Ambank (M) Berhad v Globalcon Holding (M) Sdn Bhd (BA-24FC-355-05/2023)

The Originating Summons, filed by the Plaintiff and dated 3 May 2023, seeks an Order for Sale of the property known as HS(D) 136846, PT 54155, Mukim Cheras, Daerah Ulu Langat, Negeri Selangor, which is charged by the Defendant in favour of the Plaintiff.

The Defendant contested the said Order for Sale, contending that the subject matter of this suit – the Charge - was encompassed in suit no WA-24NCC-366-08/2021 (Suit 366). Suit 366 involved an application for a Creditors’ Scheme of Arrangement under section 366(1) of the Companies Act 2016. Therefore, the Defendant asserted that there existed a cause to the contrary.

By letters of offer dated 14 November 2018, 11 March 2020, 27 March 2020 and 15 January 2021, respectively, the Plaintiff approved an overdraft facility amounting to RM1,500,000.00 in favour of the Defendant. The Defendant entered into an agreement for the said overdraft facility on 6 December 2018.

In consideration and/or security for the overdraft facility, the third parties, acting as guarantors, executed a Letter of Guarantee (Guarantee & Indemnity) on 6 December 2018. Simultaneously, on the same date, the Defendant charged its property known as HS(D) 136846 PT 54155, Mukim Cheras, Daerah Ulu Langat, Negeri Selangor, in favour of the Plaintiff. The charge was officially registered on 7 January 2019, as documented in "Bil Perserahan No 482/2019” (the Charge).

The Defendant, having failed to adhere to the agreed terms of the charge, defaulted on the payments stipulated under the overdraft facility.

On 22 July 2021, the Plaintiff sent a Letter of Demand seeking payment of the total outstanding sum of RM2,534,993.32 as of 15 July 2021 with interest.

Subsequently, the progression of the Plaintiff’s legal action against the Defendant came to a halt as the Plaintiff was served with an order dated 25 October 2021, pursuant to section 366(1) of the Companies Act 2016. This order, granted by the court in Suit 366, sanctioned the Defendant to convene a Creditors’ Scheme of Arrangement Meeting, resulting in the cessation of all ongoing legal actions against the Defendant.

The Plaintiff applied to intervene in Suit 366 and to set aside the order dated 25 October 2021. While the court granted the Plaintiff leave to intervene, it dismissed the application to set aside the said order. Hence, the Plaintiff appealed to the Court of Appeal.

Nevertheless, as a secured creditor, the Plaintiff filed and served the duly affirmed Proof of Debt to the Scheme Manager, encompassing the debt related to the said charge.

On 23 October 2022, the Scheme of Arrangement Meeting was convened. During this session, the Plaintiff objected to the meeting's conduct and the Defendant's methods. A majority of 77.36% of creditors in attendance voted in favour of the Scheme of Arrangement (the said Scheme). Subsequently, on 18 January 2023, the Defendant filed an application seeking the court's sanction for the said Scheme under Suit 366. The Plaintiff objected to the said application.

Upon considering the merits, on 7 June 2023, the High Court dismissed the Defendant's application for sanction for the said Scheme. Dissatisfied, the Defendant lodged an appeal with the Court of Appeal on 4 July 2023. The said appeal is currently pending a hearing.

Subsequently, on 23 February 2023, the Plaintiff served Form 16D (Notis Kemungkiran Mengenai Suatu Gadaian) dated 26 February 2023, pursuant to section 254 of the National Land Code 1965 (NLC 1965), and Form 16K (Notis Mengambil Milik: Dengan Cara Menduduki) dated 23 February 2023, under section 272 of the NLC 1965, detailing the sum of RM2,534,993.32 as of 15 July 2021, along with accrued interest.

Despite the Plaintiff's demands, the Defendant failed to make any payments. Consequently, the Plaintiff initiated this Originating Summons, seeking an Order for Sale under section 256 of the NLC 1965 and Order 83 of the Rules of Court 2012 (ROC 2012).

