The document discusses the key differences between charges and mortgages under Malaysian land law. A charge involves transferring an interest, not ownership, to the chargee/lender. If the chargor defaults, the chargee can apply for an order for sale, take possession, or assign the land. Meanwhile, a mortgage transfers both interest and ownership to the mortgagee. If the mortgagor defaults, the equity of redemption remains until foreclosure or sale. The document also examines the nature, creation, effects, priority, and remedies regarding statutory and equitable charges on land under the National Land Code.

1. Charge
Difference betweenCharge &Mortgage
 Nature
 Powerto charge landor interestinlandas security
 StatutoryCharge
 Equitable Charge
 Rightsand Duties
 Changingprioritybetweenregisteredcharges
Charge
SecuritytransactionunderNLC(Sec241)
Doesnot involve the passingof the legal ownershipfromregisteredownertothe chargee/lender-x
transferof propertyto Lender(endorsementonIDT)
In the eventof default,chargee caneitherapplyforOFS(auction)/take possession/assignthe land
to Danaharta.
Mortgage
SecuritytransactionunderEnglishCommonLaw
Involve the passingof the legal ownershipbythe mortgagorto the mortgagee
In the eventof defaultin repayment,the equityof redemptionremainwiththe mortgagori.e the
rightto redeemwasextendedbeyondthe stipulatedtimeandwouldbe lostonforeclosure orsale.
Kim Lin Housing DevelopmentSdnBhd v BBMB [1997] 2MLJ 805
The judge statedthat formortgage,the rightsand powersof mortgagee are those whichare
incidental tothe legal andequitable rightsvestedinhiminhisrole asmortgagee.Butfora charge,
the rightsand powersof chargee are providedinNLC.Chargee cannotgetawayfrom the provision
of NLC.Eg. in the eventof defaultinpayment.Chargeecanapplyfororderfor sale butthe chargee
cannot sell throughprivate treaty.
BBMB v Doric DevelopmentSdnBhd [1988] 1MLJ 462
For a charge, onlythe interestistransferredtothe chargee butthe ownershipremainswiththe
chargor. In mortgage,boththe interestandownershipare shiftedtomortgagee withthe conceptof
‘equityforredemption’,whichmeansthatthe mortgagorisallowedtoredeembackthe landupon
full payment

2. Definition& Nature ofCharge
 Charge is definesasregisteredcharge (Sec5NLC)
 It isa dealingortransactionwherebythe registeredproprietorof landorlease usesthat
particularpropertyas a securityforthe repaymentof loanadvance tohim or any3rd party.
 If there is noagreementforsuchpayment,there canbe nocharge
Yee SinCheang v UMBC [1992] 2CLJ 1298
A banktellerhadmade a mistake ina paymenttoa customer.The bankrequiredhismother-in-law
to depositherIDTto supporta loanto her. Notonlyhad the mother-in-law notrequestedaloan,
none had beensuppliedtoher.Nocharge had beenregisteredandshe hadnot intendedthe deposit
to be by wayof lien. She laterappliedforthe returnof IDT. HeldHigh Court:As there wasno
agreementtocharge the land,or to create a lienthereon,the purportedlenderhadnorightto
retainIDT as such a rightbelongedonlytothe holderof the securityinterest.(the Bankcouldnot
retainthe IDT)
The personwhooffershislandor lease assecurityisknownas chargor andthe lenderwhoaccept
the landas securityisknownas chargee.
Modus operandi
1. Borrower& Lender
2. Loan
3. Both partiesenteredintoaloanagreement
4. Borrowerofferslandasa security
5. Both partiesexecute charge documents(asprovidedunderNLC)
6. Charge documentispresentedforregistration
7. Upon registration,a“charge”is createdwhichconfersthe chargee anindefeasibilityof
interestoverthatparticularproperty
8. As securitythe chargedpropertywill be utilisedtorecoveranyoutstandingamountorany
debtdue to the chargee.The chargee will be eligibletooptfor remediesavailable underNLC
1965.
