True Fitness Sdn Bhd (dalam Likuidasi) v Top Speed Holding Sdn Bhd (BA-12B-110-07/2019)

TRUE FITNESS SDN BHD (DALAM LIKUIDASI) …DEFENDANTS

PATRICK JOHN WEE EWE SENG (SINGAPURA NO. K/P: S1658841E) GROUNDS OF JUDGMENT (Enclosure 1) 2 GROUNDS OF JUDGMENT (Enclosure 1)

On 30.9.2020 this Court held in connection with this appeal that a challenge against a transaction or security deposit on ground of alleged undue preference under the relevant provisions of law, including S.528 of Companies Act 2016, must be expressly and specifically pleaded. In the present case, it was not so pleaded in the Sessions Court; the trial proceeded as ordinary landlord and tenant case. On the other hand, it would be unfair to bar the Liquidator of the Appellant-company from such intended challenge in a new suit. Appeal is therefore dismissed with costs, and the Appellant-company’s Liquidator is at liberty to file a separate challenge suit on the alleged undue preference in respect of the Security Deposits and utility Deposit. Questions of undue preference and secured creditor to be dealt with in that new suit, if any. RM 8,000/= as costs of appeal, subject to allocator, shall be paid by the Appellant to the Respondent.

It is reasonably apparent that this Court’s decision dated 30.9.2020 merely dismissed the Appellant’s appeal on the point of lack of pleading, while giving the Appellant’s Liquidator the liberty to file a fresh suit regarding the question of alleged undue preference in respect of the Security Deposits and utility Deposit and the question of secured creditor. A decision of such nature does not finally dispose of the rights of the Appellant’s Liquidator to claim for the release or refund of the Security Deposit and Utility Deposit under the Tenancy Agreement. 3

In spite of several decisions of our apex court that an interlocutory decision of the trial court which does not finally dispose of a party’s rights is not appealable, the Appellant in the present case has still filed an appeal against this Court’s said decision dated 30.9.2020. The apex court’s judgments in Asia Pacific Higher Learning Sdn Bhd v. Majlis Perubatan Negara [2020] 1 MLRA 683 Kempadang Bersatu Sdn Bhd v. Perkayuan OKS No. 2 Sdn Bhd [2019] 2 MLRA 429 and the Court of Appeal’s judgments in Datuk Seri Ting King Sing v. Datuk Seri Ong Tee Keat [2014] MLRAU 313 (dismissal of discovery application) and Syarikat Tingam Timber Sdn Bhd Takang Sdn Bhd [2003] 1 MLRA 90 (ruling on inadmissibility of evidence) seem to have escaped the attention of some practitioners of law.

This is First Defendant/Appellant’s (hereinafter referred to as “the Appellant”) appeal against the decision of the learned Sessions Court judge Ahmad Azhari Bin Abdul Hamid (“the learned Sessions Court judge”) in allowing the Plaintiff/ Respondent’s (hereinafter referred to as “the Respondent”) claim for the arrears of rental of RM2,080,080.00 and dismissing the Appellant’s Counterclaim against the Respondent for the payment of the deposits (i.e. security deposit of RM660,000.00 and utility deposit of RM50,000.00) on 08.07.2019 (“the said decision”).

Dissatisfied with the said decision of the Sessions Court, the Appellant has appealed against the entirety of the said decision. 4

At the hearing of this appeal, the Appellant’s counsel focused his submissions on the question of undue preference under the Companies Act and the regulations thereunder and stressed that the primary desire of the Appellant’s Liquidator in this appeal was to recover the Security Deposits and utility Deposit, as the Appellant’s Liquidator was prepared to let the Respondent’s judgment sum on the claim to be dealt with by way of Proof of Debts in the winding-up process.

Statement of Claim dated 28.12.2017 (“SOC”)

The Appellant is a company in liquidation which was wound up in the Kuala Lumpur High Court vide the Winding Up Petition No: WA28NCC-335-06/2017 on the 14.09.2017 (Paragraph 2 of the SOC).

The Respondent then obtained leave to commence legal proceedings against the Appellant from the Kuala Lumpur High Court vide the suit No: WA-28PW-204-11/2017 on the 13.12.2017 (Paragraph 4 of the

The Second Defendant at all material time was the guarantor to the Appellant (Paragraph 5 of the SOC).

