Security Transactions

Jual Janji
- Tengku Zahara: A type of security transaction practiced commonly amongst the Malay
Muslim community principally for avoiding the payment of riba or interest that
prohibited under Syariah law.
- A dealing between the borrower, who transfers his own land to the lender, and upon
full settlement of the loan, is entitled to take back his land.
- A Kanapathy Pillay: Jual janji can also be practiced amongst non-Muslims.

Problems arise in determining whether the transaction between parties is purely a contract
of sale or a security transaction.

- If the transaction is regarded as purely a contract of sale: Time is of essence.

- Borrower will not be able to redeem the land despite the intention of the
parties to only use the land as security for the loan.
- If the transaction is regarded as a security transaction: Time is not of essence.
- If the borrower has paid in full, the land would be transferred to him.
- The lender cannot refuse to transfer the land upon payment, even if payment
is made after the agreed period.

General rule in Othman v Mek: If the borrower settles the loan in full within the stipulated
time, the lender is obliged to retransfer the land to the borrower.

Strict Interpretation

- The transfer of land and the collateral agreement are regarded as a contract of sale.
- Where time is of the essence, both parties must comply with the terms of contract.
- Failure to make payment will result in the land not being able to be re-transferred.

- Haji Abdul Rahman v Mohamed Hassan: The borrower failed to repay the loan on
time, but eventually managed to settle the outstanding balance and insisted upon the
re-transfer of the land.
- Under a contract of sale, time is treated as of the essence.
- Jual janji is not recognized under the NLC, and therefore, if the parties intended
to create a security transaction, it must either be a charge or lien.
Exceptions to the strict interpretation:

Where the lender has agreed to an extension of time, thus causing time to no longer be of
the essence of the contract.

- Ismail Hj Embong: Where the defendant provided an extension, whether or not the
plaintiff's contractual right to repurchase the land could still be exercised after the
expiry of the extension was dependent on whether time was still of the essence of the
contract. Held: The conduct of the parties was proof that time was no longer treated
as of the essence, thus entitling the plaintiff to repurchase the land on full payment
of the sum due.

Where the lender refuses to accept repayment by evading it or by inserting an additional

term not provided in the original agreement.

- The lender’s conduct would amount to a breach of contract, thus entitling the
borrower to redeem the land.

- Ahmad Omar: When the borrower tried to pay the sum owed within the agreed
period, the lender refused to accept payment by avoiding the borrower. After the
period had expired, the lender enforced the agreement. Held: The conduct of the
lender in refusing to accept payment was proof that he did not regard time as of the
essence, thus entitling the borrower to redeem the land.

- Aliyasak Ismail: The creditor’s act in refusing to accept the repayment and asking for
the payment to be raised was proven to have been done in hopes that the borrower
will not be able to pay in order for the creditor to own the land. The creditor then
argued that his title and ownership to the land is indefeasible. Held: The borrower was
entitled to redeem the land upon full payment of the loan.
Liberal Interpretation

- Regards a jual janji transaction as an equitable security transaction similar to that of a

mortgage.
- The right of the borrower to redeem the land under a collateral agreement remains
even if the period for repayment has lapsed.

- Yaacob bin Lebai Jusoh: Where a borrower transferred his land to the lender to secure
the loan of RM2000, the agreement executed was to resell the land at the same price
within 3 years. The borrower failed to repay the loan within the agreed duration and
the lender refused to retransfer the land. Held: The real intention of the parties was
to create a mortgage to secure repayment of the loan, thus allowing the borrower’s
right to redeem the land to remain despite the fact that the duration had expired.

- Nawab Din: Where the jual janji transaction is in the nature of a mortgage, the right
to redeem was not affected by the stipulation as to time.

Sec. 206(3): If the transaction is rendered purely a contract for sale and the borrower defaults
in payment, the lender may invoke Contract Law and institute proceedings to obtain payment
of the loan under the agreement.

- In order for the lender to have protection under the NLC, the transaction must be a
recognized security transaction, which when registered, entitles the lender to an
indefeasibility of interest or title.

As suggested in A Kanapathi Pillay: Jual janji can be recognized as a customary security

transaction pursuant to Sec. 4(2) and 295(1) of the National Land Code.
Charge

- Sec. 5: Charge is a registered charge.

