Mradula A/P Ramanik Lal v 1. ) Maser (M) Sdn Bhd (WA-22NCC-502-11/2021)

MASER (M) SDN BHD [No. Syarikat: 79736-H]

IBRAHIM BIN MAT SEDDEK [No.K/P: 711218-04-5393]

MOHAMMAD AZAHAN BIN MAT SEDDEK [No.K/P: 770123-04-5083]

DATO’ MAT SEDDEK BIN ADAM [No.K/P: 461006-04-5069] …DEFENDANTS GROUNDS OF JUDGMENT 2! ! Introduction [1] This is the Plaintiff's claim against the Defendants for joint and several liability to pay the sum of RM1,740,000.00 or alternatively RM1,650,000.00, based on allegations of fraud and fraudulent trading under Section 540 of the Companies Act 2016 (“CA”). [2] The Plaintiff alleged that the Defendants employed the 1st Defendant company to perpetrate fraud by issuing a post-dated cheque when they knew they would be applying for a Judicial Management Order ("JMO"), and that they concealed this fact from the Plaintiff. [3] At the conclusion of the trial, I dismissed the claim as I did not find the Plaintiff having proven a case for a breach of section 540 of the CA. [4] For purposes of reference, the 2nd to the 4th Defendant will be collectively identified as the Defendants, unless specific reference is made to the individual defendants. Background [5] This action arises from a Friendly Loan Agreement dated 10 October 2017 ("the Loan Agreement") between the Plaintiff and the 1st Defendant company. Under the Loan Agreement, the Plaintiff claims to have extended a loan of RM1,650,000 ("the Loan Sum") to the 1st Defendant, disbursed through a combination of banker's cheques totalling RM1,500,000 and cash of RM150,000. The 1st Defendant disputes 3! ! receiving the cash portion of RM150,000, maintaining that only RM1,500,000 was advanced. [6] The Plaintiff's Statement of Claim originally sought two alternative reliefs: first, a sum of RM2,500,000 premised on a Deed of Settlement between the parties; alternatively, RM1,740,000 based on a dishonoured CIMB cheque dated 27 May 2020 issued by the 1st Defendant. This cheque included the principal sum plus RM240,000 described as "interest compensation". [7] At the outset of trial, the Plaintiff abandoned the claim for RM2,500,000, confining her claim to either RM1,740,000 per the dishonoured cheque or alternatively, the original Loan Sum of RM1,650,000. Judgment obtained against the 1st Defendant [8] On 29.6.2022, the Plaintiff obtained judgment against the 1st Defendant under Order 27 of the Rules of Court. On 16.2.2023 a further sum of RM1,000,000 was obtained for failure to comply with PTCM directions. There was no appeal lodged by the 1st Defendant against the orders granted. [9] This trial therefore, focuses on the Defendants. The Plaintiff seeks to pierce the corporate veil of incorporation by alleging that there was fraudulent trading perpetrated by the Defendants against the Plaintiff in breach of section 540 of the Companies Act 2016. (“Section 540”). 4! ! The issue to be determined [10] The issues to be determined are as follows:

whether the loan granted to the 1st Defendant was for RM1,500,000.00 or RM1,650,000.00;

(ii) whether the loan received by the 1st Defendant was in contravention of the Moneylenders Act 1951;

(iii) whether there existed fraudulent trading; and

(iv) whether personal liability can be attached to the Defendants. Analysis and Findings Genesis of the friendly loan [11] The evidence reveals that at the material time, the 1st Defendant was facing significant financial difficulties and multiple legal challenges which include:

On 26 January 2017, BASF (Malaysia) Sdn Bhd had commenced arbitration proceedings against the 1st Defendant for approximately RM13 million;

On 13 February 2017, MTU Maintenance Berlin-Brandenburg GMBH ("MTU") had obtained judgment against the 1st Defendant in Germany for USD820,700, which was subsequently registered in Malaysia on 12 September 2019; and 5! !

