Security dealing remedies for registered chargee

Ainul Jaria Maidin- Law 3111 1

REMEDIES FOR REGISTERED CHARGEE

examines the statutory remedies available to a registered chargee upon default by chargor to repay the loan as agreed in the charge agreement

STATUTORY REMEDIES• NLC provides two remedies to a chargee in the

event the chargor fails to repay the loan. • Order for sale by way of public auction - 253• Taking possession of the charged property -254


Sale by Way of Public Auction s253 NLC

• S.253 NLC enables the chargee to obtain the sale of the land or lease to which his charge relates in the event if there is a breach on the part of the chargor of any of the terms in the agreement or the implied provisions


• power to seek sale of the property can be exercised even if the chargee has taken possession of the land.

• most effective remedy is that of sale. • If proceeds from sale of property is insufficient

chargee can always sue on chargor’s personal covenant to pay


PROCEDURE• S.254 NLC -where there is a breach by

chargor, chargee may serve Form 16D notice.

• a. specifying the breach in question• b. requiring it to be remedied within one

month of the date on which the notice is served or such alternative period as may be specified in the charge; and

• c. warning the chargor that if the notice is not complied with, he will take proceedings to obtain an order for sale


• To serve a notice 16D the breach must have been continuing for a period of at least one month prior to date of notice.

• Provide chargor with time to remedy breach since foreclosure proceedings can only be commenced after failure on part of chargor to remedy breach within the stipulated time.


• The other statutory Form is 16E, which is served in the event of non-payment of loan and the order for sale can be applied after one month of service of the notice.

• This form requires repayment of the principal sum on demand.

• chargee can upon failure of the chargor to repay within stipulated duration, apply for an order for sale without issuing any further notice in Form 16D


• READ• Central Finance v Loke Kok Lai (1975) 1 MLJ 160• Eliathamby v Shaik Mohamed Said (1970) 2 MLJ 194• Government of Malaysia v Omar Bin Hj. Ahmad

[1983] 1 CLJ 242• Mary Michael v UMBC Bhd. [1971]1 MLJ 172• Sykt.Kewangan Melayu Raya Bhd.v Malayan

Banking Bhd. [1984] 1 MLJ 115• VAM Hussain v BP Malaysia Sdn. Bhd. [1970] 2 MLJ

69


Procedure for Obtaining Order for Sale

On expiry of the period in notice the whole loan sum secured by charge will be due and the chargee may be able to apply for an order for sale.

in cases of sale NLC provide for different

procedures depending whether land is held under registry titles or land office titles.


If registry title chargee must apply to the High Court for an order of sale according to S.256 NLC

court upon receiving the application will decide

whether there is default and if satisfied that there is no cause to the contrary it must issue the order for sale of the land


Powers of Land Administrator• Inquiry Stage • The general rule is that the Registrar must

not go beyond the Register. If he is satisfied that the charge in dispute is on the register, his duty is limited to deciding as to whether or not there has been a default in the repayment of the loan according to the terms of the charge. The Land Administrator has no power to inquire or investigate any allegation of fraud or misrepresentation since the land office is not a court.


Refer dispute to court• The parties can refer the dispute to court pursuant

to S.419 NLC whilst the Land Administrator can stay or adjourn the proceedings pending the court settling the dispute.

• The Land Administrator is obliged to make an order for sale if it has been proven that there is breach in the terms and conditions of the charge document


Cases• Gurpal Singh v Kananayer [1976] 2 MLJ 34• Sundram v Chew Choo Khoon [1968] 1 MLJ 90• Suppiah v Ponnampalam [1963] MLJ 202


Power of Land Administrator • The Land Administrator can only make an order

for sale and not any other ancillary order. • Govt. of Malaysia v Omar bin Haji Ahmad

[1983]1 CLJ 242• The land administrator made orders to allow the

chargor to pay by way of instalment the oustanding loan amount


• The Land Administrator and the Court becomes functus officio after an order for sale has been granted, drawn up and perfected. He is not allowed to revoke, alter, or amend the order unless such order is consequential to the order for sale

• Exp.Bank Bumiputra [1992] 1 CLJ 200• Lim Yoke Foo v EU Finance Bhd.[1985] 1 MLJ 17• MUI Bank Bhd. v Cheam Kim Yu (Beh Sai Ming

Intervener) [1992] 2 MLJ 642



PROCEDURE FOR OBTAINING ORDER FOR SALE BY WAY OF PUBLIC AUCTION

• On the expiry of the period in the notice the whole loan sum secured by the charge will be due and the chargee may be able to apply for an order for sale.

