The issue is whether the notice in Form 16D served by Berkat Bank Berhad was valid.

Upon default by chargor, the registered chargee may exercise his right for an order for
sale. Before applying for order for sale, it is a mandatory requirement for the chargee to serve
statutory notice to the chargor. There are three factors that will affect the validity of a statutory
notice namely the form of notice used, the content of the notice, and the service of the notice.
Firstly, the form of notice used. This notice must be served by the chargee before
applying for order for sale. There are two forms that can be used by the chargee which depends
on the situation. The first form is Form 16D by virtue to Sec 254 NLC. This form is used in
situation where there is breach of any express or implied obligations of chargor under the loan
agreement. The breach must have been continued for at least one month or more. The second
form is Form 16E by virtue to Section 255 NLC. This form is applicable if the charge agreement
states that the chargee is entitled to demand the principal sum at any time or entitled for payable
on demand. In this case, the chargee is allowed to demand for loan advanced, even without
default on part of chargor. The chargee have to give notice to chargor of his intention to demand
for principal sum within one month from the date of the notice is served on the chargor. If the
chargor fails to comply, the chargee is entitled to apply for order for sale. In the case of VAM
Hussain v. BP Malaysia Sdn. Bhd, the appellant, a landowner of a piece of land and BP Malaysia
Sdn Bhd thought it a good site for a filling and service station commonly known as petrol pump.
The purchase price is $ 90,500. They also agreed to advance the appellant $ 45,000. To protect
themselves BP had the land charged to them to secure repayment of $ 45,000. At the time of
transaction BP entered written agreement with appellant. However, the city government did not
allow to build the petrol pup on that land. According to the agreement, if the plan disapproved all
moneys paid by BP must be refunded. So, BP sent a notice in Form 16E required under National
Land Code to demand the payment of $ 45,000 within one month. Appellant did not comply the
notice and BP took out the originating summons for an order that the land to be sold to satisfy
the sum of $ 45,000 together with interest. In this case, the charge agreement provides that the
principal sum secured was payable on demand. The court held that the Respondent had used the
correct form which is Form 16E.
However, in circumstances where there has been a breached as well as a clause
demanding for principal sum, either Form 16D or 16E can be used by the chargee. In the case of
Jacob v Overseas Chinese Banking Corporation, the appellant charged his land to the
Respondent to secure the repayment of an overdraft. On default of payment, the Respondent
served Form 16D and applied for order for sale. The Federal Court held that where there has
been a breach of any obligation Form 16D may be used, regardless of the nature of the
obligation, thus including that of payment of the principal sum on demand; and where the
principal sum is payable on demand then, either notice in Form 16D or Form 16E may be served.
The learned judge stated that the object of the legislature was to see that sufficient notice was
given to the chargor before the chargee applied for order for sale. Where there was a demand is
for payment of principal sum and interest, Form 16E could be used as well as Form 16D and the
demand may be made by either form. In another case of Mary Michael v UMBC, the appellant
charged his land to the Respondent as security an overdraft facility. On default of payment, the
Respondent caused a notice in Form 16D to be served to the appellant demanding payment. The
appellant contended that the notice in Form 16D is null and void. The Federal Court held that
although the principal sum was payable on demand, the chargee was seeking to the interest
which had become due and payable. Therefore, the notice in Form 16D was an appropriate
notice. It is to be observed that a notice in Form 16D applies to any charge, so that it can validly
be used even in the case of a charge where the principal sum is payable on demand.
The second factor is the content of the notice. The notice must specify the breach. When
applying Form 16D, the notice shall indicate the amount due which are the principal and interest.
This is in accordance to the case of Co-operative Central Bank Ltd v Meng Kuang Properties
Bhd. In this case, clause 5 of the charge annexure required the Bank to serve a notice before
imposing default interest. The Bank had failed to do so and proceed with statutory notice in form
16D which included default interest. Order for sale was dismissed. It was held that the notice was
invalid and ineffectual on another ground. As the chargee demanded payment of default interest
which could be demanded only if notice had been served, the absence of such prior notice could
not be remedied by Form 16D. Other than that, the notice shall require the chargor to remedy the
breach within one month of the date of notice or more. The period of breach referred to in
section 254(1) of NLC should be at least one month. Thus, alternative period must be a period
greater than 1 month. Next, the notice also shall give warning to the chargor that upon failure to
comply with statutory notice, the chargee will proceed to obtain order for sale.
