be
issued, transferred, sold or offered for subscription by or
sale to the public without prior registration by the
Appellant.
If a registered issuer of securities under ISA is not a Capital
Market Operator as defined by the Act itself, one would
wonder who else is. I join in allowing the appeal in terms of
the lead judgement.
JAMILU YAMMAMA TUKUR, J.C.A.: My learned brother
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JOSEPH SHAGBAOR IKYEGH afforded me the opportunity
of reading before today a draft copy of the lead judgment
just delivered. I adopt the judgment as mine with nothing
further to add.
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Appearances:
Mr. F.O. Obiejesi, with him, Mr. J. Ibeh ForAppellant(s)
Mr. L. C. Okoli, with him, D. T. Ayorinde for the3rd Respondent
The 2nd, 4th – 6th Respondents were servedhearing notice but were unrepresented ForRespondent(s)
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