Charge

Security Transaction: Charge

Charge is a conveyance of land, lease or undivided as security for repayment of

money. The land, lease and undivided share are pledged to the creditor as security

for any money advance by the creditor or to guarantee the payment of money. In the

event that the debtor fails to make repayment of the money, the creditor can use the

land, lease or undivided share to recover the money advanced by him. The creditor

in a charge transaction is called the chargee while the person who use his land,

lease or undivided share as security in called the chargor. The debtor may be the

chargor in case he used his own land, lease or undivided share as security for the

loan. A third party charge is used to described a charge transaction where the

chargor used his land, lease or undivided share to secure loan given to a debtor

other than then the chargor.

3.2.2 Charge vs. Mortgage

One should differentiate charge with a mortgage under English land law. In Mortgage

the legal title to the land is vested in the mortgagee. The mortgagor only has a right

in equity to redeem the land from the mortgagee upon the repayment of the loan to

the mortgagee.

No

Mortgage

Charge

1

FormationFormed under the principles of the common law

FormationFormed under the provisions of the National Land Code 1965 that requires

registration.

2

FeaturesThe title to the land is transferred to the mortgagee with the mortgagor

having a right in equity for redemption (get the land to be retransferred to him)

FeaturesThe title to the land remains with the chargor. The chargee acquires an

interest in the land that the land is liable as a security for the loan.

3

RemediesMortgagee is entitle to foreclose the land (sell it to third party)

RemediesChargee entitle to remedies provided by the NLC:a. Order for saleb. Take

possession

Mortgage is not recognised by the code. See Section 205(1)

Bank Bumiputra Berhad v Doris Development Sdn. Bhd. (1988) 1 MLJ 462

The plaintiff granted the defendant an overdraft facility that was secured by a charge

over a piece of land belongs to a company. The plaintiff sued the defendant for the

sum of money. The counsel for the company submitted that the charge executed by

the company was an English mortgage at common law or a transaction exactly like

such an English mortgage.

Held: The court made a distinction between a Charge and a Mortgage. Justice Peh

Swee Chin at page 463

"In the first place, the premise that a charge under the National Land Code is the

same as an English mortgage at common law is patently erroneous. A charge is

governed by detailed statutory provisions of the National Land Code while an English

mortgage at common law was a horse of a different colour altogether.............. In an

English mortgage at common law, the mortgaged property was transferred to the

name of the mortgagee on the creation of the mortgage with a proviso for

redemption. Under the said provision, the mortgagee agreed to re-transfer the

mortgage property by a certain date beyond which it was stated to be irredeemable.

Equity stepped in and provided the equity of redemption, by which the right to

redeem was extended beyond the said date and would be lost only on foreclosure or

sale."

see also

Mahadevan s/o Mahalingam v Manilai & Son (M) Sdn. Bhd. (1984) 1 MLJ 266,

(1986) 1 MLJ 357 PC

One Mr. Ratnavale received a sum of money from the appellant on a security of a

piece of land. It was the common intention of the appellants and Mr. Ratnavale to

have the said land charged to the appellant as temporary security. A charge was

never registered.Salleh Abbas CJ at page 270 FC

"Our land law does not recognised a mortgage if it means a mortgage in the sense of

English land law whereby the legal estate, i.e. ownership of the land is transferred to

the mortgagee and what is left with the mortgagor is only an equitable right to

redeem, known as equity of redemption. But our land law certainly recognises a

mortgage in the sense of Torren system, referred to by text written as Torren

mortgage in which the mortgagor retains the legal ownership whilst the mortgagee

acquires statutory right to enforce his security."

3.2.3 Interest acquired by chargee

Chargee has interest in the land charged to him.

Ho Giok Chay v Nik Aishah (1961) 1 MLJ 49

The applicant not being a 'Malay' under s. 7 of the Malay Reservations Enactment

obtained 3 charges from the respondent to secure the repayment of certain loans.

The charge was duly registered. The applicant applied for order for sale.Held: The

charge was null and void.

Hepworth J at page 51

"..... the question with which we are concerned is not whether the charge transfers or

vests a right or interest to or in the chargee but whether that right or interest is a right

or interest in land?"

In answer to the issue the judge at page 52-53:

"By section 136 if such default is made, the chargee is at liberty to issue summons to

call the proprietor of the charge land before the court to show cause why the land

subject to the charge should not be sold by public auction ........... It is difficult to see

what the power given to the chargee by section 136 can be unless it be a right or

interest in land."

The chargee has no right or interest in land.

T. Bariam Singh v Pegawai Pentadbir Pesaka, Malaysia (1983) 1 MLJ 232

The issue before the court was whether the defendant in depositing a Malay

Reservation land title with the plaintiff as security for a loan, rendered the contract of

loan null and void.

Held: There is no provision in either the Malay Reservation Enactment or the Land

Enactment that prohibits such deposit of title and such deposit of title was therefore

not illegal.

