Koperasi Doktor Malaysia Berhad V Dr. Rajamohan Annamalai&2lagi


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(Dalam Mahkamah Tinggi Malaya Di Kuala Lumpur (Bahagian Rayuan Dan Kuasa Khas)


Usul Pemula No: R1-25-29-2011










2. DR. SUBLA RAJAMOHAN … Responden-
















[1] We had earlier allowed the appeal of Koperasi Doktor Malaysia Berhad (“the Appellant”), against the decision of the High Court, Kuala Lumpur dated 3.4.3012 which had upheld the decision of the Cooperative Societies Tribunal (“the Tribunal”) of 4.1.2011. By its decision the Tribunal had on a reference made to it by 1) Dr. Rajamohan Annamalai; 2) Dr. Subla Rajamohan and 3) Datuk Dr. P. Krishnan A/L Pakkirisamy (“the Respondents’) made an order in the following terms:


“Tribunal Koperasi ini dengan sebulat suara memutuskan bahawa ketiga-tiga Pemohon adalah berhak kepada keseluruhan dividen yang telah diiisytiharkan oleh Responden (Koperasi Doktor Malaysia Berhad) termasuk jumlah yang telah diluluskan oleh SKM (Suruhanjaya Koperasi Malaysia) untuk dibayar kepada KDM Pharna. Tribunal Koperasi Malaysia dengan ini, mengarahkan supaya keseluruhan jumlah yang dirampas (forfeited) dari akaun KDM Pharna kepunyaan ketiga-tiga Pemohon ini dibayar balik kepada mereka masing-masing mengikut jumlah yang telah dirampas.”


[2] These are our reasons for allowing the appeal.




[3] The Appellant is a Cooperative Society whose members consist of doctors in private practice. In year 2008 the Appellant proposed to its members a healthcare business scheme to benefit the members by providing them with affordable medicine and supplies that can be sold to the public for a reduced rate (the Scheme). To implement the






Scheme it was proposed to set up a wholesale business in Pharmaceutical products to supply wholly to the Appellant’s members at competitive prices and at the same time establish a business for the Appellant. The ordered drugs will be delivered directly to the doctors by using courier services and with three months credit limit.


[4] The salient features of the Scheme were:


(i) to set up a business called KDM Pharma which is wholly owned by the Appellant;


(ii) to declare “additional dividends” of 20% for the Appellant’s members;


(iii) the additional dividends are not payable in cash to the members;


(iv) the additional dividends must be utilized to purchase the equivalent value-in-cash of pharmaceutical products obtained and supplied by the Appellant for the benefit of members;


(v) the prices of the pharmaceutical products would be lower than that available in the market;


(vi) if the members did not utilize their additional dividends to purchase the pharmaceutical products within a given period of say 3 months, the amount would be paid back into the Appellant’s Share Fund.


[5] On 8.6.2008 the Appellant presented to the Delegates attending the Annual General Meeting (DAGM) a resolution to be voted on regarding the setting up of KDM Pharma. The extract of the Appellant’s Annual Report for 2008/2009 at Tab 4 of the Appellant’s Core Bundle






shows that “after a lengthy discussion the House unanimously passed” the resolution.


[6] At the same meeting the Treasurer also proposed the approval of the following items as “Proposed Income Appropriated for the year ended December 31,2007”:




Provision for Income Tax 1,901,368.59


Proposed Dividend (RM6,957.757) – 60% 4,174,654.59


Proposed KDM Pharma (RM6,957.757) – 20% 1,391,551.40


Provision for BOD Honorarium 30,000.00


Provision for KDM Project 65,000.00




The record shows that the Income Appropriation Statement for year ended December 31,2007 was duly adopted by the meeting.


[7] On 3.11.2008 the Appellant wrote to the Cooperatives Commission Malaysia or Suruhanjaya Koperasi Malaysia (“SKM”) for approval to declare RM1,391.551.40 as 20% additional dividend to be paid in the form of medicine by KDM Pharma. On 24.12.2008 the SKM approved the additional dividend. The Appellant’s members were then informed about the Scheme and their entitlements.






[8] The Respondents wrote back to the Appellant disagreeing with the Scheme and giving their reasons why it would not be practical for them to buy medicine from KDM Pharma. The 3rd Respondent requested for the additional dividends to be paid in cash to him.


[9] On 7.6.2009 the members of the Appellant at the DAGM once again approved the Scheme for the following year based on an additional dividend of 15%.


