CHARGES & LIEN

Charges & Liens

Section 241: Powers of Charging

Section 242: Form of Charges – Form 16A & Form 16B

Section 243: Registration of Charge

• liable as security
• remedies provided by the NLC will be available to the chargee
• sales - s. 256 (Registry Title/High Court) & s.260 (LOT/LA)
• taking possession – s. 270

Section 244: Custody of Issue Document of Title

• A first chargee be entitled to the custody of the IDT so long as any liability subsists under the charge
(subject to any agreement to the contrary).
PRIORITY OF CHARGEES’ INTEREST
Please remember that the chargee
affected by the chargor’s default can
The powers of chargor to charge his land shall include power to create apply for OS and eventually auction
the property. Doesn’t matter
second and subsequent charges (s. 241(2) NLC). In the situation where
whether the chargee concerned is
the chargor defaulted and the land has been charged to different chargees, the 1st, 2nd, 3rd chargee so on so
there can be an issue who will get what from the proceeds of the auction.
forth. All chargees will just wait for
the distribution of the proceeds
based on their priority/hierarchy .

CONSOLIDATION
Section 245. Restriction on consolidation.

In the absence of any express provision therein to the contrary, a person seeking to discharge any
charge may do so without making any payment in or towards the discharge of any other charge created by him,
or any person through whom he claims, on property other than that comprised in the first-mentioned charge.
Consolidation (same land & different chargees)
Owner Land Chargee Loan Agreement
A X Bank 1 (1st chargee) RM1mil Right to consolidate Bank 1 can
consolidate the
A X Bank 2 (2nd chargee) RM1mil Bank 1 becomes 1st charge with
A X Bank 1 (3rd charge) RM1mil 2nd chargee the 3rd charge
Total RM3mil

Issues

A defaulted with the 1st charge/Bank 1. Bank 1 applied for OS and auction the land X. The proceeds from the auction of land X is RM2.5 mil. Who
will get what?

Answer: Bank 1 can exercise it’s right to consolidate the 1st charge with the 3rd charge in which case Bank 1 which is the 3rd chargee, now will
get priority over Bank 2. The new position is that Bank 2 will become the 3rd chargee and Bank 1 will be the 2nd chargee.

Whether in the 1st charge between A and Bank 1, the charge agreement allows Bank 1 to consolidate?

If A says that the agreement provide such a clause, then Bank 2 must consider the possibility of Bank 1 may provide further loan to A
where land A . Priority may change as illustrated above. Is it worth the risk?
Consolidation (Two different lands & chargees)
Owner Land Chargee Loan Agreement
A X Bank 1 (1st chargee/land X) Not Relevant Right to consolidate Bank 1 can
A Z Bank 2 (1st chargee/land Z) RM1mil Bank 1 becomes 1st consolidate land
A Z Bank 1 (2nd charge/land Z) RM1mil Chargee for Land Z X and land Z
Total RM2mil

Issues
A defaulted with Bank 2 where the land charged is Land Z. Bank 2 applied for OS and auction the land Z. The proceeds from
the auction of land Z is RM1.5 mil. Who will get what?
Answer: Bank 1 can exercise it’s right to consolidate the charges of land X and Z in which case Bank 1 which is the 2 nd
chargee for land Z, now will get priority over Bank 2. The new position is that Bank 2 will become the 1st chargee and Bank 2
will be the 2nd Chargee (for land Z).
Before accepting Land Z as 1st charge by Bank 2, Bank 2 must ask A/owner:
1. Whether A got another piece land? A told that he has i.e, land X.
2. Whether land X has been charged? If yes, does the charge agreement provide the chargee (Bank 1) the right to
consolidate?
Note: Bank 2 has no interest at all with Land X. Naturally will not carry out land search on land X.
Section 246. Tacking of further advances.

(1) Notwithstanding any other provision of this Act, any chargee may, in the circumstances specified in
paragraph (a) or (b) of sub-section (2), make further advances (including, where appropriate,
advances consisting of the giving of additional credit) to rank in priority to any subsequent charge of the
same land or lease.
(2) The said circumstances are- 1st Type

a) where the making of the advance or advances in question is expressly authorised by the prior charge,
or the purpose of that charge is to secure the balance from time to time due to the chargee under any
current or continuing account; or
b) where the advance or advances in question are made with the consent of the person entitled to the
benefit of the subsequent charge.
2nd Type
(3) For the purposes of paragraph (b) of sub-section (2), any advance made by a chargee at any time
before he is notified in writing of the registration of a subsequent charge shall be deemed to have
been made with the consent of the person entitled to the benefit of that charge.
This is one good example This is known as the
3rd Type
to show that registration is presumption/deeming
not everything. provision. Dangerous!
Chargor Land Chargee Loan Agreement
Azmi X BIMB (1st chargee) 500k Right to Tack
Azmi X CIMB (2nd chargee) 300k
Azmi Advancement BIMB 100k
No security Total loan 900k

