Topic 1 : Charge And Others Registration

• In a loan agreement, the creditor is always concern about his rights for repayment of the loan (+ interest); whether
the contract provides for the provision to redeem the loan;

• So, the right to take or encumber the property is designed to safeguard the interest of the creditor upon failure of
the debtor to settle the loan.

• In a security transaction i.e. charge, the borrower (chargor) will deposit his land (IDT) or other recognized
properties with the creditors (chargee) as a guarantee to repay the loan.

• The NLC provides for the chargee to initiate some actions to protect its interest (the debt)

Security dealings/transaction : charge, lien, mortgage

Case: Global Globe Property (Melawati) Sdn Bhd v Jangka Prestasi Sdn Bhd [2020] MLJ 333

●​ Legal Principle: Security transactions under the National Land Code (NLC) are recognized as charges and
statutory liens.
●​ Facts: A loan transaction was unregistered, and the lender was an individual not registered under the
Money Lender Act 1951.
●​ Illegality: The transaction was illegal under the Money Lender Act (MLA) and against public policy,
violating s. 24(b) of the Contract Act 1950.
●​ Precedents:
○​ Bank Bumiputera Malaysia Berhad v Mahmud b Hj Mohamad Din (1989): A prior equitable title
cannot override a registered charge.
○​ Sime Bank Bhd v Mohd Hasan Sulaiman (2000): An unregistered charge may not obtain an Order
for Sale (OFS) under the Code.

Summary : A registered charge takes legal precedence over unregistered transactions. Unregistered lenders may
lack enforceability due to statutory requirements and illegality.

- A charge is a type of security transaction where a debtor (chargor) uses land or lease as security for a loan granted
by a lender (chargee). Unlike a mortgage, no title is transferred to the chargee, but the chargee gains rights over the
secured asset. A charge becomes effective only upon registration (as per Section 243). Other security transactions
include mortgages, liens, and jual janji.

• Right of a registered chargee prevails over an earlier equitable title to the land (Tengku Azman b Tengku Adnan
& Anor v Mahmud b Hj Mohamed Din[1989] 1 MLJ 381

Charge under the NLC – Part 16 : A registered charge (Sections 241-280) creates an interest or encumbrance
on the charged land or lease for the chargee without transferring ownership. In Ho Giok Chay v Nik Aishah, the

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court held that a charge constitutes an interest in land, allowing the chargee to enforce security through sale of the
land if the chargor defaults.

Mortgage : A mortgage involves the transfer of title to the mortgagee as security for a debt or obligation, with
the right of redemption upon repayment (Santley v Wilde [1899]). In contrast, a charge does not transfer title to the
chargee; it only provides security for a loan. If no loan exists, the chargee has no right to retain the title (Yee Shin
Cheong v UMBC Bhd [1992]).

Creation of a charge :

Under Section 241, the following can be charged:

●​ Alienated land
●​ Land under FT, QT, RT, or LOT
●​ Parcel of Strata Title (ST)
●​ Registered lease

Section 343(3) allows a co-proprietor to charge their undivided share, subject to restrictions in interest (RII) or
land title conditions.

Nature of a Charge:

●​ The property is encumbered but remains with the chargor (no transfer to the chargee).
●​ In case of default, the legal remedy is judicial sale.
●​ Registration of charge determines priority among chargees in claiming rights.

What happens if a charge is not registered ?

Is Registration of a Charge Mandatory? : Under Section 241, a charge "may be charged", indicating that
registration is not compulsory but necessary for legal enforcement. A statutory charge is created using Form 16A
(principal sum) or Form 16B (periodic sum).

Key Case Law:

●​ Sime Bank Bhd v Mohd Hasan Sulaiman [2000] – Unregistered charges have no legal remedy under the
NLC.
●​ Mahadevan Manilal & Sons [1984] – An unregistered charge may be recognized as an equitable charge.
●​ Malayan Banking Bhd v Zahari bin Ahmad [1988] – Equitable charges can be created through a loan
agreement and assignment.
●​ Oriental Bank v Chup Seng Restaurant [1990] – The court required registration for foreclosure rights
under the NLC.
●​ Gan Khor, Paramoo v Zeno, BBMB v Doric Development [1980] – Equitable charges were not recognized
for alienated land.

Effect of Non-Registration:

●​ R&I Securities v Golden Castle [1979], Bank Bumiputera Malaysia Bhd v Kimlin Housing Development
[1993] – Unregistered charges lack legal priority.

