security transaction.doc

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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.

.!.! Charge vs. "ortgage

#ne should differentiate charge with a mortgage under $nglish land law. In "ortgage the

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

to redeem the land from the mortgagee upon the repayment of the loan to the mortgagee.

&o

"ortgage

Charge

'

(ormation(ormed under the principles of the common law

(ormation(ormed under the provisions of the &ational )and Code '*+ that re%uires

registration.

!

(eaturesThe title to the land is transferred to the mortgagee with the mortgagor having a

right in e%uity for redemption -get the land to be retransferred to him

(eaturesThe title to the land remains with the chargor. The chargee ac%uires an interest in

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

/emedies"ortgagee is entitle to foreclose the land -sell it to third party

/emediesChargee entitle to remedies provided by the &)C:a. #rder for saleb. Take

possession


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"ortgage is not recognised by the code. See Section !0-'

1ank 1umiputra 1erhad v 2oris 2evelopment Sdn. 1hd. -'*33 ' ")4 5+!

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 e6ecuted by the company

was an $nglish mortgage at common law or a transaction e6actly like such an $nglish

mortgage.

7eld: The court made a distinction between a Charge and a "ortgage. 4ustice 8eh Swee

Chin at page 5+

9In the first place, the premise that a charge under the &ational )and Code is the same as

an $nglish mortgage at common law is patently erroneous. A charge is governed by

detailed statutory provisions of the &ational )and Code while an $nglish mortgage at

common law was a horse of a different colour altogether.............. In an $nglish 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. nder the said provision, the

mortgagee agreed to re;transfer the mortgage property by a certain date beyond which it

was stated to be irredeemable. $%uity stepped in and provided the e%uity of redemption,

by which the right to redeem was e6tended beyond the said date and would be lost only on

foreclosure or sale.9

see also

"ahadevan s


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Torren system, referred to by te6t written as Torren mortgage in which the mortgagor

retains the legal ownership whilst the mortgagee ac%uires statutory right to enforce his

security.9

.!. Interest ac%uired by chargee

Chargee has interest in the land charged to him.

7o ?iok Chay v &ik Aishah-'*+' ' ")4 5*

The applicant not being a @"alay@ under s. > of the "alay /eservations $nactment

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

charge was duly registered. The applicant applied for order for sale.7eld: The charge was

null and void.

7epworth 4 at page '

9..... the %uestion 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 land9

In answer to the issue the Budge at page !;:

91y section '+ 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 subBect to

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

given to the chargee by section '+ can be unless it be a right or interest in land.9

The chargee has no right or interest in land.

T. 1ariam Singh v 8egawai 8entadbir 8esaka, "alaysia -'*3 ' ")4 !!

The issue before the court was whether the defendant in depositing a "alay /eservation

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

void.

7eld: There is no provision in either the "alay /eservation $nactment or the )and

$nactment that prohibits such deposit of title and such deposit of title was therefore not

illegal.

"ohamed ahir 4 at page !
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9I 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 chargee9

.!.5 Statutory Charge

Sections !5';!30

Section !5'-': SubBect matter of chargei. Dhole of land.ii. Dhole of undivided share.iii.

)ease -including sub;lease

Section !5'-: 8ower to charge is subBect to:

i. 8rohibition or limitation imposed by &)C and any other written law.

8rohibition


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-!: (orm '+1; charge for the payment of any annuity or other periodic sum.

Section !5: Charge shall take effect upon registration.

.!.5.' $ffect of registered charge

pon registration the land, lease or undivided share is liable as security. The chargee can

rely to all the remedial provisions of the &)C in case of default by the chargor. The effects

of a registered charge are as follows:

a. If the land is subse%uently transferred, the transferee of the land will take the land

subBect to the charge. See Section !'-.

b. The remedies of sale -Section! or taking possession -Section!>' are available in

case the chargor defaulted in making repayment of the loan.

c. The Chargee ac%uired an interest in the land that is capable of assignment. 7e can

transfer the charge. See Section !'5-'-d.

d. The chargor can only lease the land with the chargee@s consent that the chargee cannot

unreasonable withhold. See Section !'.