By late 2019, MTU had presented a winding-up petition against the 1st Defendant. [12] Mr. Jadagish Chandra ("PW1"), a practicing lawyer and husband of the Plaintiff, played a pivotal role in the events leading to the loan. He was acting as solicitor for the 1st Defendant in several matters including the BASF arbitration. According to his testimony, the 2nd and 3rd Defendants approached him to source for a loan of RM2 million for the 1st Defendant. After unsuccessful attempts to secure funding from other sources, PW1 approached his wife, the Plaintiff, to extend the loan. [13] The Plaintiff, who was a homemaker and handled petty cash for PW1's legal firm, agreed to advance the loan. The Loan Agreement was executed on 10 October 2017, with PW1 facilitating the arrangement. The loan was to be repaid within three and a half months, by 24 January 2018. [14] The 1st Defendant defaulted in repaying the loan when it fell due on 24 January 2018. Despite the default, the Plaintiff took no immediate steps to recover the loan. Instead, on 2 May 2019, some 15 months after the default, the Plaintiff through PW1 prepared a Deed of Settlement whereby the loan amount was increased to RM2.5 million. The 1st Defendant then issued a CIMB cheque dated 27 May 2020 for RM1.74 million, post-dated to 22 October 2020. Issue 1: Whether the loan granted to the 1st Defendant was for RM1,500,000.00 or RM1,650,000.00 6! ! [15] I find that the loan granted to the 1st Defendant pursuant to the Loan Agreement dated 10.10.2017 was for RM1,650,000.00 and not RM1,500,000.00 as contended by the Defendants. [16] The Loan Agreement expressly states in its Recital and Clause 1 that the loan amount was RM1,650,000.00, which included a cash portion of RM150,000.00. DW2 and DW3, both directors of the 1st Defendant, signed the Loan Agreement and initialled every page, thereby confirming their agreement to its terms. This execution complied with the statutory requirement under Section 66(2) of the Companies Act 2016 for valid execution of a document by a company. [17] The Court of Appeal in Juwanas Sdn Bhd v. Ong Ah Nya @ Ong Ah Tuan & Ors [2024] 1 MLRA 392 reaffirmed the position that a party is bound by the terms of a contract which they enter into unless fraud, mistake or misrepresentation negates their assent to the contract. Similarly, in Shim Vui Geh v. Dayang Masturah Sahari & Another Appeal [2024] 1 MLRA 392, the Court of Appeal held that parties who have signed a document cannot wriggle out of what they have signed unless there is a case of misrepresentation, undue influence or fraud. [18] The Defendants did not plead fraud, mistake, undue influence or misrepresentation in their Statement of Defence. Without such a plea, they are bound by the loan sum of RM1,650,000.00 as evidenced in the Loan Agreement that was signed by DW1 and DW2 as directors of the 1st Defendant. 7! ! [19] Furthermore, the 1st Defendant's own solicitors, Messrs. Shamsuddin & Co., in their letter addressed to the Plaintiff dated 24.01.2020, confirmed "payment to settle the principal amount shall be arranged to you as provided under the Friendly Loan Agreement." If the loan sum was indeed RM1,500,000.00 as contended by the Defendants, they would have instructed their solicitors to state it unequivocally, but instead, they saw it fit to refer to the "principal amount... as provided under the Friendly Loan Agreement," which is RM1,650,000.00. [20] The Defendants' attempt to rely on DW2's letter dated 25.09.2019 with the heading "OUTSTANDING PRINCIPLE LOAN AMOUNT OF RM1,450,000.00" is unconvincing. This letter was issued almost two years after the Loan Agreement was signed. The heading refers to an "outstanding principal loan" and not a "balance of the principal loan" as DW2 attempted to explain. In any event, DW2's explanation that RM50,000.00 had been paid towards the principal was inconsistent with DW1's testimony that the payments of RM50,000.00 along with other repayments were towards interest. [21] DW2's testimony regarding the alleged payment of RM50,000.00 in cash to the Plaintiff was not supported by any independent evidence. He claimed that his driver gave the cash to the Plaintiff even though the driver had never met the Plaintiff before. When asked how he knew that his driver had handed over the cash, DW2 simply replied "he has informed me and confirmed that." The driver was not called as a witness, rendering DW2's evidence on this point hearsay and inadmissible. The absence of any acknowledgement of receipt is most surprising as any person who surrenders such a sum must have an acknowledgment to demonstrate proof of receipt. 8! ! [22] In light of the above, I find that the loan granted to the 1st Defendant pursuant to the Friendly Loan Agreement dated 10.10.2017 was for RM1,650,000.00. Issue 2: Whether the loan received by the 1st Defendant was in contravention of the Moneylenders Act 1951 [23] I find that the loan received by the 1st Defendant pursuant to the Loan Agreement was not in contravention of the Moneylenders Act 1951 ("the Act"). [24] For a loan to be in contravention of the Act, it must be shown that the Plaintiff was an unlicensed moneylender carrying on the business of moneylending. Section 2 of the Act defines "moneylending" as "the lending of money at interest, with or without security, by a moneylender to a borrower." A "moneylender" is defined as "any person who carries on or advertises or announces himself or holds himself out in any way as carrying on the business of moneylending, whether or not he carries on any other business." [25] Section 100 of the Act provides that where in any proceedings against any person, it is alleged that such person is a moneylender, the proof of a single loan at interest made by such person shall raise a presumption that such person is carrying on the business of moneylending, until the contrary is proved. [26] In the present case, the Defendants have failed to prove that the loan granted by the Plaintiff was at interest. The Loan Agreement 9! ! expressly states in Clause 3 that "the parties hereto hereby confirm and agree that the Loan is made available to the Borrower interest free on the total loan amount." There is no evidence that the Plaintiff charged interest on the loan at the time it was disbursed. [27] The Defendants' allegation that the RM150,000.00 cash portion of the loan was actually interest in disguise was never pleaded in their Statement of Defence. They merely denied receipt of the RM150,000.00. This allegation is an afterthought and is rejected. Similarly, their allegation at trial that interest was charged at 5% per month was never pleaded. Their pleaded case was that interest was charged at 8% for a loan tenure of 2 years. [28] Any interest rates would have been agreed upfront if it was a consideration. However, the Defendants have failed to be consistent on this fundamental point. This therefore leaves a lingering doubt on the veracity of the Defendants’ version. [29] The Defendants’ attempt to rely on a table of interest allegedly forwarded by PW1 via email dated 15.05.2018 and another breakdown of interest allegedly handed by PW1 to DW2 in person is unpersuasive. PW1 testified that the document was "Mradula's document." Furthermore, these alleged tables were only produced seven to eight months after the Loan Agreement was signed. If interest was indeed charged on the loan, it would have been part of the Loan Agreement itself. 10! ! [30] The fact that the Cheque for RM1,740,000.00 included a sum of RM240,000.00 described as "interest compensation" does not prove that interest was charged on the loan. DW1 admitted during cross-examination that this figure was unilaterally determined by the Defendants and not requested by the Plaintiff. DW1 stated that "we put that figure but like I said, we want to stop the accruing interest." When asked if the RM240,000.00 as interest compensation was requested by the Plaintiff, DW1 responded "that is based on our proposal." [31] In the present case, the RM240,000.00 "interest compensation" was offered by the Defendants themselves more than 2.5 years after the loan was granted and after the 1st Defendant had defaulted on repayment. It was not imposed by the Plaintiff. [32] As such, I find that there was failure on the part of the Defendants to show the agreed interest imposed. [33] The Defendants have also failed to prove that the Plaintiff was carrying on the business of moneylending. As Lord Devlin pointed out in Chow Yoong Hong v. Choong Fah Rubber Manufactory [1962] AC 29, "to lend money is not the same thing as to carry on the business of money lending." For business of moneylending to be established, "it is necessary to show some degree of system and continuity in his moneylending transactions." [34] There is no evidence that the Plaintiff had systematically and continuously lent money for profit to be considered as carrying on the business of moneylending. The Plaintiff was a housewife and no evidence to the contrary was produced. The loan was arranged by her husband, 11! ! PW1, who was the solicitor for the co-defendants and who became friends with them. PW1 tried to source for a loan from other parties but could not, which led to the Plaintiff extending the loan. [35] The Federal Court case of Triple Zest Trading & Suppliers & Ors v. Applied Business Technologies Sdn. Bhd. [2023] 6 MLJ 818 cited by the Defendants is distinguishable on the facts. In that case, there was an "agreed profit" of RM800,000.00 on a loan of RM800,000.00 with a repayment period of just one month, which the court found to be exorbitant interest held in disguise. [36] There is no such exorbitant interest in the present case. Furthermore, the conduct of the Plaintiff in being slow in recovering the loan may be a trivial issue but is consistent with someone not having a process in place when a default occurs. This is consistent with someone not in the business of money lending. [37] In light of the above, I find that the loan received by the 1st Defendant pursuant to the Loan Agreement was not in contravention of the Moneylenders Act 1951. Issue:3 Whether there existed fraudulent trading; and Issue:4 Whether personal liability can be attached to the Defendants. [38] Both issues will be dealt with together. The rationale of section 540 CA 12! ! [39] Section 540 (1) of CA reads: Section 540. Responsibility for fraudulent trading