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 ●​ Sime Bank Bhd v Mohd Hassan Sulaiman [2000] – An unregistered chargee cannot obtain an Order for
Sale (OFS) under the NLC.

Conclusion: While equitable charges may be recognized in some cases, courts generally require registration
for a chargee to enforce rights under the National Land Code (NLC).

Type of charge by reference to the parties :

Types of Charges & Third-Party Involvement

1.​ Two-Party Charge:

○​ Chargor (borrower) and Chargee (lender/creditor).
2.​ Three-Party Charge:
○​ Chargor (third party), Chargee (lender), and Beneficiary (loan recipient, not the borrower).

Key Cases:

●​ Tuan Mat b Tuan Ismail v Etiqa Takaful Bhd [2015] – Takaful can act as a financier and provide loans.

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 ●​ Barclays Bank’s Case [1993] – Banks should avoid loans where the chargor is not the loan beneficiary to
prevent contracts being set aside due to undue influence (e.g., cases where a wife provides property for her
husband’s loan).

Conclusion: A third-party charge involves a chargor securing a loan for another person, but banks must be
cautious of undue influence risks in such arrangements.

Subsequent charges :

Subsequent Charges Under the NLC :

●​ Since ownership remains with the chargor, subsequent charges are allowed with the same or different
chargees.
●​ R I Securities [1979] – Consent of the first chargee is required before creating subsequent charges.
●​ AKB Air Conditioning [2002] – The first registered legal charge takes priority over later charges.
●​ Subject to limitations imposed by the NLC and other laws.

Conclusion: Subsequent charges are permitted but must comply with prior chargee consent and priority rules,
where the first registered charge holds precedence.

Procedures - Registration using the statutory forms :

Statutory Forms for Charges :

●​ Forms 16A & 16B are prescribed under Section 242 for creating statutory charges.
●​ Malayan Banking v Zahari Ahmad [1988] – Recognized the use of these forms.
●​ Tan Yen Yee v Equity Finance [1991] – Using different forms does not invalidate a charge as long as it
does not cause substantial effect or mislead.

Conclusion: While Forms 16A/16B are standard, minor deviations in form usage do not render a charge invalid,
provided they do not mislead or affect its substance.

Benefit of registering the charge - legal charge :

Legal Effects of a Registered Charge & Chargor’s Rights

●​ Co-Operative Central Bank [1997] – Once a charge is registered, it ceases to be a contract.

●​ Kim Lin’s Case (Judith Sihombing, 2021) – The chargor retains valuable rights, including:
1.​ Right to notice before enforcement.
2.​ Judicial intervention required for an Order for Sale (OFS).
3.​ Right to contest the OFS ("Show Cause to the Contrary").
4.​ Land must be sold at public auction, at reserve price, within a specified timeframe, and
properly advertised.
5.​ Proper notice of OFS must be served.
6.​ Court officer must oversee the sale.
7.​ Right to stop the sale upon full payment.
8.​ Right to be heard if the buyer fails to pay the purchase price on time.
9.​ Right to set aside the sale in cases of fraud, collusion, or improper conduct.

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 -​ S 244 – custody of IDT – if no loan involved, thus no right of custody (R.I Securities Sdn Bhd v Golden
Castle Finance Corp [1979])

Conclusion: A registered charge is no longer a contract, but the chargor retains key legal protections against
wrongful enforcement or sale.

Priority of Charges & Changes in Priority

●​ Charges are prioritized based on the order of creation.

●​ Changes in priority can occur through consolidation, tacking, or postponement.
●​ Section 245 (Consolidation) – Derived from equity principles, allows a chargee to consolidate multiple
charges.
●​ Public Finance v Hock Sing Housing – Consolidation must be exercised before an Order for Sale
(OFS).

Taking of further advances sect 246 :

Chargee’s Rights, Tacking, and OFS Procedures

●​ Tacking (S. 247) – Allows a chargee to secure further advances on an existing charge.
●​ Postponement (S. 247) & Form 16C – Alters charge priority.
●​ Chargor’s Obligations (S. 249-250) – Includes duties to maintain the property and fulfill loan conditions.
●​ Leases (S. 251) – Requires chargee’s consent for leasing charged land.
●​ Chargee’s Rights & Remedies (S. 253-269) – Includes judicial sale (S. 253-269) and taking possession
(S. 270-277).
●​ S. 253 – Right to Sell – Chargee can sell the land, but cannot contract out of the NLC provisions (Kimlin
Housing v BBMB [1997]).
●​ Citibank v Mohamad Khalid Fazlur Rahman – Distinguished from Kimlin’s case, possibly on contractual
nuances.

