Charge

Ainul Jaria - LAW 3111-Lecture 2 1
TOPIC 1
Security Dealings recognised by
the National Land Code 1965
(“NLC”)

Introduction
Security Dealings are dealings
whereby a registered proprietor
conveys his land to either a
Bank, finance company or
moneylenders to secure the
repayment of a loan

The land will be used as collateral or
security to assure the Lender that the
Borrower will repay the loan within the
stipulated time
If the Borrower fails to repay the loan
within the stipulated time or breach any
terms and conditions stipulated in the
loan agreement, the Lender can
commence foreclosure proceedings to
obtain an order for sale of the land by
way of public auction or gain possession
of the land

Charge or Torrens Charge
A charge is a type of security dealing
or transaction, which is created when
a registered proprietor or a lessee
uses his land as a collateral or security
in return for the loan given to him by
the Lender.
The Borrower can borrow money (loan
) from a bank or finance
company, which is in business of
lending money or even an individual
(moneylender)
In return he is required to pledge his
land as security to guarantee the
repayment of the loan with interest.

LAND AS SECURITY
Land can be used and accepted as a
security for a loan, due to it’s special
attributes as an immovable property that
can give rise to various interests in
favour of various persons at the same
time
Land is permanent, durable, and its’ value
is never lost and most of all can confer
interests to various people at the same
time, thus is regarded as good security

In the event, the borrower fails to
repay the loan or money borrowed
together with interest, or borrower
fails to comply with any express and
implied conditions of the charge the
Lender can recover his money by
selling the land by way of public
auction or by way of private treaty
(with consent from the chargor)

Differences between Torrens
Charge & Common Law Mortgage
Charge is a creation of statute and is
different from the common law deed of
mortgage. The Malaysian courts have always
appreciated the difference between
mortgage and charge
Gan Khor v Soan Bin Pelita (1935) MLJ 158
Paramoo v Zeno (1968) 2 MLJ 230
BBMB Bhd v Doric Development Sdn Bhd. &
Ors (1988) 1 MLJ 462
Malayan United Finance Bhd. v Tan Lay Soon
[1991] 1 MLJ 504

Differences Between Charge &
Mortgage
Charge must be
registered at the
relevant land office
Charge is created
using prescribed
statutory form
Mortgage need not
be
registered, merely
preparing a deed of
conveyance is
sufficient
There is no
prescribed
form, there is deed
of conveyance

Differences Between Charge &
Mortgage
Chargee takes
possession after
chargor defaults in
repaying the loan
The chargee can
seek to sell the
property when
chargor defaults in
the repayment of
the loan at any
time
Mortgagee takes
possession upon
creating the deed.
The mortgagee
cannot sell the
property and infact
he has to hold on to
the property

Differences Between Charge
& Mortgage
Charge merely
confers interest &
not title or
ownership to the
Chargee
The chargor is
entitled to a
discharge of
charge
Mortgage confers
absolute ownership
to the mortgagee
The Motrgagee has
a right in equity to
redeem the land at
anytime even after
the stipulated time

Powers of Charging
S.241(1)(a)(b)(c) NLC
The owner of an alienated land has
power to create a charge over his
land irrespective of whether final
or qualified title or as a parcel in
strata title.
The landowner’s powers to create a
charge is subject to the
restrictions imposed in S.241 (3)
NLC

What can be charged
S. 241(1)(b) NLC
charge can be created over whole of land
but not on part of any alienated land
co-proprietor is empowered to charge his
entire undivided half share in an alienated
land
The rationale for this provision is to avoid
difficulties in identification of the
quantification and on default, in the
chargee enforcing his remedies

J.Raju v Kwong Yik Bank
Bhd.[1994] 2 MLJ 408
it was decided that it is possible to
charge part of land but only by way of
an equitable charge. This transaction
however, is not capable of
registration. The statutory remedy
under NLC is only available to a
registered chargee

Charge - to secure
repayment of loan
Charge must be created to secure the
repayment of any debt or the repayment of
any sum other than a debt or of any annuity
or other periodic sum. (S.241(1)NLC)
R&I Securities SB v Golden Castle Finance
Corp (M) Ltd. [1979] 1 MLJ 46. The
creation of a charge where there is no loan
transaction is not possible since it defeats
the essence of the charge, which is to
secure is repayment of the loan and the
obligations to repay

