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Powers and restrictions on
powers of chargor
By Mohammad Tahir Sabit

What is charge for?

Any individual or body who borrows money from another, may be
required by the creditor to secure the repayment of the loan. The
borrower gives security by charging a land or undivided share in land,
or lease belonging to him.
An agreement between the parties may be signed with terms
regarding the repayment of the loan and in case it is not paid how the
the land can be sold or possessed by the lender.
The charge has to be registered.
Once the borrower defaults on repayment of loan, the creditor can
start foreclosure or possession proceedings.
Creditor can get his money by selling the charged land.
Note: companies also charge their assets under companies Act. That is
not the focus of this lecture.
Note: also: charge and mortgage are not the same: under Mortgage
title is given to lender. Under charge the title is still with borrower,
lender has interest only.

Definition of charge under

Section 241 (1) (2)
Charge is a transaction whereby the registered proprietor
(owner) has been give the power to put
the whole of his land
any undivided share in land;
any lease of land,
as security or collateral for the repayment of
any debt, or
the payment of any sum other than a debt; or
the payment of any annuity (a rent-charge whereby the
payment of an annual sum is charged on the land) or
other periodic sum (e.g. as investment or capitalized
value_ s 242(3))
The land may be held under qualified title or final title,
landed or strata.

charge of MRL to non Malays: prohibition under MRL Enactment?
Unnecessary restriction!!!.
the issue is whether the chargee gets any interest in land: Legal
controversy: Ho Giok Chay v Nik Aishah (1961) 1 MLJ 49 (chargee
has interest in land); T. Bariam Singh v Pegawai Pentadbir Pesaka,
Malaysia (1983) 1 MLJ 232 (no interest in land). it may be
academic. There is some interest any way.
Whether the interest is in land or not, the code makes it clear that
the chargee gets the right to sell the charged land by auction or
take possession of, after due process. All you have to do is to sell
the land to Malay person. No hairsplitting.
Pay attention to: the interest in land is not proprietary in full (use,
enjoy, and dispose): make it the right to sale. And sale it according
to MRL law

Landowners powers to
All owners of alienated land are given power to charge their land
The owner could be an individual, a body, local or foreigner;
however all charges are subject to restrictions. Hence: the
charge can be created/granted only if there are
The whole land and not part of it
No prohibition or limitation under the existing law;
No restriction in interest to which the land in question is
subjected; and,
No contradiction to the provisions of leases, express or
No two or more persons or bodies otherwise than as
trustees or representatives as chargee.

Restrictions on charges
under s 241(3),
All charges are subject to limitations prohibition and restriction
in interest under existing law,
(1)NLC: s 341(1),(4):

charge be on whole land and

cannot be granted to two or more persons except trustees and
representatives who will jointly be liable. See further ss 43,
205, 433B, 344, Trustees Act, Probate and Administration Act,
Power of Attorney Act Etc

(2)Other law: No charge of MRL and no charge of land under GSA

(3)Limits imposed by restriction in interest
(4)Limits imposed by terms and condition of lease or sublease,
express or implied
Note: equitable charge may be created on part of land and be
protected by caveat: J Raji v Kwong Yik Bank Bhd [1994]

Void charges
Charges can be void if against
written law
Other law: Money Lenders Act
Phuman Singh v Khoo Kwang Chong
[1965]2 MLJ 189
Associated Finance Corporation Ltd.
v Poomani[1972]1 MLJ 117

Registration of charge
The charge has to be registered if the creditor wishes to
enforce it under NLC and get its indefeasibility. The order for
sale may not available to the chargee under NLC
The registration has to be according to formalities provided
under NLC. It provides two Forms of registration of charges :
form 16A for debt or other sum
Form 16B for annuity and other periodic sum
Annuity is like the rent charged to the creditor. It can be for
annual sum or periodic sum. The payment is charged on the land.

Use of wrong form may not invalidate charge : V. Letchumanan

v Central Malaysian Finance Bhd [1980] 2 MLJ 96; Tan Yen Yee & Anor v
Equity Finance Corpn. Bhd. [1991] 1 MLJ 237: Interpretation Act 1948 &
1967 s.62-the deviation was not of substantial effect nor was it
calculated to mislead

Effect of charges
Grant of interest in land
Section 243.
Every charge takes effect upon registration.
the land or lease in question is liable as security.

