Halal Development Corporation Berhad v Ahmad Zaki Bin Embi (BA-12ANCvC-64-10/2023)

This is the Appellant’s appeal against the decision of the learned Sessions Court Judge (SCJ) on 4 October 2023, dismissing the Appellant’s application (Enclosure 52 before the Sessions Court) to set aside the judgment dated 5 May 2023, which had been entered after a full trial in two consolidated suits.

The two suits, namely Suit No. BB-B52NCvC-47-08/2021 (Suit 47) and Suit No. BB-B52NCvC-63-10/2021 (Suit 63), were heard together at the Sessions Court in Petaling Jaya. The first suit, Suit 47, was initiated by the Respondent, Ahmad Zaki bin Embi (Ahmad Zaki), against the Appellant, Halal Development Corporation Berhad (HDC), while the second, Suit 63, was commenced by HDC against Ahmad Zaki. Both suits stemmed from the same contractual arrangement regarding consultancy work carried out by Ahmad Zaki for HDC.

After hearing evidence from both parties, on 5 May 2023, the Sessions Court allowed Ahmad Zaki’s claim in Suit 47 and dismissed the HDC’s claim in Suit 63.

Subsequently, HDC discovered that Ahmad Zaki had been adjudged a bankrupt on 24 January 2011, a fact that had not been disclosed at any point during the trial. HDC argued that, as an undischarged bankrupt, Ahmad Zaki lacked the legal capacity to initiate or defend proceedings without obtaining the previous S/N jTDBFWFGuke7nvNzmjig sanction of the Director General of Insolvency (DGI) in accordance with section 38(1)(a) of the Insolvency Act 1967 (the Act).

Following that discovery, HDC filed Enclosure 52 in the Sessions Court to set aside the judgment on the grounds that the entire proceedings were null and void ab initio for want of sanction under section 38(1)(a) of the Act.

The Sessions Court, however, dismissed the application, holding that it was functus officio and that the subsequent sanction later obtained by Ahmad Zaki had regularised the proceedings.

Dissatisfied, HDC appealed to this Court and subsequently obtained leave under section 8(1)(a) of the Act on 18 October 2023 to proceed with the appeal. The present appeal, therefore, concerns the correctness of the Sessions Court’s decision in refusing to set aside its judgment.

Ahmad Zaki, as the Plaintiff, filed Suit 47 against HDC in the Petaling Jaya Sessions Court on 30 August 2021, while HDC, as the Plaintiff, filed a separate suit against Ahmad Zaki, Civil Suit No. BA-B52NCvC-201-09/2021 (Suit 201) in the Shah Alam Sessions Court on 8 September 2021.

Upon HDC’s application and mutual agreement between the parties, Suit 201 was transferred to the Petaling Jaya Sessions S/N jTDBFWFGuke7nvNzmjig Court and re-registered as BB-B52NCvC-63-10/2021 (Suit 63), after which both suits were consolidated for trial.

Both suits stemmed from the Contract for Service Agreement for the Development and Delivery of the Halal Integrated Portal dated 31 January 2020, under which HDC engaged Ahmad Zaki as a specialist to develop, test, and deliver the portal. Ahmad Zaki claimed RM830,000.00 in Suit 47 for work allegedly completed under Modules 1, 2, and 3, including the retention sum.

Following Ahmad Zaki’s alleged failure to meet the contractual timelines, HDC issued a Notice of Termination dated 23 July 2021 and, in Suit 63, claimed general and special damages amounting to RM449,000.00.

The consolidated suits were heard before the learned SCJ from 9 to 12 January 2023. HDC called four witnesses, while Ahmad Zaki called three. On 5 May 2023, the learned trial judge allowed Ahmad Zaki’s claim in Suit 47 for RM830,000.00 with costs of RM20,000.00 and dismissed HDC’s claim in Suit 63 with costs of

After the Sessions Court delivered judgment in favour of Ahmad Zaki, HDC discovered through a bankruptcy search that Ahmad Zaki had been declared bankrupt by the Shah Alam High Court on 24 January 2011 and remained an undischarged bankrupt. Upon being informed, Ahmad Zaki’s solicitors admitted they were S/N jTDBFWFGuke7nvNzmjig unaware of the bankruptcy and regarded it as immaterial, as the trial had concluded.

Before the judgment was perfected, HDC’s solicitors attempted to arrange appointments with the trial judge under Order 42 rule 8(3) and (4) of the Rules of Court 2012, but their requests were denied on the grounds that the Court was functus officio. The judgment was only approved and sealed on 12 June 2023 and was subsequently served on HDC on 21 July 2023.