If in the course of the winding up of a company or in any proceedings against a company it appears that any business of the company has been carried on with intent to defraud the creditors of the company or creditors of any other person or for any fraudulent purpose, the Court on the application of the liquidator or any creditor or contributory of the company, may, if the Court thinks proper so to do, declare that any person who was knowingly a party to the carrying on of the business in that manner shall be personally responsible, without any limitation of liability, for all or any of the debts or other liabilities of the company as the Court directs. [40] Following from the seminal case of Salomon v A Salomon and Co Ltd [1897] AC 22, a company is by law deemed to be a ‘separate legal entity’ distinct from its shareholder and its officers. The general rule following from this is that the rights and liabilities of a company cannot be imputed the shareholders or operators of a company. [41] The liability of a director is shielded by a corporate veil that separates the liability of a director to that of the company. The only recourse against the directors of a company was by “lifting the corporate veil”. [42] S. 540 CA 2016 (previously S. 304 CA 1965) contains a specific statutory exception to the general rule whereby if it is shown that the 13! ! company has been involved in fraudulent trading the Court is empowered to ‘lift the corporate veil’ and declare that persons who were knowingly a party to the fraudulent trading of the company are personally responsible for specific liabilities of the company. [43] In the recent decision by the Court of Appeal in Tay Keong Kok & Ors v Eastmont Sdn Bhd and another appeal [2024] 5 MLJ 683 [CA] (“Eastmont”) , he Court that the rationale for an action for fraudulent trading is "to statutorily provide for the lifting of the veil of incorporation in the specific circumstances of fraudulent trading with a view to ultimately pinning personal accountability and liability on the directing minds behind such trading of the company." [44] In an action under s.540, each case has to be determined on its own facts and circumstances. The circumstances that would warrant the finding of fraud under s.540 are limitless. The Court of Appeal in Tradewinds Properties Sdn Bhd v. Zulhkiple A Bakar & Ors [2019] 2 CLJ 261 held: “[26] We must emphasise that liability depends on the facts of each particular case and that the court has not sought to limit or particularise the different ways and means of dishonest conduct which could fall within the ambit of sub-s. 304(1) of CA 1965. Each case would depend on its facts.” Whether a claim for a breach of Section 540 has been established Development of cases 14! ! [45] The Federal Court in the recent decision of Lai Fee & Anor v Wong Yu Vee & Ors [2023] 4 CLJ 1 provided a synopsis of the well-established principles pronounced by the courts in the country which govern the application of s.540 of the CA. The said synopsis is reproduced verbatim as follows:

The words 'with intent to defraud creditors... or for any fraudulent purpose' in s. 304 of the Companies Act 1965 should be read disjunctively even though on the facts of the case both limbs are relevant and applicable (Siow Yoon Keong v. H Rosen Engineering BV [2003] 4 CLJ 68 CA);

(ii) In the context of carrying on business, the phrase 'with intent to defraud creditors' it is in general a proper inference that the company is carrying on business with intent to defraud the creditors of the company if the company continues to carry on business to incur debts at a time when there is to the knowledge of the directors no reasonable prospect of the creditors ever receiving payment of those debts. (R v. Grantham [1984] BCLC 270). It has also been interpreted to include an intent to deprive creditors, of an economic advantage or inflict upon them some economic loss (Coleman v. The Queen [1987] 5 ACLC 766). The word 'intent' is being used in the sense that a man must be taken to intend the natural or foreseen consequences of his act (Re Cooper, supra at 267);

(iii) The word 'fraud' is also defined under s. 17 of the Contracts Act

According to Sinnadurai, Law of Contract, 4th edn 2011 at para. [5.07], fraud is defined 'to include certain acts which are committed with intent to induce another party to enter into a contract.' Section 17 sets out five types of different acts which constitute fraud. These include 'a promise made without any intention of performing it' and 'any other act fitted to deceive': s. 17(c) and (d), Contracts Act 1950. 15! !

