Murali A/L Maliappan v Jaswinder Singh Bajaj (W-03(IM)(NCC)-63-09/2023)

This is an appeal against the decision of the High Court that affirmed the decision of the deputy registrar in a bankruptcy matter. The learned deputy registrar had dismissed the application of the appellant to strike out the creditor petition filed against him.

The appellant had borrowed money from the respondent under a Friendly Loan Agreement dated 17 February 2017. Upon default of the appellant to repay the loan, the respondent obtained final judgment in the Sessions Court against the appellant in the sum of RM513,639.00 on 2 June 2020. An appeal was filed in the High Court against this decision. It was dismissed. The appellant filed another appeal to the Court of Appeal. Meanwhile, premised on the judgment debt, the respondent commenced bankruptcy proceedings. Before the appeal was heard, the respondent reduced the judgment debt to RM450,000. The appellant paid RM50,000 leaving a balance judgment debt of RM50,000. Following this development, the appeal 3 pending in the Court of Appeal and the bankruptcy proceedings were both withdrawn by the parties.

However, appellant failed to pay the balance of the judgment sum of RM400,000. The respondent commenced bankruptcy action again by issuing a bankruptcy notice. It was not challenged. However, when the creditor petition was filed by the respondent, the appellant applied to strike it out under Order 18 rule 19 of the Rules of Court

The deputy registrar dismissed the application and the decision was affirmed by the High Court. The instant appeal before us is from this decision. Issues [4] The main argument canvassed before us by the appellant’s counsel is that the respondent was a secured creditor. Therefore, pursuant to section 5(2) of the Insolvency Act 1967, the respondent should have stated in the creditor petition whether he is willing to give up his security for the benefit of the general body of creditors. [5] The alleged security is in respect of private caveat that was entered by the respondent under clause 7 of the Friendly Loan Agreement against a parcel of land belonging to the appellant. The land title in question was deposited with Messrs. K. Rajendran & Associates who are solicitors under the terms of the Friendly Loan Agreement. The appellant has argued that therefore a lien had been created in favour of the respondent. Clause 7 of the agreement read as follows:

The Borrower as security for the friendly loan consents and allows the lender to enter a private caveat on land known as PN 68082, LOT 1545, BANDAR KEPONG, DAERAH GOMBAK, NEGERI SELANGOR and both the Borrower and lender irrevocably consent and authorize M/S K. Rajendran & Associates, Advocate & Solicitors, of NO. 17.1 First Floor, Jalan 1/68E, Off Jalan Sentul Manis, 51000 Kuala Lumpur to be the custodian of the Original Title Deed to the said Property till full settlement of the said monies by the Borrower to the Lender. [6] The learned High Court Judge held that it was not security for the purpose of section 5(2) of the Insolvency Act as no lien-holder caveat was entered by the respondent. Before us, counsel for the appellant has argued that since the title to the property was deposited with the respondent’s solicitors, the respondent had become a secured creditor. Counsel for respondent argued that Messrs. K. Rajendran & Associates was a common solicitor. However, the appellant stated in his affidavit dated 26 September 2022 that Messrs. K. Rajendran & Associates was the respondent’s solicitor. We are inclined to accept this averment as the transaction was arranged by the respondent who is the lender. Furthermore, the purpose of depositing the land title was to “secure” the loan as stated in the Friendly Loan Agreement. Thus, we find that depositing of the land title with Messrs. K. Rajendran & Associates has the same effect as depositing it with the respondent. [7] Thus the main issue before us is whether the act of depositing the title to the appellant’s land with the respondent’s solicitor and entering a private caveat against it has created a security for the purpose of section 5(2) of the Insolvency Act. We find that this exact question has not come up for determination in our courts. For this reason, we have to consider the nature of liens including statutory liens and equitable liens in land law. Surrender of security by petitioning creditor [8] We shall first set out the relevant statutory provision in relation to the above mentioned requirement. One of the conditions on which a creditor may present a petition is stated in section 5(2) of the Insolvency Act 1967. It reads as follows:

If the petitioning creditor is a secured creditor he must in his petition either state that he is willing to give up his security for the benefit of the creditors in the event of the debtor being adjudged bankrupt or give an estimate of the value of his security. In the latter case he may to the extent of the balance of the debt due to him, after deducting the value so estimated, be admitted as a petitioning creditor in the same manner as if he were an unsecured creditor. (emphasis ours) [9] The above mention requirement is also repeated in Form 41 of the Bankruptcy Rules which prescribes the form of the creditor petition. Thus, a secured creditor must necessarily state in the creditor petition that he is willing to give up his security for the benefit of the general body of creditors. [10] “Secured creditor” is defined in section 2 and read as follows: “secured creditor” means a person holding a mortgage, charge or lien on the property of the debtor or any part thereof as a security for a debt due to him from the debtor but shall not include a plaintiff in any action who has attached the property of the debtor before judgment; [11] Quite clearly, the respondent did not hold a mortgage or a charge on the property of the appellant. However, the title of the appellant’s property was deposited with respondent’s solicitors under the loan agreement. In addition a private caveat had been entered against the property by the respondent to prevent any dealing on it. In the premises, the question that arises is whether the respondent held a lien on the appellant’s land to qualify him as a secured creditor under section 5(2) of the Insolvency Act 1967. Meaning of lien for purpose of bankruptcy law [12] The Insolvency Act 1967 does not define a “lien” for the purpose of section 5(2) that we reproduced earlier. In reported cases, “lien” over landed property has been spoken of in the context of an “equitable lien” as well as a lien that confers a “registered interest”, in other words, “a statutory lien” because it was created in accordance with written law. The rights of a holder of such a lien is prescribed in the relevant land law. We shall briefly discuss some of these cases, including cases decided under the old Land Code in order to understand the significance of a lien in relation to landed property. [13] The case of Paniappa Chetty v Dupire Brothers and another

1 F.M.S.L.R 370 is probably one of the earliest reported cases that discussed the priority of a lien created over landed property. The facts of this case briefly stated are as follows. Ng Chin Pan borrowed money from the appellant on a promissory note and deposited his land title as security for the loan. Upon default of payment, the appellant obtained judgment and applied for sale of the land. The application was opposed by the respondents as they held decrees against Ng Chin Pan and had attached the land. The trial Judge held that the appellant was not entitled to priority and dismissed the application. [14] The appeal from this decision was heard before Earnshaw J.C., Farrer J.C. and Whitley J.C. The law governing land matters in Selangor at that time was the Registration of Titles Enactment 1911. The appellate Judges unanimously allowed the appeal as the appellant had complied with the written law in creating a lien. Therefore, he had priority over the respondents and was entitled to obtain an order for sale of the land in question. The decision of the appellate Judges rested on the interpretation of section 80 of the Registration of Titles Enactment 1911. It read as follows:

A lien may be created by deposit of the grant or certificate of title. The holder shall have the power at any time during the existence of his lien to enter a caveat in manner set forth in Part XII hereof to prevent all dealing with the land, and when he has obtained a judgment of the Court for the actual sum due, he shall be entitled to apply for and obtain an immediate order of sale of the land. [15] In this case, the appellant entered a caveat in accordance with section 80 as noted by the appellate Judges. Earnshaw J.C. who delivered the leading judgment was of the view that since the plaintiff had complied with section 80, he had become a holder of a lien. The learned Judge said as follows The plaintiff has carefully complied with all the provisions of section 80 and he has become the holder of a lien. To use the words of the section, a “lien” has been “created” in his favour. To say that a lien gives no security amounts to a contradiction in terms. A lien is one and a special form of security. In fact “security” is the genus of which “lien” is a species. Its very meaning, derived as it is through the French from the Latin ligo, ligament is that of binding or tying or securing something. In the Bankruptcy Law the holder of a lien is as well secured as the holder of a mortgage or charge and always ranks as a secured creditor. To interpret section 80 without giving to the word lien its meaning of security is in my view completely wrong. (emphasis ours) [16] The above mentioned case was cited with approval and followed by the former Federal Court in the case of Paramoo v Zeno Ltd [1968] 2 MLJ 230. The facts of this case are somewhat similar. The plaintiff had lent money to the first defendant. To secure the loan, the first defendant executed a charge over its land in favour of the plaintiff. The first defendant also deposited the title to the land with the plaintiff. The charge was not registered in the Land Office but a caveat was entered by the plaintiff with the Collector of Land Revenue under a term of the charge. [17] Sometime later, the second defendant obtained judgment against the first defendant. He then secured a prohibitory order against the land before applying for an order for sale by public auction. The dispute between the plaintiff and the second defendant concerned the question of priority as between their respective interests in the land. [18] The second defendant argued since the charge is not enforceable as it was not registered, the lien was not enforceable either. The Federal Court speaking through Suffian FJ dismissed this argument and held that a lien under the F.M.S. Land Code is a statutory lien and had been created in accordance with section 134 which is similar to section 80 of the Registration of Titles Enactment