Vide a Tenancy Agreement dated 16.11.2015 (“the said Tenancy Agreement”) which was signed by the Respondent and the Appellant, the Respondent agreed to let to the Appellant the premises known as “The whole of the four (4) storey shop houses bearing postal address 5 of No. 1, 2, 3, 4, 5, 6, 7 & 1st to 3rd Floor of Lot 8, Jalan USJ 10/1H, 47620 UEP Subang Jaya, Selangor Darul Ehsan” (“the said Premises”) for a monthly rental of RM173,340.00 for a period of three

years from 01.01.2015 until 31.12.2017 subject to the terms and condition contained in the said Tenancy Agreement (Paragraph 6 of the SOC).

Vide a “Personal Guarantee” Agreement dated 16.11.2015 (“the said Guarantee”) and as a consideration for the Respondent agreeing to let to the Appellant the said Premises, the Second Defendant had agreed to provide a guarantee to the Respondent for an aggregate not exceeding RM1,000,000.00 only in respect of any damages and/or losses suffered by the Respondent occasioned by any breach by the Appellant against the terms and conditions contained in the said Tenancy Agreement (Paragraph 7 of the SOC).

The Appellant had breached the said Tenancy Agreement and had failed to make the payment of RM2,080,080.00 which represents the arrears of rental for the months of January 2017 to December 2017 (Paragraph 8 of the SOC).

Even though the Appellant was given a demand and/or a notice to pay and/or to remedy the breach in the said Tenancy Agreement, the Appellant had failed and/or neglect and/or refused to do so (Paragraph 9 of the SOC).

(ii) Statement of Defence and Counterclaim dated 19.02.2018 (“SOD & CC”) 6

The Appellant pleads that by virtue of the laws relating to companies and liquidation, if a party had already submitted their proof of debt to the liquidators, therefore, the said party is subjected to the division of dividends (if any) by the liquidators as the said party has shown interest to participate in the winding up process (Paragraph 3 of the

Therefore, the Appellant pleads that the claim by the Respondent is premature and should be set aside and/or stayed pending the finalisation of the liquidation process (Paragraph 4 of the SOD & CC).

The Appellant pleads that the Respondent’s claim is without basis as the Respondent is currently claiming for the total sum of arrears of rental of RM2,080,080.00 which is the arrears of rental from the months of January 2017 to December 2017. The reason being that vacant possession was given to the Respondent somewhere in November / December 2017 vide and Agreement dated 08.12.2017. The Appellant further states that the Appellant had also made payments to the Respondent and that the Respondent is also owing to the Appellant such as legal costs (Paragraph 11 of the SOD & CC).

The Appellant’s Counterclaim against the Respondent is for a total amount of RM710,000.00 being the rental deposit (RM660,000.00) and security deposit (RM50,000.00) which had been a paid to the Respondent. In paragraph 17 of the SOD & CC, the Appellant pleaded as follows: “D1 menyatakan bahawa merujuk kepada terma-terma dan syarat-syarat di atas. Plaintif adalah bertanggungjawab khususnya (tetapi 7 tidak terhad) di bawah klausa 5.4 Perjanjian Penyewaan tersebut untuk memulangkan wang sejumlah RM660,000.00 sebagai sewa deposit yang dibayar di bawah klausa 8 (a) jadual kepada Perjanjian Penyewaan tersebut dan juga RM50,000.00 yang dibayar sebagai “utility deposit” menurut klausa 8(b) jadual kepada Perjanjian Penyewaan tersebut. D1 menyatakan bahawa adalah fakta nyata bahawa D1 telah membayar jumlah-jumlah tersebut kepada

(iii) Reply to Statement of Defence and Defence to Counterclaim dated 20.07.2018 (“Reply to SOD and Defence to CC”)

The Respondent pleads that the Respondent is entitled to forfeit the rental deposit and security deposit in the event the Appellant terminates the said Tenancy Agreement before the tenancy period ends (Paragraph 15 of the Reply to SOD and Defence to CC).

The trial in the Sessions Court was carried out on the 21.03.2019. The following witnesses were called :- (i) Lee Swee Meng - SP – 1 (for the Respondent) (ii) Patrick John Wee Ewe Seng - SD – 2 (The Second Defendant personally) (iii) Tan Kah Beng - SD – 1 (for the Appellant).

After the trial, the Sessions Court allowed the Respondent/Plaintiff’s claims against both the Appellant/1st Defendant and the 2nd Defendant (guarantor).

