Saffron Info Systems Sdn. Bhd. v Saravanan A/L Subramaniyan (B-02(NCC)(W)-1271-07/2024)

Dan RC Buminiaga Sdn. Bhd. (No. Pendaftaran Syarikat: 775288-w)

Saravanan A/L Subramaniyan (No. Kp: 700703-10-6125) …Defendan-Defendan (Tindakan Asal)

RC Buminiaga Sdn. Bhd. (No. Pendaftaran Syarikat: 775288)

Saravanan A/L Subramaniyan (No. Kp: 700703-10-6125) …Plaintif-Plaintif

Saffron Info Systems Sdn. Bhd. (Nombor Pendaftaran: 872225-p)

Arinaa Kambyan Berhad (No. Pendaftaran Syarikat: 1305710-x)

Sudhir a/l A.K. Kumaren (No. K/P: 621211-02-5649) …Defendan-Defendan (Melalui Tuntutan Balas dan Perintah Bertarikh 27.4.2021) (Yang diputuskan oleh Yang Arif Hakim Indra Nehru a/p Savandiah Hakim Mahkamah Tinggi di Shah Alam pada 26 hb Jun 2024)] BROAD DECISION [1] This is an appeal against the decision of the High Court at Shah Alam dated 26 June 2024, wherein the learned High Court Judge dismissed the Appellant's claim against the Respondent (2nd Defendant) in his personal capacity, while allowing the claim against the 1st Defendant RC Buminiaga Sdn Bhd ("RCB"). Brief Facts [2] The Appellant paid a total sum of RM970,000.00 to RCB in five tranches between October 2018 and June 2019. The Appellant's case is that this sum was paid for the purchase of shares in RCB. It was the Appellant’s contention that when the share sale did not materialize, the sum became a loan repayable by both RCB and the Respondent. The Respondent was the sole director of RCB at the material time. [3] The Appellant now seeks to hold the Respondent personally liable, jointly and severally with RCB, to repay the said sum. The Appellant's grounds for appeal centre on allegations that the Respondent fraudulently misrepresented matters to the Appellant, used RCB as a vehicle to shield himself from liability, and should have the corporate veil lifted against him. Issues Before This Court [4] The sole issue before this Court is whether the learned High Court Judge erred in law and in fact when he refused to hold the Respondent personally liable for the sums claimed. Our Decision: Separate legal personality [5] The fundamental principle of company law is well-established: a company is a separate legal entity distinct from its members and directors. This principle is enshrined in Section 20 of the Companies Act 2016, which provides that a company incorporated under the Act is a body corporate and shall have legal personality separate from that of its members. [6] In this case, all payments totalling RM970,000.00 were made by the Appellant directly to RCB, not to the Respondent personally. [7] The Respondent, as director of RCB, was merely acting as an officer of the company. However, any debts belonging to the company which have been secured with a personal guarantee will need to be repaid by the director should the company become insolvent and subsequently enter liquidation. [8] From our perusal of the facts, there is no evidence, documentary or otherwise, showing that the Respondent held himself out to be a guarantor, rendering him to be personally liable for the repayment of these sums. [9] In addition, directors can also be held liable for company debts should he or she be found to have committed misconduct or fraud in the course of him performing his duties a a director. This where the lifting of the corporate veil comes into play. This is discussed further below. Absence of a concluded agreement [10] A critical deficiency in the Appellant's case is the absence of any concluded agreement for the sale and purchase of RCB's shares. The evidence reveals that a draft Term Sheet was exchanged between the parties in August 2018, but it was never finalized or executed. The draft Term Sheet itself stated a purchase price of RM3.5 million, not RM970,000.00 [11] Further, there is complete absence of any condition or restriction on how the RM970,000.00 was to be utilized by RCB. [12] Despite making five separate payments over a period of nine months totalling nearly RM1 million, the Appellant:

Did not execute any loan agreement;

(ii) Did not stipulate any terms or conditions;

(iii) Did not impose any restrictions on usage;

(iv) Did not require any security;

Did not specify any repayment terms; and

(vi) Did not document the purpose of the payments [13] Therefore, there is no basis to argue that the utilization of the funds paid by the Appellant to the RCB was contrary to any agreement written or oral. It would thus be difficult for this Court to rule that merely by the utilization of RM970,000 itself, a fraudulent act or an unconscionable conduct had been established. It was not wrong for the Respondent to argue that the said payment was for RCB’s operational expenses. Expenditures were legitimate [14] It is the case of the Respondents at trial that RCB cannot be expected to sustain itself without any income for the duration that RCB was under the control (as part of the agreed arrangement prior to finalising the sale of the shares) of the Appellant and/or Kambyan Group. This was contention was fortified by the testimony of PW1 (Captain Sudhir) the Appellant’s own witness who admitted that the amounts were for the "working capital" of RCB. The Captain Sudhir’s Q&A 8 Witness Statement at paragraph (f) and (g) stated:

"The due diligence shall ensure that there shall be a minimum cash balance equivalent of three (3) months of working capital...";

(ii) "The working capital should cover three (3) months of operational expenses including but not limited to monthly lease and/or hire purchase payments and monthly rental payments...". [15] This clearly demonstrates that the Appellant knew and intended that the monies would be used for RCB's operational expenses. [16] We also find as a fact that over the nine-month period from October 2018 to June 2019, the Appellant:

Never queried how the monies were being used;

(ii) Never requested any accounting or reporting;

(iii) Never imposed any conditions; and

(iv) Continued to make further payments knowing the prior payments had been utilized for operational expenses. [17] As such we find that there was an understanding between parties the Respondent was allowed to utilise the funds paid into RCB. This would demolish any argument that there was clear or obvious malicious conduct on the part of the Respondent in the entire transaction let alone fraudulent intent on the part of the Respondent. [18] The funds were used for legitimate business expenses and was accounted for. The payments made by RCB from its account were for staff salaries, allowances, and consultation fees in the ordinary course of business. The Appellant never questioned these expenses at the material time. [19] The payments made by RCB to staff, including the Respondent's wife (who held a PhD and provided genuine consultation services to RCB), and to other consultants, were all in the ordinary course of RCB's business. These expenses were incurred both before and after the Appellant's payments were received. No basis to lift the corporate veil [20] On the facts, we find it difficult to rule there was fraudulent intent on the part of the Respondent to justify lifting the corporate veil. [21] The general principle of the doctrine of lifting the corporate veil is well settled, wherein the court will lift the corporate veil in specific circumstances such where there is evidence of evasion of liability. Nothing of this nature was proven in court. [22] The court cannot disregard the corporate veil purely on the broad excuse that it is in the interest of justice to do so. It should include either actual fraud at common law or some inequitable or unconscionable conduct amounting to fraud in equity.(see In Law Kam Loy & Anor v Boltex Sdn Bhd & Ors [2005] 1 MLRA 521). From the facts, we struggle to attribute to any conduct that can contain the elements of lifting the corporate veil. [23] We find the decision of the Federal Court in Giga Engineering & Construction Sdn Bhd v Yip Chee Seng & Sons Sdn Bhd & Anor [2015] 6 MLRA 686 instructive where it was held: "[44] The plaintiff did not adduce any evidence of fraud, actual or equitable, or of any special circumstances that would have justified the lifting of the veil of incorporation of the defendants. [45] It is settled law that there must be evidence either of actual fraud or some conduct amounting to fraud in equity to justify the lifting of corporate veil... Further, in a plea of fraud mere allegations is not sufficient. There must be particulars given...". [24] Even if the Appellant had demonstrated that the Witnesses who testified in court lacked candour in responding to questions, it does not mean that there was fraud or unconscionable conduct proven against the Respondent when RCB was being in operation. The facts of the case would militate against a such finding. On the contrary, it demonstrated a reasonable, expected and normal use of RCB’s funds in the ordinary course of business. Conclusion [25] In the foregoing, there is no basis to impute personal liability by lifting the corporate veil against the Respondent. [26] We find the decision of the learned High Court judge not plainly wrong in accordance with the settled test laid down in Ng Koo Hui & Anor v Wendy Tan Lee Peng, Pentadbir kepada Harta Pusaka Tan Ewe Kwang, Simati & Ors [2020] MLJU 1469. “As long as the trial judge’s conclusion can be supported on a rational basis in view of the material evidence, the fact that the appellate court feels like it might have decided differently is irrelevant. In other words, a finding of fact that would not be repugnant to common sense ought not to be disturbed. The trial judge should be accorded a margin of appreciation when his treatment of the evidence is examined by the appellate courts." [27] We dismiss the appeal and the decision of the High Court is therefore affirmed. Costs of RM 30,000 subject to allocator, is to be paid to the Respondent. Tarikh: 14 Januari 2026 Ahmad Fairuz bin Zainol Abidin Hakim Mahkamah Rayuan Putrajaya Peguam bagi pihak Perayu :

Ragumaran Gopal

David Ragumaren Tetuan G. Ragumaren & Co. 56-1, RGA Chambers Jalan Telawi, Bangsar Baru, 59100 Kuala Lumpur Peguam bagi pihak Responden : Thiru Mangai Krishnan Tetuan Surendran & Thiru No. 13, Medan Istana 6