Mohamed Zahir J at page 235

"I am, however of the opinion these rights of the chargee do not in any manner

confer any right or interest in the land charged in the chargee"

3.2.4 Statutory Charge

Sections 241-280

Section 241(1): Subject matter of chargei. Whole of land.ii. Whole of undivided

share.iii. Lease (including sub-lease)

Section 241(3): Power to charge is subject to:

i. Prohibition or limitation imposed by NLC and any other written law.

Prohibition/Limitation imposed by NLC.

Section 241: Cannot create chare in favour of TWO or more persons unless each of

them in trust relation.

Prohibition/Limitation imposed by other written law.

a. Prohibition to create a charge over Malay Reserved Land to in favour of non-

Malay.

b. Prohibition to charge land under Group Settlement Act.

ii. Limitation imposed by restriction in interest to which the land is subject.

iii. In relation to creating a charge over lease any express or implied term between

lessor and lessee. See section 231(1)(d): An implied condition in the absence of

express condition to the contrary that the lessee could not charge lease without

written consent of the lessor.

Section 241(2): Power to charge including power to create subsequent

charge.Proprietor can create more than one charge over a subject matter of charge.

No limitation is imposed by the NLC.

Section 242(1): Form 16A- charge for the repayment of debt or repayment of sum

other than debt

(2): Form 16B- charge for the payment of any annuity or other periodic sum.

Section 243: Charge shall take effect upon registration.

3.2.4.1 Effect of registered charge

Upon registration the land, lease or undivided share is liable as security. The

chargee can rely to all the remedial provisions of the NLC in case of default by the

chargor. The effects of a registered charge are as follows:

a. If the land is subsequently transferred, the transferee of the land will take the land

subject to the charge. See Section 215(3).

b. The remedies of sale (Section 253) or taking possession (Section 271) are

available in case the chargor defaulted in making repayment of the loan.

c. The Chargee acquired an interest in the land that is capable of assignment. He

can transfer the charge. See Section 214(1)(d).

d. The chargor can only lease the land with the chargee's consent that the chargee

cannot unreasonable withhold. See Section 251.

3.2.4.2 Effect of Unregistered Charge

Charge is void but the agreement to create the charge is still valid and can be

enforced by specific performance.

Mahadevan s/o Mahalingam v Manilai & Son (M) Sdn. Bhd. (1984) 1 MLJ 266,

(1986) 1 MLJ 357 PC

One Mr. Ratnavale received a sum of money from the appellant on a security of a

piece of land. It was the common intention of the appellants and Mr. Ratnavale to

have the said land charged to the appellant as temporary security. A charge was

never registered.

Salleh Abbas CJ at page 270 FC

"Thus when section 21(1) of our limitation act speaks of a 'mortgage', it must mean a

'charge' as understood and provided for in Part Sixteen of our National Land

Code........... That being the case, the words 'other charge on land' in the section

(refering to section 21(1) of Limitation Act) in our view must be the other types of

encumbrances to which the land is subjected. These could be an equitable charge or

lien, statutory or equitable, which arise as a result of depositing a title with the

lender."

Malayan Banking Berhad v Zahari Bin Ahmad (1988) 2 MLJ 135

The defendant owed the plaintiff a certain amount of money based on a loan

agreement cum assignment. Defendant defaulted in repayment and the plaintiff

applied for an order for possession of the property and order that they are at liberty

to sell.

Held : Order granted

Mohamed Dzaiddin J at page 136:

"Looking at the loan agreement and the deed of assignment in the present

application, in my opinion these documents created an equitable charge both in form

and substance."

See also

Oriental Bank v Chup Seng Restaurant (1990) 3 MLJ 493

Tan See Hock v D & C Bank (1993) 3 MLJ 250

3.2.5 Remedies available to chargee

1. Order for Sale (See Section 253 - 269)2. Taking Possession (See Section 270 -

277)

3.2.5.1 Effect of Unregistered Charge

National Land Code 1965

Sections 253,254 and 255

The Court or Land Administrator shall grant an order to sell the charge property in a

public auction upon the application of the chargee. The proceeds of the sale will be

used to pay the amount due under the charge.

3.2.5.2 Statutory Notices

Before the chargee could apply for an order for sale from the Court or the Land

Administrator, he must cause to be served a statutory notice in one of the forms

specified by the NLC on the chargor.

i. Forms 16D (Section 254).

If there is breach (whether the breach is in respect of repayment of money advanced

to chargor or any other provision of the charge agreement) has continued for one

month, the chargee can cause to be served on the chargor form 16D. See Section

254.

Form 16D is a notice to inform the chargor of the followings:

a. Specifying the breach

b. Requiring the breach to be remedied within one month from the date it was served

on the chargor.

c. Warning that if it is not remedied then, the chargor will apply for an order for sale

of the charged property.

ii. Form 16E (Section 255)

In the event that there is a clause in the charge agreement that empowers the

chargee to demand principal sum from the chargor, the chargor may issue Form 16E

on the chargor for the payment of the principal sum advanced to him within one

month from the date the form is served on the chargor. If the chargor fails to pay the

sum demanded within the one-month period, the chargee may apply for an order for

the sale of the charged property, without having to serve a notice in form 16D. See

Section 255.

