Nadi Bumi Resources Sdn Bhd v U.I. Lead Sdn Bhd (C-02(NCC)(A)-1044-06/2016)

1 DALAM MAHKAMAH RAYUAN MALAYSIA (BIDANGKUASA RAYUAN) RAYUAN SIVIL NO: C-02(NCC)(A)-1044-06/2016 ANTARA NADI BUMI RESOURCES SDN BHD [CO. NO: 943359-H] ...PERAYU DAN U.I. LEAD SDN BHD [CO. NO: 256617-V] …RESPONDEN [Dalam Perkara Mengenai Mahkamah Tinggi Malaya di Kuantan Petisyen Penggulungan Syarikat No: 28NCC-39-2015 Dalam Perkara Mengenai Nadi Bumi Resources Sdn Bhd (Company No: 943359-H) Dan Dalam Perkara Mengenai Seksyen 218(1)(e) dan 218(2) Akta Syarikat 1965 Antara U.I. Lead Sdn Bhd (No. Syarikat: 256617- V) …Pempetisyen Dan Nadi Bumi Resources Sdn Bhd (No. Syarikat: 943359H) …Responden] ___________________________________________________________________________ 2 CORUM: ALIZATUL KHAIR OSMAN KHAIRUDDIN, JCA NALLINI PATHMANATHAN, JCA ZABARIAH MOHD YUSOF, JCA JUDGMENT [1] This is an appeal by the appellant (respondent in the court below) against the winding up order granted by the High Court Judge dated 13.5.2015 pursuant to a petition filed by the respondent (petitioner in the court below) under section 218 of the Companies Act 1965 (CA 1965). [2] Having heard parties and after taking into consideration the Appeal Records, we allowed the appeal with costs. Herein below are our reasons. [3] Parties shall be referred to as they were, in the High Court. Background: [4] The petitioner filed a winding up petition against the respondent in the High Court. The claim by the petitioner against the respondent is for a sum of RM351,889.60 as due and owing by the respondent to the petitioner pursuant to the petitioner’s invoice no: 2046 dated 26.1.2015. 3 [5] There was never any judgment obtained by the petitioner against the respondent for the alleged sum due and owing. [6] On 1.10.2015, the learned High Court Judge allowed the winding up petition against the respondent after refusing to admit the affidavit in reply of the respondent dated 23.9.2015 which the learned Judge considered to have being filed out of time, in contravention of Rule 30 (1) of the Rules of Winding up of Company 1972 (the 1st winding up proceedings). The respondent appealed to the Court of Appeal, which was allowed on 2.2.2016, and the order of winding up against the respondent dated 1.10.2015 was set aside. The Court of Appeal remitted back the petition for a rehearing to the High Court. [7] In the High Court, the learned Judge allowed the 2nd Petition of winding up and ordered winding up of the respondent premised on the following grounds: i) The respondent failed to rebut the statutory presumption of its inability to pay the debt, when it failed to pay after 3 weeks of the section 218 notice; and ii) The respondent contended that it is solvent as it has profits of RM226,464.00 and assets worth of RM2,121,162.00 by adducing its Report and Financial Statements dated 30.6.2014 (exhibit CKF-2 at page 81 of the CB). However, premised on the “Lapuran Pegawai Penerima” dated 16.11.2015 (exhibit P- 4 8 at page 133-138 of CB) the credit balance standing in the respondent’s account is a mere RM1,700.00 and monies in the bank at RM2,500.00. Given that the “Lapuran Pegawai Penerima” was dated 16.11.2015 which is more current as compared to the Report and Financial Statements adduced by the respondent which was dated 30.6.2014, the learned Judge found it difficult to believe that the respondent is solvent (paragraph 20 of the grounds of judgment). In addition, the learned Judge was of the view that the issue of whether the respondent company is solvent was never argued at the hearing of the application for stay of the winding up order. As a result, her Ladyship dismissed the application for stay by the respondent. There has never been any appeal by the respondent on this order of refusal for stay. Therefore, it was the finding of the learned Judge that the respondent company is insolvent. Grounds of Appeal by the Respondent: [8] It was argued that the learned Judge erred in law and in fact in allowing the petition for winding up of the respondent for failing to take into consideration the following:

11.5.2015 which was exhibited as P2 in the affidavit verifying the petition states that: “TAKE NOTICE that you are now required to pay U.I. Lead Sdn Bhd of NO 23-3, Jalan Puteri 1/6, Bandar Puteri, 47100 Puchong Selangor the sum of RM351,889.00 being the outstanding payment due and owing to the said U.I. Lead Sdn Bhd, the particulars of which are within your knowledge. A copy of U.I. Lead Sdn Bhd’s invoice no. 2046 for the said sum of RM351,889.60 is attached for your easy reference.” (emphasis ours) The petitioner alleged that the respondent has knowledge of the said debt and that the invoice no: 2046 was attached with the section 218 notice. However, the respondent contended that the invoice no: 2046 was never attached to the section 218 notice nor sent by the petitioner;

(ii) Lest your client needs refreshing we enclose herewith a copy of the said Prime Contract dated 14.12.2011 and draw attention to the letter dated 23.6.2008 from Jabatan Perhutanan Negeri Pahang Darul Makmur and to paragraph 4 therein and to Lampiran A thereto in relation to such rehabilitation work which your client originally undertook to do under the Subcontract Agreement dated 4.10.2012.

(iii) As your client has effectively abandoned the Reserved Area and thereby repudiated the said sub-contract, our client is now faced with the task of rehabilitating the Reserved Area, at a cost to be ascertained in due course, which our client will seek to claim from our (sic) client at the appropriate time.” [18] The contents of the above letter show that the respondent disputes its liability under the Subcontract Agreement, which is the foundation for the claim under the section 218 notice by the petitioner against the respondent, namely, that it was the petitioner that had breached the terms of the Subcontract Agreement dated 4.10.2012. This allegation by the respondent on the breach by the petitioner of the said Subcontract Agreement amounts to a dispute on the respondent’s liability to pay the amount of RM351,889.60 claimed by the petitioner. Hence the affirmation of the respondent’s position when it states in no uncertain terms at paragraph (iv) of the letter from Tetuan Mura Raju & Co. dated 1.6.2015 which reads: 11 “(iv) In the meantime, our client reserves the right to enforce its rights against your client for breach of the Subcontract Agreement dated 4.10.2012 in various respects and seek appropriate remedies.” [19] It is for the above reasons that the respondent through its solicitor’s letter at paragraph (v) of the same states that it decided to hold on to the payment claimed by the petitioner when it states as follows: “(v) Under the circumstances, our client has decided to withhold payment of the said sum of RM351,889.60 as claimed by your client.” (emphasis ours) Unfortunately, the above paragraph was taken out of context by the petitioner in its submission which had swayed the learned Judge into making a finding that there was no denial on the amount claimed. We are of the view that the above paragraph cannot be read in isolation, which may give the impression that the respondent is refusing to make payment (despite owing the petitioner), which is not the case here. It has to be read together with the other earlier paragraphs of the said letter, which show that the respondent is disputing liability to the claim by the petitioner and/or disputing the amount claimed which is allegedly due and owing. [20] This dispute on the liability to the claim is fortified by the letter from Tetuan Tanes & Co. dated 22.6.2015 which affirmatively states as follows: 12 “………..Our client holds and we do share the same sentiments that your companies’ conduct is a direct breach of the Agreement, not limited to: Clause 3 (a)

(ii) That Sub conractor (sic) shall observe, perform and comply with all the provisions of the Prime Contract on the part of the Contractor to be observed, performed and complied with in so far as they relate and apply to the Mining Operations and are not repugnant to or inconsistent with the express provision of the Sub Contract as if all the same were severally set out herein.” [21] Within the context of these 2 solicitors’ letters, the respondent had positively disputed the liability to the claim by the petitioner. Hence the learned Judge was plainly wrong when she found at paragraph