Azmi defaulted with CIMB. CIMB auctioned land X and proceeds of the auction is 800k.
The first 500k will go to BIMB (being the 1st chargee)
BIMB has the right to tack the 100k advancement (right to tack, therefore ranked no 2)
The balance of 200k will be given to CIMB (which is short of 100k)
CIMB was earlier ranked at no. 2 now has changed to no 3
Note: Before BIMB would like to give advancement to Azmi, lawyer must make sure that BIMB although being the first
chargee, must make sure that in the said charge agreement must have the right to tack clause. In case of default by
Azmi, the advance will have better priority.
CAUSE TO THE CONTRARY
ORDER FOR SALE (OS)

Section 352(3) NLC @ section 360(2) NLC

 NOTICE BEFORE SALE

254. Service of default notice, and effect thereof.

(1) Where, in the case of any charge, any such breach of agreement as is mentioned in sub- section (1) of section 253 has been
continued for a period of at least one month or such alternative period as may be specified in the charge which shall not be less
than one month, the chargee may serve on the chargor a notice in Form 16D-
(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.
…
(3) If at the expiry of the period specified in any such notice the breach in question has not been remedied-
(a) the whole sum secured by the charge shall (if it has not already done so) become due and payable to the chargee;
and
(b) the chargee may apply for an order for sale in accordance with the following provisions of this Chapter
 Ragavaniadoo v. Supramaniam Chetty (1914) 1 FMLSR 139

In cases where the chargee had made application for an OS to the Collector, it is vital for the Collector
to consider the following:

(a) that the amount claimed by the chargee is properly due to him;
(b) that the chargor has actually been in default and to what extent he was in default; and
(c) whether it is necessary to sell the whole of the land or merely a portion thereof.
[not relevant now due to s. 241(1) NLC]
 ORDER FOR SALE
Registry Title

Section 256. Application to Court for order for sale.

(1) This section applies to land held under-

(a) Registry title;
(b) the form of qualified title corresponding to Registry title; or
(c) subsidiary title,
and to the whole of any divided share in, or any lease of, any such land.

(2) Any application for an order for sale under this Chapter by a chargee of any such land or lease
shall be made to the Court in accordance with the provisions in that behalf of any law for the time
being in force relating to civil procedure.

(3) On any such application, the Court shall order the sale of the land or lease to which the charge
relates unless it is satisfied of the existence of cause to the contrary.
 ORDER FOR SALE

Land Office Title

Section 263. Order for sale, and matters to be dealt with thereby.

(1) At the conclusion of any enquiry under section 261, the Land Administrator shall order the sale of
the land or lease to which the charge in question relates unless he is satisfied of the existence of
cause to the contrary.

Note: The power of the LA in awarding OS is not extensive like the power of the Court – Suppiah v.
Ponnampalam [1963] MLJ 202 – the charge is properly registered + determine whether the chargor has
defaulted. Not to deal with the legality of the charge. If he is not satisfied, he could make no order.

Any chargor who desires to challenge the legality of any charge on the basis of fraud etc under s. 340(2) must
bring the suit to the High Court – Ragavaniadoo v Supramaniam Chetty and Gurpal Sing v. Kananayer & Anor
[1976] 2 MLJ 34,36
Section 256 (3) NLC 1965 provides that the Court shall order the sale of the land to which it relates unless
there is cause to the contrary. The burden of proving cause to the contrary is on the Chargor. In the case of Low
Lee Lian v Ban Hin Lee Bank Bhd [1997] 2 CLJ 36, the Federal Court held that “cause to the contrary” can be
established in the following categories:-

a) Failure to satisfy the notice requirement in Form 16D;

b) Failure to comply with the procedural requirements of Order 83 ROC 2012;

c) Exceptions to the indefeasibility doctrine in Section 340 NLC 1965; and

d) Grant of Order for Sale would be contrary to rule of law or equity.

In the event the Chargor is able to prove cause to the contrary, the Chargee’s application will be dismissed.
 [Further reading : Salleh Buang, Malaysian Torrens
System, 2nd edn. at pp 143-150]

https://coggle.it/diagram/Whrkb8X_9
wABqyeG/t/cause-to-the-contrary
Section 257. Matters to be dealt with by order for sale.
(1) Every order for sale made by the Court under section 256 be in Form 16H and shall-
a) provide for the sale to be by public auction;
b) require the sale to be held on, or as soon as may be after, a date specified
therein, being a date not less than one month after the date on which the order
is made;
c) specify the total amount due to the chargee at the date on which the date on
which the order is made;
d) required the Registrar of the Court to fix a reserve price for the purpose of
the sale, being a price equal to the estimated market value of the land or lease
in question;

Notes: 1. “total amount due to the chargee” – Syarikat Kewangan Melayu Raya Bhd v. Malayan Banking Bhd
[1984] 1 MLJ 115 – cause to the contrary
2. “reserve price” – estimated market value when the order was made.
3. Order for sale has no “due date”.
 FORM 16H
(Sections 257 and 263)

ORDER FOR SALE AT INSTANCE OF THE CHARGEE

I, ................................. *Registrar of the High Court/Land Administrator in exercise of the powers conferred by
*section 257/263 of the National Land Code, hereby order the sale of the *land/undivided share in
the
*land/lease/sub-lease described in the schedule below; And I further order-
(a) that the sale shall be by public auction, to be held on the ................................. day of .................................
(year) ................................. at ................................. *forenoon/afternoon in- ................................. (State the
place of the auction)
(b) that the reserve price for the purpose of the sale shall be RM ................................. (In words -
................................. Ringgit) .