- It is a dealing whereby a registered proprietor uses his land as a form of security for
the repayment of a loan advanced to him by creating an interest over the land.
- Sec. 242: Its main purpose is to secure the repayment of debt.

Sec. 205 and 206(1): In order for a charge to be a valid and enforceable dealing, it must be
registered through the proper instrument that is Form 16A.

- Doric Development: Once a charge has been registered, the interest will be transferred
to the chargee but the ownership will remain with the chargor.

For a charge to be effective, it must be registered.

- Mahadevan v Manilal: Failure to present the instrument for registration would render
the dealing as an unregistered or equitable charge.
- An unregistered charge will not be valid and enforceable as registration is
mandatory.
- Sec. 206(3): The charge agreement entered into will still be valid and can be enforced
by way of specific performance.

Effects of registration:

- Sec. 243: A registered charge will allow the chargee to have an indefeasibility of
interest under Sec. 340(1), which will prolong until the loan granted to the chargor is
fully settled.
- In the event of a default by the chargor, the chargee will be entitled to the statutory
remedies available under Sec. 253 and 271, which is to apply for an order for sale or
take possession of the land respectively.
- Sec. 253(2): Both remedies can be applied simultaneously.
- Kim Lin Housing Development: Once a charge has been registered, the chargee
cannot escape the provisions of the NLC that is in the event of a default, the
chargee can apply for an order for sale but cannot sell the land through a
private treaty.

Notice

- Issuance of notice is a mandatory requirement that the chargee must comply with.
- National Bank of Australia: Failure to give notice will lead to consequences such as
- An ineffective order for sale
- A refusal to register any transfer by the Registrar
- The chargor may obtain an injunction preventing the sale from proceeding
Form:

- Form 16D under Sec. 254: Must be issued where there has been a breach of any
express or implied obligations (Sec. 249) in the charge agreement by the chargor and
where such breach has continued for a period of at least one month.
- Contains three elements:
- Specification of the breach
- A requirement for the breach to be remedied within a month
- A warning against the chargor that if the notice is not complied with, the
chargee will initiate proceedings to obtain an order for sale.

- Form 16E under Sec. 255: Can only be issued by the chargee if the charge agreement
states that the chargee is entitled to demand the principal sum at any time.
- Contains three elements:
- There is a request from the chargee for the payment of the loan
- Payment must be made within one month from the date of service of notice
- Failure to make payment will entitle the chargee to apply for an order for sale
without being required to serve a notice in Form 16D

- Form 16D is only relevant when the chargee has to prove the default of the chargor,
whereas in Form 16E, no default of the chargor is necessary as it is only relevant when
the principal sum is payable on demand.
- In Form 16D, a breach must be established, as proceedings that take place before a
breach occurs would be rendered an immature proceeding.
- In Form 16E, a breach need not be specified.

Issuance of wrong notice:

- Loke Kok Lai: The chargee issued Form 16E instead of Form 16D when the borrower
defaulted in payment, thus the notice was held to be defective.
- Whether or not the relevant notices have been issued depends on whether the
borrower has breached the agreement or defaulted in payment, or whether
the chargee is demanding payment of the principal sum.
- Vam Hussain: Where there was no breach on the part of the chargor, the issuance of
notice in Form 16E was held to have been properly exercised.
- Eliathamby: Where there was no provision in the charge agreement allowing the
chargee to demand for the principal sum, the use of Form 16E to demand for the
outstanding amount was held to be wrong.
Content (Form 16D):

Specification of the breach

- Syarikat Kewangan Melayu Raya: Where the breach in question must be specified in
the notice, the notice should indicate whether the chargee is making a claim for
interest only or for both, the principal sum and interest. The fact that the notice
specifies an excessive amount of principal sum does not render it void.
- Nira Sdn Bhd: Notice should specify agreement breached
- Siong Holdings: Whether the amount stated is accurate or not is irrelevant, as
what is most important is for the chargee to specify that there has in fact been
a breach on the part of the chargor
- Cempaka Finance Bhd: Notice must comply with the terms of charge

- Failure to specify details of the breach in Form 16D

- Syarikat Sungei Nal Timber Industries: If the details of the breach had been
specified in an earlier letter of demand, failure to specify details of the breach
in Form 16D would not affect the validity of the notice.

