Civil Reference No. 7 of 2004
Cristal Resort Limited maintained bank accounts with FBME Bank Tanzania Limited's Zanzibar branch. A dispute arose in 2014 when the bank allegedly refused to change account signatories and persistently withheld bank statements, allegedly breaching statutory and contractual duties. On 15th May 2015 Cristal Resort sued FBME Bank in the High Court of Zanzibar (Civil Case No. 36 of 2015), seeking specific performance, monetary damages, refunds, and punitive damages. At the time the suit was filed, FBME Bank was already under statutory management, the Bank of Tanzania (BoT) having taken possession of the bank and appointed a Statutory Manager on 24th July 2014, a fact the plaintiff acknowledged in its plaint. FBME Bank filed a written statement of defence (WSD), which the respondent challenged by preliminary objection alleging defective signing and verification under Order XXXIII, rule 1 of the Civil Procedure Decree. The trial judge (Sepetu, J.) sustained the objection, ruled there was no valid WSD before the court, and entered default judgment granting essentially all reliefs sought. FBME Bank appealed, initially raising four grounds concerning the WSD and default judgment, but at the hearing sought and obtained leave to argue a new ground: that the suit was incompetent for want of leave of court under section 9(1) of the Bankruptcy Act (BA), given the bank's statutory management status, and abandoned the original four grounds.
The central issue for determination was whether the respondent's action in the High Court was incompetent for want of leave of court, as allegedly required under section 9(1) of the Bankruptcy Act, given that FBME Bank had been placed under statutory management by the Bank of Tanzania before the suit was filed.
The appellant, through Mr. Mrisha, argued that since FBME Bank was under statutory management (with a Statutory Manager appointed) at the time the suit was filed, section 9(1) of the Bankruptcy Act required the respondent to obtain leave of court before commencing proceedings, and that the suit should have been directed against the Statutory Manager rather than the bank itself. He relied on Christina Mrimi v. Coca Cola Kwanza Bottles Ltd for the proposition that a party must be correctly named in litigation, and on Mathias Eusebi Soka v. The Registered Trustees of Mama Clementina Foundation for the proposition that once an entity is placed under a receiver-like regime, section 9(1) of the BA applies to bar unauthorised suits. He contended the bank's seizure by BoT triggered the same consequence, rendering the High Court proceedings illegal for want of leave.
The respondent, through Mr. Mnkonje, opposed the appeal, acknowledging that the bank was under statutory management under section 56 of the Banking and Financial Institutions Act (BFIA) but denying it was under liquidation. He argued the Bankruptcy Act was not operative in Zanzibar, rendering section 9(1) inapplicable to a suit filed in the High Court of Zanzibar. He distinguished Mathias Eusebi Soka as concerning a specified public corporation under the Public Corporations Act, a materially different statutory scheme, and noted that the holding in Christina Mrimi had been vacated on review. He urged dismissal of the appeal.
The Court of Appeal dismissed the appeal, holding that the respondent's suit was not incompetent for want of leave of court under section 9(1) of the Bankruptcy Act. It found the Mathias Eusebi Soka precedent distinguishable, as it concerned a specified public corporation under the Public Corporations Act triggering section 9(1) of the BA via section 43(1) of that Act — no analogous provision applied to FBME Bank. Further, the Court held the entire Bankruptcy Act was inapplicable in Zanzibar since it is not a Union Matter under Article 64(4)(b) and (c) of the Constitution and contains no express provision extending it to Zanzibar as required by Article 64(4)(a); thus it applies only to Mainland Tanzania. The Court instead examined the Banking and Financial Institutions Act (BFIA), which has pan-territorial application under section 2(1). Under section 57(1)(c) of the BFIA, the bar on commencing legal action against a seized bank applies specifically to creditor-initiated insolvency or bankruptcy proceedings under the Companies Act or similar laws, not to actions founded in tort or breach of contract as in this case. Moreover, section 58(2)(f) of the BFIA empowers the BoT (through its takeover of management) to 'initiate, defend and conduct in its name any action or proceeding to which the bank or financial institution may be a party,' confirming that the bar to legal action is not absolute and does not preclude ordinary contractual or tortious claims against the seized bank. Accordingly, the sole ground of appeal was found unmerited, and the appeal was dismissed with costs.
This judgment clarifies the territorial scope and limits of the Bankruptcy Act, confirming it applies only to Mainland Tanzania absent express extension to Zanzibar under Article 64(4)(a) of the Constitution, since it is not a Union Matter. It also authoritatively distinguishes and narrows the application of prior precedent (Mathias Eusebi Soka) concerning leave requirements under section 9(1) of the Bankruptcy Act to cases involving specified public corporations under the Public Corporations Act, rather than banks seized under the Banking and Financial Institutions Act. Significantly, the Court interprets section 57(1)(c) of the BFIA as imposing a restricted, not absolute, bar on legal proceedings against seized banks — limited to creditor-initiated insolvency/bankruptcy proceedings — while ordinary contractual and tortious claims remain permissible without requiring leave of court. This provides important guidance on the legal consequences of BoT seizure and statutory management of banks under the BFIA, particularly regarding creditors' and customers' rights to sue such institutions directly.
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