Fraud unravels all: A critical analysis of the CA’s decision in MA Joseph Capital v Pannirselvam Mannar
- Gavin Jayapal
- 13 minutes ago
- 8 min read
To fully appreciate the decision in MA Joseph Capital, one must firstly read the HC’s GOJ (AJ Kasturi v Pannirselvam Mannar [2024] MLJU 1874).
HC Judgment:
CA Judgment:
The moneylending saga
P (AJ Kasturi and MA Joseph Capital) needed funding. P was informed by a branch manager of a local bank to meet with D1 (Pannirselvam Mannar, an Advocate and Solicitor, “Pannir”).
Pannir managed to arrange for multiple “loans” for P. As security, P pledged properties as collateral. To conceal their tracks, fictitious S&Ps were executed between P and the various defendants. Pannir prepared these agreements.
16 S&Ps were executed between P (AJ Kasturi in Suits 494 and 514 and MA Joseph Capital in Suit 502) and various Defendants.
P was the purported vendor. Pannir (D1) and D2 were solicitors from Messrs Nurliny, Pannir Mannar & Co who purportedly acted for the various “purchasers” (said “purchasers” forming the remaining Defendants).
The loans could not be repaid. As a result, various parcels of land were transferred to the “purchasers”.
P asserted that the 16 S&Ps were sham transactions designed to cover the tracks of illegal moneylending. The Defendants, unsurprisingly, alleged that P cooked-up a tale to avoid the S&P.
D counterclaimed for vacant possession of the 16 properties from P.
The option to purchase
During trial, D1 stated that his clients (the “Purchasers”) had all signed Options to Purchase the properties. The Options could purportedly:
be exercised within 40 months;
P would pay monthly “legal/consultation” fees;
P would be entitled to continue occupying the properties pending and P would pay monthly rental.
P purportedly defaulted in the “rental” and as a result, the “purchasers” exercised their “right” to transfer the properties into their own name.
Decision of the HC
At trial, the HC held that the “Option” being placed in Part B would render the same authentic (paras. 92-97). The HC held that the “Options” were valid and not a fabrication (para. 116).
The HC then noted that the words “interest/loan” do not appear anywhere in the documentation (paras. 117-123). This led the HC to conclude that there was no moneylending.
Despite there being deductions at “source”, the HC held that this was in accordance with the Option to purchase allowing for the necessary deductions (paras. 130-142). Various other observations were made by the HC and ultimately, the HC concluded as follows:
Conclusion
[182] After carefully considering all the evidence and submissions from all parties involved, I dismissed the Plaintiffs’ claim with costs.
[183] As the Defendants/Purchasers counterclaims against the Plaintiffs, they were allowed with costs and interest. The prayer for damages was disallowed.
The CA
On appeal, the CA completely reversed the findings made by the HC. The CA allowed the appeals in toto and determined that the 16 S&Ps were indeed an illegal moneylending transaction.
The CA firstly set-out the facts (paras. 1-38). The CA then dissected the matter at-hand and conclusively determined that the 16 S&Ps were in fact a sham.
The 1st failure: Compartmentalising evidence and failing to consider it holistically
The CA first noted that the HC had fallen into a serious error by compartmentalising the evidence. By failing to consider the various facts cumulatively, the HC had committed a serious error (paras. 39-42).
The CA emphasised that the ”Mahmood Ooyub” framework must be considered by a Court of first instance to determine whether there were any suspicious circumstances that would undermine the agreements (paras. 43-45).
The various suspicious circumstances
The CA then noted the various suspicious circumstances that should have immediately brought the HC into a train of inquiry:
Single legal representative for all the purported purchasers, with no representation for P (paras. 46-47);
The Option to Purchase, despite being a crucial document, was unsigned by the purported “purchasers”. Pannir was unable to explain the lack of a signature (paras. 48-62);
The purported “Option” did not even make reference to the S&P (paras. 63-67);
No contemporaneous reference to the “Option” and proof of delivery (paras. 68-71).
The classifying of the Option as a Part B document
The CA also noted that merely classifying the purported Option as a Part B document did not automatically resolve the fabrication issue. As observed by the CA:
(iii) The Trial Court's misplaced reliance on Bundle B classification
[74] The learned JC erred by treating the Bundle B classification as conclusive resolution of the fabrication issue, as seen in paragraphs 93, 94, and 116 of the High Court Grounds. This represents a critical misunderstanding of the procedural classification of documents system.
An extract of the relevant parts of the JC's High Court Grounds is reproduced as follows:
(paras. 89-116 of the HC’s Grounds reproduced)
[75] Part B classification merely establishes physical authenticity, meaning that the document exists, but it does not establish when the document was created, why it was created, or whether it represents genuine commercial arrangements. The fabrication allegation remains a live issue notwithstanding the document being put in Part B.
[76] It is our view that the learned JC was in error when she failed to address the proper issues in determining whether the LOPs were indeed fabricated. The considerations between paragraph 97 to 115 in the above High Court Grounds do not address the fabrication allegation but merely touches on the finding that the transactions were not money laundering related transactions.
[77] A document may be authentic but can be a fabrication. Authenticity does not nullify the allegation that the LOPs were fabricated to provide justification for the unusual sale and purchase arrangements.