As of the hearing of this suit, the Defendant did not obtain an order to stay proceedings pending its appeal against the decision in Suit 366.

In contesting this action, the Defendant raised the following two issues before this Court: a. that the subject matter in this suit is identical to the subject matter in Suit 366. b. that there is an ongoing appeal filed by the Defendant against the High Court decision on 7 June 2023, in Suit 366.

Section 256 of the NLC 1965 states as follows: “256. Application to Court for order for sale

This section applies to land held under

Registry title;

the form of qualified title corresponding to Registry title; or

subsidiary title, and to the whole of any divided share in, or any lease of, any such land.

Any application for an order for sale under this Chapter by a chargee of any such land or lease shall be made to the Court in accordance with the provisions in that behalf of any law for the time being in force relating to civil procedure.

On any such application, the Court shall order the sale of the land or lease to which the charge relates unless it is satisfied of the existence of cause to the contrary.” [emphasis added]

It is trite that in an application for Order for Sale made under section 256 of the NLC 1965, the Court is entitled to refuse an Order for Sale of charged property once it is satisfied of the existence of cause to the contrary. The Supreme Court case of Low Lee Lian v Ban Hin Lee Bank Bhd. [1997] 1 MLJ 77, explained what is meant by ‘cause to the contrary’. Gopal Sri Ram JCA (as His Lordship then was) explained as follows: “In our judgment, 'cause to the contrary' within s 256(3) may be established only in three categories of cases. First, it may be taken as settled that a chargor who is able to bring his case within any of the exceptions to the indefeasibility doctrine housed in s 340 of the Code establishes cause to the contrary. ... Secondly, a chargor may show cause to the contrary within s 256(3) of the Code by demonstrating that the chargee has failed to meet the conditions precedent for the making of an application for an order for sale. For example, failure on the part of the chargee to prove the making of a demand or service upon the chargor of a notice in Form 16D would constitute cause to the contrary. So too, where the notice demands sums not lawfully due from the chargee. See Co-operative Central Bank Ltd v Meng Kuang Properties Bhd [1991] 2 MLJ 283. However, in such a case, it would be open to the chargee to subsequently serve a notice or a proper notice (as the case may be) before commencing proceedings afresh as the cause shown to the contrary does not in substance affect the chargee’s right to apply for an order for sale. Thirdly, a chargor may defeat an application for an order for sale by demonstrating that its grant would be contrary to some rule of law or equity. This principle finds its origins in the judgment of Aitken J in Murugappa Chettiar v Letchumanan Chettiar [1939] MLJ 296 at p 298…”

After reviewing all the cause papers filed by the parties and considering both oral and written submissions from the Plaintiff and the Defendant, I granted the Plaintiff's application for an Order for Sale as the Defendant had failed to show cause to the contrary. The reasons for my decision are stated below.

The Defendant contended that the subject matter of litigation in this suit, represented by the Charge registered as Bil Perserahan No. 482/2019, fell within the said Scheme and was simultaneously under consideration in Suit 366. The Defendant asserted that this was also affirmed by the Plaintiff in its Affidavit in Reply.

Furthermore, the Defendant asserted that it had lodged a Notice of Appeal dated 4 July 2023 with the Court of Appeal, challenging the High Court Order dated 7 June 2023. The said appeal pertained to the subject matter under contention in this suit.

Therefore, the Defendant argued that pending the Court of Appeal’s adjudication on the appeal against the High Court order dated 7 June 2023, it was contrary to the doctrine of equity for this Court to issue an Order for Sale against the Defendant. Such an action, prior to the final determination by the Court of Appeal, would substantially prejudice the rights of the Defendant, as the resolution of the subject matter in this suit would precede the conclusive determination of the parties’ rights.

The Defendant further submitted that the Plaintiff would not suffer prejudice during the pendency of the Court of Appeal's hearing to decide on the Defendant's appeal.