OFS Procedures (Order for Sale)

●​ S. 254 – Notice of Default (Form 16D):

1.​ Specifies the breach.
2.​ Requires the chargor to remedy within one month.
3.​ Warns of consequences for non-compliance.
4.​ If the notice expires, the full sum becomes due.
5.​ The chargee may apply for an OFS.

Conclusion: Chargees have strong enforcement rights, but they must comply with NLC procedures. An OFS
requires proper notice and adherence to judicial sale regulations.

Forms 16D vs. 16E, OFS Procedures & Sale of Charged Land

Forms 16D vs. 16E

●​ Form 16D (S. 254) – Used for default notices, requiring the chargor to remedy the breach within a
month.
●​ Form 16E (S. 255) – Used when the principal sum is payable on demand.

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 ●​ Citibank NA v Ibrahim Othman [1994] – The amount due must be stated accurately.

Order for Sale (OFS) Procedures (S. 256-258)

●​ S. 256 (Registry Land):

○​ Application made to Court (O 83 HC, OS + affidavit).
○​ Court grants OFS unless "cause to the contrary" is shown.
○​ Mui Bank v Cheam Kim Yu [1992] – Once OFS is granted, the judge is functus officio (has no
power to amend or set it aside).

“Cause to the Contrary” (S. 256(3))

●​ MUI Finance v Tan Lay Soon – Only the chargor has the right to discharge the charge.
●​ Low Bee Lian – OFS will not be granted if:
1.​ Conditions precedent for the order are not met.
2.​ Chargee’s title is defeasible.
3.​ Granting the order violates common law principles.

Sale of Charged Land

●​ S. 257 – Form H:
○​ Maimunah Megat Kontak [1996] – S. 257 is mandatory (sale process must follow statutory
requirements).
●​ S. 258 – Prior to Sale:
○​ OFS must specify the total amount due (Letchumanan v Central Malaysian Finance [1980]).
○​ If no bidders after 1st or 2nd sale, court may allow a private treaty sale (Chung Khiaw Bank v
Lau Ah Yen [1989]).

Conclusion: The OFS process requires strict compliance with NLC procedures, ensuring fair notice, accurate
sums, and legal conditions before enforcing a sale. If an OFS is granted, it cannot be set aside unless valid
grounds exist.

Sale & Taking Possession of Charged Land

Sale of Charged Land

●​ S. 259 – Copy of sale must be served on the chargor.

●​ S. 260 – Sale of Land Office Land:
○​ Form 16G is required.
○​ Inquiry is conducted, and the chargee is notified.
○​ Chargor is summoned to show cause why the land should not be sold (S. 23-39 apply).
●​ Choice of Legal Action (Bank Bumiputra Malaysia v Doris Development [1988]) – Chargee can choose
to:
○​ Sell the land, or
○​ Sue the sureties.
○​ Lesco Development v MBSB [1988] – Lender sued both the chargor and guarantor.
●​ S. 263 – The Land Administrator (LA) can order a sale unless "cause to the contrary" is shown.
●​ Siland Sdn Bhd v MJ Frozen Food [1994] – The chargor retains rights over the land until registration of
the new purchaser.

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 ●​ S. 206(3) – Sale outside NLC provisions – Special circumstances may allow this.

Taking Possession of Charged Land (S. 270)

●​ Chargee can take possession by:

1.​ Physically occupying the land.
2.​ Receiving rent and profits (if land is leased/tenanted) without taking physical possession.

Alternative to OFS – Sale by Private Treaty :

●​ If an OFS fails, a private treaty sale may be pursued.

●​ Relevant Cases:
○​ J Raju v Kwong Yik Bank [1994]
○​ Malaysian Building Society Berhad v Ghazi b Abdullah [1994]
○​ MUI Bank Bhd v Chearn Kim Yu [1992]

Challenges in OFS :

1.​ Third-party objections.

2.​ Registrar’s caveat (which may restrict sale).
3.​ Encumbrances (existing burdens on the land).

Conclusion: The chargee has multiple enforcement options, including judicial sale, private treaty sale, or
possession. However, legal challenges, caveats, and third-party claims may complicate the process.