In Yee Sin Cheong v UMBC [1992] 2
CLJ 1298 the court said that unless
there is a “loan in existence, no
security is therefore required”

Charge Confers Interests
A registered proprietor who charges his
land does not transfer his title over the
land, but confers merely interest
The ownership of land remains with the
landowner
This enables the borrower/chargor
power to effect as many subsequent
charges as possible

S.241(2)NLC provides that where a
person charges his land for the
second and third times or any number
of times, these charges take priority
in accordance with the date of
registration

Restriction on Powers of
Charging
The powers of charging of property
is subject to certain restrictions as
specified in S.241(3) NLC
(a) any prohibition or Limitation – for
example Malay Reservation restricts
the creation of charge of land held
under Malay Reservation title in
favour of a non-Malay chargee

(b)any restriction on
interest, specified in Ss.103-129 NLC
where State Authority has endorsed
on the issue document of title to the
land the restriction to create a
charge without written consent of
State Authority
(c) if the land is subject to lease then
the express and implied conditions of
the lease should apply

Void Charges
Charge that fails to comply with certain
requirements, e.g. Non compliance with
terms of Moneylenders Ordinance
1951, is not enforceable and considered
as void charges
In Phuman Singh v Khoo Kwang Chong
[1965]2 MLJ 189 & Associated Finance
Corporation Ltd. v Poomani[1972]1 MLJ
117 court emphasised that the charge
was void for being in contravention of the
respective Moneylenders Ordinance in
force

Menaka v Lum Kum Chum[1977]1 MLJ
91
Keng Soon Finance Bhd v MK Retnam
Holdings SB [1996] 4 CLJ 52
CASES

Charge created in favour of two
or more persons
S.241(4)NLC provides that no charge
may be granted to two or more persons or
bodies unless they are acting in the
capacity of trustees or representatives.
In this case the charge may be held
jointly by them all. In cases of leases the
issue document of title or duplicate lease
may be held by the first chargee unless
there is a contrary agreement to that
effect

Requirements to Create
Charge
Conditions prescribed in
Chapter 1 of Part Sixteen in
NLC 1965 that must be complied
with prior to creating a Legal /
Torrens Charge

Requirements to Create
Charge
Must Use the Prescribed Instrument
i.e. the Prescribed Statutory Form
The Instrument must be Registered
at the relevant land office

Stereotype Prescribed
Instrument or Statutory Forms
for Charges
Forms 16 A and 16 B
S. 242(1)NLC -statutory form for a charge
to secure the repayment of a debt or the
payment of any sum other than a debt is
Form 16A
Form 16B is the appropriate form for
charges providing for the payment of an
annuity or other periodic sum. The payment
of an annuity is referred to as a rent-charge
whereby the payment of an annual sum is
charged on the land

Annuity -meaning
An annuity is the payment of an annual, or
other periodical sum of money secured
over land similar to a mortgage or a
Torrens charge.
If the owner of the land bound to pay the
annuity defaults the annuitant can enforce
the promise to pay by execution against
the land. The annuity is similar to the rent-
charge of common law.

Amendment to the form
Any other conditions that need to
be imposed on the chargee and
chargor will be made out in an
annexure to the charge
The Forms may be varied as long as
the variation is not a matter of
substance - S.207 NLC

A matter of substance is one, which
represents a material alteration to
the requisite information so that the
substantive nature of the underlying
transaction or the liability of one
party is altered thereby. Any
conditions agreed between the
chargor and chargee can be inserted
in the annexure to the charge

Charge created using wrong
formThe court has held that the Forms are
flexible enough, therefore, the use of the
wrong Form will not invalidate the charge
created
In V.Letchumanan v Central Malaysian
Finance Bhd [1980] 2 MLJ 96 a charge
provided that the loan money is to be paid
in instalments after execution of the
charge rather than payment in full before
execution as was stated in the charge. In
an annexure, repayment was to be made on
demand, though unless and until demand
was made, the loan was repayable on
instalments

On default, the chargee sought to
sell the land, but the chargor
objected on the basis that the
charge should not have been made
in Form 16A because it provided for
payment in instalments
The Federal Court held that the
use of Form 16A in this case was
correct as the statutory form is
flexible enough