.!.5.! $ffect of nregistered Charge

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

specific performance.

"ahadevan s


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@charge@ as understood and provided for in 8art Si6teen of our &ational )and Code...........

That being the case, the words @other charge on land@ in the section -refering to

section!'-' of )imitation Act in our view must be the other types of encumbrances to

which the land is subBected. These could be an e%uitable charge or lien, statutory or

e%uitable, which arise as a result of depositing a title with the lender.9

"alayan 1anking 1erhad v ahari 1in Ahmad-'*33 ! ")4 '

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

cum assignment. 2efendant defaulted in repayment and the plaintiff applied for an order

for possession of the property and order that they are at liberty to sell.

7eld : #rder granted

"ohamed 2Eaiddin 4 at page '+:

9)ooking at the loan agreement and the deed of assignment in the present application, in

my opinion these documents created an e%uitable charge both in form and substance.9

See also

#riental 1ank v Chup Seng /estaurant-'**0 ")4 5*

Tan See 7ock v 2 = C 1ank-'** ")4 !0

.!. /emedies available to chargee

'. #rder for Sale -See Section!;!+*!. Taking 8ossession -See Section !>0; !>>

.!..' $ffect of nregistered Charge

&ational )and Code '*+

Sections !,!5and !

The Court or )and 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.

.!..! Statutory &otices

1efore the chargee could apply for an order for sale from the Court or the )and

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

by the &)C on the chargor.

i. (orms '+2 -Section !5.
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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 '+2. See Section !5.

(orm '+2 is a notice to inform the chargor of the followings:

a. Specifying the breach

b. /e%uiring the breach to be remedied within one month from the date it was served on

the chargor.

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

charged property.

ii. (orm '+$ -Section !

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 (orm '+$ 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 '+2. See Section!.

2ifferences between (orm '+2 and '+$

'. The condition precedent for the issuance of (orm '+$ is a clause in the charge

agreement demanding the principal sum.

!. The fact that Section !did not make any reference to Section!support.

. Condition precedent for the issuance of (orm '+2 is a breach that has continued for a

minimum period of one month.

$liathamby v Sheikh "ohd Said.-'*>0 ! ")4 '*0.

In this case (orm '+$ 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 (orm '+$ was wrongly used.

Sharma 4 at page '*:

9If 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

e6istence of the chargee@s right under the charge or under the &ational )and Code.......

The charge e6ecuted by was not a charge to which section !of the &ational )and Code
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applied. The only valid and effective notice to give was the notice under section !5 of the

&ational )and Code and this he failed to do so.9

F.A." 7ussain v 18 "alaysia Sdn. 1hd.-'*>0 ! ")4 +*

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. (orm '+$In the circumstances where

there has been a breached as well as a clause demanding for principal sum, either (orm

'+2 or '+$ can be used.4acob v #versea;Chinese 1anking Corp.-'*>5 ! ")4 '+'

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

overdraft. #n default of payment, the respondent served (orm '+2 and subse%uently

applied for an order for sale. The appellant argued that (orm '+$ should have been used.

7eld: The demand in (orm '+2 was valid.

Suffian ).8. at page '+

9The language of subsection -' of section !would seem to indicate that if the chargee

had made its demand by using (orm '+$ it need not have followed it up with by also

serving notice by (orm '+2, but that if it did not first use (orm '+$ it would be all right if

it used only (orm '+2. The obBect 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 Budgment here

the chargee has given the chargor sufficient notice before coming to court.9

Dhich form to use if the chargee also demand interest

"ary "ichael v nited "alayan 1anking Corporation-'*>' ' ")4 '>!

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 (orm '+2

was the appropriate notice.