Differences between Form 16D and 16E

1. The condition precedent for the issuance of Form 16E is a clause in the charge

agreement demanding the principal sum.

2. The fact that Section 255 did not make any reference to Section 253 support.

3. Condition precedent for the issuance of Form 16D is a breach that has continued

for a minimum period of one month.

Eliathamby v Sheikh Mohd Said. (1970) 2 MLJ 190.

In this case Form 16E was used when there was a breach of the charge agreement

but the charge agreement has no provision that allows the chargee to demand for

the principal sum. The Court decided that Form 16E was wrongly used.

Sharma J at page 195:

"If the principal sum secured by the charge is payable on demand it can only be by

virtue of an agreement between the chargor and the chargee. In such a case a

demand by the chargee is a condition precedent to the liability of the chargor and the

coming into existence of the chargee's right under the charge or under the National

Land Code....... The charge executed by was not a charge to which section 255 of

the National Land Code applied. The only valid and effective notice to give was the

notice under section 254 of the National Land Code and this he failed to do so."

V.A.M Hussain v BP Malaysia Sdn. Bhd. (1970) 2 MLJ 69

In this case as the principal sum secured by the charge was payable on demand, the

court held that respondent had used the correct form i.e. Form 16EIn the

circumstances where there has been a breached as well as a clause demanding for

principal sum, either Form 16D or 16E can be used. Jacob v Oversea-Chinese

Banking Corp. (1974) 2 MLJ 161

The appellant had charged his land to the respondent to secure the repayment of an

overdraft. On default of payment, the respondent served Form 16D and

subsequently applied for an order for sale. The appellant argued that Form 16E

should have been used.

Held: The demand in Form 16D was valid.

Suffian L.P. at page 163

"The language of subsection (1) of section 255 would seem to indicate that if the

chargee had made its demand by using Form 16E it need not have followed it up

with by also serving notice by Form 16D, but that if it did not first use Form 16E it

would be all right if it used only Form 16D. The object of the legislation is to see that

sufficient notice is given to the chargor before the chargee applies for an order for

sale, and in my judgment here the chargee has given the chargor sufficient notice

before coming to court."

Which form to use if the chargee also demand interest?

Mary Michael v United Malayan Banking Corporation (1971) 1 MLJ 172

Although the principal sum was payable on demand, the chargee was seeking to

recover also the interest that had become due and payable and therefore the notice

in Form 16D was the appropriate notice.

Either form can be used when the chargee is also claiming for interest.

Jacob v Oversea-Chinese Banking Corp.(1974) 2 MLJ 161. FC

Lee Hun Hoe C.J. (Borneo) at page 164:

"It seems that controversy always as to whether Form 16E or 16D should be used in

this type of cases. I do not agree that if one is demanding pricipal and interest one

would have to use Form 16D but if principal only is demanded then Form 16E must

be used. I see no reason why the words "AND INTEREST" cannot be added to the

heading of Form 16E with the appropriate amount of interest inserted showing

separately clearly the principal sum plus the interest to make up a particular amount

which is demanded."

Central Malayan Finance v Loke Kok Lai (1975) 1 MLJ 160 HC

In this case as the sum sought to be satisfied was the aggregate sum consisting of

the balance of the principal sum together with interest accumulated as at that date,

the applicant should have used Form 16D and not Form 16E.

see also

Kandiah Peter v Public Bank Bhd (1994) 1 MLJ 119

Siong Holding Sdn Bhd v D & C Bank (1997) 1 MLJ 340

Syarikat Kewangan Melayu Raya Bhd. v Malayan Banking Bhd. (1986) 2 MLJ 253

OCBC v Lean Seng Pottery Sdn. Bhd.

3.2.5.3 Order for Sale by Court

Section 256 - 259

Meaning of the existence of cause to the contrary" in section 256(3)

If the court grants an order for sale it would be contrary to some rule of law or some

rule of equity.

Keng Soon Finance Bhd. v MK. Retnam Holdings Sdn. Bhd. (1989) 1 MLJ 458

The developer in this case obtained bridging finance from the chargee to develop its

land to be sold of the sub-purchasers. The loan is to be disbursed progressively. The

chargee released the first progress payment. When the developer failed to pay the

interest on the first progress payment, the chargee called off the deal. The chargor

requested the release of further amount from the chargee including submitting an

architect certificate to the chargee to inform of the progress of the development. The

chargee did not heed to all request made by the chargor.

Instead the chargee applied for an order for sale of the charged property to recover

the first progress payment released to the chargor.

The Privy Council decided that there was no existence of cause to the contrary.

Order for sale should be granted.

Lord Oliver of Aylmerton at page 460:

"Section 256(3) of the National Land Code is mandatory. The court 'shall' order a

sale unless it is satisfied of the existence of 'cause to the contrary'. Granted that

these words have been construed in Malaysia as justifying the withholding of an

order where to make one would be contrary to some rule of law or equity, they

clearly cannot extend to enabling the court to refuse relief simply because it feels

sorry for the borrower or because it regards the lender as arrogant, boorish or

unmannerly."