Subsequently, the Defendant argued that the initiation of this suit by the Plaintiff was premature and lacked bona fides, considering that the Plaintiff was aware of the Defendant’s appeal yet to be deliberated by the Court of Appeal.

The Plaintiff contended that the Defendant had classified the Plaintiff as a secured creditor under the said Scheme for Settlement. This indicated that the Defendant had acknowledged the fact that the Plaintiff held a charge as security and further recognised the Plaintiff’s interest in the said Scheme.

The Plaintiff asserted that neither an admission by the Plaintiff nor a proposal by the Defendant existed to relinquish the Plaintiff’s right over the property charged for the benefit of other creditors. Consequently, the disposal of the charged property would not impact the Defendant’s appeal or cause prejudice to the Defendant’s position.

The Plaintiff argued that the filing of an appeal by the Defendant did not automatically warrant the dismissal or setting aside of the Originating Summons for Order for Sale. Additionally, the Plaintiff contended that the Defendant had incorrectly challenged the Order for Sale sought in this suit. Instead, the Defendant should have applied to stay the proceedings pending the appeal, rather than disputing the Originating Summons.

The Plaintiff maintained that there was no provision in law to challenge the Plaintiff’s right in rem based on the filing and pending status of an appeal. Therefore, all issues raised by the Defendant did not provide any cause to the contrary for the Court to disallow an Order for Sale.

I concur with the Plaintiff’s contention. While the Charge is the subject matter of the said Scheme under section 366(1) of the Companies Act 1965, the said Scheme was not sanctioned by the High Court. Additionally, as of the date of the hearing of this suit, the Defendant had not obtained an order for a stay of proceedings pending its appeal. Therefore, there was no impediment for this Court to proceed with this suit.

I am guided by the principles set in the case of Low Lee Lian v Ban Hin Lee Bank Bhd. (supra) and find that the Defendant had not demonstrated any cause to the contrary in this action for the Court to disallow the Plaintiff’s Originating Summons for an Order for Sale. The issues raised, such as the Charge being a subject matter of Suit 366 and the existence of a pending appeal, are not causes to the contrary.

The Plaintiff, in seeking an Order for Sale in this foreclosure proceedings pursuant to section 256 of the NLC 1965, was merely enforcing its rights as a chargee by exercising its statutory remedy against the Defendant as a chargor in default. The Charge, in this case, was registered. The Court of Appeal in the case of Lim Ban Hooi & Anor v Malayan Banking Bhd. [2018] MLJU 510 stated as follows: “[45] This view was affirmed by the Supreme Court in Kandiah Peter v Public Bank Bhd [1994] 1 MLJ 119: ‘The principles governing the matter are well settled by authority and are not open to question. A chargee who makes an application for an order for sale in foreclosure proceedings under s 256 of the Code does not commence an action. He merely enforces his rights as a chargee by exercising his statutory remedy against the chargor in default. The chargee, therefore, does not sue for a debt. It is also clear that his claim for an order for sale is not based upon a covenant but under a registered charge. The order for sale when made under s 256 of the Code is not a judgment or a decree. The Court hearing the application for foreclosure does not make, and in any event ought not to make, any adjudication upon any substantive issue. These principles are called from several decisions of our courts which have correctly stated the law upon the subject.’ See also Federal Court decisions in Low Lee Lian v Ban Hin Lee Bank Bhd [1997] 1 MLJ 77; and CIMB Investment Bank Bhd v Metroplex Holdings Sdn Bhd [2014] 9 CLJ 1012.” [emphasis added]