The Appellant/1st Defendant filed this appeal but the 2nd Defendant did not file any appeal. 8

In the Appellant’s submissions in this appeal, the focus and emphasis of the Appellant are on the questions of undue preference and secured creditor as shown from the following paragraphs of the Appellant’s Written Submissions: “2. On the outset, we submit that the learned Sessions Court judge has erred by failing to take into consideration that the Appellant is in fact a wound up company [SEE PAGE 252 OF RECORD OF APPEAL] and therefore, any debts against the Appellant has to be dealt with in the winding up process of the Appellant and likewise, any debts owed to the Appellant must be paid to the Appellant for the benefit of all the unsecured creditors of the Appellant which will be distributed on a pari passu basis to all the creditors. If My Lord were to peruse the Grounds of Judgement, there is no mention of this preliminary consideration at all. Hence that is why we humbly say that the decision of the learned Sessions Court judge is wrong. We will address this Honourable Court as to why the learned Sessions Court judge had erred in arriving to this decision.

We submit that the judgement entered by the Respondent is to be dealt with in the winding-up process of the Appellant as the Respondent is an unsecured creditor of the Appellant. Essentially, a creditor (the Respondent) shall prove his debt by delivering or sending the liquidator an affidavit verifying the debt. The said affidavit can either be made by the creditor himself or by some other person authorized on behalf of the creditor. The contents of the affidavit shall be in the prescribed form. It shall refer to a statement of account 9 showing the particulars of the debt and shall specify the vouchers if any. The liquidator will then issue a notice to the creditors to prove their debt. In so examining the proof of debt lodged, the liquidators shall in writing admit or reject it on whole or in part or require further evidence in support of it. If the liquidators reject the proof, it shall be in the format outlined in the prescribed form. A dissatisfied creditor can then appeal to the Court.

The above is a summary of the process which in general describes the proving a debt. What is clear from the applicable process is the requirement of a sworn statement in the form of an affidavit. It also entails the production of any form of proof to substantiate the debt sought to be proven. It will then be considered by the liquidator. In short, all evidence that can support the claim would have to be forwarded to the liquidators for determination. The very basis for saying this is that all claims (liquidated) against a wound-up company must be made by way of filing of a proof of debt.

At this juncture, we wish to highlight to this Honourable Court that the Respondent has in fact filed a copy of the Proof of Debt dated 16.08.2019 [REFER TO PAGE 6 OF SUPPLEMENTARY RECORD OF APPEAL VOLUME 2]. In essence, the Respondent is now submitting the stance that the judgement entered against the Appellant is subjected to the winding-up process of the Appellant.

My Lord, it is trite law that once a company is wound up, any claimant must file its proof of debt in respect of a liquidated sum. Since the Appellant is currently in liquidation, the Respondent’s claim must be made by filing the proof of debt to the Liquidators of the Appellant. 10 Reference is further made to SECTION 525 OF THE COMPANIES ACT, 2016 (TAB A OF BOA) which provides as follows:- “525. Rights and duties of unsecured creditors

Every creditor shall prove his debt immediately after the making of a winding up order.

A debt may be proved by delivering or sending an affidavit through the post in a prepaid letter to the liquidator.

The affidavit shall-

verify the debt;

be made by the creditor himself or by any person authorized by or on behalf of the creditor or his estate and if made by a person so authorized, it shall state his authority and means of knowledge;

contain or refer to a statement of account showing the particulars of the debt and shall specify the vouchers, if any, by which the statement of account can be substantiated; and

state whether the creditor is or is not a secured creditor. (4) The liquidator may at any time call for the production of the vouchers or books of account. (5) A creditor shall bear the cost of proving the creditor's debt unless the Court otherwise specially orders.

Every creditor who has lodged a proof shall be entitled to see and examine the proofs of other creditors at all reasonable times. (7) A creditor proving his debt shall deduct from his debt all trade discounts, but he shall not be compelled to deduct any discount not exceeding 11 five per centum on the net amount of his claim, which he has agreed to allow for payment in cash.”

Reference is further made to RULE 78 AND 79 OF THE COMPANIES (WINDING-UP) RULES, 1972 (TAB B OF BOA) which provides as follows:- “Rule 78. In a winding-up by the Court every creditor shall prove his debt, unless the Judge in any particular winding-up shall give directions that any creditors or class of creditors shall be admitted without proof. Rule 79 A debt shall be proved in any winding-up by delivering or sending to the liquidator an affidavit verifying the debt together with the prescribed filing fee.”

