Smeb Asset Management Sdn Bhd v Jumat Bin Jaffar (JA-29NCC-267-07/2021)

This is an appeal against the decision of the learned Senior Assistant Registrar (“SAR”) on 31 March 2022 in dismissing Judgment Debtor’s application to set aside the Bankruptcy Notice (Enclosure 13) with cost of RM1000 to be paid by Judgment Debtor to Judgment Creditor.

This appeal was heard together with another appeal filed by the other Judgment Debtor (Ya’cob Bin Samingon). Both Judgment Debtor are guarantors for financing facilities namely Kemudahan Pembiayaan Bai’ Bithaman Ajil and Kemudahan Pembiayaan Bai’ Inah Mali granted to the Company, Triton Worldwide Sdn Bhd (“the Company”).

After hearing the counsels for the parties, reading their written submission and hearing their further submissions, I allow the Judgment Debtor’s appeal and set aside the Bankruptcy Notice. I further award costs of RM2000 against the Judgment Creditor.

On 13 December 2012, Judgment Creditor (“JC”) has filed claims against the Judgment Debtor (“JD”) being guarantors for the Company namely, Triton Worldwide Sdn Bhd (“the Company”) & 3 others, under Guarantee and Indemnity. JC had obtained Judgment in Default (“JID”) against all the Defendants on 15 January 2013.

The JC had on 26 April 2021 filed an ex-parte application under Order 46 Rule 3 Rules of Court 2012 (“ROC 2012”) to obtain leave to enforce the JID dated 15 January 2013.

On 21 July 2021, JC had filed Summons in Chambers (Enclosure 3) and Affidavit in Support ( Enclosure 4) to seek leave from the Court to initiate bankruptcy proceedings against JD based on the JID obtained on 15 January 2013. [JA-29NCC-267-07/2021] 27 December , 2022

Subsequent thereto, Bankruptcy Notice (enclosure 16) was issued and served on JD on 24 April 2022. JD then filed an application (Enclosure 15) on 16 December 2021 to set aside the Bankruptcy Notice and also to stay the proceedings pending disposal of their applications (Enclosure 15).

The JD’s application was dismissed by SAR on 31 March 2022. Hence the JD filed an appeal to Judge in Chambers to seek Court Order to set aside the SAR’s decision.

The Judgment Debtor has raised the following issues to be determined by the Court:

Whether Judgment Creditor is in compliance with Order 46 Rule 2 of ROC 2012 when they obtained the leave to execute the Judgment which was 6 years lapsed. The JD contended that JC has failed to comply with Order 46 Rule 2 ROC 2012. Order 46 Rule 2 ROC 2012 provides that: “2. (1) A writ of execution to enforce a judgment or order may not be issued without the leave of the Court in the following cases:

where six years or more have lapsed since the date of the judgment or order;

where any change has taken place, whether by death or otherwise, in the parties entitled or liable to execution under the judgment or order;

where the judgment or order is against the assets of a deceased person coming to the hand of his executors or administrators after the date of the judgment or order, and it is sought to issue execution against such assets;

where under the judgment or order any person is entitled to relief subject to the fulfilment of any condition which it is alleged has been fulfilled; and [JA-29NCC-267-07/2021] 27 December , 2022

where any movable property sought to be seized under a writ of execution is in the hands of a receiver appointed by the Court.” [10] The JD averred that JID was obtained on 15 January 2013, which was more than 6 years. Therefore, the JC needs to obtain leave from the Court pursuant to Order 46 Rule 2 ROC 2012. However, the ex-parte application filed by JC was made under Order 46 Rule 3 ROC 2012. JD has cited the case Dr. Shamsul Bahar Abdul Kadir & Anor Appeal V RHB Bank [2015] 4 CLJ 561 to support his arguments. [11] On the other hand, JC averred that the ex-parte application filed by them under Order 46 Rule 3 ROC 2012 was in order. [12] Upon reading the provisions under Order 46 Rule 2 ROC 2012, Order 46 Rule 3 ROC 2012 and cases of Dr Shamsul, the Court is of the view that Order 46 Rule 2 ROC 2012 and Order 46 Rule 3 ROC 2012 must be read together. Therefore the Court dismissed JD’s arguments.

