AMCARD SERVICES BERHAD v 1. Dato' Joseph Chong Chek Ah (24-1392-12/2014)

DATO’ JOSEPH CHONG CHEK AH

ZHOU XINGCHEN (NO. PASPOT : G19649975) …DEFENDANTS 2 GROUNDS OF JUDGMENT (Originating Summons – Enclosure 1) Sections 281, 257-259 and sections 266-269 of the National Land Code 1965 A. BACKGROUND FACTS [1] By this Originating Summons (Enclosure 1), the Plaintiff seeks for inter-alia the following reliefs:

that the property held under Geran 2111890 Lot 63291 di Bandar Glenmarie Daerah Petaling Negeri Selangor (hereinafter referred to as the said (“Property”) which is registered in the names of the Defendants to which the Plaintiff named above has entered a Lien-Holder’s Caveat vide the Presentation No. 33560/2009 (hereinafter referred to as the “Lien-Holder’s Caveat”) as additional security for a loan is to be sold by public auction under Section 281 of the National Land Code 1965 to repay the outstanding Judgment sum of RM7,075,000.00 as at 15.12.2014 until the date of the sale;

that a date is set by the court to conduct a public auction;

that a reserve price for the said Property and other directions in respect of the sale shall be determined by the Senior Assistant Registrar; 3

that the bidders in the auction are not allowed to bid at the public auction unless the bidders at public auction satisfy the officer of the court that at the time of sale, the bidders at the auction possess an amount equivalent to ten per centum (10%) of the reserve price set out in paragraph 3 above;

that if the full purchase price is not paid by the purchaser at the public auction after the fall of the hammer, the amount in paragraph 4 above shall be paid to the Plaintiff as a deposit and immediately credited to the account of the Defendants pending the settlement of the purchase price;

that the balance of the purchase price shall be paid on a date not later than one hundred and twenty days (120) form the date of sale and this period shall not be extended;

that if the balance purchase price is not settled on the date mentioned in paragraph 6 above, the amount paid to the Plaintiff as a deposit under paragraph above shall be forfeited and disposed of in the manner specified under Section 267A of the

that within seven (7) days from the date the said Property was sold, the Defendants named above and/ or anyone who live in the said Property shall vacate the said Property and hand over vacant 4 possession of the said Property to the Plaintiff or purchasers in the public auction;

that all the costs and expenses of this application and the public auction to be assessed by the court and paid to the plaintiff from the public auction proceeds derived from the sale;

that the relevant authorities to register the name of the buyer as the owner of the said Property free of encumbrances;

