LAW 554 (LAND II)

DECEMBER 2016 PART B

QUESTION 2 (b)

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Question 2
Cumi is registered proprietor of a piece of land held under PM 13411 pt in the district of
Klang (hereinafter referred to as “the Klang Land”. In January 2010, he charged the land to
secure a fix loan from Bank Emas (“the bank”). The charge was duly registered. Cumi
utilised the loan to start a restaurant business.
In March 2012, Cumi’s business suffered a setback. He was unable to pay the loan to Bank
Emas Berhad. A settlement was achieved with the Bank whereby the bank shall grant
another loan facility. The second loan was secured by a charge over a piece of land held
under Grant No 1007 PT 60 in the district of Petaling Jaya (hereinafter referred to as (“the
Petaling Jaya Land”) owned by Cumi.
In 2013, Cumi’s restaurant business did very well. He settled the second loan secured by the
Petaling Jaya land. He then requested the bank to discharge the Petaling Jaya Land but the
bank rejected his request unless Cumi simultaneously settled the loan secured by the Klang
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Land
(b) Should the Klang Land be auctioned and the bank
receive the purchase price of the auction, advise the bank
on the distribution of the purchase money under National
Land Code 1965.

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Issue
1. Whether the bank should auctioned the Klang Land and
receive the purchase price of the auction?
2. Advice the bank on the distribution of the purchase
money under National Land Code 1965 (NLC)

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CHARGE
- Section 5 of NLC : A registered charge
- Yee Sin Cheang v UMBC : The court laid down Section
242 of the NLC which provides that the purpose of a
charge is “to secure the repayment of a debt, or the
payment of any sum other than a debt”
- Parties to a charge :
1) Chargor - the person who offers his land as security
2) Chargee - the lender who accept the land as security
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CHARGE
- In establishing charge, form 16A should be prepared and comply with the
provisions stated in Section 207 and 208 of the NLC
- Section 210 of NLC provided that every instrument effecting the dealing shall be
executed in accordance to the provisions.
- Section 249 (1) (a) of NLC - every instrument presented for registration shall consist
of a single original duly stamped in accordance with the provisions in Stamp Act
1949
- Every documents should be presented and registered for the charge to be valid
- Section 243 of NLC - every charge created under the NLC shall take effect upon
registration
- Failure of registration would render the dealing as an unregistered or equitable
charge (Mahadevan v Manilal) 6
RIGHTS OF CHARGEE
- In circumstances where there is a default by the chargor, a chargee
may exercise his right for :
i) order for sale
ii) taking possession
iii) Assignment to Danaharta

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ORDER FOR SALE

Procedures in obtaining order for sale:

1. Statutory notice (mandatory requirement)

2. Foreclosure proceeding
3. Order for sale
4. Public auction

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1. Statutory notice
- Consequences of failure to give notice:
a) Sale cannot be effected
b) Registrar may refuse to register any transfer
c) Chargor may obtain an injunction preventing the sale from proceeding
- Must contain the amount due (Co-operative Central Bank Ltd v Meng
Kuang Properties Bhd)
- The notice should require the chargor to remedy the breach within the time
stipulated in charge agreement
- Notice must contain warnings that failure to comply with the statutory
notice, chargee will proceed to obtain order for sale

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2. Foreclosure proceeding

- In a foreclosure proceeding, it depends on the title of the land to determine which

tribunal to initiate

a)Registry title : High Court (Section 256 NLC)

b) Land office title : Land office/Land Administrator (Section 263 NLC)

3. Order for sale

- Kheng Soon Finance : Before granting an order for sale court will look whether there
is an existence of cause to the contrary
- Unless there is an existence of cause to the contrary, the court will grant order for sale
under Section 256 (3) in form 16H
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4. Public auction

- Section 257 (1) (a) : order for sale must be made by way of public auction
- Chartered Bank v Packiri Maideen : it is a mandatory requirement for the order for sale
to provide that the sale is to be effected by way of public auction
- United Malayan Banking Corp Bhd v Chong Bun Sun: The court held that in an
application for an order for sale, the court must make an order for sale unless it is
satisfied of the existence of the cause to the contrary and such sale must be by way of a
public auction and not otherwise.
- Section 257 (1) (b) : Sale is to be held not less than one month from the date of the
order made
- Section 257 (1) (c) : Order for sale must specify the total amount due to the chargee

