A Corporate Guarantee is considered a security under the Stamp Act, precluding entitlement to remission of stamp duty.

JUDGMENT

Narkunavathy Sundareson JC:

Introduction

[1] Enclosure 1 is the Plaintiff's appeal under s 39 Stamp Act 1949 (Act 378) against the decision of the Defendant dated 7 April 2022.

[2] After considering the cause papers and the oral submissions by the parties, this Court decided to dismiss the Plaintiff's appeal in Enclosure 1. The following are the reasons for the decision.

Case Stated

[3] From the Case Stated [Enclosure 7] filed by the Defendant, the following are the undisputed facts leading to this appeal. Bank Islam offered the Plaintiff a revolving credit facility of RM 23 million (Tawarruq Facility). Pursuant to the letter of offer dated 1 December 2021, the Plaintiff executed the loan facility agreement dated 17 February 2022 and PLB Engineering Berhad (PLB Engineering) executed the Guarantee Agreement dated 17 February 2022 [Lampiran 2, Enclosure 7].

[4] The Plaintiff applied for a remission of stamp duty on the loan facility agreement under Stamp Duty (Remission) (No.2) Order 2012 (Remission Order No.2). The application was rejected and the Plaintiff was given notice to pay stamp duty in the sum of RM 115,020.00.

[5] The Plaintiff paid the stamp duty under protest and filed their notice of objection under s 38A(1) of Act 378, stating they were entitled to the remission as:

(i) the Tawarruq Facility was an unsecured facility;

(ii) the loan was repayable in one lump sum;

(iii) the stamp duty payable for the loan facility agreement is under item 22(1)(b) of the First Schedule to Act 378;

(iv) the loan agreement fulfils the conditions in Remission Order No.2; and

(v) the Defendant was bound by the decision of the Court of Appeal in Muhibbah Engineering (M) Bhd v. Pemunqut Duti Setem, (Muhibbah Engineering).

[6] The Plaintiff's appeal was rejected by the Defendant. Hence this appeal under section 39 of Act 378. The Defendant framed the following question for this Court's determination:

"whether the Plaintiff's loan facility agreement for RM 23 million is entitled to the remission of stamp duty under Remission Order No.2?"

The Submissions

[7] The Plaintiff argued that they are entitled to the remission under Remission Order No. 2 because the Tawarruq Facility is unsecured. Although there is a corporate guarantee, the Plaintiff maintained that it is not a security because:

(i) it is not an encumbrance vested in Bank Islam over the Plaintiff's properties to enable Bank Islam to realise the loan amount from the properties in the event the Plaintiff defaults;

(ii) Bank Islam will be considered an unsecured creditor as they cannot rely on the corporate guarantee in the event the Plaintiff defaults; and

(iii) the Plaintiff did not pledge any tangible assets or properties as security for Bank Islam to realise in the event of default.

[8] The Plaintiff cited the decisions in Muhibbah Enqineerinq (supra) and State Development Corporation of Penang v. Collector of Stamp Duty, Malaysia [2022] MLRHU 866 [2022] 7 CLJ 159 to assist the Court to determine whether the corporate guarantee was a security.

[9] The Defendant on the other hand, referred to the Tawarruq Facility agreement and schedule which defined and particularised the security for that facility as the corporate guarantee. The Defendant also highlighted the obligations of the guarantor to pay Bank Islam on demand all the monies owing and remained unpaid by the Plaintiff.

[10] The Defendant submitted that the decision in Muhibbah Enqineerinq must be treated with caution as the Court of Appeal was tasked to determine whether a negative pledge was a security and not a corporate guarantee as in the present case.

Analysis And Findings

[11] This Court was mindful of the principles of strict interpretation of taxing statutes enunciated in Cape Brandy Syndicate v. Inland Revenue Commissioners [1921] 1 KB 64 at 71, National Land Finance Co-operative Society Ltd v. Director General of Inland Revenue, [1994] 1 MLJ 99 at 106; [1993] 4 CLJ 339; [1993] 2 AMR 3581, UMBC v. Pekelilinq Trianqle Sdn. Bhd; [1991