No ownership but an interest in the land or

over the lease.
The land can be sold/possessed, if no
repayment of loan is made

Indefeasibility of charge
Where the the chargee and chargor
agree on the deposit of purchase price
to a third part, and the chargor does
not get the purchase price, the charge
will be valid and binding. (OCBC Bank
(Malaysia) Berhad v Lee Lee Fah & five
Ors [1999])

Custody of title
Section 244. (1) A first chargee shall, subject to
any agreement to the contrary, be entitled to the
custody of the issue document of title to the land.
if requested the chargee has to produce the title
in reasonable time
The costs shall be payable by the proprietor or
lessee on demand and, if demanded in writing
and not sooner paid, shall be added to, and
deemed for all the purposes of this Act to form
part of, the first payment due under the charge
after the date of the demand.

Unregistered charges




Instrument of charge executed, and the The

title is available
enforcement of
the charge is
Title is available, borrower hands over
under Law of
title to lender as a security only
contract, and
Title is given a different type of security principles of
transaction is intended, e.g. Jual Janji
Title is not available; parties enter into
a Loan Agreement Cum Assignment
whereby assigning all interests of the
Borrower in the property to the Lender

Equitable charge is recognised by courts and hence without
being registered: Mahadevan s/o Mahalingam v Manilal [1984]

Subsequent charges and

The land owner can charge his land several times. (s
All subsequent charges will be valid as long as there is
nothing in the first and subsequent charge prohibiting the
chargor from subsequent charges.
The first charge takes priority over subsequent one unless
there is mutual agreement between parties
The first registered charge rank first over subsequently
registered ones
A bridging financer may take priority over the end
financier (perwira Habib Bank v Bank Bumiputra
Malaysia Bhd [1988] 3MLJ 54)
As long the proprietor charges land, charge is binding,.
There is no duty on chargee to investigate if the property
is sold to another person.

Changing priorities
The parties can change priority of charges by mutual
agreement. They can be done by the method of
consolidation tacking, or postponement
A land owner may have charged many pieces to a bank. He
and the the chargee may agree to consolidate them, so that
they are considered as one, and be discharged together.
when there is any subsequent charge the discharge of it can
take place after discharging the first ones.
If there is no such agreement Section 245: Restriction on
consolidation applies: i.e. the rule of consolidation does
not arise.


A charges land to B for RM1 Million, on 1/1/2010 registered with right

to tack
A charges the same land to C for RM10000 on 1/2/2010 and registers it.
A borrows RM 10000 from B on 6/4/2010
B can tack his charges (amalgamate the indebtedness) and will take
priority over Cs charge
When the property is sold and the proceeds of sale are just enough for
the first chargee, i.e. B, the second chargee will lose his money.
Section 246. Tacking of further advances.
(1) any chargee may make further advances to rank in priority to any
subsequent charge of the same land or lease but subject to the
following restrictions
(a) such advance be 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) with the consent of the person entitled to the benefit of the
subsequent charge.

Section 247. Postponement of charges

The first chargee may give his right of priority in
favour of the second chargee.
(1) Any charge may be postponed to any subsequent
charge by an instrument in Form 16C.(2) The charges
to which any instrument of postponement relates shall
rank, as between each other, in the order therein
specified as from the date on which the instrument is
The effect: when borrower is unable to pay loan, the
second charge as it may be will take priority over the
first chargee and receives the proceeds of sale first.

Terms of agreement
While the terms of agreement may be made
by the lender and borrower, there are some
condition that the law consider them to be
existing even if not expressly stated. See
226: no lease or tenancy without consent of
219; the condition of the agreement apply to
the transferree of the charge as well as to
the transferror.





