What happens when you deposit a land title with a moneylender? Case analysis of Murali Maliappan v Jaswinder Singh Bajaj [W-03(IM)(NCC)-63-09/2023]

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The facts

The Grounds of Judgment (CA) are available here.

The Grounds of Consolidated Credit [2014] 10 MLJ 329 are available here.

The facts may be obtained from Murali Maliappan v Jaswinder Bajaj [2021] MLJU 2984.

The loan and deposit of title of the Kepong property

Murali took 2 loans from Jaswinder. He deposited a title for a parcel of land (Kepong property) with Jaswinder’s solicitors. Jaswinder also entered a private caveat against the Kepong property. This fact is crucial.

The Sessions Court civil suit and appeals to the HC and CA (together with bankruptcy proceedings)

Murali defaulted. Jaswinder initiated a claim for a sum of RM865k. Murali counterclaimed and asserted that the loan was fraudulent and illegal.

After full trial at the Sessions Court, Judgment was entered for Jaswinder for ~RM513k. An appeal to the HC was dismissed.

Murali appealed to the CA. In tandem, Jaswinder initiated bankruptcy proceedings.

Before the CA appeal was heard, Jaswinder agreed to reduce the amount owing to RM450k. Murali paid RM50k. As a result, the CA Appeal was withdrawn (by Murali) and the bankruptcy proceedings were withdrawn (by Jaswinder).

The second bankruptcy proceedings

Murali failed to pay the balance RM400k. A Bankruptcy Notice was filed by Jaswinder. It was not challenged.

At the Creditors’ Petition stage, Murali applied to strike-out the CP.

The reason for the application to strike was the title to the Kepong property that had been deposited with Jaswinder’s solicitors.

Murali contended that pursuant to S. 5(2) of the Insolvency Act 1967, Jaswinder was a secured creditor. As a result, he was obligated to state in the CP whether he would be willing to give up his security for the benefit of the other creditors:

(2) If the petitioning creditor is a secured creditor he must in his petition either state that he is willing to give up his security for the benefit of the creditors in the event of the debtor being adjudged bankrupt or give an estimate of the value of his security. In the latter case he may to the extent of the balance of the debt due to him, after deducting the value so estimated, be admitted as a petitioning creditor in the same manner as if he were an unsecured creditor.   

The question was this: did the deposit of the Kepong property title with Jaswinder’s solicitors (and the entry of a private caveat) mean that Jaswinder was a “secured creditor” under the scheme of the Insolvency Act 1967? (see para. 7, CA’s Grounds). This issue was a novel point of law.

The CA decides

The Registrar heard this in the first instance and dismissed the application to strike (Murali v Jaswinder [2023] MLJU 1232). The HC affirmed the Registrar’s findings.

The CA also dismissed the appeal.

The discussion on lien-holder’s caveat

To begin its analysis, the CA looked at who would constitute a “secured creditor” under S. 2 IA 1967. Looking at the definition, the CA observed that an “equitable lien” must be distinguished from a “statutory lien” (paras. 8-12).

The CA analysed pre-Independence case law and various old enactments (paras. 13-21) before concluding that under our NLC, a special caveat known as a “lien-holder’s caveat” had to be entered to create a statutory lien:

[22] Thus, under the NLC, deposit of the land title and entry of special caveat known as the lien-holder’s caveat is a pre-condition for the creation of statutory lien. The procedure to apply for a lien-holder’s caveat is stated in section 330 of the NLC which we find unnecessary to reproduce here. We shall now turn to consider some cases that dealt with a statutory lien under the NLC in relation to questions of priority and status as a secured creditor.

The CA then turned to analyse case law (paras. 23-28) and carefully considered Consolidated Credit Co [2014] 10 MLJ 329. There, Nantha Balan JC (as His Lordship then was) carefully distinguished between a lien in equity and a statutory lien:

[46] It is relevant to observe that that section deals with not just the entry of a lien holder’s caveat but is in fact the enabling statutory provision which gives rise to the coming into force of a statutory lien. It is the section, which if complied, creates a statutory lien. Hence, following that section, the party holding the title as security for a loan obtains a statutory lien, only upon entry of a lien holder’s caveat.

From the facts in Consolidated Credit, His Lordship refused to find that a statutory lien existed. Either which way, the facts were too far-fetched for the learned JC to believe (see paras. 48-97).

Distinction between a statutory lien and an equitable lien

Having rounded-off the law, the CA summarised as follows:

[29] To recapitulate, a statutory lien is a lien that is created in accordance with the written law, namely the old Land Code or the NLC. The right conferred by a statutory lien on the holder is stated in section 282(2) of the NLC.

On the facts at-hand

From the facts, Jaswinder did not enter a lien-holder’s caveat as per S. 330 NLC. As a result of this, he was not a secured creditor for the purposes of the IA 1967. What the CA did observe though was as a result of Jaswinder’s failure, the Kepong property title would have to be delivered-up to the Director-General of Insolvency, to be realised to satisfy Murali’s debtors:

[32] We should think that the purpose of section 5(2) of the Insolvency Act 1967 which requires the petitioner to give up a security so that it will be available for the general body of creditors to share in the bankruptcy upon proof of debt. However, in the instant case, the petitioner did not enter a lien-holder’s caveat. He only entered a private caveat in accordance with the agreement with the appellant. Despite his solicitor being in possession of the land title, he did not enter a lien-holder’s caveat at any time. He had not taken any steps to enforce his equitable lien since the act of bankruptcy. His own position is that the private caveat he entered on the land did not make him a secured creditor. Under section 8(1)(b) of the Insolvency Act 1967, upon the making of a bankruptcy order, all the property of a bankrupt vests in the Director General of Insolvency. Thus, we observe that the appellant, if adjudged a bankrupt, can potentially be compelled to surrender the land title to the Director General of Insolvency for the benefit of the general body of creditors. Therefore, in our view, he cannot come within the meaning of a secured creditor.

In the upshot, Murali’s appeal was dismissed.

Concluding observations

Nothing ventured, nothing gained. I think that Murali’s effort was a valiant one but ultimately, it was merely staving-off the inevitable. Even if the CP was dismissed, a third-round bankruptcy would have been initiated (with all necessary corrections).

Bankruptcy does cause individuals to sometimes file numerous suits and applications (see Kerpaya ex p OCBC Bank [2000] 1 CLJ 154 as an example) and I think it has to do with the stigma that still surrounds bankruptcy (though it’s a far cry from the deprecations levelled by Mr Micawber at debtor’s prison).  

At times, it may be far better to satisfy the debt. Even a Badiaddin-type suit would be impossible, given that res judicata would have set-in (Yow Man Kong @ Senthil Kumar v Ghandirajan Arjunan [2023] 3 CLJ 503 (CA), where I was unsuccessful and learnt some hard lessons).

GAVIN JAYAPAL

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