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

4acob v #versea;Chinese 1anking Corp.-'*>5 ! ")4 '+'. (C

)ee 7un 7oe C.4. -1orneo at page '+5:

9It seems that controversy always as to whether (orm '+$ or '+2 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 (orm '+2 but if principal only is demanded then (orm '+$ must be used. I see no

reason why the words 9A&2 I&T$/$ST9 cannot be added to the heading of (orm '+$
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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.9

Central "alayan (inance v )oke Gok )ai-'*> ' ")4 '+0 7C

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 (orm '+2 and not (orm '+$.

see also

Gandiah 8eter v 8ublic 1ank 1hd -'**5 ' ")4 ''*

Siong 7olding Sdn 1hd v 2 = C 1ank-'**> ' ")4 50

Syarikat Gewangan "elayu /aya 1hd. v "alayan 1anking 1hd.-'*3+ ! ")4 !

#C1C v )ean Seng 8ottery Sdn. 1hd.

.!.. #rder for Sale by Court

Section !+; !*

"eaning of the e6istence of cause to the contrary9 in section!+-

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

of e%uity.

Geng Soon (inance 1hd. v "G. /etnam 7oldings Sdn. 1hd.-'*3* ' ")4 53

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. Dhen the developer failed to pay the interest on the

first progress payment, the chargee called off the deal. The chargor re%uested 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

re%uest 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 8rivy Council decided that there was no e6istence of cause to the contrary. #rder for

sale should be granted.

)ord #liver of Aylmerton at page 5+0:
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9Section !+- of the &ational )and Code is mandatory. The court @shall@ order a sale

unless it is satisfied of the e6istence of @cause to the contrary@. ?ranted that these words

have been construed in "alaysia as Bustifying the withholding of an order where to make

one would be contrary to some rule of law or e%uity, they clearly cannot e6tend 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.9

)ow )ee )ian v 1an 7in )ee 1anking 1hd.H'**> ' ")4 >>

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

repayment, the bank applied for an order for sale.

(ederal Court 7eld that @cause to the contrary@ within s. !+- of the Code might be

established only in three categories of cases.

?opal Sri /am 4CA at page 3!

'. Dhen the chargor was able to bring his case within any of the e6ceptions to the

indefeasibility doctrine in s 50of the Code:

!. Dhen 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:

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

contrary to some rule of law or e%uity.

.!..5 ?ranting #(S would be contrary to some rule of law

'. The charge is void on the ground of fraud

"ost application for order for sale was challenged on the basis that the charge ac%uired by

the chargee is defeasible because it was obtained under any of the circumstances in

Section 50-!

8ublic (inance 1hd. v &arayanaswamy-'*>' ! ")4 !

The chargor subdivided his land and sold it off to sub;purchasers. 7e 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


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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.

#ng C.4 -"alaya at page :

9The appellants@ insistence that the interveners had no rights whatsoever e6cept a right to

damages against the respondent for breach of contract is so plainly unconscionable that

we are not at all suprised that the Budge was driven to find fraud and collusion.9

(raud must be actual fraud not constructive fraud and it must have been committed at

before or at the time the charge in %uestion was registeredTai )ee (inance v #fficial

Assignee-'*3 ' ")4 3'

Abdul 7amid (. 4 at page 35:

9The law is therefore settled that while subsection -' of section50makes 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 -!, shall not

indefeasible in a case of actual fraud involving ......... 9dishonesty of some sort, not what is

called constructive fraud or e%uitable fraud.9

and at page 3:

9The fraud complained of must be that which resulted in registration of the Charge9

!. The charge is bad in law for non;complience with money )ending #rdinance '*'

8human Singh v Ghoo Gwang Choon -'*+ ! ")4 '3*

A charge document is a document of debts = should be registered in court as re%uired

under Section = 5 of the "oney )ending #rdinance '*' 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 re%uired.

Dhen 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 !+-

see also
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Associated Corporation )td. v 8oomaniH'*>! ' ")4 ''>

. &on Compliance of statutory notices.

$liathamby v Sheikh "ohd Said.-'*>0 ! ")4 '*0.

