Midf Amanah Investment Bank Berhad V Pitchai Metal Sdn Bhd&5lagi

  

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IN THE HIGH COURT OF MALAYA AT KUALA LUMPUR (COMMERCIAL DIVISION)

 

SUIT NO. D22-NCC-424-2009

 

BETWEEN

 

MIDF AMANAH INVESTMENT Bank BERHAD

 

… PLAINTIFF

 

AND

 

1) PITCHAI METAL SDN BHD

 

2) KUMPULAN PITCHAI SDN BHD

 

3) S.M. PITCHAI CHETTIAR SDN BHD

 

4) MACHENDRAN A/L PITCHAI CHETTY

 

5) RAMAKRISHAN A/L THANGASAMY CHETTIAR

 

6) DHANABALAN A/L M. PITCHAI CHETTY

 

… DEFENDANTS GROUNDS OF DECISION (Enc. 7)

 

BEFORE HIS LORDSHIP TUAN ANANTHAM KASINATHER JUDGE HIGH COURT MALAYA

 

KUALA LUMPUR IN CHAMBER

 

Background facts

 

The Plaintiff was formerly known as Utama Merchant Bank Berhad. The Plaintiff in its capacity as a merchant bank

 

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advised and assisted in the listing of a company known as SMPC Metal Industries Berhad (‘SMPC’) in the year 1997. A major shareholder of SMPC was the 2nd Defendant and, the 4th Defendant was the managing director of SMPC. According to the Defendants, as part of the listing exercise, the Plaintiff advised the 4th Defendant to purchase shares of SMPC in the open market after the listing of the shares of SMPC with Bursa Saham. For this purpose, the Plaintiff evinced a willingness to grant a revolving credit facility for the sum of RM 25 million to the Defendants. Acting on the advice of the Plaintiff, a separate legal entity known as Tresight Vision Sdn Bhd (‘TVSB’) was incorporated to be the vehicle to receive this loan and purchase the SMPC shares in the open market. This loan is evidenced by a facility agreement dated 18th June 1997 (Exh. A1 to Enc. 10). It is not in dispute that the loan granted by the Plaintiff to TVSB is the subject matter of a judgment arising from a default on the part of TVSB, in another High Court in Kuala Lumpur (Exh. A 8 of Enc. 10).

 

The Plaintiff vide a loan agreement dated 17th May 2000 (‘the Loan Agreement’), agreed to provide the 1st Defendant a term loan facility of up to RM 5 million to discharge the 3rd Defendant’s existing indebtedness to HSBC Bank Malaysia Berhad (‘HSBC’) and also to provide the 1st Defendant with capital expenditure (hereinafter referred to as ‘the said term loan Facility’). In consideration of the Plaintiff granting the 1st

 

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Defendant the said term loan facility, the 2nd, 3rd and 4th, 5th and 6th Defendants executed a guarantee and indemnity on 16th May 2000 and 6th July 2000, respectively, jointly and severally guaranteeing as principal debtors and not merely as sureties, the due payment by the 1 Defendant of all monies including interest and charges accruing due and payable under the loan agreement. The said term loan facility was further secured by a third party second legal charge created on 17th May 2000 by the 3rd Defendant, a wholly owned subsidiary of the 2nd Defendant. This charge caused to be registered in favour of the Plaintiff the land known as lot numbers 218,219, 228 and 229 held under title numbers GM 1466,1467, 1469 and 1470 Mukim of Pekula, district of Kuala Muda, Kedah (‘the said land’).

 

On the request of the 1st Defendant, the Plaintiff agreed to restructure the said Term Loan Facility vide its letter of 29th July 2005, subject to, inter alia, the following conditions:

 

i) All existing securities in favour of the Plaintiff to remain valid;

 

ii) The said Term Loan Facility to be crystallised as at 30th April 2005 (‘the Cut-Off Date’);

 

iii) The total outstanding amount due and payable by the 1st Defendant to the Plaintiff under the loan

 

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agreement as of the Cut-Off Date was agreed to be RM 6,519,697.91 comprising the principal amount of RM 5,000,000.00 and accrued interest of RM 1,519,697.91 (‘Interest Due’);

 

iv) 50% of the Interest Due was waived, with the balance to be capitalized into principal so as to result in the new amount due by way of principal under the restructured facility being agreed in the sum of RM 5,759,848.96 (the ‘Restructured Term Loan’);

 

v) The Restructured Term Loan was to be repaid in monthly installments over a five year period commencing from July 2005 to June 2010 on the fifteenth day of each month, in the following manner;

 

Period Monthly Repayment (RM) Total Repayment Yearly (RM)

 

July 2005 – June 2006 25,000.00 x 12 month 300,000.00

 

July 2006 – June 2007 25,000.00 x 12 month 300,000.00

 

July 2007 – June 2008 92.000. 00 x 11 month 88.000. 00 x 1 month 1,100,000.00

 

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July 2008 – July 2009 125,000.00 x 12 month 1,500,000.00

 

July 2009 – June 2010 214,000.00 x 11 month 205,848.96 x 1 month 2,559,848.96

 

(See Exhibit MH-8 of Enc. 8)

 

The total amount outstanding under the said Restructured Term Loan as at 13th May 2009 is RM 8,395,308.62 (See paragraph 17 of Enc. 8).

