A loan agreement deemed illegal under the Moneylenders Act 1951 is unenforceable, and the lender must return any interest received.

JUDGMENT

Quay Chew Soon J:

Introduction

[1] This is a claim by the Plaintiff ("P") against the Defendants for recovery of a loan in the sum of RM1 million, plus accrued interest. The 1st Defendant ("D1") in turn filed a counterclaim against P for a sum of RM500,000, on account of emotional stress suffered as a result of intimidation by P.

[2] After a full trial, I dismissed both P's claim and D1's counterclaim. Here are the grounds of my judgment.

The Plaintiff's Case

[3] P's case is this.

[4] On 24 January 2022, P and D1 signed a loan agreement dated 24 January 2022 ("loan agreement"). Pursuant to the loan agreement, P lent a sum of RM1 million ("loan") to D.

[5] The salient terms of the loan agreement are as follows:

(a) Clause 2 - Repayment of the Loan

"The Borrower hereby agree and undertake to repay the Loan free of interest to the Lender on demand and upon requested by the Lender but in any event not later than one (1) month from the date of this Agreement failing which an interest of 6.5 percentage per month on daily basis will be imposed on the Loan or any part thereof which is outstanding without prejudice to the rights of the Lender for remedies under cl 3 herein."

(b) Clause 3 - Rights upon Default

"In the event the Borrower default in payment within the period stipulated hereof, the balance sum of the Loan shall immediately become due and payable and the Borrower shall repay the outstanding Loan immediately from the date of default failing which interest of 6.5 percentage on the unpaid loan calculated on monthly basis and the Lender shall be entitled to institute legal proceedings against the Borrower to recover the said sum from the Borrower and the Borrower shall be liable for all the cost and expenses in relation to and incidental to the said proceedings (including the legal costs on a solicitors-clients basis) shall be paid and borne by the Borrower."

[6] P asserts that he has disbursed the loan in accordance with D1's instruction to him via WhatsApp on 24 January 2022. To wit, P deposited a sum of RM935,000 into a Maybank bank account belonging to the 2nd Defendant. And cash in the sum of RM65,000 was handed over to D1 personally.

[7] Pursuant to cl 2 of the loan agreement, D1 is required to repay the loan to P on or before 23 February 2022. To wit, not later than one month from the date of the Agreement. D1 did not do so.

[8] D1 has paid interest in the aggregate sum of RM715,000 to P as of December 2022. Such interest payment is calculated based on cl 2 of the Agreement. Namely, interest at the rate of 6.5% per month on the loan, which translates to an interest sum of RM65,000 per month. For a period of eleven months, from February 2022 to December 2022.

[9] P avers that D1 has breached the loan agreement by failing to repay the loan to P. At para 14 of the Statement of Claim, P prays for the following:

(a) the principal loan sum of RM1 million;

(b) contractual interest at the rate of 6.5% per month on the principal loan sum of RM1 million, from 24 January 2023 until the date of judgment; and

(c) interest at the rate of 5% per annum on RM1 million from the date of judgment until the date of full settlement.

The Defendants' Case

[10] DTs pleaded case is this.

[11] D1 was forced to sign the loan agreement, without being given the opportunity to read and understand the terms therein. As such, he did not have any knowledge of the interest charged and the repayment period of the loan. (See paras 8, 11, 16 and 24 of the Statement of Defence).

[12] D1 did not receive a copy of the loan agreement after its signing. He only saw the terms of the loan agreement after receiving a copy from the solicitor concerned on 31 May 2023. (See para 7 of the Statement of Defence). In other words, D1 only received a copy of the loan agreement more than one year after its execution.

[13] The loan agreement was stamped only on 20 January 2023. Which is approximately one year after its execution. And two days after D1 had lodged a police report against P. Al