• However, in cases of sale the NLC provide for different procedures depending whether the land is held under registry titles or land office titles.


registry title• If registry title the chargee must apply to the High

Court for the order of sale according to S.256 NLC • The court when it receives the application will see

whether there is default or if satisfied it must issue the order for sale of the land, unless satisfied of the existence of any cause to the contrary.


land office titles• But in the case of land office titles the chargee

must apply to the Land Administrator of the District, according to S.260 NLC


• The Application for Order for Sale is made by using Form 16G

• The Land Administrator will make an inquiry and upon being proven of the chargor’s default, and there is no cause to the contrary he grant an order for sale of the land by way of public auction


Powers of the Land Administrator

• Inquiry Stage • The general rule is that the Registrar must not go

beyond the Register. If he is satisfied that the charge in dispute is on the register, his duty is limited to deciding as to whether or not there has been a default in the repayment of the loan according to the terms of the charge.


Limitations on Powers of LA• The Land Administrator has no power to

inquire or investigate any allegation of fraud or misrepresentation since the land office is not a court. The parties can refer the dispute to court pursuant to S.419 NLC whilst Land Administrator can stay or adjourn the proceedings pending the court settling the dispute. The Land Administrator is obliged to make an order for sale if it has been proven that there is breach in the terms and conditions of the charge document


Cases• Gurpal Singh v Kananayer [1976] 2 MLJ 34

• Sundram v Chew Choo Khoon [1968] 1 MLJ 90• Suppiah v Ponnampalam [1963] MLJ 202


• The Land Administrator can only make an order for sale and not any other order.

• Govt. of Malaysia v Omar bin Haji Ahmad [1983] 1 CLJ 242


Cause to the contrary• Low Lee Lian v Ban Hin Lee Bank Bhd [1997] 1

MLJ 77 (FC)• Cause to the contrary might be established

only in three categories of cases:• I. When a chargor is able to bring the case

within the exception to indefeasibility of title –s 340

• Ii.when a chargor could demonstrate that the chargee had failed to meet the conditions precedent for the making of an application for an order for sale

• Iii. When the chargor can demonstrate the grant of order for sale would be contrary to some rule of law or equity.


Examples of cause to contrary

• Charge not registered • Defective or improper statutory notice of demand• Contents of statutory notice have either prejudice or

mislead the chargor • Fraud –Tai Lee Finance Co. Sdn. Bhd. [1983] 1 MLJ 81• Contravention of statutes – Phuman Singh v Khoo

Kwang Chang [1965] 2 MLJ 189• Delay -


• The Land Administrator and the Court becomes functus officio after an order for sale has been granted, drawn up and perfected.

• Exp. Bank Bumiputra [1992] 1 CLJ 200• Lim Yoke Foo v EU Finance Bhd. [1985] 1 MLJ 17• MUI Bank Bhd. v Cheam Kim Yu (Beh Sai Ming

Intervener) [1992] 2 MLJ 642


Sale By Way of Private Treaty

• A charged property may be sold by way of private treaty by the chargor or the chargee. The circumstances where the sale by way of private treaty may be allowed is before the commencement of proceedings for order for sale, wherein the chargor may enter into a lawful contract to sell the charged property to a third party.


Eng Ah Mooi v OCBC Ltd. [1983] 1 MLJ 209• the Federal Court held that on default of

payment by the chargor and before the commencement of any proceedings by the chargee for an order of sale, the chargor may lawfully contract to sell the land to a third party. However, the rights of the chargee must be fully protected in the sense that the monies owing to the chargee by virtue of the charge must be fully settled by the chargor.


Redemption of charged land

• S.266(1) NLC provides that a chargor may at any time before the conclusion of the sale can discharge the charge by paying the outstanding amount.