A requirement for the breach to be remedied

- The period awarded to the chargor must be to remedy the breach within one month
or any other time agreed or specified in the charge agreement.
- Failure by the chargor to remedy the breach within the time given will entitle the
chargee to obtain an order for sale.

- Mohamad Khalid Farzalur: The notice which only provided the borrowers with seven
days to remedy the fault was found to be valid.
- When Parliament enacted Sec. 254(1) and employed the words “or such
alternative period as may be specified in the charge”, it clearly intended by
that phrase to alter the law by enabling a chargee to impose a period of less
than a month. Sec. 254 therefore expressly permits a chargor by contract to
accept a statutory notice of less than one month.

Service:

- Once the notice has been validly served, time begins to run against the chargor and in
favour of the chargee selling the property.
- Service of notice to the previous registered office as in Kekatong Sdn Bhd:
- The notice was not effectively served when the chargee served it to the
address that they knew was no longer occupied by the chargor.
Procedure for sale of land under Registry title

- Sec. 256(1) & (2): Any application by a chargee for an order for sale held under a
Registry Title shall be made to the High Court by the Originating Summons and
Affidavit in accordance with Order 83, Rules of Court 2012.

Existence of cause to the contrary (High Court)

- Sec. 256(3): Upon receipt of the application for an order for sale, the High Court will
grant an order for sale unless it is satisfied of the existence of cause to the contrary.
- "Existence of cause to the contrary": Where the Judge/Land Administrator is
satisfied that there is a valid reason or objection to the application for an order
for sale. In such circumstances, an order for sale will be denied by the High
Court/Land Office.

- Kheng Soon Finance: Where the registered proprietor defaulted in payment, the
chargee applied for the remedy of an order for sale.
- Lord Oliver: Before granting an order for sale, the court will look at whether
there is existence of cause to the contrary as under Sec. 256(3).
- He laid down two ways to prove the existence of cause to the contrary. There
is existence of cause to the contrary if the granting of an order for sale will
firstly, be against the rule of law, or secondly, against the rule of equity.

- Low Lee Lian: The Federal Court added two more ways to prove the existence of cause
to the contrary

1. When a chargor is able to bring the case within any of the exceptions to the
doctrine of indefeasibility under Sec. 340
- An order for sale will not be granted in instances where the chargee had acted
fraudulently in creating the charge (Tai Lee Finance), or where the title was
obtained through fraud (Narayanansamy).

2. Failure to comply with the conditions precedent

- Defective or improper notice:
- Travers Development: The notice was vague as the breach was not
specified.
- Lian Yit Engineering: Issuance of Form 16D was not effective

- Application was made to the wrong tribunal:

- Tan Teng Pan: The chargee made an application for an order for sale of
land under the Land Office title to the High Court. Held: The court had
no jurisdiction to entertain the application made.
 3. It is against the rule of law if the chargee, when creating the charge, violates any
provision of the NLC or other written laws.

4. It is against the rule of equity which is based on the concept of fairness, natural
justice and fair representation.
- Kuching Plaza v BBMB: Where the chargor defaulted in payment, the chargee
made an application for an order for sale. However, the chargee then collected
redemption sums from the sub-purchasers to satisfy the charge. Thus, it would
not seem just for the chargee to foreclose the charge against the chargor's
land.

Assuming that there is no cause to the contrary:

Sec. 257(1): Every order for sale made by the Court under Sec. 256(3) shall be in Form 16H
and shall include the matters to be dealt with as listed: Sec. 257(1)(a) – (h)

Sec. 257(1)(a): Order for sale must be made by way of public auction

- Chartered Bank v Packiri Maideen: The chargee could sell the land by way of private
treaty, but once he took proceedings under the Code, a public auction must be
ordered.
- It is a mandatory requirement for the order for sale to provide that the sale is
to be effected by way of public auction.