Pay the loan with interest if any


Security be land or lease

Pay quit rent, rates, taxes and all outgoings
Comply with express and implied conditions
Pay rent if leas, and comply with all its
If there is no other agreement to the contrary, 250
chargor to keep the property in repair, insured
in its full value, to allow chargee to inspect
repair and maintenance, to allow chargee to
self remedy the loss, and be paid for by

Not to withhold consent unreasonably to grant

of lease or tenancy

Remedies for default of

When the charger fails to repay the loan, NLC provides
two remedies to chargees: sale by auction and
possession of the land.

Sale of charged land

The purpose of charge is to secure the debt and other
In case of default the chargee has the power to
liquidate the security through sale (s 253)
According to section 242 the proceeds of sale to be
utilised for the satisfaction of payments due at the
time of application for sale or subsequently falling due.

A_ S.254 Notice to the chargor or another
person before sale
where there is a breach by the chargor then the chargee to
serve notice on chargor in Form 16D.
The chargee has to
1.specify the breach in question i.e. non payment of monthly
2.require it to be remedied within one month or so; and
If at the expiry of the period specified in any such notice the breach in question has not been
remedied ((3)) the chargor that if the notice is not complied with, he
to obtain
sale due and payable to the
the whole
sum secured, except
if annuity,
the charge
chargee; and
(b) the chargee may apply for an order for sale

B_Section 255. Notice to pay principal sum

Where the principal sum is payable by the chargor on demand, the chargee may give notice in
Form 16E, and if the sum in question is not paid to him within one month, may apply for an order
for sale

A- Application to Court for order for

Section 256: procedure
Where the land is held under registry title application for sale is
made to the Court.
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 (256(3) .
Section 257: The order by the court has to be in Form 16H, which
shall contain:
the sale to be by public auction;
require the sale to be held on such date but not less than a month
specify the total amount due to the chargee
require 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

Procedure before sale.

Section 258. (1) Where such order has been made, the Registrar of
the Court (a) to serve a copy on the chargor, and on every chargee of the land
or lease; and
(b) to see that the sale is publicly advertised in accordance with
rules of court, or the practice customarily adopted in the State.
(2) The chargee shall (a) prepare the conditions of sale, in accordance with the terms of
the order and any determination by the Registrar of the Court;
(b) if in his custody, deposit the issue document of title, or duplicate
lease, with the Court not less than one week before the date fixed
for the sale; and
(c) in the case of a charge of an undivided share deposit with the
Court not less than one week before the date fixed for the sale, the
copy of the issue document of title issued to the co-proprietor.

Procedure at sale.

Section 259. (1) Every sale shall take place under the direction of an officer of the
Court, with the assistance of any licensed auctioneer if needed. The officer has to
(a) receive bids (including by 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; and
(d) declare the sale concluded in favour of the highest bidder.
(3) The purchaser upon payment of the full amount of the purchase price, be entitled
to receive (a) a certificate in Form 16F that the land or lease in question has been sold to him
(which shall, as provided by section 267, be registrable by the purchaser as if it
were an instrument of dealing);
(4) Where the order for sale requires the payment of any deposit by the successful
bidder and the balance to be settled on a date not later than one hundred and
twenty days from the date of the sale, the provisions of section 267A shall apply.

B- Application to Land Administrator

for order for sale

Section 260. where the land is held under Land Office title,
the whole or undivided share, or lease application for an order
for sale by a chargee shall be made to the Land Administrator in
Form 16G.
Section 261. Land Administrator to hold enquiry.
Upon receiving any application, the Collector shall -(a) appoint a
time and place for the holding of an enquiry;
(b) notify the chargee of the time and place; and
(c) cause a summons to be served on the chargor, requiring him
to appear at the enquiry and show cause why the order should
not be made.
The LA has to find whether the charge is on the register, and
whether there is a default in the repayment of loan according to
the terms of the charge.
If there is a dispute relating to the charge, it can be referred to
Court. LA can stop proceeding pending the decision of the court.
LA can only make order for the sale of land

Section 264A. Postponement or cancellation of an order for

sale by Land Administrator.
(1) An order for sale may be postponed only once for a period not
exceeding three months or cancelled by the Land Administrator
upon an application of the chargee with the concurrence of the
chargor in Form 16O :
such application shall be submitted to the Land Administrator not
less than seven days before the date of the sale. Section 266.
Right of chargor to tender payment at any time before sale
to the court or LA. (3) Where any order for sale ceases to have
effect by virtue of this section, the Registrar of the Court or, as the
case may be, Land Administrator shall give notice thereof to every
chargee of the land or lease in question.