We further refer to the case of TORITA RUBBER WORKS SDN BHD v. CHEW CHONG EU [2009] 5 MLJ 208 (TAB C OF BOA) which provides as follows:- “(g) In the instant case the applicants have filed a civil suit which has not been determined and also filed proof of debt with the liquidator which was rejected. It will be proper exercise of judicial discretion pursuant to s 279 of the CA 1965 to direct the liquidator to accept the proof of debt and make the payment (if any) in respect of the applicant's claim after the final determination of the suit inclusive of the appeal process. And for this purpose the respondent is at liberty to stay the distribution of assets of the company or proceed with the distribution subject to reserving the sum claimed by the applicant with interest, costs etc; sufficient to meet the applicant's claim.”

We further refer to the case of RNC CORPORATION BHD v. KESVARAN TP MURUGASU [2009] 3 MLJ 178 (TAB D) which provides as follows:- 12 “(i) the relief sought by Kesvaran which is to obtain an unsecured monetary amount should be dealt with by way of proof of debts as part of the liquidation of RNC;

(ii) the fact that Kesvaran has an award granted by the Industrial Court should not entitle him to the first cut of the assets of RNC over and above the other creditors;

(iii) Kesvaran's unsecured monetary claim should rank pari passu ie equally with the other unsecured creditors;

(iv) it would create a precedent for the creditors of RNC to proceed with their claim in the court, ignoring the terms of the Danaharta Scheme which would consequently hamper the expeditious discharge and performance of the duties and functions of the liquidators and further reduce the assets available for distribution to the general body of creditors. It would undermine the Danaharta Scheme and belittle the purpose of Danaharta Act. All creditors, including Kesvaran and shareholders are bound by the Danaharta Scheme and therefore Kesvaran should be paid in accordance to the terms of the Danaharta Scheme.”

Therefore, from the authorities above, we humbly reiterate that the Respondent’s judgement should be dealt with via the winding up process of the Appellant. F(2). WHY THE APPELLANT’S COUNTERCLAIM SHOULD BE ALLOWED 13

We submit that the Appellant’s Counterclaim should be allowed on the points as follows:- (i) The rental and security deposits form part of the assets of the Appellant; (ii) Undue preference will be applicable if the deposits are paid to the Respondent; and (iii) The Respondent has no rights to forfeit the rental and security deposits.

The Appellant will elaborate on the points raised as below.

THE RENTAL AND SECURITY DEPOSITS FORM PART OF THE ASSETS OF THE APPELLANT

My Lord, We submit that the learned Sessions Court judge had erred in arriving at his decision by failing to take into account the Appellant’s Counterclaim in this matter. In essence, if the learned Sessions Court judge had taken into account the Appellant’s Counterclaim, the learned Sessions Court judge would have come to a conclusion that the Appellant’s Counterclaim for the rental and security deposits actually form part of the assets of a wound up company (the Appellant).

Reference is made to SECTION 489 (1) OF THE COMPANIES ACT, 2016 (TAB E OF BOA) which provides as follows:- “(1) As soon as practicable after the making of a winding up order by the Court, the liquidator shall- (a) cause the company's property to be collected and applied to discharging the company's liabilities; and (b) consider whether subsection (2) requires the settlement of a list of contributories.” 14

It is undeniable that the rental and security deposits form part of the assets of the Appellant and should be treated pursuant to Section 489 of the Companies Act, 2016.

Based on this, we humbly submit that the rental and security deposits should be paid back to the Appellant as it will then form part of the assets of the Appellant which will be distributed to all the creditors of the Appellant (including the Respondent) based on the pari passu basis.

(ii) UNDUE PREFERENCE WILL BE APPLICABLE IF THE DEPOSITS ARE PAID TO THE RESPONDENT

In addition, the Appellant submits that the Respondent is not entitled to forfeit the monies held by it because this would be deemed as an act of undue preference towards itself as the Respondent is an unsecured creditor. We submit that the law in respect of undue preference is designed to preserve the sanctity of the pari passu principle by which creditors in a winding up share rateably in the assets available for distribution.