Whether the chargee has the right to sell a charged land by way of private treaty after an
order for sale is made by public auction:

- Chong Bun Sun: Once an order for sale by way of public auction has been made by the
court, the court does not have the power to make a subsequent order to vary or set
aside the earlier order, and to make a new order to sell the land by way of private
treaty.
- Tan Lay Soon: It is not prohibited for the land to be sold by private treaty, so long that
it is sold before the date of the public auction.
- Chung Khiaw Bank: Pursuant to Sec. 266(1), the court may allow the property to be
sold by way of private treaty provided it is satisfied that the proceeds of sale will not
be less than the amount due to the chargee under the charge and that the chargee
will be paid in full out of the proceeds.

- Where Sec. 257(2) provides that “Any such order may contain other directions with
respect to the sale as the Court may think fit…”
- It is the practice of Courts to make an order for sale by private treaty after
several unsuccessful attempts of selling the land through a public auction.
The proceeds of the sale made by private treaty must then be sufficient to pay
the amount due to the chargee.
Sec. 257(1)(b): Sale is to be held not less than one month from the date of the order made

Sec. 257(1)(c): Order for sale must specify the total amount due to the chargee at the date
when the order is made

- V Letchumanan: Although the total amount due to the chargee was not specified on
the date when the order for sale was made, the absence of such specification did not
render the order ineffective (void) as the chargor did not attempt to stop the ordered
sale.

Sec. 257(1)(d): The Registrar must fix a reserve price (estimated market value of the land) for
the purpose of the sale

- Chan Tak Kow: Sec. 257(1)(d) gives the Registrar a discretion in that he needs only to
fix an 'estimated' market value.
- Order 31 Rule 2(4)(c), Rules of Court 2012 must be read together with Sec. 257(1)(d)
- Order 31 Rule 2(4)(c): The court is given wide discretion in fixing a
reserve/minimum price.
- Sec. 257(1)(d): The Registrar has discretion in fixing a price equal to the
estimated market value.
- When the court refers to the estimated market value, the price set is not
necessarily the actual price which could be received.

Once an order for sale has been granted:

- Registrar has no power to vary the conditions of an order for sale once it is made.
- Sec. 258(1)(a): Registrar will serve a copy of the order for sale on the chargor and
advertise in newspapers or posters for the order for sale to be done by public auction
- Sec. 258(2): Chargee will prepare the conditions of sale according to the court order
and will deposit the IDT/duplicate lease to the court a week before the auction

During the sale:

- Sec. 257(1)(e) & (f): In order to become an eligible bidder, 10% of the purchase price,
which shall be treated as a deposit to the chargee, must be paid to the court.
- Sec. 257(1)(g) & (h): Non-settlement of the balance of the purchase price within the
period of 120 days, without extension, will cause the deposit made to be forfeited

- Sec. 259(3): Upon payment of the full purchase price by the successful bidder
(purchaser) to the court officer, he will receive a certificate in Form 16F which is
registrable as an instrument of dealing at the Land/Registry Office and the IDT.
- Holee Holdings: Upon registration of the certificate, the purchaser will obtain an
indefeasibility of title to the land.
Procedure for sale of land under Land Office title

- Sec. 260(1) & (2): Any application by a chargee for an order for sale held under a Land
Office title shall be made to the Land Administrator in Form 16G.
- Tan Teng Pan: Where the chargee made an application for an order for sale of land
under the Land Office title to the High Court, the court had no jurisdiction to entertain
the application made.

Powers of Land Administrator during the enquiry:

- Upon receipt of Form 16G from the chargee, the Land Administrator shall appoint the
time and place to hold the enquiry and inform the chargee.
- The chargor must be present at the enquiry to show cause as to why the order for sale
should not be made.

- Nature of the Land Administrator’s powers during the enquiry:

- Non-judicial and purely administrative
- Limited to determining default in charge and ascertaining cause to contrary
- Cannot go beyond the charge or question the validity of the charge

- Gurpal Singh v Kananayer: The powers of the LA in the enquiry are limited; he
should not go behind the charge in view of Sec. 340(1). Only the High Court
possesses the power to set aside any registered interest of a proprietor,
chargor or lessee in any land title.
- Suppiah v Ponnampalam: Once the LA is satisfied that the charge is on the
register, the only question for him to decide is whether or not there had been
default in the payments provided for. He has no power to investigate any
allegation of fraud or misrepresentation.