[10] Being dissatisfied with the implementation of the Scheme the Respondents lodged a reference to the Tribunal and sought for an order that the additional dividends be paid to them in cash.


The Tribunal’s decision


[11] The Tribunal ruled in favour of the Respondents. The Tribunal identified the issue before it in this way:-


“Tiada fakta yang dipertikaikan dalam kes ini. Apa yang dipertikaikan dalam kes ini adalah isu sama ada kesemua Pemohon berhak dibayar dividen mereka dengan sepenuhnya berasaskan kepada jumlah syer yang dimiliki oleh mereka ataupun KDM mempunyai kuasa untuk membayar sebahagian daripada dividen tersebut ke dalam KDM Pharma bagi tujuan digunakan khas oleh kesemua Pemohon untuk membeli ubat-ubatan yang dibekalkan oleh KDM Pharma.”


[12] In arriving at its decision, this is what the Tribunal found (at paragraph 30 of its award:


“Dalam kes ini, Responden memang berhasrat untuk menjayakan KDM Pharma dan salah satu cara adalah untuk mempastikan bahawa semua anggota membeli ubat-ubatan daripadanya. Akan tetapi, walaupun Responden ikhlas dalam usahanya, berdasarkan kepada prinsip undang-undang ini, Tribunal Koperasi ini dengan






sebulat suara mendapati bahawa memang tiada apa pun peruntukan di dalam UUK (undang-undang kechil) yang membenarkan Responden mengagihkan dividen tersebut iaitu harga anggota individu kepada pihak yang lain dan tiada juga peruntukan di dalam UUK yang membenarkan Responden menghapuskira, merampas atau mengambil kembali dividen yang telah diisytiharkan sebagai hak dan kepunyaan seseorang anggota ke dalam dananya sendiri. Maka, Tribunal Koperasi ini dengan sebulat suara memutuskan bahawa Responden tiada mempunyai hak merampas, menghapuskira atau mengambil kembali dividen yang tidak digunakan oleh anggota-anggotanya di dalam KDM Pharma.”


[13] The Tribunal further held that the Scheme was unconstitutional as it breached Article 13 of the Federal Constitution i.e. no person shall be deprived of property save in accordance with law.


The High Court decision


[14] The Appellant sought a judicial review of the Tribunal’s award at the High Court. The learned High Court Judge refused to quash the award of the Tribunal. The High Court held that there was no legal basis for the Appellant to impose the impugned Scheme on its members and that the Tribunal was correct in holding that neither the Cooperative Societies Act 1993 nor the regulations or by laws passed under it had authorized the creation of the impugned Scheme. Further the learned Judge agreed with the Tribunal that the Scheme had contravened Article 13 of the Federal Constitution.






This appeal


[15] Before us it was contended on behalf of the Appellant that the High Court had erred in holding that there was no legal basis for the Scheme. According to the Appellant the Scheme was a means by which the Appellant was sharing its profits with its members, and there was legal basis for the same. Under the Co-operative Societies Act 1993 (“the Act”), section 57(5) provides that subject to certain restrictions which are not relevant to this dispute, a co-operative society may utilize the audited net profits for each financial year for, inter alia, (a) the payment of rebate on patronage and (b) the payment of dividend on the shares of members.


[16] The Appellant drew attention to section 2 of the Act which defines “patronage rebate” to mean “a share of profits of a co-operative society divided among its members in proportion to the volume of business done with the co-operative society by them from which such profits were derived”.


[17] With regard to the resolution passed unanimously at the DAGM of 2008 to set up KDM Pharma to undertake the wholesale business in pharmaceutical products to supply to the Appellant’s members at competitive prices, the Appellant submitted that this was a perfectly legitimate decision as the By-laws of the Appellant states that the objective of the Appellant is to increase the economic interests of its members in accordance with co-operative principles, while the purpose of the Appellant is to implement business and services in medical and health fields. This objective and purpose is expressly stated in by-law 6 and 7 of the Appellant.






[18] As far as the profits of the Appellant are concerned, by-law 65 (2) authorizes that after the statutory deductions mentioned there, the balance of net profits may be utilized for, inter alia, payment of rebate on patronage and the payment of dividends.