Sharma 4 at page '*:

9The charge e6ecuted was not a charge to which section!of the &ational )and Code

applied. The only valid and effective notice to give was the notice under section !5 of the

&ational )and Code and this he failed to do so.9

5. Application made to wrong tribunal.

Section !+= !+0&)C

Tan Teng 8an v Dong (ook Shang-'*> ")4 '

It was held that in the case of land held under )and #ffice title, the court has no

Burisdiction to order the sale of that land at the instances of an application by a chargee.

. Charge was registered contrary to restriction in interest.

nited "alayan banking Corp. 1hd. v Syarikat 8erumahan )uas Sdn. 1hd. -&o !H'*33

")4 !

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

"1C on the ground that it was void. The charge was registered in breach of an e6press

restriction in interest endorsed on the document of title.7eld allowed the application.

$dgar 4oseph 4r. 4 at page +:

9..... the charge having been registered in breach of an e6plicit 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.50-!-b and also because the /egistrar of Title,

in registering the charge, had acted ultra vires the powers conferred upon him: s.50-!

-c.9

.!.. ?ranting #(S would be contrary to rule of e%uity

'. Dhen the chargor hads turned to thirdparty to redeem the charged property and had
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infact collected the redemption sums from the thirdparty, they were under some e%uitable

duty so as to grant an order would be contrary to the rule of e%uity ac%uired by the

thirdparty.

Guching 8laEa Sdn. 1hd. v 1ank 1umiputra "alaysia 1hd.-'**' ")4 '+.

The developer charged the land fincluding the building on it to the chargor. 8arcels 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 unBust for the chargee to

foreclose the charge because if the court granted the order it would be contrary to the rule

of e%uity.

!. ?ranting 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 e%uity.

#versea Chinese 1anking Corporation v )ee Tan 7wa-'*3* ' ")4 !+'.

The land owner charged his land to the chargee to secure an overdraft facility. Dhen 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 e%uity.

1u6ton v Supreme (inance -" 1erhad-'**! ! ")4 53'

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

over the interest of the chargee. Dhen the sub;purchaser having e6ecuted the sale and

purchase agreement with the notice of the charge, they must accept the purchase subBect

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
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or deceitful it may be. nless it can be shown that there was collusion between then

chargor and the chargee to defeat the interest of the a third party.

.!..+ #rder for sale by )and Administrator

Section !+0; !+

The application for an order for sale made to the )and Administrator must be in (orm

'+?. Section !+0-!. Dhen the )and Administrator received (orm '+? from the chargee,

he shall fi6ed a date for an en%uiry. The chargee shall be notified of that date, while

summon will be served on the chargor for him to make representation at en%uiry to be

held thus show cause why the order for sale should not be made. See Section !+'.

At the conclusion of the en%uiry the, the )and Administrator shall order the sale of the

charged property. 1ut if he is satisfied that there are e6istence 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 !+-'

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

register.

Suppiah v 8annompalam-'*+ ")4 !0!

The chargor argued that the Collector of )and /evenue 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.4. at page !05

9In 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

%uestion 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.9

?urpal Singh v Gananayer-'*>+ ! ")4 5

The chargor opposed an application for an order for sale before the )and 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 50-! 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 )and Administrator is bound to make an order for sale at the end of the en%uiry and
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non other.

?overnment of "alaysia v #mar 7B. Ahmad -'*3 ' ")4 !5!.

The )and 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 )and Administrator was wrong. Since there are causes to the contrary, the )and

Administrator should order that the land to be sold by public auction. 7e has no power

under Section !+ to order that the arrears to be paid by installment.

Dhen the )and Administrator had granted an order for sale he is (unctus;officio. 7e

cannot cancel or alter the order that he made.

)im Joke (oo v $u (inance 1hd.-'*3 ' ")4 '>

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 )and

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

#nly the Court can make any cancellation or alteration to the order made by the )and

Administrator.

"alayan nited 1ank 1erhad v Cheam Gim Ju-'**' ' ")4 '

The chargee obtained an order for sale to sell off the charged property. Subse%uently with

their consent the land was sold to the intervener under a Sale and 8urchase 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 )and

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

even though the )and Administrator had granted an order for sale.