that the Plaintiff is given the liberty to purchase at the public auction without paying any deposit and if the Plaintiff is the buyer, the Plaintiff is given the liberty to deduct the purchase price against the amount outstanding including the costs and expenses of the sale and also all the costs payable and owing from the Defendants named above. [2] Basically, the present case before this Court is an astoundingly clear-cut case of the realization of a security by the Plaintiff-Bank who holds a registered lien over the security co-owned by the Defendants. The factum of indebtedness is tremendously undisputed and by and large admitted by both parties. The Defendants in a last-stitch effort have attempted to eschew from their liabilities owed to the Plaintiff with an utterly desperate as well 5 as incorrect supposition of the law to delay the ends of justice and the proceedings of this Court. [3] Alluding to the facts of the case, the Plaintiff (Amcard Services Berhad), a financial institution has granted some RM39,336,594.00 of loan (the “said loan”) in favour of Westmont Holdings Sdn Bhd (“Westmont”) in which the 1st Defendant (Dato’ Joseph Chong Chek Eh) stood as a guarantor to the said loan. The 2nd Defendant (Zhou Xingchen) is an individual of Chinese Nationality and holding a China Passport No: G 19649975). [4] It must be noted in the present case that in opposing the Plaintiff’s application, the 2nd Defendant had filed two affidavits namely; Affidavit In Reply (NO.1) and Affidavit In Reply (NO.2) and in both affidavits, the 2nd Defendant had affirmed and deposed the affidavits for herself and on behalf of the 1st Defendant. In both affidavits, the 2nd Defendant had also claimed that she was given a full and complete authority by the 1st Defendant to affirm the affidavits on behalf of the 1st Defendant. It must also be noted that the 1st Defendant is an undischarged bankrupt and until now has not obtained the sanction of the Director-General of Insolvency 6 under section 38 (1) (a) of the Bankruptcy Act 1967 to defend this action. This Court will deal with the 1st Defendant’s legal competency later in the judgment. [5] At this juncture, this Court shall continue with the relevant facts giving rise to the Plaintiff’s application. The 1st and 2nd Defendants (“Defendants”) are co-proprietors of a property held under Geran 211890 Lot 63291 in Bandar Glenmarie Daerah Petaling Negeri Selangor (“Property”). Now, it remains admitted and undisputed that Westmont has ultimately defaulted in the repayment of the said loan, and Westmont has since been wound up. In admitting his indebtedness to the Plaintiff, the 1st Defendant on 14.10.2004 has entered into a Consent Judgment (Kuala Lumpur High Court Civil Suit No: D3-22-2990-1998) with the Plaintiff in which the 1st Defendant has agreed to pay the Plaintiff a sum of RM15,000,000.00. It is unsurprising at this juncture that the 1st Defendant would also fail to comply with the Consent Judgment. [6] On the RM15,000,000.00 sum owing the Plaintiff (the Consent Judgment), the 1st Defendant had only made part payments and as at 9.4.2007, there is still RM8,250,000.00 remains unpaid by the 1st Defendant. On the sum unpaid, the Plaintiff had instituted a 7 Bankruptcy proceeding in the Johore Bharu High Court (Bankruptcy No. 29-1080-2007) against the 1st Defendant. [7] Thereafter, the Plaintiff received three (3) payments amounting to RM1,175,000.00 from the 1st Defendant (16.11.2007, 9.1.2008 and 11.6.2009). With the three payments made by the 1st Defendant, the amount outstanding due to the Plaintiff as at 11.6.2009 is RM RM7,075,000.00. In order to avoid a receiving and adjudication order recorded against him, the 1st Defendant had proposed to settle the outstanding amount by way of instalments. Upon receiving the proposal from the 1st Defendant, on or about 23.6.2009, the 1st Defendant again has entered into a Settlement Agreement with the Plaintiff and agreed to repay the amount of RM7,075,000.00 and deposit unto the Plaintiff’s lien-holding the Issue Document of Title (IDT) of the Property as security. [8] It is not in dispute that it was a term of the Settlement Agreement that both the 1st and 2nd Defendants being the registered owners of the said Property, deposit and forward the IDT of the said Property to the Plaintiff and grant a lien over the said Property in favour of the Plaintiff as security for the repayment of the loan to the Plaintiff for the outstanding sum amounting to RM7,075,000.00. 8 Accordingly, on 28.7.2009, the Plaintiff registered a lien holder’s caveat at the Selangor Property and Mines Office vide the presentation number 33560/2009 on the said Property (the “Lien Holder’s Caveat”- Exhibit “YCC-6”, Enclosure 2). [9] This Court must mention here that the depositing of the IDT for both undivided shares of the Defendants, presentation, and registration of the lien-holder’s caveat has all been explicitly agreed, acknowledged and admitted by the parties especially the Defendants. [10] Unremarkably, the 1st Defendant remains to default even this Settlement Agreement and consequential to this default, the Plaintiff applied for an Order for Sale under Section 281 of the National Land Code 1965 (“the Code”) to realize the security (which is the Property). Resoundingly, the Defendants do not have any feasible defence against the Plaintiff’s application. All that was submitted by the Defendants were misleading suppositions of law and semantics all aimed for the primary purpose of delaying the inevitable liability to pay the Plaintiff. 9 [11] Due to the 1st Defendant breach of the Settlement Agreement, the Plaintiff had also continued the Bankruptcy proceedings against the 1st Defendant and obtained a Receiving Order and Adjudication Order (AORO) against the 1st Defendant on 25.11.2009. With the issuance of the AORO, the 1st Defendant is thereby adjudicated and declared a bankrupt. B. THE DEPOSITING OF THE IDT, REGISTRATION OF LIEN-HOLDER’S CAVEAT IS CLEARLY FOR THE SECURITY OF THE REPAYMENT OF THE LOAN [12] The creation and the effect of liens has been clearly spelt out under section 281 of the Code. Section 281 of the Code reads as follows:

Creation and effect, of liens.

Any proprietor or lessee for the time being may deposit with any other person or body, as security for a loan, his issue document of title of as the case may be, duplicate lease; and the person or body –

may thereupon apply under Chapter 1 of Part Nineteen for the entry of a lien-holder’s caveat; and 10

shall, upon the entry of such a caveat, become entitled to a lien over the land or lease.

Where the holder of any lien obtained judgment for the amount due to him thereunder, he shall be entitled to apply to the Court for, and obtain forthwith, an order for the sale of the land or lease.

Any such application shall be made in accordance with any law for the time being in force relating to civil procedure; and the provisions of sections 257 to 259 and section 266 to 269 shall apply, mutatis mutandis, where any such application has been made as they apply where a chargee applies for an order under section 256.

A lien-holder shall, on the written request of the proprietor or lessee, and within such reasonable period as is specified in the request, produce the issue document of title or duplicate lease at any Registry or Land Office so specified for any purpose for which it is required under any provision of this Act.

The costs properly incurred by any lien-holder in complying with any such request shall be payable by the proprietor or lessee on demand.

The provisions of sub-sections (2) to (5) shall apply to all liens, whether created before or after the commencement of this Act. [13] Now, the majority of the Defendants’ ultimately fallible and failing defence is hinged on a misinterpretation of the law that the depositing of the IDTs was not done to ‘secure’ or ‘obtain’ the loan, and thus falls outside the operation of Section 281 of the Code. A majority of the Defendants’ already feeble defence is drafted in this misleading tone, in that it is the law that for a lien-holders’ rights to 11 arise to realize security under Section 281 of the Code, the IDT deposited must be purposed to secure (in the meaning of ‘obtaining’) a loan. This Court hesitates nothing to dismiss this misleading reading of the law. The Defendants attempted to find support for this misleading interpretation of the law from the case of Manickavasagam Chetty v McGregor (1933) MLJ 293 where it was already held that the depositing of the IDT must be for the purpose of a “security” for a loan and NOT ‘securing’ a loan. [14] What the Defendants are proposing is an utterly erroneous and incorrect understanding of the law. The Defendants are clearly eschewing from their admitted liability to pay arrears in the loan repayment by masquerading behind a gross misinterpretation of the law. [15] The meaning of a ‘security’ for the loan does not mean that a particular parcel of land is used to ‘secure’ or ‘obtain’ a particular loan. This is gravely incorrect. A security, most relevant, are properties deposited to the holding or possession of a lender as an incentive to the borrower, to ensure that the borrower to the loan shall repay the loan, and also a fail-safe to the benefit of the lender to realize in case the borrower defaults in the repayment of the 12 loan. Thus, the salient essence of a security is not the ‘securing’ of a borrowing by a borrower, but the fail-safe for the lender in case of a default of the repayment of the loan as well as an incentive for the borrower to pay his dues to the lender. The blatant misinterpretation of the Defendants is that the Defendants ascribe the meaning of ‘obtaining’ or ‘acquiring’ or ‘procuring’ or ‘securing’ to the term ‘security for a loan’ which is entirely incorrect. It is incredulous and ultimately wrong to assume that only