What can be charged?
Section241(1) NLC
 Whole piece of land
 Whole of an undividedshares -notapopularsubjectmatterbecause itisuncertainasto
whichportionbelongstothe chargor anddifficulttoauctionthe property
 Lease includingsublease -notpopularbecause itissubjecttoforfeiture (Section234 & 236
NLC).Existence of charge isdependingonthe existence of lease

3. Power to create charge
Section241(3) NLC, subjectedto:-
AnylimitationimposedbyNLCor any otherwrittenlaw
Examples:
Under MalayReservationLandEnactment
Cannotcharge MR landto nonMalay- Ho GiokChoy v Nik Aishah (1961) 1MLJ 49
A charge can be createdoverMalay ReservationLandinfavourof a non-Malay(effective solongas
there has beenno default)-MRE(Kedah).Ondefault,the landcanbe soldonlytoa Malay. Thisrule
was confirmedinSime SecuritiesSdnBhdvTetuanProjekLangkawi SdnBhd (JudithSihombing:The
National LandCode,a Commentary).
Jamaludinbin Jaafar v AffinBank Bhd and another appeal [2016] 12 MLJ 88
The fact that the respondentwasanon-Malaywasbeyonddispute asitsname didnotappearin the
2nd Schedule tothe KedahEnactment.Beingnotlistedinthe SecondSchedule andtherefore anon-
Malay, the respondent wasprohibitedbys6 of the KedahEnactmentfromholdinganyrightor
interest,includingascharge,inthe Malay reservationlandthathadbeenchargedtoit by the
appellant.
CompaniesAct,1965-directorcannot use the company’spropertyasa security forhis ownloan(Sec
133CA)
Harta Empat Sdn Bhd v Koperasi Rakyat Berhad (1997) 2 CLJ 94
The charge isnot validwhenthe directorchargedthe company’spropertyforhisownloan
Section43, NLC-minorsare unable toownlandor deal withalienatedland.
Anylimitationimposedbyrestrictionininterestof the land
In relationtolease,mustcomplywiththe expressconditionstipulatedinthe lease agreementas
well asimpliedconditionunderNLC
UMBC v Syarikat PerumahanLuas [1998] 3MLJ 352
The chargor applytoset aside anorderfor sale of certainlandcharged to UMBC on the groundthat
it wasvoid(the charge was registeredinbreachof anexpressrestrictionininterestendorsedonIDT-
withoutconsenttocharge)
“…the charge havingbeenregisteredinbreachof an explicit statutoryprohibitionimposedonthe
title tothe charged landpursuantto the provisionof the Code,the title orinterestof the chargee is
defeasible since registrationthereof hadbeenobtainedbymeansof aninsufficientorvoid
instrument(s340(2)(b)) andalsobecause the Registrarof Title,inregisteringthe charge,hadacted
ultraviresthe powerconferreduponhim:s340(2)(c)”(Edgar JosephJr)
Types ofCharge
1. FirstParty Charge:- whenthe chargorand the borroweristhe same person
2. ThirdParty Charge:- whenthe borrowerandthe chargor are differentperson

4. Statutory Charge
Creation of charge
Preparation of charge document (Form 16A)-must comply with provisions in section 207-
208NLC
↓
Execution of documents (Section 210 NLC)
↓
Stamping of documents (Stamp Act 1949)
↓
Presentation/ registration of documents (Section 294-306 NLC)
↓
The charge is valid
Effectof RegisteredCharge
 Everycharge shall take effectuponregistration(sec243)
 Chargee can relytoall the remedial provisionsof NLCincase of defaultbythe Chargor
 Sec 215(3) NLC
 Remediesof sale(Sec253 NLC)/takingpossession(Sec271 NLC)-availableincase the charger
defaultedinmakingpayment
 Chargee acquired an interest in the land that is capable of assignment. He can transfer the
charge- Sec 214(1)(d) NLC
Equitable Charge
 Unregisteredcharge/wherethe Lendertakespossessionof the IDTas a securityorassurance
forthe repaymentof loanbyBorrowerbutfailstopresentthe instrumentforregistration,the
lawregardsthe chargee as unregisteredchargee orequitable chargee
 Gen rule: not valid because registration is a mandatory procedure (section 206(1)(a) and (b)
NLC
 However, if the parties have entered into a loan agreement, the transaction is valid as a
contract (see Section206(3) NLC)
(1) Lender holds an instrument of charge in statutory form & IDT has been deposited by the
Borrowerwithhimbuthe failed/neglectedtoregisterthe charge atthe appropriate LandOffice.