Existence of cause to the contrary (Land Office)

- Sec. 263(1): After the enquiry, the Land Administrator shall order the sale of the land
related unless he is satisfied of the existence of cause to the contrary.
- Cause to the contrary under this provision is confined to three matters:
- No existence of charge on the register
- Unregistered/equitable charge
- No breach of charge agreement by the chargor
- Breach was not caused by the chargor
- E.g: Chargee had refused to accept the monthly instalments

- Omar Hj Ahmad: The power of the LA is limited to making an order for sale and not
any other order such as one that requires the chargor to pay money due in arrears
under the charge to the chargee by instalment.
Assuming that there is no cause to the contrary:

Sec. 263(2): Every order for sale relating to Land Office title shall be in Form 16H and shall
include the matters to be dealt with as listed: Sec. 263(2)(a) – (h)

Once an order for sale has been granted:

- Sec. 264(1)(a): LA will serve a copy of the order for sale on the chargor and advertise
in newspapers or posters for the order for sale to be done by public auction
- Sec. 264(2): Chargee will prepare the conditions of sale and will deposit the
IDT/duplicate lease to the LA a week before the auction

- Once an order for sale has been granted, the LA is functus officio (discharged the
office) and may not disturb the order, however:
- Sec. 264(3): LA may postpone the order for sale if he thinks it is necessary
- E.g: Where there is a lack of bidders
- Sec. 246A: LA may postpone/cancel the order for sale by application of the
chargee with the agreement of the chargor
- An order granted is final unless an appeal is brought to the High Court (Sec. 418)
- The charge can be challenged under the exceptions to indefeasibility

Rescheduling the auction

- Land under Registry title:

- There is no limit as to the amount of times the sale can be postponed

- Land under Land Office title:

- Sec. 265(3): The LA may only postpone or cancel the public auction up to a
maximum of two times, after which the land must then be withdrawn from
the sale and the matter must be referred to the High Court
- There can only be a maximum of two attempts to sell the land

- Yusoff bin Yunus: In referring the matter to the court, it is sufficient for the LA
to issue a Certificate of Reference under section 265(3)(b) containing the
particulars of sale of the land and reasons why the sale was not successful.
Being a valuation officer, the LA should also certify if the reserve price fixed is
the market price. This will guide the court if an application is made for the
reduction of the reserve price. The chargee will then apply by way of
Originating Summons to the court, supported by an affidavit exhibiting the
Certificate of Reference of the LA, for any order he may deem expedient.
Conclusion of sale during the public auction

- The sale is concluded at the fall of the auctioneer’s hammer.

- A contract is formed between the vendor (chargee) and the highest bidder, but title
to the land does not pass until registration.
- M & J Frozen Sdn Bhd: Where the title to the land was unlawfully required and tainted
with fraud, although the sale had been concluded, the court made an order for the
cancellation of the registration of transfer.

Payment of balance of the purchase price

- Sec. 257(1)/263(2)/267A: Balance of the purchase price must be settled within 120
days from the date of the sale, failure of which will cause the 10% deposit to be
forfeited and disposed of.

- Extension of period to settle balance of the purchase price:

- M & J Frozen: Where the application to the court for the extension of the
period to pay the balance of the purchase price was made by the chargee
without giving notice to the chargor, the order was held to be void for ultra
vires the Code.
- It is not within the court’s power to provide an extension of time for
the bidder to settle the full purchase price.

- Chi Liung Holdings Sdn Bhd: If the conditions of sale expressly allow for the
extension of time, an order from the court to approve such extension of time
is valid.

General provisions

Sec. 266: The chargor may still tender payment of the loan before conclusion of the sale that
is before the full payment of the purchase price is made by the successful bidder to the court.

- The order of sale shall then cease to have effect and the chargee shall be notified.
- Lee Ah Chin: Upon payment, the chargor is entitled to a discharge of the charge
(Sec. 278) and the return of the IDT or duplicate lease.