Low Lee Lian v Ban Hin Lee Banking Bhd. [1997] 1 MLJ 77

Appellant created a third party charge. When the borrower defaulted in making

repayment, the bank applied for an order for sale.

Federal Court Held that 'cause to the contrary' within s. 256(3) of the Code might be

established only in three categories of cases.

Gopal Sri Ram JCA at page 82

1. When the chargor was able to bring his case within any of the exceptions to the

indefeasibility doctrine in s 340 of the Code:

2. When the chargor could demonstrate that the chargee had failed to meet the

conditions' precedent for the making of an application for an order for sale:

3. When the chargor could demonstrate that the grant of an order for sale would be

contrary to some rule of law or equity.

3.2.5.4 Granting OFS would be contrary to some rule of law

1. The charge is void on the ground of fraud

Most application for order for sale was challenged on the basis that the charge

acquired by the chargee is defeasible because it was obtained under any of the

circumstances in Section 340(2)

Public Finance Bhd. v Narayanaswamy (1971) 2 MLJ 32

The chargor subdivided his land and sold it off to sub-purchasers. He charged the

same land for a bridging finance in favour of the chargee, who knew that the land

had been fragmented, sold and some of the sub-purchasers had even gone onto

possession of their respective portion. The Chargor defaulted in making repayment

of the bridging loan and the chargor applied for order for sale from the court. In an

application for an order for sale the sub-purchasers contented when the charge was

registered, the chargor disregard the unregistered interest of the third party.

The court had refused to grand order for sale.

Ong C.J (Malaya) at page 33:

"The appellants' insistence that the interveners had no rights whatsoever except a

right to damages against the respondent for breach of contract is so plainly

unconscionable that we are not at all suprised that the judge was driven to find fraud

and collusion."

Fraud must be actual fraud not constructive fraud and it must have been committed

at before or at the time the charge in question was registeredTai Lee Finance v

Official Assignee (1983) 1 MLJ 81

Abdul Hamid F. J at page 84:

"The law is therefore settled that while subsection (1) of section 340 makes it

abundantly clear that the title or interest of a registered proprietor which includes a

chargee shall be indefeasible, such title or interest, however, by reason of

subsection (2), shall not indefeasible in a case of actual fraud involving .........

"dishonesty of some sort, not what is called constructive fraud or equitable fraud."

and at page 85:

"The fraud complained of must be that which resulted in registration of the Charge"

2. The charge is bad in law for non-complience with money Lending Ordinance 1951

Phuman Singh v Khoo Kwang Choon (1965) 2 MLJ 189

A charge document is a document of debts & should be registered in court as

required under Section 3 & 4 of the Money Lending Ordinance 1951 when the

charge is registered in favour of a money lender under the meaning of money

lending ordinance. In this case the charge was not registered as required.

When the Chargee (money lender) applied for an order for sale it's validity was

challenged. The Court decided that the fact that it was not registered was a cause to

contrary within the meaning of Section 256(3)

see also

Associated Corporation Ltd. v Poomani [1972] 1 MLJ 117

3. Non Compliance of statutory notices.

Eliathamby v Sheikh Mohd Said. (1970) 2 MLJ 190.

Sharma J at page 195:

"The charge executed was not a charge to which section 255 of the National Land

Code applied. The only valid and effective notice to give was the notice under

section 254 of the National Land Code and this he failed to do so."

4. Application made to wrong tribunal.

Section 256 & 260 NLC

Tan Teng Pan v Wong Fook Shang (1973) MLJ 31

It was held that in the case of land held under Land Office title, the court has no

jurisdiction to order the sale of that land at the instances of an application by a

chargee.

5. Charge was registered contrary to restriction in interest.

United Malayan banking Corp. Bhd. v Syarikat Perumahan Luas Sdn. Bhd. (No 2)

[1988] 3 MLJ 352

The chargor apply to set aside an order for sale of sale relating certain land charged

to UMBC on the ground that it was void. The charge was registered in breach of an

express restriction in interest endorsed on the document of title.Held allowed the

application.

Edgar Joseph Jr. J at page 356:

"..... the charge having been registered in breach of an explicit statutory prohibition

imposed on the title to the charged land pursuant to the provision of the Code, the

title or interest of the chargee is defeasible since registration thereof had been

obtained by means of an insufficient or void instrument (s.340(2)(b)) and also

because the Registrar of Title, in registering the charge, had acted ultra vires the

powers conferred upon him: s. 340(2)(c)."

3.2.5.5 Granting OFS would be contrary to rule of equity

1. When the chargor hads turned to thirdparty to redeem the charged property and

had infact collected the redemption sums from the thirdparty, they were under some

equitable duty so as to grant an order would be contrary to the rule of equity

acquired by the thirdparty.

Kuching Plaza Sdn. Bhd. v Bank Bumiputra Malaysia Bhd. (1991) 3 MLJ 163.