:- Lendershouldproceedtoregistercharge onthe propertyandthenapplyfor OFS underOrder
83 Rulesof Court 2012 (ROC)
(2) LenderholdsIDTwhichhasbeendepositedbythe Borrowerwithhimbuthe failed/neglected
to enterLHC at the appropriate Land Office.
:- LendershouldproceedtoenterLHConthe propertyandthenobtainjudgmentonthe debtand
OFS underOrder83 ROC
(3) x supported by an instrument in statutory form, existence of loan agreement (basis of his
interestincontract)
In event of default, remedies of lender rest in contract-rely on provision Sec 206(3)- obtain
judgmentandwritof seizure &Sale underOrder45 ROC

5. Effectof unregisteredCharge
Charge isinvalidbutagreementtocreate charge isvalidandcanbe enforcedbyspecificperformance.
Mahadevan s/o Mahalingam v Manilai & Sons (M) Sdn Bhd (1984) 1MLJ 266
One Mr Ratnavale receivedasumof moneyfromthe appellantona securityof a piece of land.Itwas
the common intention of the appellant and Mr Ratnavale to have the said land charged to the
appellant as temporary security. A charge was never registered. Held Federal Court: “There is,
however,noprovisioninthe …Code prohibitingthe creationof equitable chargesandliens.The Code
is silent as to the effect of securities which do not conform to the Code’s charge or lien. Therefore
equitablechargesandliensare permissibleunderourlandlaw.We therefore thinkthatthe words“or
other charge on land” in Section 21(1) of Limitation Act must be construed to include equitable
chargesand lienaswell.”(SallehAbbasCJ)
It was held that agreement to secure a debt in favour of the creditor in respect of the debtor’sland
couldcreate an equitablecharge givingrise toanequitable rightinfavourof the creditoralthough no
charge withinthe provisionof NLChadbeenexecuted/created
Malayan Banking Bhd v Zahari Ahmad [1950] MLJ 255
D owed P certain amount of money based on a loan agreement cum assignment. D defaulted in
repaymentandPappliedforanorderfor possessionof the propertyandorderthattheyare at liberty
to sell. Held High Court: “Clearly, the…Code does not prohibit the creation of equitable charges and
based on a body of authorities, our land laws recognize equitable charges…Looking at the loan
agreement and the deed of assignment in the present application, in my opinion these documents
createdan equitable charge bothinformandsubstance.”(MohamedDzaiddinJ)-ordergranted
Oriental Bank v Chup Seng[1953] 19 MLJ 12
Borrower deposit IDT to the lending Bank with discharge of existing charge and an instrument of
charge dulyexecutedinthe bankfavour.charge wasnotregistered.Borrowerdefaulted.Bankapplied
OFS.Claimingthatto be subrogatedto the interestof the existingregisteredchargee whichtheyhad
taken under an assignment. Held High Court (Dzaiddin J): refusing the application. Before the Bank
can invoke its right under Section 256, it must be registered as charges. “that an equitable chargee
doesnothave the same legal rights asthose of a registeredchargee.He cannotapplyforan orderfor
sale inthe eventof defaultbythe chargor.