- Eng Ah Mooi: Where the chargee refused to accept the tender payment by the
chargor, the court held that the chargor is entitled to the discharge (Sec. 278) so long
as the rights of the chargee were protected under a sale.
- Tender of the amounts must be an actual or physical tender to the proper
officer at a proper place by the charger or his representative as a mere
willingness to pay the amount will not suffice.
Sec. 267: Effects of sale

- The certificate of sale (Form 16F/Form 16I) is an instrument of dealing, which, when
registered, transfers an indefeasible title as under Sec. 340 to the purchaser and the
purchaser is no longer subject to any liability under the charge.
- Holee Holdings: Upon registration of the certificate, the purchaser will obtain an
indefeasibility of title to the land.
- However, the sale does not automatically terminate the rights of the chargee to sue
the chargor under the charge agreement to pay if the proceeds of the sale are
insufficient to settle the amount owed.

Sec. 268: Application of purchase money

- The proceeds of the sale shall be distributed by the tribunal as under limb (a) – (e)
through the payment of rent, expenses, payment to chargee of the total amount due,
payment of annuity and payment of subsequent charges.
- Any residue of the purchase money shall be paid to the chargor.

Sec. 269: Protection of purchasers

- The receipt issued by the officer of the court or Land Administrator shall be sufficient
discharge to the purchaser.
- The purchaser is under no responsibility to ensure that the purchase money has been
distributed accordingly, and is not liable for any loss in the application of the purchase
money.
- When the land is sold, it is vested in the purchaser free from the charge.

Liability of the chargor:

- Where the proceeds of the sale is insufficient to pay the amount owed to the chargee,
the chargor is liable to pay the balance of the amount owed.
- The right to sue the chargor under Contract Law is not separated from the remedies
available to a chargee (order for sale & taking possession).
- Thus, a chargee cannot seek a remedy and initiate a civil action concurrently.
Only where the proceeds obtained are insufficient to cover the amount owed,
can a chargee exercise his right in personam and take action against the
chargor.

Sec. 278: Discharge of charge

- Where the chargor pays to the chargee the amount owed and the chargee, through
Form 16N, discharges the land from all further liability.
- The discharge will come into effect from the date on which Form 16N is registered.
Taking possession (Only for Registry title)

- To allow the chargee to secure payment and profit from the land while the title
remains with the chargor
- To attempt to recover the debt due by the chargor, especially where the land was
unable to be sold through public auction
- Sec. 270(1)(b): The remedy is not available to the chargee where the chargor is still
occupying the land.

Method of taking possession:

- The right to possession depends on the nature of the property charged:

- Sec. 272(1)(a): Constructive possession
- Where the chargee receives rent payable to the chargor under any
lease/tenancy by serving upon the tenant/lessee Form 16J
- Sec. 272(1)(b): Actual possession
- Where there is no tenant/lessee, the chargee goes into occupation of
the land by serving Form 16K upon the chargor

- Service of notice either in Form 16J or 16K is mandatory.

- Yap Hock Choon: Where the chargee sought possession of the land but did not
serve the necessary Form 16K, the action was dismissed.

- Issuance of irregular notice:

- Before the chargee can exercise his rights, a notice specifying the breach and
the period given requiring it to be remedied, must be issued.
- If the notice is irregular or not in proper form, the chargor has a right to apply
to the court to set it aside.
- Lau Yau Weng: If the chargor accepts the notice in its irregular manner or
makes no objection during the hearing, his conduct amounts to a waiver of
such irregularity.

Duration of right to possession:

- Sec. 273: A chargee may remain in possession for as long as he wishes until all liability
under the charge has been met.
- He has a right to remain in possession so long as the debt remains outstanding
or whilst the chargor is in breach of the charge agreement.

- Thus, the duration of possession is within the chargee’s discretion.

- He may choose to:
- Remain in possession by continuing in occupation
- Lease the land under Sec. 275 and receive the rent
Effects of taking possession:

- Sec. 274: If the chargee chooses to manage the land and take all the profits, he will be
liable for waste when he takes possession of the land either physically or through
receipt of rent and profit
- The chargee will be liable if the damage done places the chargor’s business or
land at a loss

- Woon Foon Hoh: A chargee, in taking possession of a rubber estate, carried out
excessive tapping, which caused the trees to become damaged. The chargee, in
exercising this remedy had not given reasonable notice to the chargor. Instead, he
interrupted the day’s work without prior notice, evicted the chargor, and disrupted
the tapping. The chargor sought damages for disruption and waste.
Held: Failure to give notice of entry was a wrongful act for which damages were
payable for any loss suffered as a result. The chargee was also under an obligation to
maintain the land, failing which entitles the chargor to damages.

