Thursday, April 3, 2008


The Issues arises in this case whereby Ah Seng the owner of a bungalow had borrowed RM RM200,000 from a finance institution which known as Berjasa Bank by charged his bungalow as a security. The charged registered on 1995 and on 1996 the bank seeks for recover the amount borrowed to Ah Seng due to the default in the loan repayment for six (6) months. So now the question, whether bank can bring an action to recover the money borrowed? If yes what are the legal remedies provided and available for the bank to proceed further under Malaysian National Land Code 1965.

According to National Land Code 1965, section 241(1) cited the power of charging the whole, but not a part only of any alienated land; of any undivided share in alienated land and any lease of alienated land may be charged with the repayment of any debt, or the repayment of any sum other than a debt or the payment of any annuity or other periodic sum.

In the context of this case its obvious that Ah Seng is a chargor has charged his land to Berjasa Bank which ia a chargee as a security for the loan that he have borrowed from the bank. A charged is created over the whole bungalow not a part only, of any alienated land or lease thereof or undivided share to secure the repayment of any debt or the payment of any sum. It is as a security transaction under the National Land Code 1965 only upon registration so as to render the land as security for the loan or sums of money advanced.

Under section 243 of National Land Code 1965 the land/bungalow to be liable or to make effect the charges as a security needs registration and the fact of this case show that the charges between Ah Seng and Bank are a security transaction which comply with the National Land Code 1965 upon registration so as to render the land as security for the loan or sums of money advanced or borrowed to Ah Seng.

By virtue of section 249 (1) (a) of National Land Code stated about agreements by implied in all charges. Every charge that created under this act there shall be implied on the part of the charger. An agreement that he will comply with the provisions thereof as to payment of the sum thereby secured and with any provision for the payment of interest thereon if any in the terms are set out to be bind among them. Means that by section 249 (1) (a) of National Land Code, Ah Seng has to obey to the rules of repayment of the loan that he had borrowed from the chargee and he owed the responsibility for the loan repayment even though Ah Seng facing some great financial problem.

Therefore any breach of the condition of the contract or agreement will make chargor liable towards the chargee according to the National Land Code, and the chargee can apply for remedy either an order for sale or possession of the charged land as to recover the money borrowed.

Section 253 (1) of National Land Code conferred the power to enable any chargee to obtain the sale of the land or lease or to take possession of the land to which his charge relates in the event of a default, or breach committed by the chargor of any of the agreements on his part expressed or implied therein. According to this section, chargee has the authority to exercise remedy order for sale towards the property that is the bungalow house. However, before the remedy is grant to the chargee; the Berjasa Bank as chargee must served a notice to Ah Seng to inform and urge chargee to make repayment of loan.

The sufficient notice that should be served to Ah Seng must be in Form 16D; this according to section 254 (1) for the default of loan repayment done by chargee which amount to a breach of agreement as is mentioned through the section 253 (1). There under if at the expiry of the period specified in any such notice the breach in question has not been remedied the whole sum secured by the charge shall become due and payable to the chargee and the chargee may apply for an order sale accordance with section 254 (3).

So the chargee Bank Berjasa a Financial Institution can apply for an order for sale. This principle was supported by the decided case of Jacob v. Oversea-Chinese Banking Corporation, Ipoh where in the case an appellant had charged his land to the respondent bank to secure the repayment of an overdraft. The charge was recovering an overdraft of $ 6000 and for interest. On default of payment the respondent bank made a demand for payment by letter and subsequently served on the appellant a notice of default in the form of 16D prescribed that the National Land Code. The bank applied for an order that the land be sold by public auction and the application was allowed in the High Court. The appellant appealed and one of the grounds of appeal was that the notice should have been given in the form 16E.

However, the court held that where there was a demand for payment of principal and interest, Form 16E could be used as well as form 16D and the demand may be made by either form.

In additional, Bank Berjasa may recover the principal sum secured by any chargee with a special provision of section 255 (1) where the chargee may make the demand by a notice is Form 16E and in that event if the in question is not paid to him within one month of the date on which the notice is served may apply for an order for sale without being required to serve a notice in form 16D under section 254 (1).

This provision applied in the case of VAM Hussain v. BP Malaysia Sdn. Bhd. The fact of the case is an appellant a land owner of a piece of land and BP Malaysia Sdn Bhd thought it a good site for a filling and service station commonly known as petrol pump. The purchase price is $ 90,500. They also agreed to advance the appellant $ 45,000. To protect themselves BP had the land charged to them to secure repayment of $ 45,000. At the time of transaction BP entered written agreement with appellant. However the city government did not allow to built the petrol pup on that land. According to the agreement, if the plan disapproved all moneys paid by BP must be refunded. So BP sent a notice in Form 16E required under National Land Code to demand the payment of $ 45,000 within one month. Appellant did not comply the notice and BP took out the originating summons for an order that the land to be sold to satisfy the sum of $ 45,000 together with interest. BP won the order but appellant appeal further. However, the court had dismiss the appeal in this case as the principal sum secured by the charge was payable on demand, the respondent had used the correct form. The inclusion of interest in the form 16E did not make the notice defective.