(iv) The words 'if... it appears' in s. 304 of the Companied Act 1965 is indicative of a lower threshold in order to trigger the operation of s. 304. It does not matter whether s. 304 contains in it both civil and a criminal provision - the civil provision in sub-s(1) and the criminal sanction in sub-s. (5) are properly carved out and they do not interfere in each other's operation (Siow Yoon Keong v. H Rosen Engineering BV [2003] 4 CLJ 68; JCT Ltd v. Muniandy Nadasan & Ors And Anor Appeal [2016] 3 CLJ 692; [2016] 6 MLJ 635);

The burden of proof is on the plaintiffs to establish fraudulent trading within the meaning of s. 304 of the Companies Act 1965. The standard of proof in civil cases involving proof of fraud or fraudulent conduct is on the balance of probabilities (Sinnaiyah & Sons Sdn Bhd v. Damai Setia Sdn Bhd [2015] 7 CLJ 584 FC);

(vi) The existence of fraud is a question of fact. It is dependent on the circumstances of each particular case. Fraud must mean actual fraud, ie, dishonesty of some sort (PJTV Denson (M) Sdn Bhd & Ors v. Roxy (Malaysia) Sdn Bhd [1980] 1 LNS 55 FC);

(vii) In order to establish dishonesty under s. 304 of the Companies Act 1965, it must be shown that firstly, what was done was dishonest according to the ordinary standard of reasonable and honest people, and secondly that the actor himself must have realised that the act was by those standards dishonest (Tradewinds Properties Sdn Bhd v Zulhkiple A Bakar & Ors [2019] 2 CLJ 261);

(viii) It is fraud if it is proved that there was the taking of a risk which there was no right to take which would cause detriment or prejudice to another. It need not be proved that the defendant knew at the time when debts were incurred that there was no reasonable prospect of creditors ever receiving payment of their debts. It was enough if the defendant realised at the time when the debts were incurred that there was no reason for thinking that funds would be available to pay the debt when it 16! ! would become due or shortly thereafter. These words import a criterion that is partly subjective and partly objective (Regina v. Sinclair [1968] 1 WLR 1246);

(ix) Whether there was any intention on the part of the defendants to defraud or to carry on any fraudulent purpose is a question of fact to be inferred from the surrounding circumstances and the subsequent conduct of the defendants, especially the concealment of material facts (Rahj Kamal Abdullah v. PP [1998] 1 SLR 447);

Actual knowledge was required before a person could be said to be knowingly a party to the fraudulent transaction carried out by a company within the meaning of s. 304 of the Companies Act 1965 -- it must be shown that the person has participated, concurred or taken some positive steps in the carrying on of the company's business in a fraudulent manner - however, it is not necessary to show proof of his having assumed a controlling or managerial role over the company's business before he could be said to be a party to the carrying on of it (Tan Hung Yeoh v. Public Prosecutor [1999] 2 SLR(R) 262 HC);

(xi) It is not necessary to establish a scheme to defraud to trigger the invocation of s. 304 of the Companies Act 1965. The wordings of s. 304 do not lend itself to be read in such a manner - a single act of doing business to defraud a creditor would be sufficient to trigger an action for compensation against the errant person in his personal capacity. A business may be found to have been carried out with intent to defraud creditors notwithstanding that only one creditor is shown to have been defrauded, and by a single transaction (Re Gerald Cooper supra; Morphitis v. Bernasconi & Ors [2003] BCLC 53; Prem Krishna Sahgal, supra). [46] The above principles will be considered by this Court in this Grounds of Judgment. 17! ! The Plaintiff’s core arguments [47] The Plaintiff’s submissions at para 84 reads as follows: [48] From the tenor of the Plaintiff’s submissions, she anchors her case on two alleged impugned acts of the Defendants when assailing the claim of fraudulent trading. The two are: i. Issuing post-dated cheque for RM1.74M when Defendants knew the 1st Defendant had insufficient funds (Conduct 1) ii. They were planning to file for Judicial Management Order (JMO) (Conduct 2) Conduct 1 [49] The Plaintiff complained that the conduct of the 1st Defendant issuing the post-dated cheques was part of the conduct sufficient to support a cause of action for fraudulent trading. 18! ! [50] Simply put, the Plaintiff’s complaint is that the Defendants as directors of the 1st Defendant issued the post-dated cheque knowing that the cheques were not going to be honoured. [51] It is pertinent to note that case laws have made it clear that to succeed in a fraudulent trading claim, there must be proven a clear case that there was dishonest intent. It must be shown that firstly, what was done was dishonest according to the ordinary standards of reasonable and honest people, and secondly that the actor himself must have realised that the act was by those standards dishonest (see Tradewinds). [52] The Federal Court in Dato' Prem Krishna Sahgal v. Muniandy Nadasan & Ors [2017] 10 CLJ 385 affirmed that what needs to be proven is that:-

That in carrying on the business of the company, the company had incurred debts and knew that there was no prospect of the company ever making payment thereon; and