Section 134 read as follows: 134(i) When a lien is intended to be created over any land the proprietor may deposit his grant, lease of State land, certificate of title or extract from the mukim register and the person with whom the same has been deposited may present a caveat. Upon registration of such caveat the lien shall be created. When the holder of such lien has obtained a judgment of court for the actual sum due he shall be entitled to apply for and obtain forthwith an order for the sale of the land. (emphasis ours)

(ii) The issue document of title shall be delivered with the caveat upon presentation thereof.” [19] The Federal Court proceeded to hold, after citing Paniappa Chetty v Dupire Brothers and another (supra), that as the lien is in conformity with section 23 of the Land Code, the plaintiff’s lien has priority over the second defendant’s claim. [20] The cases decided under the Registration of Titles Enactment 1911 and the F.M.S. Land Code that we discussed earlier established that a lien that complies with the statutory requirement, i.e. deposit of the land title and the entry of a caveat gave priority to the holder against the competing interest of third-parties in the land. It was also held in the case of Paniappa Chetty v Dupire Brothers and another (supra) that the holder of such a lien is a secured creditor in bankruptcy law. We shall now consider the position under the successor law, i.e. the National Land Code (NLC). [21] Sub-sections (1) and (2) of section 281 of the NLC provide for the creation and effect of a statutory lien over land. They read 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, his issue document of title or, as the case may be, duplicate lease; and that person or body—

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

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

Where the holder of any lien has 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. [22] Thus, under the NLC, deposit of the land title and entry of special caveat known as the lien-holder’s caveat is a pre-condition for the creation of statutory lien. The procedure to apply for a lien-holder’s caveat is stated in section 330 of the NLC which we find unnecessary to reproduce here. We shall now turn to consider some cases that dealt with a statutory lien under the NLC in relation to questions of priority and status as a secured creditor. [23] In Re Tengku Ibrahim bin Hussein; Ex P United Malayan Banking Corporation Bhd [2000] 1 MLJ 601, the question that arose was whether the respondent who was the petitioner in a bankruptcy matter was a secured creditor. In that case, the petitioner had entered a caveat against the land belonging the debtor. The caveat had expired by effluxion of time. The High Court found that the caveat was entered by a third-party and there was no evidence that the title was deposited with the petitioner. The High Court also found that there was ambiguity whether the caveat was a private caveat or a lien-holder’s caveat. In the premises, for reason of non-compliance with pre-conditions for the creation of a statutory lien under section 282, the High Court held that the respondent was not a secured creditor. [24] In the case of Perwira Affin Bank Bhd v Selangor Properties Sdn Bhd & Ors [2010] 3 CLJ 43, the Court of Appeal speaking through Malik Ishak JCA said that once a lien holder’s caveat is entered, the lien-holder becomes a secured creditor. The relevant passage is as follows: [19] Once a lien-holder’s caveat is entered, the lien-holder becomes a secured creditor. This is a very important factor to be reckoned with in the subsequent bankruptcy proceedings of the borrower (United Asian Bank Bhd v Personal Representative of Roshammah (Decd) & Ors [1994] 3 MLJ 327; [1994] 3 CLJ 681). (emphasis supplied) [25] In the case of Consolidated Credit Co Sdn Bhd v Gladys Loh & Ors (as the executrix of the estate of Loh Hoot Yeang, deceased) and another suit [2014] 10 MLJ 329, the peculiar facts were as follows. The plaintiff company was a licensed money lender. It claimed that Loh Hoot Yeang (Loh) who was the owner of the land in question deposited the title with the company in 1998. However, a lien-holder’s caveat was not entered. Meanwhile, the said Loh who was the actual person behind the plaintiff company had sold the land to one Derrick Edwin David (Derrick) and collected the money. To protect his interest, the Derrick lodged a private caveat. When the first caveat lapsed, he lodged a second caveat on 4th June 2007. The following day, the plaintiff company entered a lien-holders caveat. However, this was not permitted under section 322(2) read with section 330 (3) of the NLC as the private caveat of Derrick was still in force. [26] In their originating summons to sell the land by public auction, the plaintiff company argued that their lien was valid. Derrick, on the other hand, sought an order through an originating motion to have the lien-holder’s caveat cancelled. Nantha Balan JC (later JCA) held that the lien-holder’s caveat should not have been registered for contravening section 332(2) read with 330(3) of the NLC. It was a nullity and therefore the plaintiff company did not possess a statutory lien. Nonetheless, His Lordship held that the plaintiff company as depositee of the land title had a lien in equity as the principles of equity were not abrogated by the Torrens System. His Lordship cited the cases of Vallipuram Sivaguru v P.C.R.M. Palaniappa Chetty Official Administrator as Administrator of the estate of Gan Inn, deceased [1937] 1 MLJ 59 and Wilkins & Others v Kannamal (F) & Anor [1951] 1 MLJ 99 in support. [27] However, after careful evaluation of the evidence, the High Court held that the plaintiff company’s equitable lien could not prevail over the beneficial interest of the respondent because of delay and indolence. Furthermore, Loh was the managing director of the plaintiff company at the time that Derrick obtained judgment against him for specific performance. Therefore, Loh as managing director of the plaintiff company should have put Derrick on notice about the fact that the title was deposited with the plaintiff company as security for the loans taken by him. Thus, in this case, as the equity of the plaintiff company was defeated, it could not sell the land as of right under the equitable lien. [28] In the older oft quoted case of Mercantile Bank v The Official Assignee of the Property of How Han Teh [1969] 2 MLJ 196 as well, Raja Azlan Shah J (later HRH), recognized an equitable lien. In that case, the appellants who lent money to How Han Teh did not register a caveat after the latter deposited his title to his land with them. A caveat under section 330 of the NLC was lodged only after How Han Teh had committed an act of bankruptcy. Nonetheless, the court allowed the application of the appellants to sell the land as equitable rights in land are recognised under the Torrens system. Statutory lien and equitable lien in case law [29] To recapitulate, a statutory lien is a lien that is created in accordance with the written law, namely the old Land Code or the NLC. The right conferred by a statutory lien on the holder is stated in section 282(2) of the NLC. It is as follows:

Where the holder of any lien has 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. (emphasis ours) [30] In our view, this is the reason that the courts in the cases decided under the old Land Code and in the NLC, stated that upon entry of a lien holder caveat, the lien holder becomes a secured creditor. We are mindful that in the Registration of Titles 1911 and the F.M.S. Land Code, no special lien-holder’s caveat was provided. Nonetheless, as there is a requirement to lodge a caveat upon deposit of the land title, it had similar legal effect as a lien-holder’s caveat. [31] However, in the case of failure to comply with the law by entering a lien-holder’s caveat, as stated in the cases discussed above, the depositee does not lose his priority. He possesses an equitable lien by virtue of the deposit of the land title as security for the loan. The equitable lien will take priority if it is earlier in time. Nonetheless, in our view it does not have the same status as a statutory lien as it can be potentially defeated by delay or other reasons as happened in the case of Consolidated Credit Co Sdn Bhd v Gladys Loh & Ors (as the executrix of the estate of Loh Hoot Yeang, deceased) and another suit (supra). [32] We should think that the purpose of section 5(2) of the Insolvency Act 1967 which requires the petitioner to give up a security so that it will be available for the general body of creditors to share in the bankruptcy upon proof of debt. However, in the instant case, the petitioner did not enter a lien-holder’s caveat. He only entered a private caveat in accordance with the agreement with the appellant. Despite his solicitor being in possession of the land title, he did not enter a lien-holder’s caveat at any time. He had not taken any steps to enforce his equitable lien since the act of bankruptcy. His own position is that the private caveat he entered on the land did not make him a secured creditor. Under section 8(1)(b) of the Insolvency Act 1967, upon the making of a bankruptcy order, all the property of a bankrupt vests in the Director General of Insolvency. Thus, we observe that the appellant, if adjudged a bankrupt, can potentially be compelled to surrender the land title to the Director General of Insolvency for the benefit of the general body of creditors. Therefore, in our view, he cannot come within the meaning of a secured creditor. Conclusion [33] For the above reasons we are of the view that the High Court made the correct decision to affirm the decision of the learned deputy registrar to dismiss the application of the appellant to strike out the creditor petition. Therefore, we unanimously dismissed the appeal with costs of RM5,000.00. Dated: 13th April 2026 SGD (RAVINTHRAN PARAMAGURU) Judge Court of Appeal Parties Appearing: For the Appellant : Bernard George [Messrs Tay, Bernard & Cheong] For The Respondent : Parvinder Singh Doal [Messrs Pritam Singh Doal & Co]