Cancellation of notice:

- Sec. 276(1): Form 16J is served under Sec. 272(2) and 275(7) and shall continue in force
and binding on the lessee/tenant until it is
- Withdrawn by the chargee
- Cancelled by the chargor
- Cancelled by any purchaser of the land
- The cancellation shall be effected by service of Form 16L upon the tenant/lessee

Application of rent and profits:

- Sec. 277: The sums received by a chargee of land in possession shall be applied to
settle the payment under limbs (a) – (d).
Lien

- Sec. 281(1): Lien is a type of security transaction whereby the registered proprietor of
a whole piece of land deposits his issue document of title to the lender or creditor
(chettiar/bank) as a security for a loan advanced.
- Palaniappa Chetty v Dupire Brothers: When a person retains the property of
another until certain demands of the person in possession of the property are
satisfied.
- The lender or creditor has the right to retain the IDT until the loan is repaid.
- It can be created regardless of whether the land is held under a Registry or
Land Office title.
- It may extend to a co-proprietor (Sec. 343 (6)) as well as a registered lessee.

- Sec. 206(2)(b): It is a dealing which gives rise to a non-registrable interest.

- Sec. 330: Although it is a non-registrable interest, a lender or creditor can obtain
protection for the lien through the entry of a lien-holder’s caveat.

Types of lien:

- Statutory lien
- Equitable lien

Pre-requisites of a statutory lien (all must be fulfilled in order to claim that the lien is valid
and enforceable):

Deposit of the original issue document of title (IDT) or duplicate lease

- General rule prior to 2008: The right to create lien belongs only to a registered
proprietor, co-proprietor or registered lessee of the land. A third party cannot create
a lien on behalf of the borrower.
- Peter P’Chient v Ramasamy Chetty: The right to deposit the title as security for
a loan is restricted only to the proprietor and the right to caveat belongs only
to whom the IDT has been deposited.

- After 2008: A registered proprietor may deposit his IDT as security for a loan advanced
to a third party.
- Hong Leong Finance v Staghorn: Sec. 281(1) does not specify who the borrower
may be nor does it restrict the loan advanced only to the registered proprietor.
Therefore, the loan may be a loan made to a third party, and in such instance,
the judgment obtained must be against the third party.
Intention to create lien

- The deposit of the IDT must be made with the intention of creating lien.
- A mere deposit of an IDT within the intention to borrow money from that
person is insufficient to establish the element.
- Without intention, any act of deposit that could be construed as a deposit done
merely as a matter of convenience in view of a possible sale or simply for
safekeeping due to the proprietor’s departure from the country would not
justify the entry of a lien-holder’s caveat on the register.

- Nallamal v Karuppanan: Intention is not satisfied if possession of IDT was

obtained through fraud or misrepresentation as the deposit of IDT as security
was never authorised by the registered proprietor.

- Intention can be determined through:

- The act of depositing the IDT by the registered proprietor to the lender or
creditor as security for a loan transaction
- Standard Chartered v Yap Sing Yoke: In a loan transaction, the fact that
the lender or creditor is in possession of the IDT is sufficient to
constitute an intention to create lien.
- Paramoo v Zeno Ltd: Where the retaining of the IDT was proof of the
creation of lien, it was held that it must be proven that there is an
intention to deposit the IDT or duplicate lease with the lender as a
security for the loan and for no other purpose.

- The agreement executed between the parties incorporate the intention to use
the title as a security
- Palianappa Chetty v Dupire Brothers: Possession of title by the lender
gives rise to the presumption that the deposit was made with the
intention of creating a lien.

Entry of a lien-holder’s caveat

- Upon the creation of lien, the lender or creditor may enter into a lien-holder’s caveat
through Form 19D after which the lien will then come into effect pursuant to
Sec. 281(1)(a) & (b) and Sec. 330(1).
- Palaniappa Chetty v Dupire Brothers: Only the lender or creditor to whom the IDT has
been deposited may enter into a lien-holder’s caveat.