Whether the Judgment Creditor had complied subsection 5(4) of Insolvency Act 1967 [Act 360] [13] The JD argued that JC had failed to comply with subsection 5(4) of Act 360. Subsection 5(4) Act 360 provides that: “(4) Before granting leave referred to in paragraph (3)(b), the Court shall satisfy itself that the petitioning creditor has exhausted all modes of execution and enforcement to recover debts owed to him by the debtor.” Further, the modes of execution as defined in subsection 5(6) as follows: “(6) For the purpose of subsection (4), modes of execution and enforcement include seizure and sale, judgment debtor summon, garnishment and bankruptcy or winding up proceedings against the borrower”. [14] Therefore in accordance to subsections 5(4) and 5(6), the JC has to satisfy the Court that they have exhausted all modes of [JA-29NCC-267-07/2021] 27 December , 2022 Before The Honorable Judicial Commissioner Wong Mee Ling 5 execution and enforcement to recover debts owed to them by JD, before the Court can grant leave to JC. [15] JD has contended that the failure of JC to enforce the Judgment obtained in year 2013 against the Company and such failure to proceed with execution has resulted the Company wound up in year 2018. [16] JD also contended that JC has failed to disclose and show the effort of JC has exhausted all modes of execution and enforcement to recover the debts owed to them by JD. The JC has failed to take any action against the Company since they obtained JID on 15 January 2013. They waited till 14 November 2018 and then through bankruptcy search discovered the Company has been wound up on 8 January 2018. [17] The JC has on the other hand, contended that JC has exhausted all execution proceedings against the Principal Debtors when Principal Debtor has wound up on 8 January 2018. The JC has referred the case of Re: Wong Choon Loong; Ex Parte Ambank

(M) Berhad [2022] MLRHU 3, to support their contentions. In that case, YA Evrol Mariette Peters, Judicial Commissioner (as she then was) inter alia, has decided that since the Principal Debtor (the Company) was wound up and in accordance to section 5(6) of Insolvency Act, all mode of execution against Principal Debtor has been exhausted. The Ladyship then decided that section 451 of Companies Act fortified the JC’s argument that resorting to the bankruptcy notice was the correct approach, as it could not proceed against the Principal Debtor. [18] It is settled law that an appeal from the decision of SAR to a High Court in Chambers is by way of rehearing and the Judge must treat the matter as though it came before him for the first time. [19] Since the appeal to Judge in Chambers is by the way of rehearing, the Court needs to examine all cause papers filed by the Parties pertaining to the applications. The Court must first ascertain whether the leave granted by SAR is in compliance with subsection 5(4) Act 360 before deciding whether Bankruptcy Notice was properly issued. [20] The Court referred to the decision of Federal Court in Hong Leong Bank Bhd v. Khairulnizam Jamaludin [2016] 4 MLRA 603; [JA-29NCC-267-07/2021] 27 December , 2022 Before The Honorable Judicial Commissioner Wong Mee Ling 6 [2016] 4 MLJ 302; [2016] 7 CLJ 335; [2016] 4 AMR 246, which decided that- “The purpose of having s 5(3) of the Act which was inserted by Bankruptcy (Amendment) Act 2003 (Act A1197) is to protect the social guarantor. There are cases where the creditors have been taking the easiest and shortest way out by claiming the defaulted loans from the guarantors directly without making serious effort to get the payments from the principal borrowers. This provision will therefore protect these guarantors from being adjudged bankrupt easily.” [Emphasis added] [21] Further, the Court of Appeal in Hong Leong Bank Berhad v. Ong Moon Huat & Another Appeal [2018] MLRAU 504, Nallini Pathmanathan FCJ echoed the same sentiments: “A purposive construction of the section as a whole discloses that the section seeks to introduce protection for the guarantor against whom bankruptcy proceedings are to be brought. The protection comes in the form of ensuring that enforcement has been exhausted in respect of the principal debtor prior to proceeding against the guarantor. It is to remedy the mischief of judgment creditors proceeding against the guarantors directly in bankruptcy rather than executing and enforcing against the principal debtor… It follows therefore that in construing section 5(4) regard must be given to section 5(6). And section 5(6) provides that the modes of execution and enforcement that must be exhausted include seizure and sale, judgment debtor summons, garnishment and bankruptcy against the borrower.” [Emphasis added] [22] Applying the principles enunciated in the aforesaid authorities and from the evidence in the Affidavit in Support (Enclosure 4), the Court is of the view that compliance with subsection 5(4) Act 360 is a pre-requisite for the Court to grant leave under paragraph

(3)(b). This is to protect guarantor from adjudge bankrupt easily by the JC and to avoid JC to proceed against the guarantor directly in [JA-29NCC-267-07/2021] 27 December , 2022 Before The Honorable Judicial Commissioner Wong Mee Ling 7 the bankruptcy proceedings rather than executing and enforcing against the Principal Debtor. [23] In the present case, the JC in their Affidavit in Support for their applications for leave (Enclosure 4), in particular, para 11 & 12, averred that they have no knowledge whether the Company and/or JD has any movable or immovable property or have any money in their accounts. [24] They further averred that JC has on 14 November 2018 carried out a bankruptcy search on the Company and found out the Company has been wound up on 8 January 2018. [25] The Court is of the view that although, the facts of Ambank’s case is similar to the facts of the present case, the facts in the aforesaid case can be distinguished with the present case. In the case of Re: Wong Choon Loong; Ex Parte Ambank (M) Berhad [2022] MLRHU 3, there was no delay on JC to proceed against the Company and the JD after obtaining JID. [26] However, in the present case, there was a delay of about 7 years for the JC to proceed with the execution and enforcement against JD. There is no explanation on the delay in the affidavit of JC (Enclosure 4). The JC only proceeded to seek Court’s leave to commence bankruptcy proceeding against JD on 20 July 2021, which was about 7 years later. [27] The Court is of the view that although JC has taken one of the modes of execution as stated in subsection 5(6) of Act 360 against JD, the inordinate delay in taking action has prejudiced JD. [28] Hence, the Court ruled the JC has failed to comply with the requirements under subsection 5(4) of Act 360, when JC applied for leave to commence bankruptcy proceedings against JD. Such failure is fatal and in accordance to subsection 5(7) of Act 360, the Court shall dismiss the Bankruptcy notice and consequentially leave granted by SAR ought to be set aside.

