Syed Ahmad Idid JC

The plaintiffs are a company incorporated in Malaysia and have their place of business at Wisma Tun Fuad Stephens, Lot No 3, SDB Tower, Karamunsing, Kota Kinabalu, Sabah. Money and Banking in Malaysia

by Bank Negara Malaysia (30th Anniversary Ed, 1959–1989) has this to say:

In 1977, the Sabah Development Bank Bhd was set up by the Sabah State Government to provide for medium and long-term loans in Sabah to private and state enterprises. By the 1980's, the Agricultural Bank of Malaysia followed by the Sabah Development Bank [the plaintiffs] emerged as the leading medium and long-term credit institutions while loans by the Sabah Development Bank Bhd were extended to finance a wide range of activities on the agriculture, manufacturing, utilities and the construction of real estate sectors.

The plaintiffs claimed against the first defendants for the sum of $188,618.09 being outstanding as at 31 January 1986 from a documentary import and revolving credit facility extended by the plaintiffs to the first defendants at the first defendants' request under two letters of offer dated 30 March 1985 and 3 April 1985 respectively, together with interest thereon at the rate of 17.5% pa.

By a continuing guarantee in writing dated 2 April 1985 executed by the second and third defendants in favour of the plaintiffs, the second and third defendants guaranteed on demand to pay the plaintiffs all sums up to the limit of $500,000 in addition to such further sum for interest thereon and other charges, costs and expenses which should at any time be owing or remaining due and unpaid to the plaintiffs from the first defendants.

The plaintiffs also claimed against the first, second and third defendants statutory interest, costs and further or other relief.

At the hearing on 4 July 1991, Mr Sugumar, on behalf of the three defendants, decided to argue only on one point, ie that the plaintiffs, not being licensed as a bank under the Banking Act 1973, had therefore transacted illegally. So the issue he raised was that the transactions,the subject matter of this action, were void pursuant to s 24 of the Contracts Act 1950. What Mr Sugumar meant was that 'the agreement(s) [was/were] not enforceable by law' (s 2(g) of the Contracts Act 1950) He submitted that the object of the agreement was forbidden by law — s 24(a) Contracts Act 1950.

The plaintiffs' contention was that the loan was properly and legally extended to the first defendants and so recoverable in law. The plaintiffs operate as a development bank and since 26 July 1978, the plaintiffs had been duly authorized to use the word 'bank' by the Minister under s 9 of the Banking Act 1973. The activities of the plaintiffs in respect of the loan transaction in this action are not 'banking business' and do not therefore infringe s 3 of the Banking Act 1973 as they do not come within s 2 of that Act. Therefore the plaintiffs do not require a banking licence under the Banking Act 1973 to extend the said loan to the first defendants.

What is a development bank or development finance institution?

According to the Bank Negara Malaysia's 30th anniversary edition of Money and Banking in Malaysia (1959–1989), development finance institutions are specialized financial institutions. They are established to promote a higher level of investment in industries and agriculture. Their functions include the extension of financial assistance in the form of medium and long-term loans and the provision of guarantees for loans. The role played by development finance institution tends normally to complement those of other major financial institutions. They specialize in medium and long-term capital financing as well as supply a range of financial services not normally provided by the commercial banks and the finance companies. Development finance institutions emerged in Malaysia, as in most developing countries, to fill a gap in the supply of financial services that are not usually covered by the estab