The developer charged the land including the building on it to the chargor. Parcels in

the building were sold to the sub-purchasers. The developer is unable to make

repayment of the loan and the chargee applies for an order for sale. The Supreme

Court decides that the chargee had looked toward the sub-purchaser of the parcels

to redeem the property charged by the developer. There is evidence that the

chargee had collected the redemption sums from the sub-purchaser to satisfy the

loan. Therefore they cannot turn around to say that the developer had breach the

term of payment for the loan. The court is off the opinion that these were valid

circumstances and it would be unjust for the chargee to foreclose the charge

because if the court granted the order it would be contrary to the rule of equity.

2. Granting an order for sale when the chargee had knowledge that the land was

previously sold to the third party prior to the registration of the charge in their favour

would be contrary to the rule of equity.

Oversea Chinese Banking Corporation v Lee Tan Hwa (1989) 1 MLJ 261.

The land owner charged his land to the chargee to secure an overdraft facility. When

the chargor failed to make repayment of the loan they applied for an order for sale.

The intervener in this proceeding had challenged the application on the ground that

the chargee had knowledge that the land was prior than that sold to the intervener

under a sale and purchase agreement. The knowledge was imputed to the chargee

since the same solicitor act for both transactions. If the court granted the order it

would be contrary to the rule of equity.

Buxton v Supreme Finance (M) Berhad (1992) 2 MLJ 481

Supreme Court decided that the interest of bona fide purchaser for value cannot

prevail over the interest of the chargee. When the sub-purchaser having executed

the sale and purchase agreement with the notice of the charge, they must accept the

purchase subject to the registered charge and the indefeasibility of title of the

chargee. The indefeasibility of the chargee's interest was not effected by the

chargor's conduct, however unconscienable or deceitful it may be. Unless it can be

shown that there was collusion between then chargor and the chargee to defeat the

interest of the a third party.

3.2.5.6 Order for sale by Land Administrator

Section 260 - 265

The application for an order for sale made to the Land Administrator must be in Form

16G. Section 260(2). When the Land Administrator received Form 16G from the

chargee, he shall fixed a date for an enquiry. The chargee shall be notified of that

date, while summon will be served on the chargor for him to make representation at

enquiry to be held thus show cause why the order for sale should not be made. See

Section 261.

At the conclusion of the enquiry the, the Land Administrator shall order the sale of

the charged property. But if he is satisfied that there are existence of cause to the

contrary or cause for not given the order, he may denied the application for order for

sale by the Chargee. See Section 263(1)

Land Administrator has no power or authority to look beyond what appear on the

register.

Suppiah v Pannompalam (1963) MLJ 202

The chargor argued that the Collector of Land Revenue should have accepted his

story as how he came to sign the charge instrument. The Court decided that the

Collector was bound to accept the register.

Thompson C.J. at page 204

"In the present proceedings, the Collector was bound to accept the register and one

he was satisfied that the charge with which he was concerned was on the register

then the only question for him to decide was whether or not there had been default in

the payments provided for. If he was not so satisfied he could make no order."

Gurpal Singh v Kananayer (1976) 2 MLJ 34

The chargor opposed an application for an order for sale before the Land

Administrator, by challenging the validity of the charge on the ground of fraud,

misrepresentation, forgery, insufficient instrument and void instrument, thus the

interest vest in the chargee is defeasible under Section 340(2) and should set-aside.

The court ordinarily hears these grounds. The court decided that the land

Administrator has no power to investigate into the circumstances as how the chargor

came create the charge in favour of the chargor.

The Land Administrator is bound to make an order for sale at the end of the enquiry

and non other.

Government of Malaysia v Omar Hj. Ahmad (1983) 1 MLJ 242.

The Land Administrator ordered that the chargor should pay the arrears due to the

chargee by way of installments without prior consent from the chargee. Court

decided that the Land Administrator was wrong. Since there are causes to the

contrary, the Land Administrator should order that the land to be sold by public

auction. He has no power under Section 263 to order that the arrears to be paid by

installment.

When the Land Administrator had granted an order for sale he is Functus-officio. He

cannot cancel or alter the order that he made.

Lim Yoke Foo v Eu Finance Bhd. (1985) 1 MLJ 17

In the as the result of administrative mistake the the first order for sale was followed

by another order for sale that was supposed to amend the first order and recourt an

indeptness amount smaller then the first order. The court decided that the Land

Administrator has no power whatsoever to cancel such order once it is made.

Only the Court can make any cancellation or alteration to the order made by the

Land Administrator.

Malayan United Bank Berhad v Cheam Kim Yu (1991) 1 MLJ 313

The chargee obtained an order for sale to sell off the charged property.

Subsequently with their consent the land was sold to the intervener under a Sale and

Purchase agreement. The intervener wished to set-aside the order made by the

court.

The court decided that it has the power to set-aside the order made by the Land

Administrator after the land was sold to the intervener with the consent of the

chargee even though the Land Administrator had granted an order for sale.