- Only upon the entry of the caveat will the lender or creditor be treated as a lien-holder
for purposes under the Code.
 - Effects of entry of a lien-holder’s caveat:
- Sec. 330(5): The interest of the lender or creditor in the land is protected in
that the caveat will prohibit any further dealings with the land

- In the event that the registered proprietor or third party borrower defaults in
payment, the lender is entitled to invoke the remedy available under
Sec. 281(2).
- Sec. 281(2) & (3): When the registered proprietor or third party
borrower defaults in payment, there are 2 steps that must be followed
by a lien-holder (lender or creditor) before applying for an order for
sale:
- A judgment debt for the amount due to him must be obtained
(Order 42 Rule 12, Rules of Court)
- An application to the High Court for an order for sale must be
made (Sec. 253 – 259/ 266 – 269)

- Official Assignee of the Property of How Han Teh: Failure to enter into a lien-holder’s
caveat to mark his presence as a lien-holder will not entitle him to any form of
protection provided under the Code. Should anyone defeat his right to the land, the
lien-holder will only be entitled to a remedy in equity.

Issues in lien:

Whether the lender or creditor can part with the IDT

- Sec. 281(4): A lien-holder, upon the written request of the registered proprietor, may
part with his IDT by producing it at any Registry or Land Office for any purpose
required under Code.
- Parting for reasons under the Code will not cause the lien to be lost.

- Sithambaram Chetty: The lender lost his right as a lien-holder the moment he parted
with the IDT and had his caveat removed.
- Manickavasagam Chetty v Mc Gregor: Where the lien-holder produced the IDT to the
Land Office for the purpose of partition, although the new IDT issued to the proprietor
did not have an endorsement of the caveat, the caveat remained on the RDT. Thus,
the lien-holder had not lost his lien simply because he was no longer in physical
possession of the IDT.
The status of a lien-holder who did not lodge a lien-holder’s caveat

- The creation of lien creates an equitable interest which gives the lien-holder the right
to enter into a lien-holder’s caveat at any time
- Where the lender or creditor fails to enter into a lien-holder’s caveat, but
retains the IDT as security, his rights as a lien-holder will not be affected, this
is known as an equitable lien.

- Official Assignee of the Property of How Han Teh: The lien-holder will not be
deemed a statutory lien-holder, but will still possess a right in equity, which he
may exercise at any time through the entry of caveat.
- Vallipuram Sivaguru: The equitable interest of the lender or creditor is not
affected by the absence of a lien-holder’s caveat. He still has the right to lodge
a caveat and may do so at any given time. In the event that there are two
conflicting equities, the first in time prevails, all other things being equal.

- Failure to lodge a lien-holder’s caveat:

- The lender or creditor will only be an equitable lien-holder
- The statutory remedies for a lien-holder under the Code will not be available
- The lender or creditor possesses a right to lien in equity enforceable through
Specific Performance under Contract Law by virtue of Sec. 206(3)

Whether damage or loss must be proven before compensation can be ordered under
Sec. 331(4) (protection for the debtor)

- Upon settlement of the loan, the IDT must be returned to the registered proprietor
and the lien-holder’s caveat must be cancelled.
- If the IDT is not returned or the lien-holder’s caveat is not cancelled, the court can
order compensation upon the registered proprietor.
- Sayang Plantation v Koh Siak Poo: Where the lien-holder’s caveat has the effect of
prohibiting any further dealings with the land, failure to rightfully withdraw the caveat
for nearly five months had caused damage and loss to the registered proprietor, which
did not require for evidence to be adduced.

An equitable lien is an alternative security to an unregistered charge

- If the intention of the parties was to create a charge, it cannot then be deemed a
statutory lien as an unregistered charge can only be protected through the entry of a
private caveat and not a lien-holder’s caveat.

- However, where possession of the IDT by the chargee is sufficient to constitute an

intention to create lien (Yap Sing Yoke), this will entitle the chargee to still have a right
in equity as an equitable lien-holder (How Han Teh).