It must , 1st and foremost, be recognised that the…Code ….adheres strictly to the principle of
registrationandrecognisesonlypartieswhoare registeredunderthe Code…Thus,whilstthe Federal
Courton 1 hand,heldthatthe Code….doesnotprohibitthe creationof anequitablecharge,the Code
beinga complete andcomprehensive code of law governingland,onthe otherhand,clearlyrequires
the charge tobe registeredintheprescribedformbeforeachargee canenforce hisrightof foreclosure
underthe Code”
Standard CharteredBank v Yap Sing Yoke [1972] 2 MLJ 166
“There isno doubtin my mind as to the positionof the law that by virtue of the of the unregistered
charge…the P had acquireda title inequityoverthe saidland.As IDT was all the time in the custody
of P it had acquireda lieninequityoverthe land…The depositee,i.e Pbank inthe presentcase, has
the right to lodge acaveat andmay do so at any time underthe provisionsof the…Code” (LaminJ)

6. Rights and Duties
1. Rights:
Chargor
Sec 266:- tenderpayment
Sec 215:- dispose/sell the land subject to the provision/charge agreement.Rightto enterinto
the private treatyeventhoughthe landissubjecttoforeclosure proceeding(publicauction)
Chargee
Sec 249:- receive principal sum and interest, obtain statutory remedies in the event of default
and subjecttoall procedural of NLC.
Sec 244:- firstchargee maytake possessionof the title deed.
2. Duties(express-incharge agreement/implied-NLC):
Chargor
Sec 249(1) (1)-(b):- topayprincipal sumandinterest,expressprovisionandpayall rent
Sec 249 (2)(b):- observe andperformsall conditions
Enhancementof charge:doctrine of consolidation/tacking
Chargee
To complystrictlywithNLCto enforce security
To obtainbestprice
Duty of care
Priority of Charges
General Rule:Firstintime shall prevail
Section278 NLC-control the righttodischarge uponfullsettlementof loan(firstregisteredcharge has
priorityoverthe laterregisteredcharge)
The priorityof a charge may be affectedbythe following:-
 Consolidation(sec245 NLC);
 Tacking(sec246 NLC);or
 Postponement(sec247 NLC).
Doctrine of Consolidation
Consolidationwasadoctrine developedinequitytofetterthe rightof the commonlaw mortgagorto
redeem on payment of part of his debt owing to a mortgagee who had taken security over several
assetsof the mortgagor
“the whole doctrineof consolidation…arisesfromthepowerof the Courtof Equitytoputitsownprice
upon its own interference as a matter of equitable consideration in favour of any suitor. At law,
independentlyof alegal estate,whenthe powerof redemptiongivenbythe original contractisgone,
thena personcomesintoequitytohave assistance fromthe Court of Equity….”(Cumminsv Fletcher
(1880) 14Ch D 699, James LJ, p. 708)
Section245 NLC-agreementmustbe made expresslyatthe time of executionof the loan agreement
and charges
The Chargor and chargee can agree expressly in the documents creating various charges effected
betweenthemselvesoverseveral lotsof landorleasestoconsolidate those charges.
(several charges given by the same person on different properties and charges created by the same
chargor)

7. To operate-chargee must satisfy:-
 The charges musthave beeneffectedbythe same chargorinthe same capacity;
 The charges mustbe infavourof the same chargee at the time of consolidation;and
 Consolidatingclause mustbe expresslyprovidedforinthe charge agreement(eachcharge)
Main Effect:-
to alterthe priorityof asubsequentchargeebycurtailingitspriorityinrespectof the landorlease,by
givingthe consolidatingchargee anadvantage (chargedpropertiesare dischargedsimultaneously).
Example:-
 A charge land Xto B by1st charge containinga rightto consolidate;
 A chargeslandY to C by wayof 1st charge;
 A chargeslandY to B as a 2nd charge witha consolidatingclause,
WhenA seekstodischarge the charge overlandXhe mustalsodischarge thatoverlandY.if there are
insufficientfundstopaybothC andB, C’s priorregistrationwill notavail him.