Upon confirmation of Ahmad Zaki’s bankruptcy, HDC filed an application on 1 August 2023 at the Sessions Court to set aside the judgment. The Director General of Insolvency (DGI) subsequently confirmed on 18 August 2023 that Ahmad Zaki was indeed bankrupt and had not obtained any sanction under section 38(1)(a) of the Act. Ahmad Zaki only obtained such a sanction later, on 15 September 2023.

On 4 October 2023, the Sessions Court dismissed HDC’s setting-aside application, holding that the court was functus officio, that the validity issue should be pursued by way of appeal, and that the issue had become academic once the sanction was obtained.

Meanwhile, HDC had already filed two appeals, namely, BA- 12BNCvC-17-05/2023 for Suit 47 (Appeal 17) and BA- 12BNCvC-18-05/2023 for Suit 63 (Appeal 18) on 19 May 2023, prior to discovering the bankruptcy, which were consolidated with the parties' agreements. Following the dismissal of the setting-S/N jTDBFWFGuke7nvNzmjig aside application, HDC filed this appeal, BA-12ANCvC-64- 10/2023, on 13 October 2023 (Appeal 64). Both appeals were subsequently consolidated and heard together. On 13 February 2024, this Court directed that the issues in Appeal 64 be addressed first, as their outcome could affect Appeals 17 and 18.

In this Appeal 64, HDC seeks an order to set aside the Sessions Court Judgement dated 5 May 2023 in Suits 47 and 63 as null and void, on the grounds that Ahmad Zaki lacked the legal capacity under section 38(1)(a) of the Act to initiate or defend both suits. FINDINGS OF THE COURT Whether Ahmad Zaki’s claim falls within the exception of section 38(1)(a) of the Act

Section 38(1)(a) of the Act states as follows: “38. (1) Where a bankrupt has not obtained his discharge - (a) 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” [emphasis added]

Section 38(1)(a) of the Act provides that a bankrupt shall not, except with the previous sanction of the DGI, “commence or S/N jTDBFWFGuke7nvNzmjig continue any action other than an action for damages in respect of an injury to his person.” The provision makes it clear that the only exception to the requirement for prior sanction arises in circumstances involving an action for damages for personal injury.

In the case of Tong Soon Tiong & Ors v FA Securities Sdn Bhd [2013] 2 CLJ 448, the Federal Court held that a bankrupt cannot maintain any legal action without the prior sanction of the DGI, unless the action concerns damages for injury to the person. This personal-injury exception includes claims such as defamation, damage to reputation or credit, or wounded feelings, where the cause of action is of a personal nature. In such instances, even after bankruptcy, the bankrupt retains the right to sue, and any damages awarded do not vest in the DGI, as they are not part of the bankrupt’s estate. However, if a claim does not fall within this narrow exception, the bankrupt must obtain a sanction from the DGI, whether the action is commenced before or after bankruptcy. This requirement is mandatory because the property and proprietary interests of the bankrupt pass to the DGI, who then decides whether to adopt, disclaim, or permit the bankrupt to pursue the action. If a sanction is refused and the case does not qualify for the exception, the action cannot proceed and effectively comes to an end.

Ahmad Zaki argued that section 38(1)(a) of the Act does not make all acts by a bankrupt void, and that a sanction is only required when the subject matter of the action relates to property vested in the DGI. He cited the Federal Court in Akira Sales & S/N jTDBFWFGuke7nvNzmjig Services (M) Sdn Bhd v Nadiah Zee Abdullah [2018] 2 CLJ 513 for the proposition that “not everything vests in the DGI,” and that a bankrupt may pursue a claim concerning their own personal rights or reputation.

It was argued that Ahmad Zaki’s contract with HDC was personal in nature and that the work performed was akin to personal skill and service, thus falling within the exception under section 38(1)(a) of the Act. Ahmad Zaki also cited the High Court decision in Re Khoo Kim Hock [1974] 1 LNS 134 (FC) and Tetuan Sri Ling & Associates v Lian Meng Wah [2015] 3 CLJ 63 (CA), where the courts recognised that not every cause of action by a bankrupt requires prior sanction.

The HCD argued that, in this case, the contract between HDC and Ahmad Zaki was not one of employment. Ahmad Zaki was appointed to develop and deliver the Halal Integrated Portal as an independent contractor, not as an employee of HDC. Accordingly, their contractual relationship falls outside the scope of the Industrial Relations Act 1967. The disputes between them concern contractual claims, not damages for personal injury. Ahmad Zaki’s claim was contractual in nature, specifically for professional consultancy fees. As such, the exemption under Section 38(1)(a) of the Act is inapplicable.