The third factor is the service of notice. The method of service of notices is referred to in
Section 431 and section 432 of NLC. By virtue to Section 431, the notice can be delivered by
way of personal delivery, by leaving the notice at the person’s last known address, pre-paid
registered post or substituted service under Section 432. The notice must be served to the last
known address of chargor. In the event the proprietor who would be served with notice is dead,
the registrar or Land Administrator, may cause the notice to be served on any adult member of
his family as provided under Section 431A. Once the notice has been validly served, time begins
to run. After expiry of date in the notice, chargee is at liberty to apply for order for sale. The
service of notice should not be taken lightly. If the chargee failed to serve the notice properly, the
notice served can be challenged by the chargor. In the case of Kekatong Sdn Bhd v Bank
Bumiputra, the appellant charged a land in the respondent’s favor to secure a loan. The registered
charge instrument gave a certain address as the appellant’s registered address. The appellant
notified the Registrar of Companies that it had changed its registered address. Third party
defaulted its obligation under the loan agreement. The respondent then issued a notice of demand
in Form 16D and then commenced proceedings for an order for sale. The appellant took out a
notice of motion to set aside the order for sale. It was decided that although the notice in Form
16D was correct in substance, yet the address at which it was served was incorrect whereby the
chargee served to the address at Jalan Conlay KL (the address that they knew it was no longer
being occupied by the chargor) instead of its new registered address at Beach Street, Penang.
Gopal Sri Ram JCA held that the word ‘may’ is not merely directory. It is imperative.
In applying to the question, before Berkat Bank Bhd apply for order for sale, they need to
serve a statutory notice to Lepat Ong. In determining the validity of the notice, the three factors
shall be examined. Firstly, for the form of notice used, Berkat Bank Bhd has served form 16D to
Lepat Ong to recover the overdraft facility. In this issue, they have served a wrong notice since
Form 16D should be used when there is a breach of obligation by chargor. The notice that have
to be served by Berkat Bank Bhd should be the notice in Form 16E. However, since Lepat Ong
has default in payment of the loan, he has breached his obligation. In reliance to the case of
Jacob v Overseas Chinese Banking Corporation and the case of Mary Michael v UMBC, since
there was breach of obligation and also a clause demanding for principal sum, either Form 16D
or 16E can be issued by the chargee. Thus, the notice served by Berkat Bank Bhd to Lepat Ong
is a right notice.
Secondly, for the content of the notice, it can be assumed that the notice served by Berkat
Bank Bhd contain the amount due with the interest since the bank’s solicitor has accumulated the
outstanding amount together with the interest. In contrast with the case of Co-operative Central
Bank Ltd v Meng Kuang Properties Bhd, since the notice contain the amount demanded by the
bank, the notice should be rendered valid. Other than that, the notice also should contain the
period for Lepat Ong to settle the payment. by virtue to section 254(1) of the NLC, the period
given to Lepat Ong must be one month or more. The notice also should consist of warning to
Lepat Ong that the bank will proceed to obtain order for sale if he fail to repay the amount. In the
question, it did not mention that the notice contains the period of repayment and the warning.
However, by analyzing Form 16D as provided under the National Land Code, it is already
provided the skeleton of the notice which include the period and the warning. Therefore, it can
be assumed that the notice served by Berkat Bank Bhd contain the period and warning.
Thirdly, for the service of notice, the notice can be delivered via personal delivery by
leaving the notice at the chargor last known address. In such, Berkat Bank Bhd should deliver the
notice to Lepat Ong last known address. Berkat Bank Bhd must make sure that they served the
notice properly. Assuming that they have properly delivered the notice, the notice would be valid
and the period for repayment will start. In contrast to the case of Kekatong Sdn Bhd v Bank
Bumiputra, the notice is valid since Berkat Bank Bhd has served the notice properly to Lepat
Ong.
In conclusion, the notice in Form 16D served by Berkat Bank Berhad was valid since it
has fulfilled all the factors which affect the validity of the notice. Thus, upon failure of Lepat
Ong to comply with the notice, Berkat Bank Bhd may proceed to obtain for order for sale.