With reference to SECTION 528 OF THE COMPANIES ACT, 2016 [TAB F OF BOA] it provides as follows:- “Section 528 (1) Any transfer, mortgage, delivery of goods, payment, execution or other act relating to property made or done by or against the company which is unable to pay its debts, as the debts become due, from its own money in favour of any creditor or any person in trust for any creditor shall be deemed to have given such creditor a preference over other creditors in the event of the company being wound up on a winding up petition presented within six months from the date of making or doing the same 15 and every such act shall be deemed fraudulent and void.”

As such, it is clear that the Respondent is not entitled to forfeit the deposits which were paid to the Respondent as it will clearly be deem an act of undue preference to the Respondent.”

In the Respondent’s Supplementary Written Submissions dated 28.9.2020 the Respondent inter alia objected to the Appellant’s reliance on issues which are not pleaded.

In Samuel Naik Siang Ting v. Public Bank Bhd [2015] 8 CLJ 944 the Federal Court, in dismissing the appeal, held that it is a cardinal rule in civil litigation that parties are bound by their pleadings and are not allowed to adduce facts and issues which they have not pleaded. Based on this principle and case law, the ‘last minute’ issue raised by the appellant that at the time when the SPAs with the earlier purchasers were executed, MPM was not the registered proprietor of the land should be disregarded and not considered at all in determining the present appeal. The issue raised, if accepted, would completely change the character of the appellant’s defence to the respondent’s claim and would be highly prejudicial to the respondent’s case. As such, for the purpose of the present appeal, only the pleaded case of the parties should be considered. In the premise, the respective SPAs executed by MPM, BMP and the respective earlier purchasers as agreed in the pleadings were valid and enforceable in law. (paras 29 – 35). 16

In Lee Ah Chor v. Southern Bank Bhd. [1991] 1 CLJ Rep 239 the Supreme Court held that:

Pleadings in a civil suit are very important and it is a question of whether counsels, either because of negligence or inadvertence, choose to pay them scant or no heed at all and they do so at their peril;

Where a vital issue was not raised in the pleadings it could not be allowed to be argued and to succeed on appeal. The Court will not hear counsel for the appellant’s submission on these issues and therefore the appeal in respect of these issues was dismissed.

The legal principles on the importance of pleadings are re-stated in recent judgments of the appellate courts in recent cases. In Joseph Paulus Lantip v. Tnio Chee Chang (Court of Appeal Civil Appeal No. S- 02(NCVC)(W)-71-01/2018 Mary Lim JCA (now FCJ) [2020] 4 CLJ 79 stated: “[28] The role played by pleadings cannot be overstated. It is a fundamental principle of fair play which extends to the Court, that all parties are bound by their pleadings. It would be most damaging to our administration and system of justice if parties are allowed to plead a certain complaint, lead evidence on another and the Court, decides on something entirely different. The Federal Court recently reminded and expressed the following view on the importance of proper pleadings in Iftikar Ahmed Khan v Perwira Affin Bank Bhd [2018] 1 CLJ 415: [29] It is settled law that parties are bound by their pleadings and are not allowed to adduce facts and issues which they have not pleaded: Samuel Naik Siang Ting v Public Bank Bhd …In Lee Ah Chor v Southern Bank Bhd [1991] 1 CLJ 667; [1991] 1 CLJ (Rep) 239 it was held that where a vital issue was not raised in the pleadings, it could 17 not be allowed to be granted and to succeed on appeal. A decision based on an issue which was not raised by the parties in their pleadings is liable to be set aside: … In The Chartered 13 Bank v Yong Chan [1990] 1 CLJ 1113; [1990] 1 CLJ (Rep) 330; [1990] 1 MLJ 157, the Federal Court set aside the judgment of the trial judge as it was decided on an issue not raised on the pleadings. In that case, the trial judge erred in concluding that the pleadings included a claim for breach of contract as well as a claim for libel.”

Our appellate courts have time and again reminded us of the importance of pleadings and the requirement of confining the Court’s decision to the pleaded causes of action and pleaded defences. Such reminders and restatement of principles include those summarized below:

Parties are bound by their pleadings, and the court cannot award judgment on a cause of action which was not pleaded: Instant Colour System Sdn Bhd v. Inmaker Asia Pacific Sdn Bhd [2017] 2 MLJ 697 (FC); Ambank (M) Bhd v. Luqman Kamil [2012] 3 MLJ 1 (Federal Court);

Where oral agreement was pleaded, the plaintiff is not allowed to argue its case on the basis of written agreement because written agreement was not pleaded: Rasiah Munusamy v. Lim Tan & Sons [1984] 2 MLJ 291, at 295 (Supreme Court);