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- Section 257 (1) : 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
- Section 257 (1) : Balance of the purchase 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.
- The conclusion of sale during the public auction is at the fall
of the auctioneer’s hammer

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Application
Applying to this situation, since Cumi defaulted in his payment the registered
chargee may exercise their right for order for sale(OFS) by way of public
auction. Therefore, the bank must first follow the procedures in getting OFS.

According to sec 257 (1)(a) every order for sale made by the court under sec
256, in Form 16H shall provide for the sale to be by public auction.

This can be supported by the case of United Malayan Banking Corp v Chong
Bun Sun where when order for sale has been made by the court, it can only
grant an order for sale by way of public auction

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 Therefore, the bank can only auction the land if the court has granted OFS by
the way of public auction .

The registrar of the court will then fix a reserve price for the purpose of the
sale [sec 257(e)] . No bidder shall be allowed to bid in the sale unless he paid
the 10% of the purchase price [257 (f)].

The 10% of the reserve price paid by the successful bidder shall be paid as a
deposit to the chargee according to the section 257(f) . it shall be noted that
this should be done where the full amount of the purchase is not paid after the
fall of the hammer by the successful bidder.

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The balance purchase price need to be paid within 120 days. Failure to do
so will rendered the sum paid as deposit to the bank to be forfeited and
disposed of in the manner specified under sec 268A.

So, the bank will receive the purchase price of the auction but the auction
money will not be utilised straight to the bank.

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 Distribution of Purchase Money
Purchase money - money that is paid by the purchaser who has purchased the land
at the public auction either from court or land administrator.

In the case of Bank Bumiputra Malaysia Bhd v Pentadbir Tanah Daerah Gombak
mention that “the purchase money arising on any sale” refer to the total purchase
price of a complete sale.

The distribution of the purchase money will follow sec 268 of National Land Code
(NLC) 1965

Meanwhile, for financial institution it will follow sec 268A of National Land Code
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Sec 268A of NLC provides that -

(1) Upon receipt full payment of purchase money, chargee who is financial institution shall
immediately certify in writing to the registrar of the court or the Land Administrator
(2) The chargee shall apply the purchase money in the manner specified as follow :
(a) firstly- in the payment of the money due specified in paragraphs 268 (1)(a) and (b)
not later than fourteen days of the receipt of full purchase money of the sale and
(b) secondly- payment of money due to the persons or bodies in the order of priority
specified in paragraphs 268 (1)(c), (d)and (e) not later than thirty days after the
receipt of the full payment of the purchase money.

(3) A statement of account of the payments received and paid out as specified in
subsection (2) shall be submitted not later than thirty days after the receipt of the full
purchase money to the registrar of court or Land Administrator.
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APPLICATION
In applying to this recent case, the bank had auctioned the Klang Land and had received
the purchase money. It can be considered that the purchase money is the total purchase
price of the complete sale of the Klang Land, as stated in the case of Bank Bumiputra
Malaysia Bhd v Pentadbir Tanah Daerah Gombak.

As the bank is a financial institution, the bank must distribute the purchase money
according to Section 268A. The bank must firstly certify in writing to the registrar of the
court or Land Administrator that they had received the purchase money.

Then, in fourteen days, the bank must made payment of rent to the State Authority or
the lessor and also payment of the expenses incurred in connection with the making and
carrying into effect of the order for sale.
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Following it is the payment to the bank of the total amount due under the charge at
the time for sale, the payment of annuity (if any) and lastly payment of subsequent
charges, if any, in the order of their priority, not later than 21 days of the receipt of
purchase money.

Lastly, the bank should then make a statement of accounts of the payment and shall
be submitted not later than thirty days after the receipt of full purchase money to the
Registrar of the Court or the Land Administrator.

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CONCLUSION

In conclusion, the bank should distribute the money in

accordance with Section 268A of the National Land Code

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