(18) of her grounds that the respondent failed to deny or dispute the claim of RM351,889.60 by the petitioner when she referred to the letter of Tetuan Tanes & Co. dated 22.6.2015. The Cross Claim (Civil Suit No: 22NCVC-2-1/2016): [22] Consequent to the 2 solicitors’ letters, the respondent had filed a suit against the petitioner in Civil Suit No: 22NCVC-2-1/2016 (civil suit) in High Court Kuantan on 6.1.2016 wherein it was pleaded 13 that the petitioner (defendant therein) had breached the subcontract which caused the respondent (plaintiff therein) to suffer loss and damage in the sum of RM17,571,753.91 and RM1,459,514.00 which was the relief prayed for, by the respondents in the civil suit. In the same suit, the petitioner in its defence to the claim, referred to the claim of RM351,889.60 which is the very same claim in the 218 notice herein. In this regard, Paragraph 5 (c) of the defence of the petitioner in the civil suit reads: “(c) walau pun telah menerima dan mengakui invois defendan No. 2046 bertarikh 26.1.2015 untuk akaun hak defendan yang berjumlah RM351,889.60 (“Hutang Yang Diakui”), Plaintif enggan dan/atau gagal dan/atau cuai untuk, membayar yang sama kepada defendan dalam memungkiri Sub-Kontrak walaupun setelah tuntutan berulangan Defendan.” The petitioner filed a counter claim wherein it seeks for a declaration that the Subcontract had been lawfully terminated premised on the repudiation and/or the breach by the respondent or alternatively a declaration that the Subcontract was lawfully terminated under Clause 4a of the Subcontract. From the counter claim of the petitioner and the reliefs prayed for by the petitioner in the civil suit, there is a dispute as to the validity of the termination of the Subcontract Agreement which is linked to the very same claim by the petitioner in the present 218 notice. The claim in the 218 notice herein arose from the alleged 14 repudiation of the Subcontract Agreement by the respondent, which forms the central issue that is to be ventilated at the trial of the civil suit, which the learned Judge failed to give judicial cognizance to. It is clear that the liability to the claim of RM351,889.60 is being substantially disputed. [23] We also found that the learned Judge erred when she ruled that, as the civil suit 22NCVC-2-1/2016 was filed 7 months after the 218 notice was filed, it was wrong for the respondent to say that the petitioner has purportedly submitted itself to the jurisdiction of the civil court in the cross claim when it filed its defence and counterclaim. The learned Judge failed to give sufficient consideration to the nature of the claim in the civil suit, but has taken an over simplistic view when she made a finding that there is nothing to bar the petitioner from pursuing the petition for winding up against the respondent for the amount due and owing which was allegedly not disputed and denied. We disagreed with the learned Judge. The civil suit 22NCVC-2-1/2016 may be filed 7 months after the 218 notice, however, we cannot ignore the fact that the claim in the civil suit 22NCVC-2-1/2016 on the alleged breaches of the Subcontract Agreement between the parties has raised disputes which has a direct bearing on the claim under the section 218 notice. Therefore, the findings of the learned Judge in relation to the cross claim by the respondent are flawed (refer to paragraphs 22 and 23 of her grounds). 15 [24] At this juncture we say that the claim under the section 218 notice is pre mature. Until and unless the petitioner obtains a judgment in civil suit 22NCVC-2-1/2016 for the amount of RM351,889.60 which is the very same claim in this petition, only then can the petitioner be classified as a creditor against the respondent. It is trite law that, in a winding up petition, it is pertinent that, the actual claim/proof of debt by the petitioner be made out as the 218 notice per se is insufficient to be evidence of a debt. The notice under section 218 is merely a notice of demand for the purpose of invoking the presumption that the respondent is unable to pay its debts. It is still incumbent on the petitioner to prove that it is a creditor and that the sum stated in the notice is due and owing, as held in the case of Metal Reclamation (Industries) Sdn Bhd v JRC Tenaga Sdn Bhd [2000] 6 CLJ 290 as follows: “[1] A statutory notice under s. 218 (2) (a) of the Act cannot be said to be prima facie evidence of the debt. It is nothing more than a letter of demand sent to invoke the presumption of inability to pay debts and its function is to warn the debtor of an impending petition. [2] A petitioner will still have to prove that it is a “creditor” and that the sum so stated in the notice is owing and due. [3] Once a debt, not being a