Tan Yen Yee & Anor v Equity
Finance Corpn. Bhd. [1991] 1
MLJ 237
A charge created using Form 16A to
secure the payment of rent under
chattel-lease of equipment.
Upon default by Chargor, the chargee
applied to the Land Administrator for
sale of the land. Chargor objected -
charge should have been made using
Form 16B and so charge is null & void

Court -charge is recognised although
wrong form had been used
Court referred to Interpretation Act
1948 & 1967 s.62-the deviation was
not of substantial effect nor was it
calculated to mislead.
The High Court rejected the
contention of the chargor that a
charge had to be in one of the two
available forms, namely Form 16A (for
repayment of principal and Form 16B
(for payment of periodic sums)

Registration of Charge
S.243 NLC provides that a Torrens charge
must be duly registered in accordance with
the requirements of NLC.
Thus, failure to register the charge
instrument in the relevant land office will
render the instrument unenforceable.
The chargee will never be able to avail
himself the statutory remedies provided in
the NLC. I.e. Order for Sale by way of
Public Auction and Taking Possession .

Position of Unregistered
Charges
Situations where the chargee fails to
register a charge instrument
i. Parties fail to proceed with
registration despite the completion
of the instrument of charge, and the
title is available;
ii. Though title is available, but
parties do not wish to create a
charge, borrower hands over title to
lender as a security for loan

iii. Title is available but parties wish
to enter into a different type of
security transaction, which is not
prescribed in the NLC 1965. For
instance a Jual Janji transaction;
iv. Title is not available so the parties
enter into a Loan Agreement Cum
Assignment whereby assigning all the
interests of the Borrower in the
property to the Lender

Position of Unregistered
Charge
Unregistered chargee can claim
protection as an equitable charge
This type of charge may be
recognised pursuant to S.206(3) NLC

Equitable charge is not different
from legal charge in procedure.
But it is not registered and this will
not be recognised except under
equity. A charge being outside the
NLC provision will not be able to seek
the remedies available to a registered
chargee i.e. sale by way of public
auction and taking possession

Cases
Arab Malaysian Finance Bhd. v Ting
Pik King & Anor [1993] 2 CLJ 523
Ban Hin Lee Bank Bhd. v Lim Kar
Bee [1992] 2 CLJ 1192
Chuah Eng Khong v Malayan Banking
Berhad [1998] 3 MLJ 97

Development & Commercial Bank Bhd. v
Che Wan Development S.B. & Ors
[1990] 1 MLJ 12
Hipparion (M) Sdn Bhd v Chung Khiaw
Bank [1989] 2 MLJ 49
Hj.Abdul Rahman v Mohamed Hassan
[1917] AC 209
Standard Chartered Bank v Yap Sing
Yoke & Anor [1989] 2 MLJ 49

Mahadevan v Manilal [1984] 1 MLJ
266
In this case, the court held that a
charge document if not registered
in the manner prescribed by the
NLC, it will only be recognised
pursuant to equitable principles
and giving rise to a right in
contract.

Merchantile Bank v Official Assignee
of Property of How Han Teh [1969] 2
MLJ 196
Oriental Bank v Chup Seng Restaurant
(Butterworth) Sdn. Bhd.[1990] 3 MLJ
493
Arunasalam Chetty v Teah Ah Poh
Trading & Anor [1937] MLJ 17

Subsequent Charges
Ss.241(2); 251; 226; 214; 219;216
NLC
Leisure Complex Sdn. Bhd. v
Malaysia Credit Finance Bhd.
[1994]1 CLJ 185

Priority of Charges
A charge is given priority in the
order of creation refer Ss.245, 246
& 247 NLC.
Lai Soon Cheong v Kien Loong
Housing Development & Anor[1993]
2 CLJ 199

Altering Priority of
Charges
The priority of registered charges
can be changed through agreement by
using the following methods:
a.by consolidation (S.245 NLC)
b.by tacking (S.246 NLC )
c.by postponement (S.247 NLC)

Consolidation of Charges
Developed in equity to fetter the right of
the common law mortgagor to redeem on
payment of part of his debt owing to a
mortgagee who had taken security over
several assets of the mortgagor
Relief against forfeiture of one property
by preventing the mortgagee from
foreclosing another property was
dependant on the discharge by the
mortgagor of all his liability to the
mortgagee over all other properties
mortgaged to secure the loan