.!..> Civil Suit vs. #(S

1ank 1umiputra "alaysia 1erhad v $sah 1t. 7B. Abdul ?hani-'*3+ ' ")4 '+

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
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when the borrower defaults. 7e 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 1ank v 1alaka Suria Sdn. 1hd.-'**' ")4 5

7ongGong = Shanghai 1anking Corp. )td. v Dan "ohd 1in Dan &gah-'**' ")4 ''*

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.

)amin 4. in his Budgment on the %uestion 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 remedies7e said the )and

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 $ffect of Sale

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

Section !* or from the )and Administrator -See Section!+. At the conclusion of the

sale the successful 1idder after paying full purchased price shall be issued with a

Certificate of Sale in form '+( -from the Court or form '+I -from the )and

Administrator.

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

instrument of dealing -See Section !*! of dealing and can be registered. See Section!+>.

Dhen 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 %uestion and any other

subse%uent charge, as if the chargor had transferred the charged property to the

successful bidder.

The charge in respect of the land had been discharge. &ot only that all subse%uent 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 !0+- stipulated

that nothing in the &)C 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
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repayment of the loan advanced to him. 7e can be sued personally for that obligation to

pay.

7e will take the land subBect 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 subBect to

the easement. See Section !+>-'-b stipulates that all the provisions in 8art (ourteen

shall apply to the successful bidder. According to Section !'5--a a transferee of a piece

of land will take the land subBect to all registered interest on the land.

Dith regards to tenancy, whether the successful bidder will take the land subBect 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 re%uired by Section '+ prior to the

registration of the Certificate of Sale. See Section!+>-!

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!+>-!.

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 subse%uent charge. 7e is

protected by Section !+*which provided as long as he


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.!..* /emedy of Taking 8ossession

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

possession of the land or lease. See Section!>0-'

The power to take possession can only be e6ercise by the first chargee. See Section!>0-!.

Second and subse%uent chargee can e6ercise the remedy to take possession if the "inister

makes an order allowing the subse%uent chargee to take possession upon the

recommendation of the &ational )and Council. See Section!>0-.

)imitation of taking possession

See Section!>0-'-a, -aa and -b

'. It cannot be e6ercise to land held under )and #ffice title or Kualified title

corresponding the land office title.

!. It shall not be e6ercise in case the subBect matter of the charge is an undivided share.

. If the land is a village land or town land held by the /egistry #ffice, it can only be

e6ercise if the chargor is not occupation of the land.

Types of Taking 8ossession

8ossession may be taken in two ways:

'. Taking Actual 8ossession. See Section!>'-'-b

!. Taking Constructive 8ossession. Section !>'-'-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, e6press or implied with the chargor. Section !>'-!.

8rocedure in Taking 8ossession

'. Actual possession

The chargee must send notice in form '+G on the chargor informing his intention to take

actual possession possession. Section !>!-'. The chargor must allow the chargee to take


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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 !>!-.

!. Constructive 8ossession

If the chargee wishes to take constructive possession, he must a notice in (orm '+4 on the

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

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

chargee. Section!>!-!

2uration of possession

7ow long will the chargor stay in possession of the charged land. 7e shall remain in

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

Section !>. "eaning so long as all debts has not been paid, the chargee can stay in

possession of the land.

1ut the chargee can relin%uish possession or go out from the charged land at any time

even though the debts has not been fully paid.

$ffects of taking 8ossession

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!>5

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 !>5-'

In Section !>5-!, 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 e6ercises his power to manage the land prudently.

The chargee is e6pected to act with diligent went e6ercising his power to manage the land

which he had taken possession. This was decided inDoon (oon 7oh v "uttiah

Chetty-'*5 ")4 '!'.

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

of the charged land. 7e alleged that the there were waste on the part of the chargee, when


20/24

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. 7e 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!>. 7e grants the lease in the name of the chargor or on his

own behalf.

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

lease.