• Can this mean the chargor can sell the property by way of private treaty after conclusion of the sale to redeem the land


Cases• BBMB v Kimlin Development Sdn. Bhd. [1993] 2 MLJ 126• Chartered Bank v Packiri Maideen [1963] MLJ 276• Chung Khiaw Bank Ltd v Lau Ah Yen & Anor [1989] 2 MLJ

363 • Inter Rally Motor Sdn. Bhd. v Karuppiah [1992] 1 CLJ 432• MUI Bank v Cheam Kim Yu [1992] 2 MLJ 264• UMBC v Chong Bun Sun [1994] 2 MLJ 221


• Malaysia Building Society Berhad v Ghazi Bin Hasbollah [1994] 2 MLJ 1

• MUI v Cheam Kim Yu [1992] 2 MLJ 642.


Taking Possession

• -Taking possession of the premises or

• -Appointing a receiver


Limitation on entering possession

• S.270(1)(a) NLC powers of taking possession cannot be exercised in relation to any land held under Land Office title or the corresponding form of qualified title.

• (aa) shall not be exercisable in the case of a charge of undivided share in alienated land;

• (b) in case of town or village land not held under Land Office title can be exercised only when the chargor is not occupying the property.

• S.270(2) NLC provides that the power of taking possession is restricted to first chargees only


Right of Possession • S.271-273 NLC provides the procedures of

entering possession for a chargee. The NLC provides that the chargees right to take possession does not extend to land held under land office titles or qualified title, the power also could not be exercised in case where the subject matter of charge was undivided share in alienated land.


• However, if there were more than one chargee the right to enter into possession will be exercised only by the first chargee. Taking possession may be actual where the chargee goes into possession by himself or constructive, where the chargee receives the rents payable by a tenant or lessee. However, before the chargee can take possession of the land under the NLC requires him to give notices under S.272 NLC


Taking PossessionLimitation on entering possession• S.270(1)(a) NLC powers of taking

possession cannot be exercised in relation to any land held under Land Office title or the corresponding form of qualified title.

• (aa) shall not be exercisable in the case of a charge of undivided share in alienated land;

• (b) in case of town or village land not held under Land Office title can be exercised only when the chargor is not occupying the property


In the case of land office titles the chargee must apply to the Land Administrator of the District, according to S.260 NLC. This is done using Form 16G.

The Land Administrator will make an inquiry and upon being proven of the chargor’s default, he will issue an order for sale of the land


Right of Possession• S.271-273 NLC provides the procedures of

entering possession for a chargee. • NLC provides that the chargees right to take

possession does not extend to land held under land office titles or qualified title, the power also could not be exercised in case where the subject matter of charge was undivided share in alienated land.


Right of Possession• If there are more than one chargee the

right to enter into possession will be exercised only by the first chargee

• Taking possession may be actual where the chargee goes into possession by himself or constructive, where the chargee receives the rents payable by a tenant or lessee

• Before chargee can take possession of the land under the NLC requires him to give notices under S.272 NLC


Discharge of Charge – s. 278-280 NLC • S.278(1)NLC provides for discharge of the charge by

an instrument in Form 16N. This form must be duly registered and will only be effective upon registration.

• Generally a discharge of charge in Form 16N is designed to be used when there is no outstanding amount due. The discharge can by paying the full amount or partial. However, a chargee who is executing a discharge must do so prudently, and if he fails to exercise care in discharging the property charged, he may suffer a loss


• Memorialisation on discharge by payment – s.280 NLC

• Where any land or lease has become discharged from liability under any charge by payment to the Registrar under LAND CODE 19651965 s.279, the registration of the charge shall be cancelled by the Registrar pursuant to LAND CODE 19651965 s.314; and any chargor may apply to the Registrar pursuant to LAND CODE 19651965 s.314; and any chargor may apply to the Registrar under that section for cancellation of the registration of the charge on the grounds that a discharge has been effected by payment to the chargee. For discharge by payment to Registrar in cases of death, absence or disability, see LAND CODE 19651965 s. 279; for cancellation of charges discharged by payment, see LAND CODE 19651965 s.314.