Having considered these authorities, I find that Ahmad Zaki’s claim is a straightforward commercial claim for payment under a consultancy agreement. There is no allegation of physical injury, defamation, or emotional distress that would transform the claim S/N jTDBFWFGuke7nvNzmjig into one for “injury to person.” The personal-services argument does not change the contractual nature of the cause of action. Therefore, Ahmad Zaki’s claim does not fall within the exception of section 38(1)(a) of the Act. Whether Ahmad Zaki had legal capacity without a previous sanction

Section 38(1)(a) of the Act operates as a statutory prohibition. A bankrupt who initiates or defends any legal proceedings without the previous sanction from the DGI acts ultra vires and lacks legal capacity. Ahmad Zaki, therefore, lacked the legal capacity to file Suit 47 and defend Suit 63.

In Perwira Affin Bank Bhd v Sardar Mohd Roshan Khan & Another Appeal [2009] 4 CLJ 34, the Court of Appeal held that a bankrupt wishing to pursue an action based on breach of contract must first obtain a sanction from the Official Assignee. Without such sanction, the bankrupt has no capacity to commence or maintain the action, nor to appoint legal counsel. The Court also emphasised that obtaining a sanction is not merely a formality but is essential to the legal capacity of the bankrupt to sue.

The Federal Court in Akira Sales & Services (M) Sdn Bhd v Nadiah Zee Abdullah (supra) held as follows: “[20] Sanction is not required to challenge an order in bankruptcy. But where s 38(1)(a) applies, S/N jTDBFWFGuke7nvNzmjig an undischarged bankrupt must obtain the previous sanction of the DGI to institute a claim (Dato’ Kuah Tian Nam v Tan Wrun Peng [2009] 9 MLJ 464), file a counterclaim (Goh Eng Hwa v M/s Laksamana Realty Sdn Bhd per Abdul Hamid Mohamad FCJ, as he then was), defend an action (Kesang Leasing Sdn Bhd v Dato’ Hj Mat @ Mat Shah bin Ahmad & Ors [2009] 7 MLJ 305), maintain the action and continue with the case (Priyakumary Muthucumaru & Anor v Gunasingam a/l Ramasingam (a bankrupt) [2006] 6 MLJ 511), ‘commence an action by writ or by any of the mode provided in O 5 r 1’ (Bankruptcy Law in Malaysia and Singapore by GK Ganesan at p 547) or file an appeal (Amos William Dawe v Development & Commercial Bank (Ltd) Berhad; … [21] Only previous sanction will do. Subsequent sanction, which is not previous sanction, could not change the fact that the undischarged bankrupt was not competent to institute, maintain or defend the action at the material time. But previous sanction is not always required.” [emphasis added]

In Lim Chee Tat v Maybank Islamic Bhd [2023] 6 MLJ 366, the Court of Appeal reaffirmed the strict legal position that once a S/N jTDBFWFGuke7nvNzmjig person is adjudicated bankrupt, he loses the legal capacity to conduct litigation concerning his assets or liabilities. The judgment explained that upon bankruptcy, all such interests automatically vest in the DGI, who steps into the shoes of the bankrupt. As a result, only the DGI may decide whether to initiate, maintain, or defend legal proceedings; this can only be done if prior sanction is granted. The Court further clarified that this principle applies equally to defending an action; it is not limited to initiating proceedings. The only recognised exception is where the claim relates to damages for personal injury. In all other situations, failure to secure a sanction renders the bankrupt legally incompetent to proceed with the action. This requirement flows directly from section 38 of the Act and is not a mere procedural formality, but a matter that goes to legal capacity itself.

Applying these authorities, Ahmad Zaki was divested of all property and legal rights that vested in the DGI by virtue of section 8 (1)(b) of the Act. Any legal step taken by him without sanction was null and void. The subsequent sanction, purportedly issued on 15 September 2023, cannot retrospectively create capacity that did not exist at the time of filing or trial.

Accordingly, I find that Ahmad Zaki lacked the legal capacity to initiate and defend the proceedings in Suits 47 and 63. Therefore, the entire proceedings were void ab initio for lack of capacity. S/N jTDBFWFGuke7nvNzmjig Whether the sanction obtained by Ahmad Zaki can be retrospective

The Appellant argued that only a previous sanction under section 38(1)(a) of the Act is valid; a retrospective sanction cannot cure the initial lack of capacity.