2. I find that the amount due to the *chargee/chargees at this date is RM:
 Question

If after obtaining the OS the Chargee decided not to put the land on sale, what will happen to the
Order? Will it expire?

For example, the auction was cancelled because the parties have agreed for a settlement. If at a
later time, the chargor defaulted again, would it be necessary for the chargee to obtain a new order
for sale? Or can the chargee proceed with the auction since the OS was already secured earlier
due to the past event. Would it be ok for the chargee just to submit the new market price as the
“reserve price” for the current auction.
[Sambung Lelong]
SITUATION

Mdm Cheah defaulted in 2015 – Bank obtained OS – OS served on Mdm Cheah. Mdm Cheah quickly negotiated with
Bank- Mdm Cheah agreed to refinance – new terms – pay higher instalment/higher loan interest (new/supplemental
agreement?) – Hence no auction of property by Bank.

Mdm Cheah defaulted again in 2020 – did not pay for 3 months – nevertheless continue to pay (and accepted by the
Bank) – Mdm Cheah suspected something fishy – asked Bank for bank statement – Bank failed to provide the info –
Mdm Cheah reported to Bank Negara! Bank released the statement + the news that the property had be auctioned.

No new OS was served to Mdm Cheah – she was nor aware of the 2nd auction.

What would be your advise to Mdm Cheah? Was the auction in 2020 valid?

Other issues: e.g. Reserve price (s. 257(1)(d) NLC), Private Caveat (s. 322 NLC)
Section 258. Procedure prior to sale.
(1) Where any such order has been made, it shall be the duty of the Registrar of the Court-
a) to serve a copy thereof on the chargor, and on every chargee of the land or lease in
question; and
b) to see that the sale is publicly advertised in accordance with rules of court or, in the
absence of any rule in that behalf, the practice customarily adopted in the State.

(2) The chargee on whose application the order was made shall-
a) prepare the conditions of sale, in accordance with the terms of the
order and any determination thereunder by the Registrar of the
Court;
259. Procedure at sale.
(1) Every sale pursuant to an order under section 256 shall take place under the direction of an officer of the Court, but this
sub-section shall not prevent the Court from taking the assistance thereat of any licensed auctioneer.
(2) The officer under whose direction the sale takes place shall-
(a) receive the bids (including any bid by or on behalf of the chargee);
(b) settle summarily any question arising in the course of the proceedings;
(c) in the absence of any bid at or above the reserve price, withdraw the land or lease in question from the sale, direct that
it be put up for auction on a subsequent date, either at the same or at a new reserve price, and see that the subsequent
sale is publicly advertised in the like manner; and sale is publicly advertised in the like manner; and…

Questions

1. Will there be limit to put up the land for auction? [Auction by LA – max up to 3 times. Thereafter get the direction from the
HC – s. 265(2)&(3) NLC. NLC set no limit to judiciary auction (s. 259(2) NLC) – in green above.
2. How to decide the new reserve price? How much reduction is allowed – in red above.
3. What is force sale value?
 Sale by way of private treaty

Is it possible for the chargor/chargee to sell of the property :

a. When the agreement is still subsist

b. When the chargor has defaulted
i. Before the chargee obtain the order for sale
ii. After the chargee already obtained the order for sale

Provisions to consider:
s. 257 Matters to be dealt with by order for sale

(1) Every order for sale made by the Court under section 256 shall –
(a) provide for the sale to be by public auction
(b)…
Similar provision is found in s. 263(1)(2)(a) for Land Office Title
s. 266(1) – chargor when the order for sale has been made, may at any time before conclusion of the sale,
tender the amounts due to the chargee and all expenses incurred in making and carrying out the order for
sale, to the Registrar or Land Administrator, as the case may be.

Note:
1. Although OS has be granted to the chargee, it is never too late for the chargor to discharge the charge
before the conclusion of the sale in the auction process.

2. How the chargor got the money to pay is of no one concern!!

Chung Khiaw Bank Ltd v. Lau Ah Yen & Anor [1989] 2 MLJ 247

Wan Adnan J at page 249 noted that the court may allow a sale by private treaty in circumstances where the
court is satisfied that the proceeds of such sale are not less than the amount due to the chargee under the
charge and that the chargee will be duly paid in full out of the proceeds.
Further reading –

1. Ainul Jaria Maidin et al., Principles of Land Law, Lexis Nexis, 2008, pp. 294 – 296

1. Mark Goh Wah Seng, Private Treaty Sale: A comparative Study Between West Malaysia and
the Sarawak Land Code, A Malaysian Bar CPD Online Publication, 2016