Apart from that, there is an another option for the chargee Berjasa Bank to recover the loan borrowed to Ah Seng by apply for remedy of possession. Mean that the chargee can take possession of the property on the event of any default by chargor to settle the loan repayment which is authorized under section 271 of National Land Code 1965. Where the right to possession conferred under section 271 (1) so chargee may at any time when the chargor is in breach of any agreement on his part expressed or implied in the charge, enter into possession of the whole or any part of the charged land or as the case may be, the land comprised in the charged lease.

Section 272 (1) (a) & (b) described the procedures for taking possession by a chargee. A chargee intending to enter into possession of any land shall where he is to do so by receiving the rent payable to the chargor under any lease or tenancy serve a notice in Form 16J on the lessee or tenant, and a copy thereof on the chargor and where he is to do so by going into occupation, serve a notice in Form 16K on the chargor. Upon the service of a notice in Form 16J on any lessee or tenant, there shall pass to the chargee all the rights, powers and remedies of the chargor with respect to the receipt and recovery of, and the giving of discharges for, the rent in question including any amount due, but not paid, prior to the service of the notice. Where any chargor on whom a notice in Form 16J is served fails within the period specified in that behalf in the notice to admit, or secure the admission of, the chargee into occupation of the land in question, the chargee may apply to the court for possession in accordance with the provisions of any law for the time being in force relating to civil procedure.

Section 273 stipulated the duration of right to possession. A chargee who has entered into possession of any land without prejudice to his right to relinquish possession at any earlier time, remain in possession so long as the land continues subject to any liability under the charge. A chargee in possession of any land by occupation may remain in possession either by continuing in occupation or by exercising his power under section 275 to lease the land and receive the rent payable under the lease. A chargee in possession of any receipt of rent may, on the determination of the lease or tenancy under which the rent is payable, remain in possession either by receiving the rent payable under a new lease granted by him or by going into occupation, or partly in one way and partly in the other.

Besides that, in the part of Ali; Ali is a tenant who rented the bungalow from the owner of that property which is Ah Seng and paid rented for his tenancy payment. Meanwhile, the bungalow rented by Ali was registered as a security for the loan RM 200,000 which made by Ah Seng from Berjasa Bank. So the problem arise here through the default in repayment of laon over due for six months by Ah Seng amount Ali to suffer the difficulties too; whereby the chargee while take an action towards the charge property, which is the bungalow, Ali has to vacate the premises and he has no choice except to vacate if Berjasa Bank go for the remedy of order for sale. This is according to the provision of section 254 (2) National Land Code which cited that the notice served to the owner shall valid and effectual against the person who vests the interest in such charged land. However, further reasonable and sufficient notice should be furnished to Ali to vacate the premises that he rented besides to make the notice more effect.

Despite if the chargee applies for the remedy to take possession of the charged property Ali may have the option of having a tenancy rights over the house. But the rental payment will belong to the new owner that is the Berjasa Bank. As it was stated in section 271 (1) National Land Code, which means that if Berjasa Bank allows Ali to remain with his tenancy rights by allowing him to continue stay; then Ali ought to pay his tenancy and any sort of payment of the regard property to the Berjasa Bank, because the legal rights towards the payment of rental owned by the new owner until the end of the specified duration of the tenancy agreement between Ali and Berjasa Bank.

Even though Ali has to vacate the house; if an order for sale obtained by Berjasa Bank, but he still can claim the compensation from Ah Seng as a parties to the tenancy agreement; in the presumption that Ah Seng in the breach of tenancy agreement agreed between them for specified period, because Ah Seng had rented before the property was charged to Berjasa Bank.
Ah Seng as a owner of the charged property which is a bungalow house has right to tender the payment at any time before sale according to provision of section 266 National Land Code and the offer must be amount to the actual/physical tender which allowed in the case of The Chartered Bank v Packiri Maideen & Anor. Besides that Ah seng can bid for the charged property in the public auction. This principal was derived from the case of Malayan United Finance v Adsoni (M) Sdn Bhd.

As a conclusion, Berjasa Bank can apply for remedy under charge through legal proceedings either for an order for sale or take possession of such charged property. However, it is appropriate and advantage for Bank Berjasa to apply for the remedy by an order for sale to recover the default of loan repayment in lump sum within a short period of time frame.

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