It is most damaging to our administration and system of justice if parties are allowed to plead a certain complaint, lead evidence on another and the court decides on something entirely different: Iftikar Ahmed Khan v. Perwira Affin Bank [2018] 1 CLJ 415, para. [29], Federal Court; 18

It is erroneous for the plaintiff to plead damage for breach of contract but the court awards damages for conversion: Joseph Paulus Lantip v. Tnio Chee Chang, Court of Appeal Civil Appeal No. S-02 (NCVC)(W)-71-01/2018, [2020] 4 MLJ 79. APPLICATION OF PRINCIPLES OF PLEADINGS TO THE FACTS OF THE PRESENT CASE

In the pleadings of the Appellant/1st Defendant in our present case in the Sessions Court, the Appellant/1st Defendant did not plead undue preference or any of sections 489, 525 or 528 of the Companies Act 2016 or Regulation 78 or 79 of the Companies (Winding Up) Rules.

From the pleadings of the Appellant/1st Defendant in the Sessions Court, the Appellant/1st Defendant was defending the Plaintiff’s claims and pursuing the Appellant/1st Defendant’s counterclaim on the basis of the express clauses in the Tenancy Agreement.

As the parties are bound by their pleadings, and the court cannot award judgment on a cause of action which was not pleaded: Instant Colour System Sdn Bhd v. Inmaker Asia Pacific Sdn Bhd [2017] 2 MLJ 697 (FC); Ambank (M) Bhd v. Luqman Kamil [2012] 3 MLJ 1 (Federal Court), the Court cannot consider awarding any judgment in favour of the Appellant/1st Defendant on the basis and arguments submitted by the Appellant/1st Defendant in this appeal, as the nature and basis for the counterclaim being pursued in this appeal is materially different from the nature of the defence and counterclaim pleaded by the Appellant/1st Defendant in the Sessions Court. The nature and basis for the counterclaim being pursued in this appeal is 19 a material departure from the pleadings of the Appellant/1st Defendant in the Sessions Court, and there is no application for amendment of the pleadings. It is most damaging to our administration and system of justice if parties are allowed to plead a certain complaint, lead evidence on another and the court decides on something entirely different: Iftikar Ahmed Khan v. Perwira Affin Bank [2018] 1 CLJ 415, para. [29], Federal Court.

In the premises this Court cannot entertain on the merits the submissions of the Appellant/1st Defendant referred to in paragraph 22 above.

In the Sessions Court below the Appellant/1st Defendant also argued that based on the terms of the Tenancy Agreement the Appellant/1st Defendant’s counterclaim for the Security Deposit and utility Deposit should be allowed.

In reply to such argument, the Respondent/Plaintiff argued that based on the provisions of the Tenancy Agreement, the Respondent is entitled to keep the Security Deposit and Utility Deposit as a result of the breach of Tenancy Agreement on the part of the Appellant/1st Defendant.

In support of such argument in reply, the Respondent/Plaintiff in his Supplementary Written Submissions dated 28.9.2020 also cited the Federal Court case of Asia Commercial Finance (M) Berhad v. JB Precision Moulding Industries Sdn Bhd [1996] 2 MLJ 1 and argued that the Appellant was not entitled to refund of the Security Deposits and Utility Deposits in the circumstances of the present case. In Asia 20 Commercial Finance (M) Berhad v. JB Precision Moulding Industries Sdn Bhd, the Federal Court held that :

By virtue of s 219(2) of the Companies Act, the winding up shall be deemed to have commenced on the date of the presentation of the winding-up petition. Thus, whether there was an existing debt to constitute a lien to come within the term ‘secured creditor’ as defined in s 2 of the Bankruptcy Act in this cases, depended on whether there was any debt due to the lessor from the lessee at the time of the presentation of the winding-up petition, provide a winding-up order was made by the court. It was also essential that the debt was due form the debtor (lessee) to the creditor (lessor) (see p 8E); Re Perkins exp P Mexican Santa Barbara Mining Co (1890) 24 QBD 613 followed.

In this case, pursuant to s 219(2), the winding-up was deemed to have commenced on the date of the presentation of the winding-up petition, ie 2 December 1989. From the evidence, it was obvious that the lessee was owing the lessor at least two instalments of rentals on that day. Therefore, there existed debt owing by the lessee to the lessor on 2 December 1989. It followed that there was a lien within the term of ‘secured creditor’ under s 2 of the Bankruptcy Act, and the lessor was a secured creditor on 2 December 1989 (see p 9C-I).