when a security is deposited at the approval stage of the loan, that the borrower would have a lien-holding falling within the ambit of Section 281 of the Code. In fact, it is already the precedent that an enforceable and registrable lien-holding is lawfully created when a security is deposited as creditor’s forbearance to sue as decided in the case of Heap Huat Rubber Co. Sdn Bhd v United Overseas Bank Ltd [1992] 3 CLJ 1589. Thereto, this Court is entirely convinced that a furnishing of security even after a loan is granted indeed leads to the creation of a valid, enforceable, and registrable lien. [16] This contention by the Defendants does not hold water at all. Thus, this Court finds that indeed the Property deposited by the 13 Defendants to the lien-holding of the Plaintiff was for the purpose of securing the repayment of the loan. C. IT IS IRRELEVANT THAT THE DEFENDANTS ARE NOT BORROWERS TO THE LOAN [17] This Court hardly has to delve into this verily failing contention by the Defendants. Indeed it stands that the 1st Defendant stood as guarantor to Westmont and the 2nd Defendant merely is a party furnishing security for the loan for the benefit of Westmont. But it remains undisputed that both Defendants have furnished security to the lien-holding of the Plaintiff. It is already well settled and trite law that the local chapter allows for the creation of third-party liens, in which any party besides the borrower may furnish security for a loan to the benefit of the borrower. The party furnishing the security need not benefit from the loan or be the borrower for a valid lien-holding to be created and protected under Section 281 of the Code. This has already been well settled by the Court of Appeal in the case of United Overseas Bank (M) Sdn Bhd v UJA Sdn Bhd [2009] 6 MLJ 857. 14 [18] The Court of Appeal in the United Overseas Bank (M) Sdn Bhd has clearly held that a lien can be created as security under section 281 of the National Land Code not only for the benefit of a registered proprietor but also for the benefit of a third party borrower. Gopal Sri Ram FCJ delivering the judgment for the Court of Appeal in paragraph 9 at page 862 had this to say: “[9] Returning to the mainstream, it is in my considered judgment crystal clear that s 281 is not limited to the creation of the security by way of a lien on title only for benefit of a registered proprietor. It extends to third party borrowers as well.” [19] Thus, it is this Court’s finding that the mere fact that the Defendants are not borrowers to the loan does not at any stretch of the legal and factual imagination negate the valid creation of lien-holding of the Plaintiff. D. THE DEFENDANTS ARE ESTOPPED FROM DENYING THE VALIDITY OF THE PLAINTIFF’S LIEN-HOLDING OVER THE PROPERTY 15 [20] Suffice that this Court refers to Exhibit YCC-4 of the Plaintiff that this Court finds that both the Defendants have explicitly admitted, and acknowledged the validity of the lien by their conduct and writing. [21] Firstly, the 1st Defendant has admitted that the depositing of his IDT over his undivided share of the Property was for the security of the loan repayment by the 1st Defendant vide his solicitor’s letter dated 18.6.2009. This letter reads: “our client will deposit the title deed to his semi detached house located at Glenmarie Subang to be held by your client as a conditional security for the payments mentioned in paragraph 2.1” [22] This letter was replied and referred to by the Plaintiff’s vide the Plaintiff’s solicitor’s letter dated 23.6.2009 in which the Plaintiff sought to confirm that both co-proprietors of the Property, being the Defendants, consent to the creation and registration of a lien-holder’s caveat