[19] With regard to the Co-operative Societies Regulations 1995 (“the Regulations”) it is the submission of the Appellant that by Regulation 12(1) (ja) the Appellant may at its general meeting consider and approve the distribution of profits, and, by Regulation 24, the rate of dividend paid on shares shall not exceed ten per centum per annum except with the approval of the Registrar-General which is not in issue here as the DAGM of 2008 and 2009 did approve the distribution of profits and the SKM has approved the payment of 20% and 15% dividends respectively for 2008 and 2009.


[20] The Appellant accordingly contended that there was nothing unlawful or “ultra vires” about the Scheme. It is the Appellant’s submission that the Scheme is in effect a form of “patronage rebate” as defined in the Act as well as in the by-laws of the Appellant.


[21] The Appellant also submitted that even though it had not fought the case before the Tribunal and at the High Court on the basis that the Scheme was a form of patronage rebate, which was being raised for the first time at this appeal stage, the Appellant submitted that whether the Scheme is a ‘patronage rebate’ within the meaning described in section 2 of the Act is a question of law, which the Appellant should not be precluded from taking at this stage of the proceedings. The Appellant






also submitted that even though the word “dividend” was used in documents, and by the officers of the Appellant during the hearing before the tribunal, this would make no difference to the interpretative jurisdiction of this Court as the correct approach would be to look at the substance, not just the label which had been attached by the parties, since the law will look beyond the terminology of the document to the actual facts of the situation and it is no longer a question of words but substance (see Malayan Banking Bhd v P.K. Rajamani [1994] 1 MLJ 405 at 410 SC); and the construction of a written document is a question of law for the court and not by witnesses through their oral evidence (see NVJ Menon v The Great Eastern Life Assurance Co. Ltd [2004] 3 MLJ 38 at pg 44 CA). The Appellant accordingly submitted that its appeal should be allowed.


[22] The Respondents on their part contended that the Tribunal and the High Court were entirely right in their conclusions that there was no legal basis for the Scheme.


[23] The Respondents also submitted that the Appellant had never presented the Scheme as a “rebate on patronage” to the DAGM when approval for the Scheme was being sought, and also when the case was before the Tribunal and the High Court. Therefore the Appellant should not be allowed to take the point.


[24] The Respondents further submitted that the issue before the Tribunal was whether the Appellant could withhold the payment of dividends which were rightly due to the members of the Appellant in the event the members such as the three Respondents do not wish to






purchase the pharmaceuticals or did not purchase them for various personal reasons.


[25] According to the Respondents the Scheme ran counter to section 23 of the Act which stipulates that the shares of a member shall not be liable to attachment or sale under any decree or order of a Court in respect of any debt, which is what the Appellant was trying to do when it “forfeited” the member’s unused dividend held by KDM Pharma.


[26] The Respondents also contended that the Scheme was contrary to section 54 of the Act which states that a co-operative society may invest its surplus funds only in certain approved and designated securities, which the Scheme did not qualify as.


[27] The Respondents further contended that in proposing the Scheme the Appellant had breached section 59 of the Act when it failed to submit its accounts and balance sheet to the members.


Our decision


[28] Having considered the submissions of the parties, we allowed the appeal for the following reasons.


[29] Leaving aside for one moment the issue of whether the Scheme was a “patronage rebate” or a dividend payment, in our judgment there clearly was a legal basis for the implementation of the Scheme. The Act itself provides in section 57(5) that a co-operative society such as the Appellant may utilise its audited net profits for all or any of the purposes stated therein which includes the payment of rebate on






patronage and the payment of dividend. Here the proposal for the Scheme and the percentage of profits that was to be distributed was put to the members at the DAGM of 2008 and 2009 and duly approved. This complies with Regulation 12(1) (ja) made under the Act, and the rate of dividend at 20% and 15% respectively were duly approved by the SKM as required by Regulation 24.


[30] With regard to the setting up of KDM Pharma to participate in the pharmaceutical business in implementing the Scheme, we find the decision to do so falls within the objective and purpose expressed in bylaw 6 and 7 of the Appellant.


[31] With regard to the question whether the Appellant should be allowed to take the point that the Scheme is a kind of “patronage rebate”, in our view since the issue relates to the interpretation of the relevant provisions in the Act and the by-laws of the Appellant, which is essentially a question of law the Appellant should not be precluded from taking the point.