PublicFinance Bhd v Hock SengHousing DevelopmentSdnBhd [1992] 1 MLJ 442
D as Registered Proprietor of 66 pieces of land (listed in sch A) -executeda charge in favour of P-to
secure a loanup to a limitof RM 560,000. Subsequently,Das RegisteredProprietorof 215 piecesof
land(listedinschB) -executedanothercharge infavourof P-tosecure aloanuptoalimitof RM3.5M.
P appliedforOFSof the landslistedinsch A on the consolidationof the accountof charges (1989). P
appliedaseparate foreclosureactionof the landsinsch B (1985). Dispute arose asto a letterdated7
October 1988 written by P in which P stated that they are exercising their right to consolidate both
accounts. D contendedthatthe letterannouncingthe consolidationof the accounts was of no effect
because it was written after OFS of land listed under sch B had been made. Held: Consolidations of
accounts oughtto be undertakenbefore anyactionistakenfor the foreclosure of anyof the charges
whichrelate tothe accountstobe consolidated.Phadexercisedtheirrighttoconsolidatetheaccounts
a little too late considering their earlier action to foreclose on one of the two charges, taking into
account the fact that the order for sale was made 3 years before, and the 1st auction date 1 month
before the notice of consolidation.Onthe date of the purportedconsolidation,there wasinfactonly
1 charge remaining to foreclose. Therefore, P are at liberty to apply for OFS of lands in sch A only
basedon pre-consolidationcalculations.
GurdevKaur a/p Bhag Singhv AffinBank Bhd (whichhas taken overall the assetsand liabilitiesBSN
Commercial Bank (M) Bhd) [2015] 8 MLJ 491
P charged her property in KL to D and BSNC Leasing (M) Sdn Bhd for various loan i.e. 4 registered
charges. Courtordermade on17 October2002 authorizedDtouse the proceedsof sale underthe 1st
charge to satisfy the amount due under 2nd-4th charges. On 12 March 2007, the property was sold
fora sumof RM 3.15M tothe successful bidder. The saleproceedswereusedtosatisfythe full amount
due under the 1st and 2nd charge and a portion of the 3rd charge. There were insufficient fundsto
satisfy all 4chargesonthe property. Pclaimedthatthe surplusmoniesremainingafterthe satisfaction
of the amount due under 1st charge ought to have been returned to her instead of being utilized to
satisfy the other charges. P commenced action to challenge the validity of the manner in which D
utilized the proceeds of sale realized from the foreclosure action. Held: (i) P did not pleaded in her
case that the said order was void and should therefore be set aside. Hence the utilization of the
proceeds of sale in accordance with the said order was valid and could not be challenged in these
proceedings. (ii) section 245 of NLC and cll 34 and 35 had no application in foreclosure proceedings.
There isno nexusbetweenforeclosureproceedingsandthe saidprovisions.The rightgiventoD incll
34 and 35 that it may require P to redeem all the charges at the same time, does not impose an
obligation on D to consolidate all the charges in order to be entitled to apply the sale proceeds in
accordance withs268 of NLC.

8. Tacking
Tacking is a doctrine whereby a prior legal charge (1st charge) may amalgamate his original charge
withhissubsequentcharge sothatall the chargeswill take priorityoverintermediate encumbrances.
(it gives the 1st chargee priority in respect of that subsequent advance over the priority given to
chargeessubsequenttothe 1st charge,but priorto the lateradvance
(involve furtheradvance bythe = lendertothe = borrower)
Section246 NLC:-
a) propertytobe tackedmustbe the same land
b) expressauthorisation(inthe instrumentof priorcharge)
c) Furtheradvance made withthe consentof the subsequentchargee
(=chargee=chargor=land)
Exception (section 246(3) NLC:- where if the subsequent chargee did not notify the first chargee in
writingof the creation of the subsequentcharge,the chargee whointendsto invoke the doctrine of
tackingneednotobtainexpressconsentfromhim.