judgment debt, is disputed, a creditor has no right to petition and this is so even if the company is insolvent (emphasis ours). [4] A winding up petition is not a legitimate means of seeking to enforce a payment of debt which has not been clearly determined. Otherwise, the courts which hear winding up petitions would first have to establish the debt and this will put the courts to unnecessary strain if a petition to wind up is 16 based not upon a judgment debt but purely on a s. 218(2) (a) notice.” [25] Further, this court in Syarikat Mohd Noor Yusof Sdn Bhd v Polibna Engineering Enterprise Sdn Bhd [2005] 2 CLJ 676 held that where the debt is disputed, the petitioner ought to prove: i) That the petitioner is a creditor; and ii) The amount claimed is a debt due and owing. As per our findings above, the petitioner failed in these respects. [26] It is undisputed that the debt pursued by the petitioner in the section 218 notice, is not a judgment debt. The debt has not been determined. Lafarge Concrete (M) Sdn Bhd v Gold Trend Builders Sdn Bhd (supra) which was cited by the petitioner to justify that winding up is not prohibited despite the absence of a judgment debt, was premised on a different set of facts, in that, there was an agreement/consent to pay the debt owed in the amount of RM50,000.00 together with interest through payments of 8 installments. Hence there was an acknowledgement of the debt owed and no genuine dispute as to the debt, which is in direct contrast to our present case. Similarly, the reliance by the petitioner in the case of Crocuses & Daffodils (M) Sdn Bhd v Development & Commercial Bank Bhd (supra) to assert the proposition that the existence of a cross claim is no bar to a petition of winding up is also misconceived, as the winding up 17 order there, was premised on a judgment after summary proceedings prior to the petition being filed. Hence the debt has been determined via a judgment obtained, which is in direct contrast to the appeal before us. Non Service of Invoice No: 2046: [27] Much fuss was raised by the respondent on the non-service of invoice no 2046 which was allegedly attached to the section 218 notice. Given that that the purported invoice no: 2046 was never annexed to the petition, nor was it served on the respondent prior to the section 218 notice, the petitioner contended that it has no knowledge of the said debt. [29] It was argued by the respondent that it is incumbent on the petitioner to show proof that the said invoice was indeed attached to the petition and that that there was such service. Any statement of account or invoice, if any, ought to have been served to the respondent as proof of the existence of any debt or claim before the issuance of the section 218 notice. [30] A perusal of the statutory declaration by the process server, Mohd Nor Aliff bin Hamsil dated 27.5.2015 (exhibit P-3) confirmed that there is no attachment of the purported invoice indicating the amount owed by the respondent. This is evident from paragraph 3 which states the following: 18 “3. Saya telah menyerahkan ke atas syarikat tersebut dengan Notis tersebut bersama dengan surat iringan bertarikh 11 Mei 2015 oleh Tetuan SL Goon & Partners secara serahan tangan dengan menghantar ke alamatnya di A-135, Tingkat 1, Wisma Sri Prima, Jalan Haji Abdul Aziz, 25000 Kuantan, Pahang. [31] Para 3 of the said statutory declaration mentioned a covering letter (“surat iringan”) by the solicitors and 218 notice which was served on the respondent. There is no mention of any attached documents, namely invoice no: 2046 as alleged by the petitioner. A further perusal of “LAMPIRAN “S-1” of the statutory declaration show that there is no attachment or any invoice. There is therefore a doubt as to whether the invoice was indeed attached and served on the respondent. [32] However, be that as it may, we find that the issue of non service of invoice no: 2046 is a non-starter. Firstly, the lack of it is not fatal nor will it invalidate the petitioner’s statutory demand. Further there is no legal requirement for the petitioner to enclose the statement of account together with the statutory demand. Secondly, the respondent in its cross claim in Suit 22NCVC-2- 1/2016 had referred to the invoice no: 2046 in the amount of RM351,889.60 in the appendix which was attached to its Statement of Claim in the civil suit. Thus, we found this denial of