[78] Classification of documents is designed for case management, not judicial determination. The mere classification cannot establish contemporaneous creation or genuine commercial intent, does not preclude challenges to timing, purpose, or commercial genuineness, and remains subject to subsequent judicial scrutiny on substantive grounds.
[79] Parties may agree to Part B classification for various strategic reasons including avoiding handwriting expert costs while reserving the right to challenge the document's commercial genuineness. Parties may also make tactical decisions to challenge the document's purpose and timing rather than its physical existence and focusing on proceedings while maintaining challenges to the document's legal significance. The motivations are myriad.
[80] The Courts consistently apply the principle that substance must prevail over form. The classification system cannot override this fundamental principle. In Ideal Advantage Sdn Bhd v Perbadanan Pengurusan Palm Spring [2019] 1 LNS 894 (CA) this court emphasized that instruments effected pursuant to illegal transactions constitute "insufficient or void instruments" regardless of their formal appearance.
[81] The Mahmood bin Ooyub framework specifically require courts to look beyond documentation to examine "suspicious circumstances and unusual features" that reveal sham arrangements. PJD Regency (supra) established that protective legislation requires courts to examine the true nature of transactions despite their documented form.
[82] The procedural classification of documents for pre-trial case management purposes cannot, and should not, be treated as conclusive evidence of their genuineness or contemporaneous creation.
Various other suspicious circumstances
The CA also observed as follows:
a. The suspicious pattern and timing of the transactions (paras. 83-85);
b. The deductions-at-source arrangements (paras. 86-91);
c. Retention of possession and control of the properties by P (paras. 92-93);
d. Large one-off purported payments (paras. 94-97);
e. Post-transfer conduct of the parties (paras. 98-101).
The CA concluded:
[97] The above observations further support the argument that there was no genuine land transaction between the Appellant and the Other Respondents. The red flags are too obvious for this Court to ignore. The Mahmood Ooyub Framework has been satisfied and we find no difficulty in finding that the SPAs were actually sham transactions which were actually illegal money lending activities.
The application of in pari delicto and ex turpi causa
The CA then dealt with a thorny issue. Having determined that the S&Ps were illegal moneylending shams, it turned to consider whether P would be entitled to a return of the properties.
The CA conducted an impressive analysis of the law. Firstly, it considered that there was a principle of class protection at-play. The borrower, being the weaker party, is to be protected by legislation (paras. 102-111).
Noting that the law would protect the weaker party, the Court held that the principles of in pari delicto would not serve to deny P its right to a return of property (paras. 107-114). The CA concluded as follows:
[115] Thus, in the context of the Moneylenders Act 1951, which protects borrowers, the Appellant cannot be held equally at fault and ought to be allowed to seek remedies.
[116] The duty of compliance with the licensing requirements under the Moneylenders Act 1951 is placed squarely upon the lender, not the borrower. The Other Respondents, as alleged unlicensed moneylenders, bore the primary responsibility for ensuring compliance with the statutory scheme.
[117] Following Kiriri Cotton and PJD Regency, this Court holds that the Appellant, being a member of the class protected by the Moneylenders Act 1951, is not in pari delicto with the Other Respondents and is therefore entitled to seek relief despite the alleged illegality of the transactions.
[118] The doctrine of in pari delicto cannot be invoked by the Other Respondents to shield themselves from the consequences of their noncompliance with the Moneylenders Act 1951, as this would defeat the protective purpose of the legislation.
[119] This Court finds in favour of the Appellant that the Appellant is not in pari delicto and is not barred from pursuing its claim against the Other Respondents
The counter-allegations raised by the Respondents
The CA dismissed the counter-allegations raised by the Respondents (paras. 120-130). Applying Triple Zest and following the line of authorities in Golden Globe, Mahmoud Ouyob and Tang Lee Hiok, the CA determined that:
“[113]… once a finding is made that there was moneylending activity by an unlicensed person, the entire sale and purchase arrangements entered for the 16 properties are null and void for illegality.”
The Court also noted that judicial vigilance is of the utmost importance and where such allegations are raised, it behoves the Court to critically assess the documentation placed before it.
Conclusion
The CA held that the HC was plainly wrong. It determined as follows:
[138] For the foregoing reasons, we find that the Appellant has successfully established that the 16 SPAs were sham transactions designed to disguise illegal moneylending arrangements in contravention of the Moneylenders Act 1951. The properties were provided as security for loans rather than being the subject of genuine sales with repurchase options.
[139] The learned JC's conclusion that these were genuine commercial transactions cannot be sustained in light of the overwhelming evidence of suspicious circumstances and the implausible explanations offered by the Respondents for the numerous unusual features identified by the Appellant.
[140] Accordingly, we allow the three (3) appeals and the decision of the learned JC is set aside.
Critical analysis
I am very pleased and truly heartened by the decision rendered by the CA in MA Joseph Capital. Triple Zest was a watershed moment and the Courts now emphatically and unanimously turn a cold shoulder towards moneylending arrangements and transactions.
It is a positive development of the law to see that the Courts are emphatically applying the law of the land and refusing to lend assistance to moneylenders. There was a time when the Courts were disinclined to hear the plaintive cries of borrowers; it is a truly beneficent development to see that this is consigned to the dustbin of history.
GAVIN JAYAPAL
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