Example:
 A chargeshislandto B forRM 10k witha rightto tack (registeredinJan2017 as 1st charge);
 A chargesthe same land to C forRM 5k (registeredinMac 2017 as 2nd charge);
 A borrowa furtherRM 5k from B on August2017;
 A defaultson1st charge;
 B obtainsOFS.The sale realizesRM16k. Afterpaymentof costs, RM 15k remains.B entitled
to this.
 C receivesnothingandwill have tosue A on the personal covenanttopay. A cannot pay and
C is the loser.
 (If B hadno righttotack, C wouldhave receivedhisRM5k onthe sale,and,torecoverthe RM
5k, B wouldhave hadto relyon the personal covenanttopay.)
Yee Ah Fernv Alliance Bank Malaysia Bhd [2010] 7 MLJ 547
Facts: P and his brother are the registered proprietor of a property (single storey terrace house)
chargedto D as a securityforRM 60,000 overdraft.The overdraftwasforP’s brother. Clause 7 of the
charge annexure stipulatesthatthe chargeebankmustobtaintheconsentof the chargorsbefore they
can lendtothe borroweran amount inexcessof the overdraftlimitof RM 60,000 (tackingof further
advance). Dwithoutconsentandknowledge of P,hadincreasedthe overdraftfacilitybyRM30,000 so
as to increase to RM 90,000 and caused the charge instrument to be up stamped. P and P’s brother
defaultedonthe repayments. Dobtainedorderforsale from ShahAlam HighCourt. P deniedhaving
signed a consent letter and having any knowledge of the overdraft increase and the upstamping. P
also lodged a police report alleging that someone had forgedhis signature on the so-called consent
letter. Held:The increasewasinbreachof cl 7&sec246(1)(a) NLCandwasunlawful.Pwasexonerated
fromany liabilityunderthe charge.Andas a consequence,he couldnotbe heldliable foranydefault
onthe part of the borrowercommittedafterthe unlawful increment. Pbeingaco-ownerwasentitled
to be compensated in the sum of RM 105,000 (1/2 of the sale price of the property at the auction-
RM210,000)-P claimwasallowedwithcosts.

9. Postponement
 Section247 NLC
 Rarely used by the chargee. its operates to vary the priority previously enjoyed by the prior
charge byplacingiton a lowerlevelof priority.
 The only situation that can be used as in a situation where chargee is not registered as
companyat the time of preparationand registrationof charge document.Thereforeinorder
to make sure that the charge is valid, chargee will apply for postponement at a later date
where the chargee bythenisdulyregisteredunderthe CompaniesAct.
 Postponement may be allowed by filing Form 16C and a memorial of the postponement is
made on the duplicate charge.
Example:-
 A chargeshislandto X and X registerthe charge inJan 2017;
 A chargesthe land toY whoregistersas2nd charge inMac 2017;
 X and Y agree that X’s charge is to be postponed to Y, when form 16C is registered Y’s
charge isgivenprioritytoX’scharge;
 A defaultoneach charge,Y isthen entitledtopursue the remediesgivenbyNLC,OFS. In
the distributionof the proceedsof the sale,Yisentitledtoreceivethe amountdue tohim
inpriorityto X.
(if there are insufficientfunds,Xwill loseout.)

10. Remediesavailable to charge
In the eventof defaultbychargor,the registeredchargee mayexercise hisright-
 OFS;or
 takingpossession;or
 AssignmenttoDanaharta
OFS-Procedure:-
 Statutorynotice;
 Foreclosure proceeding;
 OFS;and
 PublicAuction
Remedies-OrderForSale (OFS)
StatutoryNotices:-
 differentbetweenForm16D & 16E
Foreclosure proceeding:-
 Tribunal empowertograntOFS; and
 “existence of cause tothe contrary”.