knowledge of the invoice No: 2046 by the respondent is misconceived. In any event, the issue of knowledge of the invoice no : 2046 on the part of the respondent would not have any effect on the present appeal, as our concern is whether the debt claimed is being disputed on 19 substantial grounds. In addition, as we have stated earlier in this judgment the principle as enumerated in Metal Reclamation (Industries) Sdn Bhd (supra) is that a statutory notice under section 218 of the CA cannot be said to be prima facie evidence of a debt. Whether the Respondent is a solvent company: [33] Premised on a Company Search which was annexed by the petitioner, it shows that the respondent company has issued shares of RM250,002.00 i.e. half of 500,000 unit shares of the authorized capital. From the Reports and Financial Statements dated 30.6.2014 , it shows that the respondent has current assets worth of RM2,121,162.00 with a total revenue of RM1,340,466.00 and profits (after taxation) of RM226,464.00 as at 31.6.2014. The information obtained by the petitioner does not support the fact that the respondent company is insolvent (exhibit CKF-2 at pages 91 and 92 of the CB). [34] We take note in the Reports and Financial Statements dated 30.6.2014 that the respondent’s total current liabilities as of 30.6.2014 exceeded its total current assets by RM1,029,779.00. However, as stated in the same the respondent is still a going concern and it neither has the intention to liquidate or to curtail significantly the scale of its operation. “The directors are of the opinion that the going concern basis is still appropriate for the preparation of the financial statements on the grounds that the 20 creditors and directors undertake to provide continuous financial support to the company and profitable operations will be achievable in the forseeable future” (page 106 of CB). Hence, the sole fact that the company’s total current liabilities exceeded its total current assets, is not a ground to determine the winding up of a company. [35] In any event, even if the respondent is insolvent (which has not been shown to be the case here), as the debt has been disputed on substantial grounds, the petitioner has no right to petition for a winding up (refer to Metal Reclamation (Industries) Sdn Bhd (supra)). [36] Further, the learned Judge states in her grounds that, in the stay application proceedings, the respondent failed to raise the issue of solvency then. The stay application has been dismissed and there has not been any appeal on the decision. Hence, the petitioner submits that the issue on solvency is res judicata. We found that this is wholly untenable, because, firstly, the hearing of the stay application is premised upon different principles and consideration altogether. The concern in that application was whether there were special circumstances to warrant a stay being granted. Secondly, the matter before us is an appeal on the winding up of the respondent, surely the issue of solvency is a live issue for the purposes of winding up. The issue of res judicata has no application at all here. 21 Conclusion: [37] Premised on the above, it is clear that the learned Judge was plainly wrong when she made the order for winding up of the respondent, when the debt is being disputed on substantial grounds and that the petitioner is not a creditor within Section 218

(2) of the CA 1965. The authorities cited by the petitioner and the learned Judge in her grounds as a basis to grant the winding up orders, namely Sri Hartamas Development Sdn Bhd v MBF Finance Bhd [1992] 1 MLJ 313, La Farge Concrete (M) Sdn Bhd v Gold Trend Builders Sdn Bhd (supra), Crocuses & Daffodils Sdn Bhd (supra), are all cases which were either based on a judgment debt i.e. a debt which had been determined or that the debt was acknowledged/not disputed. The facts in BMC Construction Sdn Bhd v Dataran Rentas Sdn Bhd [2001] 1 MLJ 356 disclosed that there was no genuine dispute as to the debt claimed, unlike the facts in our case. [38] We therefore allow the appeal with costs and set aside the order of the High Court. Signed by: Zabariah Mohd Yusof Judge of the Court of Appeal, Putrajaya. Date: 18.10.2018 22 COUNSEL: Wan Rohimi bin Wan Daud & Mohd Faizi bin Che Abu for the Appellant (Messrs. Tengku Amalin’ A-ishah Putri, Faizi & Wan Rohimi) L.L. Woon for the Respondent (Messrs. S.L. Goon & Associates)