(ii) There was an element of dishonesty in the carrying on of the business of the company as aforesaid. [53] Both conditions must be read conjunctively. [54] For the first condition to be established, evidence must demonstrate that, based on a subjective assessment, there existed no realistic possibility of the company ever satisfying its debts at the time they were incurred. However, if the company was experiencing financial difficulties 19! ! when taking on debts but there existed a reasonable belief that funds would become available in the future, the company cannot be deemed to have acted with an "intent to defraud." [55] The Hong Kong Court of Appeal in Aktieselskabet Dansk Skibsfinansiering v Brothers and ors [2001] 2 BCLC 324 explained the consideration as follows:- The appellants in R v Grantham [1984] QB 675 argued, on the authority of Maugham J's dictum in Re William C Leitch Brothers Ltd [1932] 2 Ch 71, that it was not enough that the defendants knew there was no good reason for thinking that the debt would be paid when it became due or shortly thereafter. They could be liable only if, as Maugham J said, 'there is to the knowledge of the directors no reasonable prospect of the creditors ever receiving payment.' They likewise relied upon a statement by Buckley J in Re White and Osmond (Parkstone) Ltd (Buckley J, 30 June 1960, unreported): 'In my judgment, there is nothing wrong in the fact that directors incur credit at a time when, to their knowledge, the company is not able to meet all its liabilities as they fall due. What is manifestly wrong is if directors allow a company to incur credit at a time when the business is being carried on in such circumstances that it is clear that the company will never be able to satisfy its creditors. However, there is nothing to say that directors who genuinely believe that the clouds will roll away and the 20! ! sunshine of prosperity will shine upon them again and disperse the fog of their depression are not entitled to incur credit to help them to get over the bad time.' [56] As to the element of ‘dishonesty’, Lord Hoffman in Aktieselskabet (supra) emphasised that the test of dishonesty is based on a subjective test:- It is well established that the section requires proof that someone carried on the business of the company with a fraudulent intent and that the other directors sought to be held liable were knowingly party to his fraud. The judge dealt with and rejected a submission that the question of whether the business was being carried on with intent to defraud was an 'objective' matter. He held, correctly, that the question of whether the person carrying on the business was fraudulent was subjective in the sense that he personally must have been dishonest. He said at para 5.1.16: 'Fraudulent intent must be established subjectively after a careful examination of all the evidence. Even in what appear to be water-tight cases, fraud may not be found— simply an unjustified albeit honest “chasing of the rainbow”.' [57] The Court of Appeal in JCT Limited V. Muniandy Nadasan & Ors And Another Appeal [2016] 3 CLJ 692 approved the dicta in Aktieselskabet and accepted that mere knowledge that the company will not be able to pay its debts was not sufficient to trigger S. 304(1) CA 1965 21! ! (forerunner of S.540(1) CA 2016) and what is required is proof that the alleged perpetrator was dishonest. [58] It is my finding that a company issuing a cheque that is subsequently dishonoured cannot form the basis of fraudulent trading perpetrated by the directors of the company. At the time the cheque was issued it could very well be the directors we labouring under an unjustified albeit honest “chasing of the rainbow” belief. This was shown in the facts when DW2 did caution the Plaintiff that it was subject to availability of funds. [59] Be that as it may, the dishonoured cheques does give rise to a cause of action for a civil recovery against the 1st Defendant for the issuance of the dishonoured post-dated cheque. This is because a cheque is a bill of exchange and once it is dishonoured, an actionable cause of action arises. (see Kum Hui Beng v Premium Plaza Sdn Bhd! [2018] 1 LNS 1027 CA). [60] As such, it is my finding that the issuance of the post-dated cheques cannot form the foundation for a claim of fraudulent trading. At the time they were issued, it is almost impossible to impute any fraudulent intent on the Defendants. [61] As to whether there can be fraudulent intent when the said cheques were stopped resulting in the cheques being returned is a separate matter which is the subject matter of discussion in the paragraphs below. Conduct 2 22! ! [62] Having dismissed Conduct 1, it is incumbent that I analyse Conduct 2. [63] However, it is necessary to examine cases that might demonstrate the type of conduct that can lead to fraudulent trading. [64] Reference is made to the Federal Court in Lai Fee & Anor v Wong Yu Vee & Ors (supra). Briefly, two companies acted as corporate vehicles to complete a sale of shares transaction. Centennial Asia Sdn Bhd (”Centennial”) was the purchaser under the agreement, and Westhill Equity Sdn Bhd (”Westhill”) made the necessary payments. [65] The Plaintiffs filed an action against Centennial to pay the final tranche of the purchase price, and a judgment was obtained. There was no appeal against the judgment. [66] Then, the Plaintiffs commenced the fraudulent trading action against the Defendants, alleging that the Defendants had structured the agreement in a way that would undermine the Plaintiffs’ claim. In response, the Defendants argued that the Plaintiffs were aware of Centennial’s financial status but failed to raise any complaint, objection, or question. The High Court and the Court of Appeal held that the Plaintiffs had themselves to blame for failing to verify if Centennial was able to pay the balance purchase price. [67] The Federal Court reversed the concurrent findings of the lower courts and held that the Plaintiffs should not be faulted as they have acted 23! ! in honesty and good faith. Conversely, the Defendants were guilty of fraudulent trading because:- i. the Defendants fraudulently induced the Plaintiffs’ consent to enter into the agreement; ii. the Defendants fraudulently induced the Plaintiffs to immediately part with the latter’s interests upon execution of the agreement; and iii. the Defendants attempted to insulate themselves against any obligations and liabilities under the agreement through the corporate vehicles. [68] In Eastmont (supra) the plaintiffs (Eastmont Sdn Bhd) claimed that the defendants (Tay Keong Kok & Ors), who were directors of Mega Planner, deliberately ran the company's business with the intent to defraud creditors, including Eastmont, by allowing another company with common directors ("Dakota Engineering") to obtain a default judgment against Mega Planner and subsequently wind it up, preventing Eastmont from recovering its debt. [69] The Court of Appeal affirmed the High Court’s decision that the 6 Defendants were personally liable to Eastmont under Section 540 for Mega Planner’s Debt. The court applied the test laid down by the Federal Court in Lai Fee & Anor (supra). [70] According to the Court of Appeal, the 6 Defendants are liable to Eastmont under Section 540 for Mega Planner’s Debt due to the following reasons: 24! ! a. There was clear evidence of the Mega Planner’s business had been carried on with the intent to defraud its creditors including Eastmont. There was evidence that the 6 Defendants who controlled both Mega Planner and Dakota Engineering had carried out a series of action which included the following: a. the filing of a suit by Dakota Engineering against Mega Planner. b. Mega Planner allowed Dakota Engineering’s Default Judgment (Mega Planner) to be entered. c. Dakota Engineering subsequently filed winding-up proceedings against Mega Planner. d. Mega Planner did not oppose the winding up petition filed by Dakota Engineering and consequently, Mega Planner was wound up. [71] The coordinated efforts of the 6 defendants resulted in Eastmont being denied payment of Mega Planner’s Debt. In this regard, the Court of Appeal gave a wide interpretation of the word “business” in Section 540(1). According to the court, the term “business” in Section 540(1) was not confined to the business “actually undertaken by the company in the ordinary course of its commercial existence or in the usual nature of its business operations”. [72] The Court of Appeal found that the 6 Defendants had participated in the orchestrated activities to defraud Mega Planner’s creditors including Eastmont. The 6 Defendants also had actual knowledge that the orchestrated activities were carried out with intent to defraud Mega Planner’s creditors. [73] This broader interpretation finds support in cases where fraudulent trading was established without the creation of new debts. 25! ! [74] In Tradewinds Properties Sdn Bhd v Zulhkiple A Bakar & Ors [2019] 1 MLRA 238, the Court found fraudulent trading where "the fact that the incorporation of the 3rd defendant was due to the Suit 93 can be equated to fraudulent trading." Here, the fraudulent conduct involved incorporating a new company to evade existing obligations rather than incurring new debts. [75] Similarly, in Lama Tile (Timur) Sdn Bhd v Lim Meng Kwang & Anor [2015] 3 CLJ 763, fraudulent trading was established where business was transferred to another entity to avoid payment obligations. The Court found the defendants had "purposely and knowingly engaged in a course of conduct to mislead the appellant, and by the same token transferred the business to render [the company] a dormant company." The Court of Appeal in Eastmont neatly summarised that the essential elements for establishing liability under section 540, as distilled from the authorities, are: [76] First, the business of the company must have been carried on with intent to defraud. This intent, as explained in Lai Fee, can be manifested through any conduct that deprives creditors of economic advantage, not merely through the incurring of debt. [77] Second, the defendants must have participated in carrying on the business in that fraudulent manner. As held in Tan Hung Yeoh v Public Prosecutor [1999], this requires showing that the person "has participated, concurred or taken some positive steps in the carrying on of the company's business in a fraudulent manner." 26! ! [78] Third, such participation must have been knowing. This requires proof of actual dishonesty, as established in Re Patrick and Lyon Limited [1933] Ch 786, involving "real moral blame." [79] Thus, it is important to examine the contention of the Plaintiff in assailing its case based on the conduct of the Defendants. The impugned Judicial Management Order (JMO) [80] The Plaintiff argued that the Defendants being the controlling minds of the 1st Defendant engineered to obtain a JMO to frustrate the Plaintiff’s ability to encash the post-dated cheques. This therefore completes the grand design of the Defendants of defrauding the Plaintiff. By inference, this was the business of the 1st Defendant that was carried out to defraud the Plaintiff. [81] I however, do not agree with the Plaintiff’s contention. I say this for the following reasons:

JMO Application Was a Legitimate Corporate Rescue Mechanism [82] The JMO application made by the 1st Defendant was a legitimate exercise of the corporate rescue mechanism provided under the Companies Act 2016. Section 404 of the Act allows a company to apply for judicial management if: a) The company is or will be unable to pay its debts; and b) There is a reasonable probability of rehabilitating the company or preserving all or part of its business as a going concern 27! ! [83] The evidence demonstrates the 1st Defendant had compelling grounds for seeking judicial management. On 12.09.2019, MTU Maintenance Berlin-Brandenburg GMBH successfully registered its foreign judgment of USD820,700.00 in Malaysia. This was followed by MTU issuing a notice under Section 466 Companies Act 2016 on 01.11.2019, and subsequently presenting a winding-up petition against the 1st Defendant on 27.11.2019. [84] Concurrent with these proceedings, the 1st Defendant was embroiled in substantial arbitration proceedings with BASF (Malaysia) Sdn Bhd for approximately RM13 million. These legal challenges placed significant strain on the company's financial resources and operations. [85] However, the 1st Defendant maintained valuable commercial assets that warranted preservation through judicial management. These included: a) Multiple oil and gas licenses for supply of products with Petronas b) Supply licenses with Tenaga Nasional Berhad c) Active vendor status with Malaysia Airports Holdings Berhad d) Ongoing international projects including the Dhaka East West Elevated Expressway Project valued at USD1.38 billion e) Negotiations for a Hydro Power Project with potential value close to USD1.3 billion. [86] These assets and ongoing projects presented reasonable prospects for the company's rehabilitation through judicial management. The preservation of these business relationships and opportunities would serve the interests of all creditors better than immediate liquidation. 28! ! [87] I fail to understand how applying for a JMO under the circumstances outlined above can be said to be carrying out the business of the 1st Defendant to defraud the Plaintiff.

