24 November 2017

Nigeria: Court Stikes Out Oando's Suit Against SEC Over Forensic Audit, Shares Suspension

Oando Plc has suffered a major setback in its effort to stop the Securities and Exchange Commission (SEC) from conducting a forensic audit into its affairs, as a Federal High Court in Lagos, on Thursday, declined the jurisdiction to entertain the suit brought before it by the embattled oil firm.

The presiding judge, Justice Mohammed Aikawa struck out the suit, which also sought an order of the court directing the lifting of a technical suspension on Oando shares and advised the oil firm to take its case to the Investment and Securities Tribunal (IST).

The ruling was sequel to a preliminary objection filed by Counsel to SEC, George Uwechue, SAN, challenging the jurisdiction of the Federal High Court to entertain the suit.

In his ruling, the judge held that: "that the subject matter of this issue falls within the exclusive jurisdiction of the Investment and Securities Tribunal (IST) and not this court.

"In addressing this issue, I find the provisions of the Investment and Securities Act 2007 quite instructive. Section 284 of the ISA (2007) says the Tribunal shall, to the exclusion of any other court of law or body in Nigeria, exercise jurisdiction to hear and determine any question of law or dispute involving- (a) a decision or determination of the Commission in the operation and application of this Act, and in particular, relating to any dispute- (i) between capital market operators; (ii) between capital market operators and their clients; (iii) between an investor and a securities exchange or capital trade point or clearing and settlement agency; (iv) between capital market operators and self regulatory organisation; (b) the Commission and self regulatory organisation; (c) a capital market operator and the Commission; (d) an investor and the Commission; (e) an issuer of securities and the Commission; and Jurisdiction of the Tribunal, etc. 132 (f) disputes arising from the administration, management and operation of collective investment schemes.

"It is not in dispute that the matter before me is a dispute between capital market operators."

Continuing, the judge noted that "the duty of the court is to apply the law".

He declared: "On this premise, I have no option than to uphold the preliminary objection. I also in the same vein uphold the preliminary objection of the 2nd defendant (Nigerian Stock Exchange). This court lacks the jurisdiction to adjudicate the dispute between both parties. "The proper place for this matter to go is IST. I therefore strike out this matter." Reacting to the ruling, Uwechue, said: "We brought a notice of preliminary objection stating that this court has no jurisdiction to hear capital market matters because there is a special tribunal set up for it. And the court agreed with us. So the court upheld our preliminary objection and therefore struck out the application."

Oando had approached the court for an order to lift the suspension of its shares as well as to stop an impending forensic audit after SEC, on October 18, directed the Nigerian Stock Exchange (NSE) to place trading of its shares on full suspension for 48 hours and on technical suspension from Friday, October 20.

The suspension, according to SEC, was to enable it conduct a forensic audit into the affairs of Oando Plc following petitions and protests by some aggrieved shareholders leading to a directive by the House of Representatives Committee on Capital Market to issue a directive to the regulator to investigate the grievances.

In a statement in October, SEC said that it carried out a comprehensive review of the petitions and found a breach of the provisions of the Investments & Securities Act 2007; breach of the SEC Code of Corporate Governance for Public Companies; suspected insider dealing; suspected related party transactions not conducted at arm's length and discrepancies in the shareholding structure of Oando Plc, among others.

The commission, in the memo said these findings were weighty and therefore needed to be investigated further.

"The commission's primary role as apex regulator of the Nigerian capital market is to regulate the market and protect the investing public. The commission notes that the above findings are weighty and therefore needs to be further investigated. After due consideration, the commission believes that it is necessary to conduct a forensic audit into the affairs of Oando Plc. This is pursuant to the statutory duties of the Commission as provided in section 13(k), (n), (r) and (aa) of the ISA 2017.

"To ensure the independence and transparency of the exercise, the forensic audit shall be conducted by a consortium of experts made up of auditors, lawyers, stockbrokers and registrars," the regulator had stated.

Trading in Oando's shares were also suspended by the Johannesburg Stock Exchange (JSE) in October.

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