3.2.5.7 Civil Suit vs. OFS

Bank Bumiputra Malaysia Berhad v Esah Bt. Hj. Abdul Ghani (1986) 1 MLJ 16

The appellant lent money to the principal debtor and as security took a charge over

land belonging to the principal debtor and two others. The respondent was a

guarantor for the loan. The principal debtor failed to pay the loan. The appellant

applied for an order for sale but did not proceed with it. Instead took a proceeding

against the respondent as guarantor.

The court held that the chargee could pursue all remedies available to him under the

law when the borrower defaults. He can institute an action for the recovery of debts

as well as foreclosure proceedings on the property. The two actions are not the

same.

See also

Co-operative Central Bank v Balaka Suria Sdn. Bhd. (1991) 3 MLJ 45

HongKong & Shanghai Banking Corp. Ltd. v Wan Mohd Bin Wan Ngah (1991) 3 MLJ

119

The chargor bought a house and to assist him the purchase of the house, he

charged the house to the chargee. The chargor defaulted in making repayment to

the chargee. The chargee apply for an order for sale. At the same time he also filed

a civil action for the recovery of debts against the chargor.

Lamin J. in his judgment on the question whether the chargee was entitled in law to

proceed by way of a civil suit before first realising the security under the charge and

if so, whether he was entitled to proceed concurrently on all the remedies?He said

the Land Administrator is a competent tribunal under the law where the chargee

could obtain a complete remedy. To allow the chargee to proceed with the civil suit in

court for the recovery of debt must be treated as a case of abuse of the process of

the court.

3.2.5.8 Effect of Sale

The land will be sold off by public auction either with the assistance from the court

(See Section 259) or from the Land Administrator (See Section 265). At the

conclusion of the sale the successful Bidder after paying full purchased price shall be

issued with a Certificate of Sale in form 16F (from the Court) or form 16I (from the

Land Administrator).

The certificate of sale given to the purchaser shall be treated for all purposes as an

instrument of dealing (See Section 292) of dealing and can be registered. See

Section 267. When it is registered the title or the interest of the chargor shall pass to

and vest in the name of the purchaser, freed and discharged from all the charge in

question and any other subsequent charge, as if the chargor had transferred the

charged property to the successful bidder.

The charge in respect of the land had been discharge. Not only that all subsequent

charges in respect of the charge is also discharged. This does not bar the chargee to

recover from the chargor in personal action based on the charge agreement. Section

206(3) stipulated that nothing in the NLC shall have effect on any contractual

operation of any transaction relating to lanf. Since the chargor has an obligation

under the charge agreement to make repayment of the loan advanced to him. He

can be sued personally for that obligation to pay.

He will take the land subject to any other registered interest in the land.If there is a

registered easement over the land then the successful bidder shall take the land

subject to the easement. See Section 267(1)(b) stipulates that all the provisions in

Part Fourteen shall apply to the successful bidder. According to Section 214(3)(a) a

transferee of a piece of land will take the land subject to all registered interest on the

land.

With regards to tenancy, whether the successful bidder will take the land subject to

the tenancy or not. It can be divided into two situations.

Tenancy granted after the charge.

Tenancy was created after the creating of the charge it will not bind the successful

bidder unless there has been an endorsement as per required by Section 316 prior

to the registration of the Certificate of Sale. See Section 267(2)

Tenancy granted prior to the charge.

Tenancy was created prior to the registartion of the charge, it will not bind the

successful purchaser unless if it has been endorsed prior to the date of the

registration of the charge. See Section 267(2).

The successful bidder should not worry himself whether the money paid by him is

sufficient or not to settle all the money secured the charge or any subsequent

charge. He is protected by Section 269 which provided as long as he/the successful

bidder had paid all the money for the price he bid, he shall not be concerned to see

the application of the money.

The application of the purchase money shall be made in accordance with Section

268. According to that section, the proceeds from the sale shall be applied as

follows:

(a) Payment any rent or out going due to the State Authority or the Local Authority. If

the subject matter of the sale is a lease, any payment to the Lessor.

(b) Payment of any expences incurred in connection with the sale.

(c) Payment to the chargee of the total amount due under the charge at the time of

the sale.

(d) Payment of annuity or other periodic sum if the charge is to secure the payment

of annuity or the periodic sum towards any payment subsequently falling.

(e) Payment off subsequent charges in order of its priority.

3.2.5.9 Remedy of Taking Possession

Another remedy available to the chargor if the chargee defaulted is by way of taking

possession of the land or lease. See Section 270(1)

The power to take possession can only be exercise by the first chargee. See Section

270(2). Second and subsequent chargee can exercise the remedy to take

possession if the Minister makes an order allowing the subsequent chargee to take

possession upon the recommendation of the National Land Council. See Section

270(3).

Limitation of taking possession

See Section 270(1)(a), (aa) and (b)

1. It cannot be exercise to land held under Land Office title or Qualified title

corresponding the land office title.

2. It shall not be exercise in case the subject matter of the charge is an undivided

share.