Therefore, if relief is required the
mortgagor must pay for all the
mortgages. Consolidation is not
encouraged in the Torrens System

Restriction on
Consolidation S.245 NLC
Priority of charges can be
determined by consolidation as
provided under S.245 NLC –
which generally refers to the
consolidation of two or more
charges. This Section restricts
consolidation

Consolidation normally takes place where
the chargor had charged two pieces of land
A&B. Normally relief would only be given if
money is paid for both pieces.
Chargor will not be allowed to pay for “A”
alone. He must pay for B also. Under NLC it
is provided for the right to consolidate
only if both the parties consent to it

Consolidation
If a chargee is registered as
proprietor of charges over different
properties belonging to the same
chargor, the chargee can refuse to
discharge one charge without the
chargor simultaneously (at the same
time) discharging or paying off all the
other existing charges

Tacking of Charge S.246
NLC
Tacking means
the chargor’s or the borrowers loan
will increase
the chargee will obtain priority over
other chargees

when there is a tacking
transaction, the chargee offering
tacking facilities will gain priority in
respect to the original sum and also in
respect of further advances.
tacking which leads to priority over
other chargees will take place in
accordance to S.246(2) NLC

Conditions
the making of the advance is expressly
authorised by the prior charge or to
secure a balance from time to time due to
the chargee.
That the loan is made with the consent of
the subsequent chargee. In these cases
the chargee may tack.
Any subsequent chargee must investigate
the instrument and see whether there was
any authorisation for tacking in the first
charge.

Tacking will give priority to the further
advances to the subsequent chargees. If
there is a specific authorization for
tacking in the first charge - it means that
the chargee has a right to make further
advances to rank in priority
If prior charge does not expressly
authorise further advances then tacking
may be possible if the subsequent chargee
consents to giving of further advances.
This of course will enable the chargee to
have priority for the tacked amounts

Postponement of charges
S.247 NLC
Postponement of the priority of a charge
in relation to competing interests
depending on the date of registration
Before a charge can be postponed, it
must be registered
Postponement of a charge may change the
priority by allowing the subsequent
charge to take the place of the prior
charge. Thus if the charge postponed is
the first charge, postponement will give
the subsequent charge priority as the
first charge

Procedure
This will be carried out on Form 16C. The
former subsequent chargee will pursue the
remedies on default of his charge, which
would have been those of the prior chargee
Ling Tee Huah Credit & Leasing S.B. v Lii
Tat Credit Mortgage S.B.[1990] 1 MLJ 58
R&I Securities S.B. v Golden Castle Finance
Corp (M) S.B.[1979]1 MLJ 46

REMEDIES FOR
REGISTERED CHARGEE
This topic examines the statutory
remedies available to a registered
chargee upon default by chargor
to repay the loan as agreed in the
charge agreement

STATUTORY REMEDIES
NLC provides two remedies to a
chargee in the event the chargor fails
to repay the loan.
Order for sale by way of public
auction
Taking possession of the charged
property

Sale by Way of Public
Auction s253 NLC
S.253 NLC enables the chargee to
obtain the sale of the land or lease to
which his charge relates in the event
if there is a breach on the part of
the chargor of any of the terms in
the agreement or the implied
provisions

The power to seek sale of the
property can be exercised even if the
chargee has taken possession of the
land. The most effective remedy is
that of sale. But if the proceeds from
the said property is not enough then
the chargee can always sue on the
personal covenant to pay

PROCEDURE
S.254 NLC provides that where there is a
breach by the chargor then the chargee may
serve Form 16D notice.
a. specifying the breach in question
b. requiring it to be remedied within one
month of the date on which the notice is
served or such alternative period as may be
specified in the charge; and
c. warning the chargor that if the notice is
not complied with, he will take proceedings
to obtain an order for sale

To serve a notice 16D the breach
must have been continuing for a
period of at least one month prior to
the date of the notice.
This provide the chargor with time
to remedy the breach since
foreclosure proceedings can only be
commenced after failure on the part
of the chargor to remedy the breach
within the stipulated time.