Other issues [29] The Court noted the preliminary objection raised by JC’s counsel pertaining to the JD’s application to set aside the Bankruptcy Notice pursuant to Order 18 Rule 19(b),(c) and (d) of ROC 2012 and also failure of JD to comply with Rule 116 of the Bankruptcy [JA-29NCC-267-07/2021] 27 December , 2022 Before The Honorable Judicial Commissioner Wong Mee Ling 8 Rules 2017. The Court in deciding this matter has considered the objection raised by the JC’s counsel and decided to dismiss the issue since the Court has ruled that JC has failed to comply with subsection 5(4) of Act 360. [30] Further, JD has raised issue on the correctness of the judgment sum stated in Bankruptcy Notice. However, based on the decision in the case of Sovereign General Insurance Sdn Bhd v. Koh Tian Bee [1987] 1 MLRA 362; [1988] 1 MLJ 304; it was held that in exercising the jurisdiction in bankruptcy proceedings, the Court cannot go behind judgment. Hence, following that decision, the Court dismissed JD’s arguments. [31] JD also raised the question whether the application for leave can be heard and determined by SAR in the Bankruptcy Unit of High Court. [32] JC’s counsel contended that SAR has the power to grant the leave as Order 46 Rule 2(1)(a) ROC 2012 does not expressly provided the application shall be heard by a Judge in person. Hence pursuant to Order 1 Rule 4(2) and Order 32 Rule 9 ROC 2012, the SAR has power to hear the application and granted the leave. [33] In the present case, the Court is of the view that since the words “the Court” are used in Order 46 Rule 2 and application for leave was pursuant to the JID obtained through the Judge in person, the application for leave to enforce JID more than 6 years should go to the original court where JID has obtained. Therefore, the Court is of the view that the application for leave to enforce judgment more than 6 years should be heard and determined by the Judge in person. CONCLUSION [34] For the reason stated above, I allow the appeal and set aside the Bankruptcy Notice issued against JD with cost of RM2,000 to be paid by JC to JD. [JA-29NCC-267-07/2021] 27 December , 2022 Before The Honorable Judicial Commissioner Wong Mee Ling 9 Dated 27 December 2022 Signed, ………………………….. Wong Mee Ling Judicial Commissioner High Court of Malaya Johor Bahru Johor Darul Ta’zim Counsel / Solicitor: For the Judgment : Rohana Ngah Creditor Tetuan Abdul Rahman Saad & Associates No.3, Jalan Permas 10/3 Bandar Baru Permas Jaya 81750 Masai Johor Darul Ta’zim. [Ruj.: RBN/SME/79416-2017/mha] For the Judgment : Ang Wei Jun Debtor Tetuan Freda Sabapathy & Co. Unit UG-02, Ground Floor Menara TJB No.9, Jalan Syed Mohd Mufti 80000 Johor Bahru Johor Darul Ta’zim. Cases Referred to:  Dr. Shamsul Bahar Abdul Kadir & Anor Appeal V RHB Bank [2015] 4 CLJ 561  Re: Wong Choon Loong; Ex Parte Ambank (M) Berhad [2022] MLRHU 3  Hong Leong Bank Bhd v. Khairulnizam Jamaludin [2016] 4 MLRA 603; [2016] 4 MLJ 302; [2016] 7 CLJ 335; [2016] 4 AMR 246 [JA-29NCC-267-07/2021] 27 December , 2022 Before The Honorable Judicial Commissioner Wong Mee Ling 10  Hong Leong Bank Berhad v. Ong Moon Huat & Another Appeal [2018] MLRAU 504  Sovereign General Insurance Sdn Bhd v. Koh Tian Bee [1987] 1 MLRA 362; [1988] 1 MLJ 304 Legislation Referred to:  Section 5 of Insolvency Act 1967 [Act 360]  Rule 116 of the Bankruptcy Rules 2017  Rules of Court 2012 Hearing Date : 06.10.2022 Decision Date : 11.10.2022