 

Enc. 7 is an application for summary judgment by the Plaintiff for the sum of RM 8,395,308.62. The Defendants have raised the following issues which their Counsel contends amount to triable issues. First, although the facility agreement between the Plaintiff and TVSB provided that the facilities furnished thereunder were to be used for working capital, it was in fact used for the purchase of shares of SMPC. Counsel for the Defendant submitted that since the full sum of RM 25 million was used by the Defendants, to the knowledge of the Plaintiff, for the manipulation of the shares of SMPC, the loan agreement is illegal. The written submission of Counsel for the Defendants contain several paragraphs explaining the mechanism that was employed by the Defendants to boost the share price of SMPC in the stock market. To the extent that this

 

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mechanism was set in place by the Plaintiff and acted upon by the Defendants, on the advise of the Plaintiff, rendered the transactions to be fraudulent, according to the counsel for the Defendants (see paragraph 17 of Enc. A [7]).

 

In my judgment, the submission of Counsel for the Defendants on the first issue is devoid of merit. This Court is concerned with the Plaintiff’s claim to recover the restructured term loan and not the loan advanced by the Plaintiff to TVSB. Since the loan to TVSB is the subject matter of another legal proceeding, I do not see how the alleged wrongful utilization of that loan by TVSB is relevant to this claim. In this respect, I observed that Counsel for the Defendants was referring to the purpose set out in the facility agreement involving TVSB and not the purpose set out in the loan agreement. In any event, in answer to a question from the Court, Counsel for the Defendant was unable to refer to any document in the documents before the Court affording evidence of the Plaintiff’s involvement in the manipulation of the shares of SMPC with the funds advanced to TVSB.

 

The second issue raised by Counsel for the Defendant was that the Plaintiff failed to realise the SMPC shares that were pledged to the Plaintiff by way of security for the facilities granted to TVSB. According to Counsel for the Defendants, the failure of the Plaintiff to sell these shares at their optimum price

 

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caused the Defendants to suffer considerable losses. Such losses, according to Counsel for the Defendants, should be attributed to the negligence of the Plaintiff. Such negligence arising from the failure of the Plaintiff to sell when the price of the SMPC shares fell below 500% of the value of the loan facility. The short answer to this submission is that clause 5 of the Memorandum of Deposit conferred upon the Plaintiff absolute discretion in the timing and manner of sale of the pledged securities and for such consideration as the Plaintiff deemed fit (Exh. MH 5 of Enc. 11). A number of local authorities have consistently recognized the vesting of such a discretion in lenders such as the Plaintiff when dealing with pledged shares (see Arab Malaysian Merchant Bank v Loi Lung Kiong & Anor (2002) 1 LNS 98 and HLG Securities Sdn Bhd v. Lee Han Boon (2009) 1 LNS 605). For this reason, in my judgment, the second issue raised by Counsel for the Defendant also does not merit further consideration.

 

The third issue raised by counsel for the Defendant is that the loan agreement is tainted with the illegality of the facility agreement involving TVSB (see paragraph 25 of Enc. A[7]). Since another Court of Law has already upheld the validity of the facility agreement involving TVSB and since the allegations of fraud and illegality raised by the Defendant are nothing but bare allegations, I do not see any purpose being served by ordering a trial of the Plaintiff’s claim.

 

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The final issue is that the guarantees are invalid and unenforceable since the underlying agreements i.e the facility agreement and the loan agreement are both tainted with illegality. Since the facility agreement has already been upheld to be valid and since, in my judgment, the loan agreement and restructured loan agreement are valid, in law, it must follow that there is no merit in this issue, as well. Accordingly, I hereby grant the Plaintiff leave to sign final judgment in terms of prayers (a), (b), of Enc. 7. As regards costs, since Counsel was unable to trace any contractual entitlement to solicitor and client costs, I award costs of RM 350 to the Plaintiff in respect of Enc. 7.

 

Sgd.

 

(Anantham Kasinather)

 

Pesuruhjaya Kehakiman Mahkamah Tinggi Kuala Lumpur

 

Date of Decision: 29th Jun 2010

 

Counsels:

 

Mr. Eric Chong Ms. Harjinder Kaur

 

(Tetuan Sharizat Rashid & Lee) … for the Plaintiff

 

Mr. Sanjay Mohana Sundram Mr. Arnold Andrew

 

(Tetuan Arnold Andrew & Co)

 

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for the Defendants

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