The issue of retrospective sanction was addressed by the Federal Court in Lai King Lung & Anor (beramal sebagai peguambela dan peguamcara atas nama dan gaya Tetuan Chris Lai, Yap & Partners, Peguambela dan Peguamcara) v Merais Sdn Bhd [2020] 9 CLJ 449 (Lai King Lung). In this case, the plaintiff filed a notice of appeal on 22 December 2017 and simultaneously applied to the liquidator for sanction. Sanction was only granted on 2 February 2018, and the liquidator purported to give it retrospective effect from 21 December 2017. The Federal Court held that the statutory provisions are clear, a sanction must be obtained prior to, not after. The Court stated as follows: “[35] In the present case, the plaintiff did not have the locus standi when it filed the notice of appeal. The sanction given by the liquidator did not have retrospective effect. The liquidator did not have the statutory power to grant retrospective sanction in the absence of any express enabling provision in the enactment….” S/N jTDBFWFGuke7nvNzmjig

As a result, the Federal Court held that the notice of appeal was bad in law and had no legal effect, since the sanction granted did not operate retrospectively. There was no explicit statutory provision empowering the liquidator to grant a retrospective sanction. This apex court authority confirms the position. The Companies Act and the Insolvency Act confer the power to grant prior sanctions, not retrospective sanction. The law admits of no exception.

A similar position was established in Akira Sales & Services (M) Sdn Bhd v Nadiah Zee Abdullah (supra). The Federal Court held that only a “previous sanction” is permissible. A “subsequent sanction” cannot cure the defect or alter the position that, at the material time the action was commenced without sanction, the bankrupt lacked the legal capacity to initiate or pursue the proceedings.

Therefore, Ahmad Zaki’s argument that the sanction later obtained on 15 September 2023 retrospectively validated the proceedings is misconceived, as the subsequent sanction does not cure the initial lack of capacity. Clearly, the sanction obtained by Ahmad Zaki cannot operate retrospectively to validate actions filed and defended earlier. At the time the Suits were instituted and tried, the Respondent lacked legal capacity; that defect is incurable.

By contrast, section 8(1)(a) of the Act grants the Court discretion to impose conditions when granting leave to sue or proceed against a bankrupt. Therefore, leave under section 8(1)(a) of the S/N jTDBFWFGuke7nvNzmjig Act may, in suitable circumstances, be retrospective (as held in Mustofa bin Hussin v Rahimah binti Mohamad [2017] 1 LNS 1350). However, this does not apply to a sanction under section 38(1)(a) of the Act, which is a condition precedent rather than a matter of judicial discretion.

Therefore, the learned SCJ erred in considering the defect merely an irregularity that was rectified by a subsequent sanction. Ahmad Zaki’s incapacity existed at the time the Suits were filed and defended, striking at the jurisdiction of the Court itself. The judgment entered on 5 May 2023 was thus obtained without legal authority and is null and void ab initio. Whether the leave obtained by HDC under Section 8(1)(a) of the Act is valid

On the question of whether leave obtained by HDC under section 8(1)(a) of the Act was valid, HDC argued that the Court has discretion to grant retrospective leave “on such terms as it may impose.” Reliance was placed on Mustofa bin Hussin v Rahimah binti Mohamad (supra), where the High Court accepted that retrospective leave could be granted to validate proceedings commenced against a bankrupt, given the broad phrasing of the statute.

Section 8 of the Act states as follows:- “8. (1) On the making of a bankruptcy order— S/N jTDBFWFGuke7nvNzmjig

except as provided by this Act, no creditor to whom the bankrupt is indebted in respect of any debt provable in bankruptcy shall have any remedy against the property or person of the bankrupt in respect of the debt, or shall proceed with or commence any action or other legal proceeding in respect of such debt unless with the leave of the court and on such terms as the court may impose”. [emphasis added]

Section 8(1)(a) of the Act empowers the Court to grant leave to commence or continue proceedings against a bankrupt “on such terms as the Court may impose.” This wording provides the Court with broad discretion, including the power to give retrospective effect to the leave.

In the present case, leave was obtained by HDC on 18 October 2023 and was properly served on the DGI. No application was filed to set aside that order. Ahmad Zaki’s argument that the order was made ex parte and therefore invalid is misplaced; the DGI was notified and raised no objection.