over the Property. The 1st Defendant has already given his consent vide his solicitors at this juncture vide the letter dated 18.6.2009. With regard to the 2nd Defendant, the 2nd 16 Defendant has also consented to the creation of the lien vide her own signed letter of consent dated 24.6.2009 which reads: “We refer to the above and your letter dated 23.6.2009 addressed to Messrs Kumar Partnership. I hereby expressly give you a consent to enter the lien holder caveat over the said Property held in the joint name of Dato Seri Joseph Chong and myself, pursuant to the terms of the settlement” [23] Secondly, the conduct of both Defendants in depositing the IDT to the holding and possession of the Plaintiff is undoubtedly a positive affirmation and acknowledgment to the validity of the lien. It is vivid, without any shade of doubt that the Defendants have admitted and acknowledged the validity of the Plaintiff’s lien-holding over the property. And accordingly, this Court shall not allow the Defendants to approbate and reprobate their stance. This Court finds valuable guidance from the decision of the Federal Court in the case of Boustead Trading (1985) Sdn Bhd v Arab Malaysian Merchant Bank Bhd [1995] 3 MLJ 331 had referred to 17 Lord Denning’s decision in the Amalgamated Investment case which reads: “The width of the doctrine has been summed up by Lord Denning in the Amalgamated Investment case (at p 122) as follows: The doctrine of estoppel is one of the most flexible and useful in the armoury of the law. But it has become overloaded with case. That is why I have not gone through them all in this judgment. It has evolved during the last 150 years in a sequence of separate developments: proprietary estoppel, estoppel by representation of fact, estoppel by acquiescence, and promissory estoppel. At the same time, it has been sought to be limited by a series of maxims: estoppel is only a rule of evidence, estoppel cannot give rise to a cause of action, estoppel cannot do away with the need for consideration, and so forth. All these can now be seen to merge into one general principle shorn of limitations. When the parties to a transaction proceed on the basis of an underlying assumption either of fact or of law – whether due to misrepresentation or mistake makes no 18 difference – on which they have conducted the dealings between them – neither of them will be allowed to go back on the assumption when it would be unfair or unjust to allow him to do so.” (emphasis added) (See also: Pentadbir Tanah Wilayah Persekutuan Kuala Lumpur v Sekutu Eksklusif Sdn Bhd [2010] MLJU 1303; Ho Shee Jan v Stephens Properties Sdn Bhd [1986] 2 MLJ 43) [24] This status quo of the validity of the lien is even made more compelling owing to the fact that even the Director-General of Insolvency has expressly allowed the Plaintiff to proceed with the realisation of the Property under the lien vide his Letter of Consent from Jabatan Insolvensi Malaysia dated 16.4.2014 ( Exhibit “YCC- 8”, Enclosure 2). [25] Therefore, it is this Court’s finding that the Defendants are indeed estopped from denying the validity of the Plaintiff’s lien-holding. E. THE 1ST DEFENDANT IS INCOMPETENT TO DEFEND AGAINST THE PLAINTIFF’S ACTION 19 [26] It is not in dispute in the present case that the 1st Defendant has been adjudged and declared a bankrupt when the AORO was issued against him on 25.11.2009. It is trite law that an undischarged bankrupt has no locus standi or legal competency in maintaining any action (other than an action for damages in respect of an injury to him) unless sanction of the Director General of Insolvency is obtained. Section 38(1) (a) of the Bankruptcy Act 1967 (the Act) clearly provides that:

Where a bankrupt has not obtained his discharge –

the bankrupt shall be incompetent to maintain any action (other than an action for damages in respect of an injury to this person) without the previous sanction of the Director General of Insolvency; [27] There are numerous authorities dealing with the legal incompetency of a bankrupt to commence or maintain an action unless sanction is obtained from Director General of Insolvency. Suffice for this Court to mention a few. 20

In the case of Sabah Bank Bhd v Syarikat Bintang Tengah Sdn Bhd [1992] 2 MLJ 588, it has been clearly held that:

Once receiving and adjudication orders are made, the bankrupt’s estate vests with the OA and under Section 38(1)(a) of the Bankruptcy Act 1967, the OA must first be consulted as any action intended by the bankrupt may be detrimental to his creditors. The only exception where no sanction is required from the OA is when the bankrupt files an action for damages for injury to his person or when he questions his status by filing an application under section 92(1) or 105 (1) of the Act.

(ii) Section 38 (1) (a) of the Act is wide enough to include the filing of an application to set aside a default judgement.

(iii) Accordingly, the third defendant must first obtain the OA’s sanction and since this was not done, he had no locus standi to file the application.

The requisite for sanction for a bankrupt to commence action has been re-emphasised by the Court of Appeal in the case of M/S Laksamana Realty Sdn Bhd v Goh Eng Hwa [2004] 1 CLJ 274. At page 281, Abdul Hamid Mohamad JCA (as 21 he then was) delivering the judgment of the Court of Appeal had this to say: “....All that is required to enable a bankrupt to maintain an action as provided by section 38(1)(a) of the Act is to obtain the sanction of the OA. No assignment is required. The respondent having obtained the sanction prior to his filing the counterclaim, he is competent to do so. The other point is whether the issue of locus standi should have been allowed to be raised at all during the submission, it not having been pleaded in the statement of defence. The requirement of a sanction is not just a formality. Without the sanction a bankrupt is “incompetent” to maintain an action. It goes to his capacity. If he is incompetent to file the counterclaim without “the previous sanctions” then the filing of the counterclaim without the previous sanction would have been null and void.... ”

In the case of Perwira Affin Bank v Sardar Mohd Roshan Khan & Another Appeal [2009] 4 CLJ 43, again the Court of Appeal has repeatedly emphasise the incompetence of a bankrupt to maintain an action and held that: 22 “Section 38(1)(a) sets out the incompetence of an undischarged bankrupt to maintain an action. The steps taken by the customer clearly came within the ambit of maintaining an action in section 38(1)(a) and so attracted the application of section 38(1)(a)..........” (See also: Chin Kong Nam & Anor v Chai Yun Phin Development Sdn Bhd [1996] 4 MLJ 271 and CIMB Bank Berhad v Eng Sim Leong & Ng Leong Hin [2014] 1 LNS 1009) [28] Clearly, the 1st Defendant being an undischarged bankrupt, must be granted sanction by the Director-General of Insolvency under Section 38(1)(a) of the Bankruptcy Act 1967 to be a competent party in a suit. And this is exactly what the 1st Defendant failed to obtain. It is trite that this requirement for a sanction is not merely a formality but a rule of law and not having such sanction definitely leads to the incompetency of the bankrupt. The Plaintiff’s action against both Defendants is undeniably an enforcement of the Plaintiff’s statutory right, that is, an action to realize a security by the Plaintiff-Bank who holds a registered lien over the security co-owned by the Defendants. Hence, unquestionably and undoubtedly that this action does not come within the ambit of an action for damages in respect of an injury to the 1st Defendant. 23 [29] The 1st Defendant has merely applied for the sanction but was never approved or granted by the Director-General of Insolvency at the time of this suit. [30] Furthermore, it is pertinent to note that the Defendants have utterly and completely failed to address the issue of the 1st Defendant’s incompetency to hold defence in their submission. [31] Thus, it is this Court’s finding that the 1st Defendant is incompetent to take any action to defend against the Plaintiff’s action in the present case. F. COURT’S DECISION [32] In light of all of the above findings, it is this Court’s decision that the Defendants have ultimately failed to prove their defence. This Court also finds that the Plaintiff’s application under Sections 257 to 259, Sections 266 to 269 and Section 281 of the Code is proper, bona fide and valid. [33] This Court also finds that the Plaintiff’s Lien-holder’s Caveat is valid, effective and enforceable at law. 24 [34] This Court also hereby finds that the Defendants have utterly failed to prove any cause to the contrary under Section 256 of the Code. This Court hereby allows the Plaintiffs’ application in Enclosure 1. On the issue of costs [35] Having heard the submission from the learned counsels for the Plaintiff and the Defendants, this Court hereby orders the Defendants to pay the Plaintiff a global sum of RM 8.000.00 in costs. t.t. ...................................................... (DATUK AZIMAH BINTI OMAR) Judicial Commissioner High Court Shah Alam Selangor Darul Ehsan Dated the 1st September 2015 25 For the Plaintiff - Tetuan Raja Eleena Siew Ang & Associates Mr. Harmeet Singh Mr.Chan Mun Fei For the 1st and 2nd Defendant - Tetuan Arbain & Co Mr. Jadadish Chandra