The other statutory Form is
16E, which is served in the event of
non-payment of loan and the order
for sale can be applied after one
month of service of the notice.
This form requires the repayment of
the principal sum on demand. The
chargee can upon failure on the part
of the chargee to repay within the
stipulated duration, apply for an
order for sale without issuing any
further notice in Form 16D

Central Finance v Loke Kok Lai
(1975) 1 MLJ 160
Eliathamby v Shaik Mohamed Said
(1970) 2 MLJ 194
Government of Malaysia v Omar Bin
Hj. Ahmad [1983] 1 CLJ 242

Mary Michael v UMBC Bhd. [1971]1
MLJ 172
Sykt.Kewangan Melayu Raya Bhd.v
Malayan Banking Bhd. [1984] 1 MLJ
115
VAM Hussain v BP Malaysia Sdn. Bhd.
[1970] 2 MLJ 69

Procedure for Obtaining Order
for Sale
On the expiry of the period in the notice
the whole loan sum secured by the charge
will be due and the chargee may be able to
apply for an order for sale. However, in
cases of sale the NLC provide for
different procedures depending whether
the land is held under registry titles or
land office titles.

If registry title the chargee must
apply to the High Court for an order
of sale according to S.256 NLC
The court when upon receiving the
application will decide whether there
is default and if satisfied that there
is no cause to the contrary it must
issue the order for sale of the land

Powers of Land
Administrator
Inquiry Stage
The general rule is that the Registrar must
not go beyond the Register. If he is
satisfied that the charge in dispute is on
the register, his duty is limited to deciding
as to whether or not there has been a
default in the repayment of the loan
according to the terms of the charge. The
Land Administrator has no power to inquire
or investigate any allegation of fraud or
misrepresentation since the land office is
not a court.

Refer dispute to court
The parties can refer the dispute to
court pursuant to S.419 NLC whilst
the Land Administrator can stay or
adjourn the proceedings pending the
court settling the dispute.
The Land Administrator is obliged to
make an order for sale if it has been
proven that there is breach in the
terms and conditions of the charge
document

Cases
Gurpal Singh v Kananayer [1976] 2
MLJ 34
Sundram v Chew Choo Khoon [1968] 1
MLJ 90
Suppiah v Ponnampalam [1963] MLJ
202

Power of Land Administrator
The Land Administrator can only
make an order for sale and not any
other ancillary order.
Govt. of Malaysia v Omar bin Haji
Ahmad [1983]1 CLJ 242
The land administrator made orders
to allow the chargor to pay by way of
instalment the oustanding loan amount

The Land Administrator and the Court
becomes functus officio after an
order for sale has been
granted, drawn up and perfected. He
is not allowed to revoke, alter, or
amend the order unless such order is
consequential to the order for sale
Exp.Bank Bumiputra [1992] 1 CLJ 200
Lim Yoke Foo v EU Finance Bhd.[1985]
1 MLJ 17
MUI Bank Bhd. v Cheam Kim Yu (Beh
Sai Ming Intervener) [1992] 2 MLJ
642

Taking Possession
Limitation on entering possession
S.270(1)(a) NLC powers of taking
possession cannot be exercised in relation
to any land held under Land Office title or
the corresponding form of qualified title.
(aa) shall not be exercisable in the case of
a charge of undivided share in alienated
land;
(b) in case of town or village land not held
under Land Office title can be exercised
only when the chargor is not occupying the
property

In the case of land office titles the
chargee must apply to the Land
Administrator of the
District, according to S.260 NLC.
This is done using Form 16G.
The Land Administrator will make an
inquiry and upon being proven of the
chargor’s default, he will issue an
order for sale of the land

Right of Possession
S.271-273 NLC provides the
procedures of entering possession for
a chargee.
NLC provides that the chargees right
to take possession does not extend to
land held under land office titles or
qualified title, the power also could
not be exercised in case where the
subject matter of charge was
undivided share in alienated land.

Right of Possession
If there are more than one chargee the
right to enter into possession will be
exercised only by the first chargee
Taking possession may be actual where the
chargee goes into possession by himself or
constructive, where the chargee receives
the rents payable by a tenant or lessee
Before chargee can take possession of the
land under the NLC requires him to give
notices under S.272 NLC

Charge

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