[32] Reverting now to the question of whether the 20% and 15% of profits distributed under the Scheme was a “patronage rebate” or a dividend payment, in our judgment it was not a patronage rebate. According to the meaning of those words in the Act as well as the Appellant’s by-laws, a member has to do business with a cooperative society before there can be a share of profits paid to the member as a “rebate on patronage”, since the share of profit paid to the member is worked out in proportion of the volume of business the member has done with the cooperative society and from which a profit has been






derived. Here there was no evidence that any of the members of the Appellant had done any business with the Appellant for which a 20% and 15% “patronage rebate” could be paid to them within the meaning of that term in 2008 and 2009.


[33] In our judgment the 20% and 15% represented a utilization of the net profits for payment of dividend and this accords with the evidence that in the documents as well as at the hearing before the Tribunal, the members were informed that the 20% and 15% represented “additional dividends”. This is also mentioned in the letter written to SKM for approval of such rates.


[34] Having said that, in our judgment even though the 20% and 15% were declared as additional dividends, they were not a dividend payable in cash to the members. The members of the Appellant including the Respondents could not have been under any misapprehension that the dividend was not payable in cash because it is very clear from the Annual Report of the Appellant for 2008-2009 found at page 462 and 463 of Record of Appeal Vol 2 (6) Part C, that from the sum of RM


7.755.944.19 available for appropriation from profits as at 31 December 2007, a sum of RM 6,957,757 was proposed for appropriation as dividend. Out of that sum, a sum of RM 1,391,551.40 or 20% of RM


6.957.757.19 would be paid to KDM Pharma. Clearly in our view by proposing that 20% or RM 1,391.551.00 be appropriated from profits as dividend for the purpose of payment to KDM Pharma, it was a clear indication to members that the 20% dividend was not to be distributed in cash to each member but to be paid to KDM Pharma under the Scheme. The proposal was duly adopted at the DAGM.






[35] If the members present at the annual general meetings at which the proposal to distribute 20% and 15% dividend respectively to KDM Pharma was made, found that such proposal was not acceptable to them, they could have decided against it. It is for this reason that we do not agree with the decision of the Tribunal that the individual member’s right to receive the dividend duly declared by the Appellant is a personal right which cannot be forfeited or transferred to anyone else without the member’s consent. In our view the question of forfeiture of transfer of the dividend did not arise as the members at the annual general meeting had decided that the 20% and 15% dividend was not to be distributed in cash to the individual member but paid to KDM Pharma. That it was well within the right of the members to so decide at a general meeting of the Appellant is provided for in section 36 of the Act which states that the ultimate authority of a co-operative society shall vest in the general meeting of its members.


[36] The Tribunal had also likened the payment of a dividend to ownership of property which attracts the constitutional protection housed in Article 13 of the Federal Constitution. This is not correct as it has been held by the Federal Court in Beatrice A/P Fernandez v Sistem Penerbangan Malaysia & Anor [2004] 4 MLJ 466 at pg 469 that to invoke the protection of Article 13, either one or both the parties to the dispute must be the State. This is because Art 13 is a protection against deprivation of property by the State, save as in accordance with law. This is clearly not the case here.






[37] With regard to the Respondent’s contention that the Scheme contravened sections 23, 54 and 59 of the Act, we find that there is no substance in the contention. Section 23 relates to “attachment or sale under any decree at order of a Court” of a member’s share. The facts of this case shows that section 23 has no relevance to the present dispute. Section 54 relates to investing in “surplus funds” and in what “securities” such funds may be invested in. This is not a case of the Appellant trying to invest its surplus funds in such securities and hence the section is irrelevant to this dispute. Section 59 relates to the laying of the Appellant’s “trading and profit and loss account” at its annual general meeting. This was complied with for the year ending 31 December 2008.


[38] It was for all the above reasons that we found the Tribunal had committed a jurisdictional error or an error of law in the wider sense as described in the case of Anisminic Ltd v Foreign Compensation Commission [1969] 2 AC 147 when handing down its award, which should have been quashed by the High Court. We accordingly allowed the appeal, ordered that the award of the Tribunal be quashed and the decision of the High Court be set aside. We also ordered that the payments made to the Respondents be refunded to the Appellant within 30 days.




Court of Appeal, Malaysia


Dated: 3rd December 2013








For Appellant:


For Respondents:


V. Jaya Kumar with Anton Paiva


Messrs Kanesalingam & Co Advocates & Solicitors, Kuala Lumpur


Kevin Joshua with Farhana Yaacob Advocates & Solicitors Kuala Lumpur



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