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Topic 2 : Charge

Who Keeps the Title Documents (IDT/DLease/DOA)?

●​ Section 244(1): The first registered chargee (usually the bank that gave the first loan) keeps the land title
documents.
●​ Section 244(2): If there are later (subsequent) loans, the landowner (chargor) can request to see the title
documents by writing to the first chargee, who must show it at the land office.
●​ The first chargee cannot unreasonably say no to such requests (Murugappa Chetty case).

Powers of the Chargee (Lender)

1.​ The first chargee keeps the land title.

2.​ Can take action to recover the debt if the borrower defaults.
3.​ Can transfer the charge to someone else (Section 216 NLC).
4.​ Can rearrange the order of charges through:
○​ Postponement (S.247),
○​ Consolidation and Tacking (with consent or agreement).

Powers of the Chargor (Landowner) After Creating a Charge

1.​ Can create second or more charges (Section 241(2)).

2.​ Can lease or rent out the charged land, but needs consent from the chargee (Sections 251 & 226).

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 ○​ The chargee (especially the first one) cannot unreasonably refuse consent (Murugappa Chetty &
Leisure Complex S/B v Malaysian Credit Finance Bhd).
3.​ Can pay off the loan and ask for a discharge of the charge (use Form 16N, Section 278 NLC).

Priority of Charges

●​ If the land is sold in a public auction, who gets paid first?

1.​ Section 268 explains the order:
1.​ Outstanding rent to State Authority or local council.
2.​ Costs related to the auction.
3.​ The main chargee (first lender).
4.​ Any future amounts (e.g., monthly payments).
5.​ Later chargees (other lenders).
●​ General Rule: First charge created has the highest priority.
1.​ Confirmed in Lai Soon Cheong v Kien Loong Housing Development & Anor. (1993).
●​ Priority order can be changed through:
1.​ Consolidation (Section 245)
2.​ Tacking (Section 246)
3.​ Postponement (Section 247)

Consolidation of Charges

●​ A bank (chargee) may require two properties charged by a borrower (chargor) to be consolidated.
●​ This means: to release (discharge) one property (e.g. Land A), the borrower must also repay the loan for the
other property (Land B).
●​ Effect: Cannot discharge Land A without also discharging Land B.
●​ Section 245 of the NLC restricts this right to consolidate.

Case: Public Finance v Hock Seng Housing Dept (1991)

●​ Two separate lands were charged under two different loans.

●​ A clause in the first charge said s.245 NLC doesn’t apply.
●​ Bank tried to consolidate the charges after applying for sale.

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 ●​ Held: Consolidation must be done before applying for an order for sale.​

Tacking for Further Advances

●​ Example:
○​ Jan 2008: A charges land to B for RM100k (with tacking right).
○​ Mar 2008: A charges same land to C for RM50k.
○​ Aug 2008: A borrows another RM50k from B.
○​ A defaults. B sells land.

If B has right to tack:

●​ B gets RM150k.
●​ C gets nothing.

If B has no right to tack:

●​ B gets RM100k, C gets RM50k.

Section 246 NLC: Tacking is allowed when:

1.​ It is expressly authorised in the first charge; or

2.​ Made with consent of the second chargee.

Effect: Tacking can harm the priority of later charges (e.g. C).

Postponement (Section 247 NLC)

●​ A charge must be registered before it can be postponed.

●​ Postponement allows a later charge to have priority over an earlier one.
●​ Done using Form 16C.
●​ Case: Ling Tee Huah Credit v Lii Tat Credit Mortgage (1990)​

Conclusion

Concept Section Summary

Consolidation s.245 Multiple properties under one loan.

Tacking s.246 One property, multiple advances.

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 Postponement s.247 Change priority of charges.

Topic 3 : Lien A Statutory Dealing

What is a Lien?

●​ A non-registrable security dealing under the NLC.

●​ Used as short-term collateral for a loan.
●​ Not defined in the NLC; courts use the common law definition:​
​
A right to retain someone else’s property until a debt is paid.

Key Features of a Lien

👉
1.​ Deposit of land title (or lease) with the lender.​
The lender must keep the title — if not, they lose the lien.
2.​ Intention to create a lien for securing a loan.
3.​ Lien Holder’s Caveat (LHC) must be entered in the land register.

Note: Even though the NLC no longer mentions "intention to create lien," courts may still consider the purpose of
the transaction.

Legal Basis

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