Independent of the definition of secured creditor contained in s 2 of the Bankruptcy Act, the lessee was nonetheless entitled to hold the memorandum as security for payment of the arrears of instalment rentals owing. The deposit was placed as security for the performance of the terms and conditions of the agreement and 21 was refundable at the expiry of the agreement and was refundable at the expiry of the agreement but only upon full satisfaction of the terms and conditions therein contained. As the lessee had breached the terms of the lease agreement through its acts, the lessor was entitled to hold the deposit of RM25,086 paid under the memorandum of security deposit and the prepaid rental of RM1,605 as security and that the lessor was a secured creditor to the extent of the deposit and the prepaid rental which amounted to RM26,691 (see pp 10B-I and 11 A-D).

In light of the validity of the set-off by the lessor, there was no substance in the contention of the lessee that there had been undue preference in favour of the lessor under s 293 of the Companies Act rendering the set-off liable to be avoided (see p 11E)”.

In the considered view of this Court, if the Appellant/1st Defendant’s counterclaim were allowed on the basis of the terms of the Tenancy Agreement and without invoking the principle of undue preference, the Appellant/1st Defendant would in the event of such successful defence on such basis be allowed to set-off the awarded amount of the counterclaim against the total amount of the Respondent/Plaintiff’s claims for arrears of rents. From the oral submissions and clarification by the Appellant/1st Defendant’s counsel during the hearing of this appeal, the real intention of the Appellant/1st Defendant’s Liquidator is to recover the amounts of the Security Deposit and Utility Deposit on ground of undue preference and to sue the said deposits to pay the creditors of the Appellant/1st Defendant in pari passu. In such a scenario, there would be duplication of claims for the same Security Deposit and Utility Deposit if the Appellant/1st Defendant were to be 22 allowed the counterclaim on the basis of the terms of the Tenancy Agreement to set-off against the Respondent/Plaintiff’s claims and then later make another claim for the same deposits on ground of undue preference so as to use the monies comprised in the deposits for distribution to the company’s creditors in pari passu.

The Sessions Court has erred in principle when the Sessions Court decided on the question of undue preference which was not pleaded by the Appellant/1st Defendant. If the Sessions Court were to decide the case on the pleaded issues, the most that the learned Sessions Judge could decide would be to allow the 1st Defendant’s counterclaim amount (i.e. Security Deposit and utility Deposit) to be set-off against part of the Plaintiff’s larger amount of claims (i.e. rentals for the balance tenancy period, etc.), thereby leaving a net balance in favour of the Plaintiff and no monetary amount to be released or paid to the 1st Defendant or its Liquidator. In the circumstances, the Sessions Court’s decision to order the Plaintiff to release and pay the Security Deposits and Utility Deposit to the 1st Defendant is erroneous in principle and in law and cannot be sustained.

In the circumstances, as this Court has found that due to the Appellant/1st Defendant’s lack of specific pleading on the argument of undue preference under the Companies Act and therefore this Court cannot entertain such argument on merits, the fair and proper order to be made on the counterclaim is to dismiss the Appellant/1st Defendant’s counterclaim while giving the Appellant/1st Defendant’s Liquidator the liberty to file a separate challenge suit on the alleged undue preference in respect of the Security Deposits and Utility Deposit so that the question of undue preference can be fully and properly addressed in evidence and argued by both parties. 23

In conclusion, this Court decided on 25.9.2020 that the appeal is dismissed with costs, and the Appellant-company’s Liquidator is at liberty to file a separate challenge suit on the alleged undue preference in respect of the Security Deposits and Utility Deposit. Questions of undue preference and secured creditor are to be dealt with in that new suit, if any.

After hearing counsel on the question of costs of appeal, this Court assessed and ordered RM8,000/= as costs of appeal, subject to allocator, to be paid by the Appellant to the Respondent. Dated : 12th November 2020 Signed ………........................................................ TEE GEOK HOCK JUDICIAL COMMISIONER HIGH COURT OF MALAYA AT SHAH ALAM (NCVC 10) To the parties and/or their solicitors:

For the Appellant :

For the Respondent : K.Y Wong, C.Y Chin & Kenneth Khoo