(ii) JMO was obtained regularly [88] It is the finding of this Court that under section 408(1)(a) and section 418(1)(a) Companies Act 2016, the 1st Defendant was only required to advertise the JMO application in newspapers, which their solicitors did. There is no specific legal requirement to notify individual creditors or list all creditors in the JMO application. [89] Furthermore, as an unsecured creditor, the Plaintiff had no legal standing to object to the JMO application (see Million Westlink Sdn Bhd v Maybank Investment Bank Berhad [2019] MLJU 1721 and Goldpage Assets SB v Unique Mix SB [2020] MLJU 723). [90] In any event, the Plaintiff was eventually listed as a creditor in the 1st Defendant’s Statement of Affairs dated 04.01.2021 showing no intent to conceal her status as creditor. [91] As such, the JMO was a legitimate corporate rescue mechanism under section 404 CA 2016 for financially distressed companies, not a fraudulent scheme. Statutory protection under section 410 CA 2016 cannot be hindered and is not an abuse of court process (see CIMB Islamic BB v Wellcom Communications [2019] MLJU 148 CA). [92] The judicial management application represented a legitimate attempt at corporate rescue rather than a scheme to defraud creditors. In 29! ! Aktieselskabet the Hong Kong Court of Final Appeal held that directors taking legitimate steps to address financial difficulties does not constitute fraud. [93] This case involves a liquidity crisis at Wheelock Marden group, specifically its shipping subsidiary Wheelock Maritime International Ltd (WMI), and subsequent litigation. In 1982-1983, WMI faced financial difficulties after ordering 22 new ships during a period of high freight rates, only to see rates fall sharply. Robert Brothers, a WMI director, negotiated with Danish ship financier Aktieselskabet Dansk Skibsfinansiering (ADS) for revised financing terms for two vessels: the "Sealock" (delivered April 1983) with approximately $8 million left unsecured, and the "Annalock" (delivered March 1984) with approximately $4 million left unsecured. Despite these efforts, WMI could not overcome its financial troubles and entered creditors' voluntary liquidation in February 1985 following a takeover bid by Wharf group. In 1988, ADS sued WMI's directors (including parent company Wheelock Marden & Co. Ltd as an alleged de facto director) claiming fraudulent trading under section 275 of the Companies Ordinance and fraudulent misrepresentation by Brothers during financing negotiations. The claim for fraudulent trading was dismissed on the basis that the directors honestly believed the parent company would provide necessary support. Therefore, the directors could not have been liable for fraudulent trading. The decision was upheld by the Hong Kong Court of Appeal and eventually the Hong Kong Court of Final Appeal. [94] The commercial context is particularly relevant. In the current case, the 1st Defendant pursued legitimate means of addressing its financial difficulties through proper channels. Legal disputes were defended, 30! ! corporate rescue options were explored, and communications with creditors were maintained. This conduct aligns with what Lord Hoffman in Aktieselskabet described as honest commercial behavior in the face of financial distress.

(iii) ‘Business of a company being carried on’ element not proven [95] Fraudulent trading occurs when the business of a company continues to operate with the intention to defraud creditors or for a fraudulent purpose. [96] Section 540 does not apply to isolated instances where a company commits fraud against a creditor while conducting its normal business operations. Such cases would fall under the tort of deceit. [97] Liability for fraudulent trading under Section 540 specifically targets those who actively continue company operations while knowing they intend to defraud creditors or operate for fraudulent purposes. [98] It is critical to distinguish between a company "carrying on business with intent to defraud creditors" (covered by Section 540) and a company "committing fraud against a creditor during normal business operations" (not covered by Section 540). (see FC in Dato' Prem Krishna Sahgal v. Muniandy Nadasan & Ors [2017] 10 CLJ 385). [99] While every case is fact centric and needs to be considered individually, this court is entitled to look at decided cases to provide a perspective of what conduct can constitute carrying out business with intent to defraud creditors. It obvious that the conduct of the Defendants 31! ! do not come anywhere near the conduct of those found liable in Lai Fee, Eastmont, Tradewinds and Lama Timur (supra). [100] I therefore rule that the JMO application cannot be read as part of the business being carried out by the 1st Defendant Applying for a JMO cannot be equated with a company carrying on business. It was in fact, purely a step taken by the 1st Defendant to extricate itself from the distress it was undergoing.

(iv) No Dishonesty in Communication Regarding Post-dated Cheque [101] The Plaintiff argued that the timing of DW 1 informing her vide PW 1 was a pre-meditated act calculated to frustrate the encashment of the post-dated cheques. However, I find DW 1’s conduct was purely bona fide. DW1 testified he acted on advice from the 1st Defendant’s solicitors and the Judicial Manager in stopping the cheque. He testified as follows: "The post-dated cheque which I have put the stop payment is under the instruction of the lawyer and also Mr Augustine. It is under Augustine's purview that he told me to do so which I've already put it in the email very clearly and for Mr Chandra to also communicate with Mr Augustine on this matter." [102] This communication had clearly: i. Informed PW1 of the Judicial Management application before the cheque's due date ii. Explicitly stated the cheque should not be banked in 32! ! iii. Referred to the Judicial Manager's role in addressing the matter. [103] Further, when issuing the cheque via letter dated 27.05.2020, DW1 had clearly stated they "can't guarantee the payment date is final, depending the Covid-19 situation" This demonstrated upfront disclosure about potential non-payment. [104] Far from being dishonest, this demonstrates candid disclosure of the company's situation and the implications of the JMO. The stop payment instruction to the bank was a natural consequence of the JMO regime, which imposes a moratorium on enforcement actions against the company.