Effects of sale
Section 267..
(1) Any certificate of sale shall be treated as an
instrument of dealing, and shall be registrable
accordingly; and, upon the registration
(a) the title or interest of the chargor shall pass
to and vest in the purchaser, freed and
discharged from all liability under the charge in
question and any charge subsequent thereto;
Only endorsed tenancies will will be protected
upon transfer.

Application of purchase

Section 268.
(1) The purchase money arising on any sale shall be applied (a) firstly, in the payment of rent to the State Authority or the lessor,
any other outgoings payable to the State Authority or any local
(b) secondly, in the payment of the expenses of the sale;
(c) thirdly, in the payment to the chargee of the total amount due;
(d) fourthly, in the case of an annuity or other periodic sum, in
accordance with any provision for the satisfaction of payments
subsequently falling due; and
(e) fifthly, in the payment off of subsequent charges, if any, in the
order of their priority.
(3) The residue, if any, of the purchase money shall be paid to the


Section 270. Limitation of powers to certain lands, and to first chargees only.
(1) the chargee can possess land if (a) the land is held under Registry title and final title;
(aa) the charge is not on an undivided share; and
(b) in the case of any town or village land it is not occupied by the chargor.
(2) the said powers shall be exercisable by first chargees only.
Section 271. Power of chargee to take possession on any default by chargor.
(1) any chargee may, at any time when the chargor is in breach of any agreement on
his part, enter into possession of the whole or any part of the land so (a) if any lease or tenancy binding on him, receive the rent payable to the chargor
thereunder; and
(b) so far as it is not so subject, by going into occupation thereof.
Section 272. Procedure for taking possession
Notice be given
Upon such notice the rights of chargor are passed to chargee
The chargee may apply to court for possession of the property

Duration of right to

Section 273..

The chargee may remain in possession as long the liabilities under

charge exist
The chargee can occupy the land or rent to receive rental
The chargee is liable to any loss to the land
The chargee is liable for any sum he receives or expected to be
The proceeds from be used for liabilities of the charged land
For powers of the chargee in possession see s 275.


Section 278. Discharge otherwise than by payment.

(1) Any chargee may, by an instrument in Form 16N discharge the land
or lease, and the discharge shall take effect as from the date on which
the instrument is registered.
Section 279. Discharge by payment to Registrar in cases of
death, absence or disability. (1) Any chargor may apply to the
Registrar for relief on the grounds that he is entitled to pay off the
charge but (a) the chargee is dead, or cannot be found, or evades or refuses to
accept payment, or is under a legal disability, and
(b) he is unable to trace any person or body authorised to receive
payments on the chargee's behalf.
the Registrar shall authorise the chargor to deposit the amount in
question with him; and upon the making of the deposit, the land or lease
to which the charge relates shall be discharged from all liability

Section 280. Memorialisation on discharge

by payment.
Where any land or lease has become discharged
from liability under any charge by payment to the
Registrar under section 279, the registration of the
charge shall be cancelled by the Registrar
pursuant to section 314; and any chargor may
apply to the Registrar pursuant to section 314;
and any chargor may apply to the Registrar under
that section for cancellation of the registration of
the charge on the grounds that a discharge has
been effected by payment to the chargee.

Sale of unregistered
charged land
Chargee may not be able to sale asset under NLC
(Sime Bank Berhad v Mohd Hassan bin Sulaiman
[2004] 1 AMR 1021)
if lender hold charge in statutory form and the title is
deposited with him but the lender fails to register it, the
charge may be considered equitable and may be caveated
under s 323(1).

if there is no charge in statutory form then claim can be
treated valid under law of contract following s 206(3) of NLC

Note: chargor may discharge the charge anytime

before the sale of the security under code: Malayan
United Finance v Tay Lay Soon [1991] 1MLJ 504