3. If the land is a village land or town land held by the Registry Office, it can only be

exercise if the chargor is not occupation of the land.

Types of Taking Possession

Possession may be taken in two ways:

1. Taking Actual Possession. See Section 271(1)(b)

2. Taking Constructive Possession. Section 271(1)(a)

The chargee is said to be taking actual possession when they went to take physical

possession of the land or the lease.

Taking constructive possession happens when the chargee does not go into actual

possession of the land but merely receives the rent payable by the tenant or lessee

to the chargor under the terms of lease or tenancy binding on the chargee. Since the

tenant or lessee now pays the rental to the chargee, is there a breach of any

conditions on his part? The fact that the chargee collects the rental from the tenant

or lessee is not a breach of any provisions, express or implied with the chargor.

Section 271(2).

Procedure in Taking Possession

1. Actual possession

The chargee must send notice in form 16K on the chargor informing his intention to

take actual possession possession. Section 272(1). The chargor must allow the

chargee to take possession within the time stipulated in the notice. If he refused to

allow the chargee to take possession within the time stipulated in the notice, the

chargee may apply to the court for an order for vacant possession. See Section

272(3).

2. Constructive Possession

If the chargee wishes to take constructive possession, he must a notice in Form 16J

on the lessee or the tenant. A copy of the notice must also be served on the chargor.

When the lessee or tenant received the notice, they must pay the rental due to the

chargor to the chargee. Section 272(2)

Duration of possession

How long will the chargor stay in possession of the charged land.? He shall remain in

possession so long as the land is continues subject to liability under the charge.

Section 273. Meaning so long as all debts has not been paid, the chargee can stay

in possession of the land.

But the chargee can relinquish possession or go out from the charged land at any

time even though the debts has not been fully paid.

Effects of taking Possession

The chargee who has gone into possession of the land is entitled to manage the land

and to take whatever profits from the land. Section 274

The chargee will be liable to the chargor for any of his act that cause the value of the

land is impaired or if the chargor suffer any loss. Section 274(1)

In Section 274(2), the chargee who is in possession, is accountable for all the sum

he actually received from the proceeds of the land.

The same Section also provides that he is also accountable for additional sum that

he might have received, if he exercises his power to manage the land prudently.

The chargee is expected to act with diligent went exercising his power to manage the

land which he had taken possession. This was decided in Woon Foon Hoh v Muttiah

Chetty (1934) MLJ 121.

In that case the chargor brought an action against the chargee who has taken

possession of the charged land. He alleged that the there were waste on the part of

the chargee, when the chargee over-tapped rubber tree on the land, as well as the

chargee failure to cultivate by not taping the tree for more than two months after

taking possession.

The court held that, he (the chargee) must be reasonably diligent in getting the rent

and profits. He will be held strictly accountable to all profit or rent actually received

by him or by but for his defaults, might have received.

Apart from that the chargee who is in possession can also grant a lease over the

whole or any part of the land. Section 275. He grants the lease in the name of the

chargor or on his own behalf.

If at the moment the land is subject to a lease, the chargor can accept the surrender

of the lease.

3.2.6 Discharge of charge

The chargee has the discretion to discharge the land, lease or undivided share from

all liability under the chargee. The discharge will be effected upon the registration of

Form 16N. The land, lease or undivided share can be discharge even if the chargor

has not make full payment of the loan. If this happen, that does not mean that the

chargor is release from his personal liability. Section 279

According to Section 279, if the chargor wants to pay off the charge, but he is unable

to do so because the chargor

i. is dead or

ii. cannot be found or

iii. refuse to accept payment or

iv. under some legal disability and

The chargor is unable to trace any person to accept the money on the chargee's

behalf; the chargor can deposited the money with the registrar the amount of money

due under the charge. Upon depositing the money the land, lease or undivided share

shall be discharge from all liability.

The registrar shall then discharge the charge or the chargor can make application for

the discharge of the charge. Section 280.

3.2.7 Sale by Private Treaty (General)

Sale Private Treaty is a private arrangement by the chargor to sell the charge

property to a willful purchaser with the consent from the chargee. There is no

express provision to enable the court to order the sale of the charged land by private

treaty.

3.2.7.1 Chargor’s right to enter into PT before OFS

The chargor may "before" an order for sale is pronounced and with the consent from

the chargee sell the charged property by way of a private treaty.

Eng Ah Mooi v Overseas-Chinese Banking Corp. [1983] 1 MLJ 209

To secure an overdraft facility the chargor charged his land to the respondent. The

respondent served a notice of default to the chargor under s. 254 with the view to

applying ba judicial sale of the charged property. To safe himself from social

embarrassment, the chargor agreed to sell the land to the appellants and the

purchase money to be applied to discharge the charge. The appellants applied to

discharge the charge but the respondent refused their request. The appellants sued

the respondent for a declaration that they are entitled to the discharge of the charge

on payment of the amount due. The trial judge dismissed the suit and the appellant

appeal.

