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2021 MarsdenLR 4007
HIGH COURT MALAYA KUALA LUMPUR
BANK KERJASAMA RAKYAT MALAYSIA BERHAD – Appellant
Versus
REKA INDAH DEVELOPMENT (PENANG) SDN BHD & ORS (ENCL 18) – Respondent
[Suit No: WA-22M-141-02/2020]
Non-compliance with Shariah principles does not invalidate financing contracts; defendants must show genuine triable issues for summary judgment to be denied.
Headnote:(A) Contracts Act 1950 – The principles of Tawarruq in Islamic financing – Validity of financing agreements and enforcement despite allegations of non-compliance with Shariah principles. (Para 23)
(B) Summary Judgment – Requirements for issuance and burden of proof on defendants to present triable issues (Para 14).
(C) Ibra' in Islamic Finance – Obligation of financial institutions to grant rebate only upon early settlement, not upon termination due to default (Para 45).
(D) Legal standards regarding inequitable terminations and estoppel claims in contract law (Para 64).
Facts of the case: The Plaintiff provided two Tawarruq Term Financing-i Facilities to the 1st Defendant, totaling RM60 million, with guarantees from other defendants. The 1st Defendant defaulted on payments, leading to the Plaintiff's summary judgment application.
Findings of Court: The Defendants failed to show legitimate triable issues; the court favored the Plaintiff’s claims and presented unchallenged evidence.
Issues: Whether the Facilities were void under Shariah law and other claims of inequity and procedural unfairness.
Ratio Decidendi: Non-compliance with Shariah principles alone does not invalidate financing agreements under prevailing laws; defenses raised post-default lack merit.
Result: Summary judgment granted in favor of the Plaintiff.
[1] This judgment concerns the Plaintiff's summary judgment application (encl 18) against the Defendants arising from a writ action filed by the Plaintiff against the Defendants in this suit for recovery under Tawarruq Term Financing-i Facilities granted by the Plaintiff to the 1st Defendant and related guarantors.
[2] At the hearing of this application I granted summary judgment for the Plaintiff. This judgment contains the full grounds for my decision.
Background Facts
[3] At the request of the 1st Defendant, the Plaintiff granted the 1st Defendant and the 1st Defendant accepted a Term Financing-i Facility of RM27,000.00 ("the 1st Facility') and a Term Financing-i Facility of RM33,000.00 ("the 2nd Facility'). Both the 1st Facility and the 2nd Facility are referred to together as "the Facilities".
[4] The 1st Facility was documented by the following documents:
a) Letter of Offer dated 19 April 2018 ("the 1st Letter of Offer');
b) Murabah Sale Contracts dated 18 May 2018 ("the 1st Murabahah Sale Contract');
c) Tawarruq Term Financing-i Agreement dated 18 May 2018; and
d) Agency Letter (Wakalah) dated 18 May 2018;
[5] The 2nd Facility was documented by the following documents:
a) Letter of Offer dated 2 July 2018 ("the 2nd Letter of Offer');
b) Murabah Sale Contracts dated 9 October 2018 ("the 2nd Murabahah Sale Contract');
c) Agency Contract (Wakalah) dated 9 October 2018; and
d) Tawarruq Term Financing-i Agreement dated 9 October 2018.
[6] As part of the security arrangement under the 1st Facility, the 2nd Defendant, 3rd Defendant, 4th Defendant and 5th Defendant executed a Join and Several Guarantee and Indemnity dated 18 May 2018 whereby they agreed to guarantee payment of all outstanding sums due and owing by the 1st Defendant to the Plaintiff.
[7] Additonally the 1st Facility was secured by assignments and a charge on the 1st Defendant's assets documented by the following documents:
a) Charge Presentation No 0705SC2012002968 registered on 3 March 2016 over properties held under properties in Ayer Putih, Mukim E, Pulau Pinang;
b) Supplemental Agreement to the Legal Charge (Balik Pulau Project) dated 18 May 2018;
c) Deed of Assignment (Designated Account) (Balik Pulau Project) dated 15 October 2012;
d) Supplemental Agreement to the Deed of Assignment (Designated Account) dated 18 May 2018;
e) Supplemental Agreement to the Deed of Assignment (Designated Account) dated 15 October 2012;
f) Deed of Assignment (Sales Proceed) (Balik Pulau Project) dated 15 October 2012;
g) Supplemental Agreement to the Deed of Assignment (Sales Proceed) (Balik Pulau Project) dated 18 May 2018; and
h) Letter of Undertaking dated 16 May 2018.
[8] As part of the security arrangement under the 2nd Facility, the 2nd Defendant, 3rd Defendant, 4th Defendant and 5th Defendant executed the following:
a) Guarantee and Indemnity by Individuals dated 13 December 2011;
b) Guarantee and Indemnity by Individuals dated 15 October 2012; and
c) Consent to be given by the Individual Guarantors in respect of Restructured Facilities(ies) to be secured by the existing Guarantee and Indemnity") dated 9 October 2018
whereby they agreed to guarantee payment of all outstanding sums due and owing by the 1st Defendant to the Plaintiff.
[9] Additonally, the 2nd Facility was secured by assignments and charges on the 1st Defendant's assets documented by the following documents:
a) Third Party Charge by Prisma Bumiraya Sdn Bhd Presentation No 0705SC2012002960 registered on 15 October 2012 over properties held under properties in Mukim 11 Daerah Paya Barat, Pulau Pinang;
b) Third Party Charge by Prisma Bumiraya Sdn Bhd Presentation No 0705SC2012002961 registered on 15 October 2012 over properties held under properties in Mukim 11 Daerah Paya Barat, Pulau Pinang;
c) Supplemental Legal Charge (Orchard Ville Project) dated 9 October 2018;
d) Supplemental Agreement to the Deed of Assignment (Designated Account) (Orchard Ville Project) dated 15 October 2012;
e) Deed of Assignmen