I find there was no element of being "contrary to some rule of law or equity" in this case. In Low Lee Lian (supra) His Lordship Gopal Sri Ram JCA (as His Lordship then was) observed: “This principle finds its origins in the judgment of Aitken J in Murugappa Chettiar v Letchumanan Chettiar [1939] MLJ 296 at p 298 where he said: I agree that equitable principles should not be invoked too freely for the purpose of construing our Land Code, but surely a chargor, who shows that there would be no need to sell his land if the chargee paid up in full what is due from himself in another capacity, has shown good and sufficient cause why the land should not be sold. Section 149 of the Land Code obviously contemplates that there may be cases in which charged land should not be sold, even though there has been a default in payment of the principal sum or interest thereon secured by the charge; and it seems to me that a chargor may 'shew cause' either in law or equity against an application for an order for sale, and that the courts should refuse to make an order in every case where it would be unjust to do so. By 'unjust' I mean contrary to those rules of the common law and equity which are in force in the Federated Malay States.” … “It is thus clear that to fall within the scope of the principle in Murugappa Chettiar's case, the chargor must be able to point to a statutory direction or some rule of the common law or doctrine of equity operating in his favour and against which an order for sale would militate. Anything that falls short of this requirement will not amount to cause to the contrary under s 256(3).” [emphasis added]

In the Privy Council case of Keng Soon Finance Bhd. v MK Retnam Holdings Sdn. Bhd. & Anor [1989] 1 MLJ 457 (PC) Lord Oliver of Aylmerton held: - “Section 256(3) of the National Land Code is mandatory. The court 'shall' order a sale unless it is satisfied of the existence of 'cause to the contrary'. Granted that these words have been construed in Malaysia as justifying the withholding of an order where to make one would be contrary to some rule of law or equity, they clearly cannot extend to enabling the court to refuse relief simply because it feels sorry for the borrower or because it regards the lender as arrogant, boorish or unmannerly.” [emphasis added]

However, in the present case, aside from asserting an appeal filed against the High Court’s decision dismissing the sanction for the said Scheme and emphasising that the Charge was a subject matter in the said Scheme, the Defendant failed to present any evidence indicating that it would be contrary to the rules of common law and equity in force in this country for this Court to grant an Order for Sale, hence, deeming it unjust to grant an Order for Sale. The Defendant must be able to cite a statutory provision, a common law rule, or an equitable doctrine in their favour, against which an order for sale would go against.

There is no dispute that the Defendant classified the Plaintiff as a secured creditor in the said Scheme for Settlement. Consequently, the Defendant, having full knowledge, acknowledged the Plaintiff's rights and interest as a secured creditor. There is no evidence presented in this Court indicating the Plaintiff's agreement to waive its rights and interest in the charged property for the benefit of other creditors. I concur with the Plaintiff's contention that, being the secured creditor, it has the right to exercise its rights in rem to dispose of the property. Therefore, the disposal of the charged property would not adversely affect the Defendant's appeal or prejudice the Defendant's position.

Moreover, the Defendant had not obtained a stay of proceedings pending its appeal against the High Court’s decision in dismissing the said sanction. A pending appeal would not constitute a cause to the contrary under section 256(3) of the NLC 1965. The Plaintiff is merely enforcing the rights in rem upon the Defendant’s default, which is not disputed.

Furthermore, the Plaintiff had complied with all the requirements under section 256 of the NLC 1965 and Order 83 of the ROC 2012. The relevant statutory notices were served on the Defendant. The Defendant had not raised any issues or objections regarding non-compliance with any provisions under the NLC 1965 or Order 83 ROC 2012 by the Plaintiff. Hence, this Court finds no cause to the contrary shown by the Defendant.

For the reasons mentioned above, I, therefore, ordered that the Plaintiff’s application in its Originating Summons be allowed with costs of RM3000.00. Dated: 19 January 2024 -sgd-JAMHIRAH ALI JUDICIAL COMMISSIONER High Court of Malaya at Shah Alam (NCVC 1) To the parties’ solicitors: For the Plaintiff : Muhammad Nasim Shafie (Messrs Sidek Teoh Wong & Dennis) For the Defendant : Ng Yi Ying (Messrs Vilasiny Gan & Co.)