Mohd Azmi SCJ:

[1] This appeal poses a serious problem confronting the banking industry in this country, regarding the apparent difficulty in reconciling on the one hand, the indefeasibility of interest of registered chargees under s 340 of the National Land Code, in particular their right to foreclose the charged land, with the right on the other hand, of freezing the land by the Inland Revenue by refusing to remove a Registrar's caveat subsequently entered under s 320(1) (ba) thereby making it quite impossible for any dealing in the land to be effected even if an order of sale under s 256 could be successfully obtained. Further, no person in his right mind would agree to purchase any charged land which is also encumbered with a caveat, especially entered for the purpose of securing the availability of the land to satisfy the income tax liability of the proprietor. The fundamental issue for determination is not merely whether the Registrar's caveat under s 320(1)(ba) can be entered and maintained as of right over land already encumbered with a registered charge, but also more importantly on the issue whether the appellant chargee should have been granted under s 41 Specific Relief Act 1950 and O 15 r 16 RHC 1980 a declaration defining the nature of the respective substantive rights of the parties for the purpose of determining priority coupled with an ancillary order under s 417 NLC to give effect to the declaratory judgment.

[2] We need to say at the outset, that for purpose of convenience, we heard this appeal jointly with another appeal between Pendaftar Hakmilik Negeri Kedah and Oversea-Chinese Banking Corp Ltd, [1991] 2 MLJ 177. Due to some dissimilarity on the facts and different procedure adopted by the chargees, we have decided to deliver separate judgment for each appeal, although the principal issue of law in both appeals relates to s 320(1)(ba) of the Code.

[3] The facts of this particular case may be summarised as follows. On 8 March 1983, one Dr Mohd Rais (the taxpayer/chargor) executed a third party charge to secure the indebtedness of his company, AJK Holding Sdn Bhd to the appellant bank, over a piece of land held under G No 35 Lot 9064, Mukim of &ang. The land is held under land office title and the land was then free of encumbrances or caveats. On 17 March 1987, that is some four years after the charge was registered, the Land Administrator (1st respondent) who is the "Registrar" in the case of land office title, entered a Registrar's caveat on the charged land pursuant to s 320(1)(ba) of the Code at the request of the Inland Revenue (2nd respondent). The Land Administrator notified the Inland Revenue and Dr Mohd Rais of the entry of the Registrar's caveat but not the appellant chargee. The grounds for the caveat is to protect the interest of the Federation in that Dr Mohd Rais has not settled his income tax due to Inland Revenue. On 27 April 1987, that is shortly after the Registrar's caveat was entered, but before the appellant chargee became aware of it, the appellant chargee having obtained judgment against the principal borrower AJK Holdings for RM11.2 million, initiated foreclosure proceedings against the charged land for the purpose of realising the security towards the repayment of debt due. The forced value of the land was estimated by a professional valuer at RM1.8 million. There is no likelihood for a surplus assuming that the appellant chargee is entitled to have priority of payment. On 11 April 1988, before any order for sale was made, a foreign embassy in Kuala Lumpur showed an interest in purchasing the land by a private treaty at RM1.8 million. On 10 October 1988, solicitors for Dr Mohd Rais applied to the Inland Revenue for the removal of the Registrar's caveat. The request was refused. Although the entry of the caveat was never communicated to the appellant, Counsel for the appellant did attempt to introduce before us a definite date of knowledge by way of fresh evidence that the firs