Furthermore, the broad phrasing of section 8(1)(a) of the Act permits the Court to impose terms and conditions, and such flexibility includes retrospective validation. This Court is satisfied that the leave obtained by HDC was valid and effective to regularise the continuation of these appeal proceedings. S/N jTDBFWFGuke7nvNzmjig Whether the Sessions Court decision and proceedings are null and void

HDC argued that since the Sessions Court judgment was a nullity due to lack of capacity, the doctrine of functus officio did not apply. The court is never functus officio where its decision is void for illegality, and the inherent jurisdiction to set aside such a decision remains available at all times.

HDC argued, therefore, that the Sessions Court had erred in declaring itself functus officio, as a court retains inherent jurisdiction to set aside a judgment that is a nullity. The principle in the case of Badiaddin bin Mohd Mahidin & Anor v Arab Malaysian Finance Bhd [1998] 1 MLJ 393 (Badiaddin) was cited, where the Federal Court stated that “an order made without jurisdiction is a nullity and may be set aside at any time as a matter of right.” HDC contended that the Sessions Court had jurisdiction to consider the application and should have set aside its own judgment on the ground of illegality.

The Court agrees with HDC’s argument that the failure to obtain a previous sanction under section 38(1)(a) of the Act is a jurisdictional defect that renders the entire proceedings and judgment null and void.

In Badiaddin, the Federal Court confirmed that the superior courts have an inherent and discretionary power to set aside their own orders ex debito justitiae when such orders violate any S/N jTDBFWFGuke7nvNzmjig written law. The violation must be of a substantive statutory prohibition, such that the resulting order is rendered null and void due to illegality or lack of jurisdiction. When an order is made in breach of statute, it is made without jurisdiction and may be declared void and set aside in the same proceedings; it is not limited to correction by appeal only.

The above principle in Badiaddin as laid down by Mohd Azmi FCJ and Gopal Sri Ram JCA (as His Lordship then was) were subsequently followed by the Court of Appeal in Selvam Holdings (M) Sdn Bhd v Grant Kenyon & Eckhardt Sdn Bhd; (Bsn Commercial Bank (M) Bhd & Ors, Interveners) [2000] 3 MLJ 201 (Selvam Holdings). The Court of Appeal held as follows: “Under the aforesaid circumstances, a court is seized with the necessary jurisdiction to entertain an application to set aside the earlier order ex debito justitiae. Expressed in another way there is no need to adopt the appeal procedure nor to file a fresh suit to set aside the defective order. That can be done in the same proceedings where the impeached order was granted and before the same judge or another judge with concurrent jurisdiction. [emphasis added]

Applying the principles in Badiaddin and Selvam Holdings, if the impugned judgment has violated any written law to such an S/N jTDBFWFGuke7nvNzmjig extent that it becomes void for illegality or lack of jurisdiction, the correct procedure is to set it aside ex debito justitiae within the very proceedings in which it was issued. Consequently, HDC is not required to initiate a new action in another court with concurrent jurisdiction to challenge the judgment.

Having considered the pleadings, the authorities, and the submissions of both parties, I have made the following findings: a. The leave granted to HDC on 18 October 2023 under section 8(1)(a) of the Act is valid and effective. b. Ahmad Zaki’s claim does not fall under the exception for “injury to person” as outlined in section 38(1)(a) of the Act. c. The proceedings and judgment of the Sessions Court dated 5 May 2023 are null and void ab initio due to a lack of prior sanction. d. Ahmad Zaki, being an undischarged bankrupt, lacked the legal capacity to initiate or defend Suits 47 and 63. e. The sanction obtained on 15 September 2023 cannot have a retrospective effect to remedy the defect.

The Sessions Court therefore erred in law by dismissing Enclosure 52 and by holding that it was functus officio. S/N jTDBFWFGuke7nvNzmjig

For the reasons stated above, I therefore allowed Appeal 64 with costs of RM20,000.00. The order of the Sessions Court dated 4 October 2023 is set aside. The judgments in Suits 47 and 63 are declared null and void ab initio and are set aside.

Consequently, Appeals 17 and 18 are struck out with no order as to costs. Dated 12 December 2025 JAMHIRAH ALI JUDGE HIGH COURT OF MALAYA SHAH ALAM SELANGOR DARUL EHSAN To the parties’ solicitors: For the Plaintiff : Nik Amalia Suraya Nik Muhammad Saifuddin (Messrs Azmi & Associates) For the Defendant : Khairul Hazwan Rashid bin Mohd Redduan (Messrs Thomas Lai & RJ Soo) S/N jTDBFWFGuke7nvNzmjig