No fraudulent intent proven [105] When a company continues its operations through an individual in question and accumulates debts at a time when the company lacks the financial capacity to meet these obligations, the simple fact that such debts were incurred and ultimately left unpaid does not by itself constitute sufficient evidence to establish "intent to defraud" or a "fraudulent purpose”. [106] The Court of Appeal in JCT Limited V. Muniandy Nadasan & Ors And Another Appeal [2016] 3 CLJ 692 clarified that mere knowledge that the company will not be able to pay its debts was not sufficient to trigger S. 304(1) CA 1965 (forerunner of S.540(1) CA 2016) and what is required is proof that the alleged perpetrator was dishonest: - 33! ! [82] To our mind, she had carefully discerned what was required by sub-s. (1) to be proved by the plaintiff. To her, merely doing business with knowledge that the company will not be able to pay later is not per se sufficient to trigger that subsection. There must, according to her, be proven as well the element of dishonesty on the part of the alleged perpetrator when such business was conducted. What would amount to dishonesty would depend on the circumstances of each case, but dishonesty there must be on the part of the alleged perpetrator. She relied on the decision of Lord Hoffman in the case of Aktieselskabet Dansk Skibsfinansiering v. Brothers and Ors [2001] 2 BCLC 324 where it was held that in looking for the element of dishonesty, it can be established by taking into consideration the entirety of the relevant circumstances. With respect, we are in agreement with the learned judge's interpretation of s. 304(1) of CA. [107] The Federal Court in Dato' Prem Krishna Sahgal v. Muniandy Nadasan & Ors [2017] 10 CLJ 385 affirmed that what needs to be proven is that:-

That in carrying on the business of the company, the company had incurred debts and knew that there was no prospect of the company ever making payment thereon; and

There was an element of dishonesty in the carrying on of the business of the company as aforesaid. [108] The key issue before this court is whether the Defendants dishonestly carried out the business of the 1st Defendant that would 34! ! warrant lifting of the corporate veil or liability under Section 540 of the Companies Act 2016. [109] At the risk of repetition, in determining fraudulent intent it must be shown that firstly, what was done was dishonest according to the ordinary standard of reasonable and honest people, and secondly that the actor himself must have realised that the act was by those standards dishonest. [110] The court must therefore examine whether there was actual dishonesty according to the ordinary standards of reasonable and honest people, and whether the Defendants themselves realized that what they were doing was by those standards dishonest. [111] The following is my evaluation of their individual conduct: DW 2 (2nd Defendant): While he issued the post-dated cheque and instructed stop payment, this must be viewed in context of the JMO regime which imposes a moratorium on payments. His email dated 21.10.2020 demonstrates transparency by notifying PW1 before the cheque's due date. His notification informing of the JMO status before the cheque's due date demonstrates candour rather than concealment. The evidence shows he maintained communication with the Plaintiff's representatives throughout. There was no attempt to evade or hide from the Plaintiff or PW1. His testimony that he would pay when funds become available reflects commercial reality rather than fraudulent intent. 35! ! DW3 (3rd Defendant): The evidence shows minimal direct involvement in the loan transaction. There is no evidence he participated in or knew about the post-dated cheque arrangement. His role was primarily focused on technical aspects of the company's projects. The Plaintiff failed to establish his knowledge or participation in any allegedly fraudulent conduct. DW 4 (4th Defendant): While he was the largest shareholder, the evidence shows he was not actively involved in daily operations. His role was advisory in nature after stepping back from management in 2005. There is no evidence linking him to decisions regarding the loan or post-dated cheque. His involvement in previous overseas projects does not equate to knowledge or participation in allegedly fraudulent conduct. [112] The Plaintiff has not shown that the Defendants had participated, concurred or taken any positive steps in the carrying on of the company's business in a fraudulent manner as mandated by the case of Tradewinds (supra).

(v). No actual fraud proven [113] For liability under Section 540, the Plaintiff must prove actual fraud - mere suspicion or inference is insufficient. The court in Tradewinds emphasized that: 36! ! "The basic rule is that he who alleges fraud has the burden of proving them... fraud is not presumed — it must be proved by clear and convincing evidence." [114] The Federal Court in PJTV Denson (M) Sdn Bhd v Roxy (M) Sdn Bhd [1980] 2 MLJ 136 defined fraud as "actual dishonesty involving, according to current notions of fair trading among commercial men, real moral blame." This definition requires careful examination of the commercial context and standards of business conduct. [115] As explained above, on the facts, I do not find any evidence that shows the existence of clear and convincing fraud being proven. The totality of evidence fails to establish on a balance of probabilities fraud under Section 540 as set out by the Federal Court in Sinnaiyah & Sons Sdn Bhd v Damai Setia Sdn Bhd (2015) 5 MLJ 1. At best, this appears to be a commercial dispute arising from financial difficulties rather than fraudulent conduct by the directors. Conclusion [116] It is my firm finding that both Conduct 1 and Conduct 2 complained by the Plaintiff failed to meet the requirements for a breach of Section 540 CA. [117] Based on the above analysis, I find that the Plaintiff has failed to establish fraudulent intent warranting the lifting of corporate veil or liability. 37! ! [118] Their best recourse is going against the 1st Defendant. This they had already done. It is up to them to execute the judgment they have in hand against the 1st Defendant. [119] The claim against the Defendants is accordingly dismissed with costs. - Sgd - (AHMAD FAIRUZ BIN ZAINOL ABIDIN) Judge High Court of Malaya Kuala Lumpur Dated: 23rd July 2025 Counsel Loke Wei Lun for the Plaintiff Messrs. B B Teh Hasiera binti Hashim for the 2nd, 3rd and 4th Defendant