.!.+ 2ischarge 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 (orm

'+&. 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!>*

According to Section!>*, 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 behalfL the

chargor can deposited the money with the registrar the amount of money due under the

charge. pon depositing the money the land, lease or undivided share shall be discharge

from all liability.
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The registrar shall then discharge the charge or the chargor can make application for the

discharge of the charge. Section!30.

.!.> Sale by 8rivate Treaty -?eneral

Sale 8rivate 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 e6press provision to

enable the court to order the sale of the charged land by private treaty.

.!.>.' ChargorMs right to enter into 8T before #(S

The chargor may 9before9 an order for sale is pronounced and with the consent from the

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

$ng Ah "ooi v #verseas;Chinese 1anking Corp.H'*3 ' ")4 !0*

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. !5with the view to applying

ba Budicial 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 re%uest. 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 Budge

dismissed the suit and the appellant appeal.

The (ederal Court held that the appellants are entitled to the declaration.Salleh Abbas (.

C. at apge !''

9The 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 !'5 and !' of the &ational )and 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.9
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"I 1ank 1hd. v Cheam Gim Ju -1eh Sai "ing, Intervener-'** ' SC/ '33, -'**! !

")4 +5'

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.

7igh Court allowed the application. #n appeal to the Supreme Court, the court reversed

the Budgment.

7arun 7ashim SC4 at page +53,

9nder the &)C, there is nothing to prevent a chargor with the consent of the chargee to

sell the charged property by 8rivate 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 here9

nited "alayan 1anking Corporation v Chong 1un Sun-'**5 ! ")4 !!'

#biter 2ictum by Fisu Sinadurai 4. at page !0

9Considering the true nature of the statutory remedy of the chargee to apply for an order

for sale under s !>of the &)C, 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.!>of the &)C, the court does

not have the power to make a subse%uent 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.9

at page !5

9So 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 made9
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.!.>.! 8rivate treaty after #(S

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

is in the hand of the )and Administrator or the Court, the parties cannot enter into a

private treaty.

Chartered 1ank v 8akiri "aideen = Anor H'*+ ")4 !>+

?ill 4 at page !>+

9It is to be observed that Sections '5* to '5 of the )and 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.9

Subse%uent cases seem to disagree on this point. $ven after order for sale the chargor may

still sell the charge property by way of private treaty in the light of s.!++of the &)C.

"alayan nited (inance 1hd. v Tay )ay Soon -'**' ' ")4 054emuri SerBan SC4

9There is no statutory provision for the discharge of the charge by the chargor .......

7owever, under section !++-' any chargor may at any time before the conclusion of a

Budicial sale of a charged land tender the amounts due to the /egistrar of the court or the

Collector9

Chargor retains the right to sell the charged property by 8rivate Treaty until the sale of the

the charged property to third party.

". 4 (roEen (ood Sdn. 1hd. v Siland Sdn. 1hd.H'**5 ' ")4 ''*, H'**5 ' SC/ '*>

Dan Jahya SC4 at page 0*:

9The chargor does not abrogate all his rights to the chargee at the making of the order for

sale. 7e 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 !>and!3of the &)C .......... the divesting of the chargor@s right occurs only on the

completion of the contract of sale and conveyance......9

nited "alayan 1anking Corporation v Chong 1un Sun-'**5 ! ")4 !!'

Fisu Sinnadurai 4 at page !5


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9The 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 chargee9

.!.>. Court Burisdiction #&)J to grant #(S not 8T

In nited "alayan 1anking Corporation v Chong 1un Sun-'**5 ! ")4 !!' at page !0

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 !>. The court cannot make

subse%uent 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 8rivate Treaty by 8engurusan 2anaharta &asional 1erhad

Section C of &ational )and Code -Amendment Act '**3 Act A'05introduced

(ifteenth Schedule of the &ational )and Code.

Clause of the said schedule empowered 8engurusan 2anaharta &asional to enter into

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

&)C.P O S T E D B Y L A N D L A W I I A T 1 2 : 3 6 A M
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