The Federal Court held that the appellants are entitled to the declaration.Salleh

Abbas F. C. at apge 211

"The facts that a chargor sells his charged property even for a price less than the

amount of the secured debt or for a nominal sum of one dollar or makes a free gift to

a third party is no concern of the chargee so long as he would be protected to

receive in full the debt due to him............. As long as the law recognises the right of

a chargor to transfer the charged property (see sections 214 and 215 of the National

Land Code), the sale or the gift of the charged property cannot amount to a fraud,

even if such sale is effected with the view to preventing the chargee from selling the

property, provided of course, his right remain fully protected."

MUI Bank Bhd. v Cheam Kim Yu (Beh Sai Ming, Intervener) (1993) 1 SCR 188,

(1992) 2 MLJ 641

The Applicant applied for an order to set aside the sale by public auction of a piece

of land which was charge by the chargor to the chargee on the ground that the

chargee had consented to an agreement for a private sale enter between the

chargor and the chargee. The land was auctioned and a certificate of sale was

issued to a successful bidder.

High Court allowed the application. On appeal to the Supreme Court, the court

reversed the judgment.

Harun Hashim SCJ at page 648,

"Under the NLC, there is nothing to prevent a chargor with the consent of the

chargee to sell the charged property by Private Treaty. There are no specific

provisions in the code for such sale but if such sale is concluded as a purely

business arrangement, it is for the chargee to discharge the charge to give full effect

to the sale. That was not done here"

United Malayan Banking Corporation v Chong Bun Sun (1994) 2 MLJ 221

Obiter Dictum by Visu Sinadurai J. at page 230

"Considering the true nature of the statutory remedy of the chargee to apply for an

order for sale under s 257 of the NLC, this court is of the view that once an order for

sale has been made by the court by way of a public auction under s. 257 of the NLC,

the court does not have the power to make a subsequent order to vary or set aside

the earlier order, and to make a new order for the charge property to be sold by way

of private treaty."

at page 234

"So long as the chargee's interest is not adversely affected, there appears to be no

reason as to why a chargor does not have the right to sell the charged land before

an order for sale has been made"

3.2.7.2 Private treaty after OFS

Earlier decision seems to be of the view that after an order for sale is granted, the

matter is in the hand of the Land Administrator or the Court, the parties cannot enter

into a private treaty.

Chartered Bank v Pakiri Maideen & Anor [1963] MLJ 276

Gill J at page 276

"It is to be observed that Sections 149 to 154 of the Land Code contemplate the sale

of land by public auction. It is of course open to the parties to sell the lands by

private treaty before any proceedings are commenced in Court, but once such

proceedings are commenced the lands have to be sold by public auction."

Subsequent cases seem to disagree on this point. Even after order for sale the

chargor may still sell the charge property by way of private treaty in the light of s. 266

of the NLC.

Malayan United Finance Bhd. v Tay Lay Soon (1991) 1 MLJ 504Jemuri Serjan SCJ

"There is no statutory provision for the discharge of the charge by the chargor .......

However, under section 266(1) any chargor may at any time before the conclusion of

a judicial sale of a charged land tender the amounts due to the Registrar of the court

or the Collector"

Chargor retains the right to sell the charged property by Private Treaty until the sale

of the the charged property to third party.

M. J Frozen Food Sdn. Bhd. v Siland Sdn. Bhd. [1994] 1 MLJ 119, [1994] 1 SCR 197

Wan Yahya SCJ at page 309:

"The chargor does not abrogate all his rights to the chargee at the making of the

order for sale. He is merely compelled to abide by the court's order for his property to

be sold in accordance with the statutory safeguards on his interest as provided under

ss 257 and 258 of the NLC .......... the divesting of the chargor's right occurs only on

the completion of the contract of sale and conveyance......"

United Malayan Banking Corporation v Chong Bun Sun (1994) 2 MLJ 221

Visu Sinnadurai J at page 234

"The most obvious manner in which the chargor may tender the money owing to the

chargee is for the chargor to repay the chargee the outstanding loan, including

interest thereon, which the chargor had borrowed. This the chargor may do either by

obtaining the funds to repay the loan from some other independent source, or by

selling the charged property to third party. In the later situation, the chargor may

enter into a private treaty with the third party to purchase the charge property. The

chargor, in such a situation may, from the proceed of the sale, tender the said sum

owing to the chargee"

3.2.7.3 Court jurisdiction ONLY to grant OFS not PT

In United Malayan Banking Corporation v Chong Bun Sun (1994) 2 MLJ 221 at page

230 the court decided that once an order for sale has been made by the court, it can

only grant an order for sale by way of public auction (See Section 257). The court

cannot make subsequent order to vary or set-aside the earlier order and to make a

new order for the property to be sold by way of public auction.

3.2.8 Private Treaty by Pengurusan Danaharta Nasional Berhad

Section 5C of National Land Code (Amendment Act 1998) Act A1034 introduced

Fifteenth Schedule of the National Land Code.

Clause 5 of the said schedule empowered Pengurusan Danaharta Nasional to enter

into private treaty of any charge vested in them in addition other remedies available

under the NLC.