A demand for loan repayment may be issued without prior termination of the loan agreement if fraud is established.

[1] Vide an offer letter dated 12 November 2007 and a variation of terms letter dated 30 December 2008, the appellant, Bank Perusahaan Kecil dan Sederhana Malaysia, the plaintiff in the court below, ("the plaintiff") had offered facilities of a working capital loan of RM5 million to, Pinggir Merpati Sdn Bhd, the respondent and the defendant in the court below, ("the 1st defendant") to finance a construction and management project known as Kompleks Medan Selera in Shah Alam.

[2] As security for the loan, the 1st defendant entered into the following agreements:

(a) Loan Agreement - Fixed Asset dated 2 March 2009 ("P3");

(b) Deeds of Assignment (for payment of rental proceeds) dated 2 March 2009;

(c) Debenture dated 2 March 2009;

(d) Memorandum of Deposit Cum Deed of Assignment of Fixed Deposit/Mudharabah Investment Account by Company dated 2 March 2007;

(e) Memorandum of Deposit Cum Deed of Assignment of Fixed Deposit/Mudharabah Investment Account by way of Sinking Fund dated 2 March 2007;

(f) Third Party Deed of Assignment on all rights and benefits by Lazim Berkat Sdn Bhd dated 2 March 2009.

[3] As security for the loan, one Mohd Musyiri bin Majid ("the 2nd defendant") and Syed Mohd Azlee Bin Syed Hassan ("the 3rd defendant") signed a guarantee and indemnity agreement dated 2 March 2010.

[4] In accordance with the agreement, the plaintiff, upon the application of the 1st defendant with supporting documents, disbursed monies in four instalments as follows:

[5] The plaintiff's audit division subsequently discovered that the supporting documents for the disbursement applications that were submitted by the defendants were forgeries.

[6] On 14 April 2010, the plaintiff made a police report that the defendants had used forged documents and tricked the plaintiff into disbursing RM5 million. The police investigations are still ongoing.

[7] The said Kompleks Medan Selera caught fire on 16 January 2010. The insurers submitted a cheque for the insurance compensation claim amounting to RM2,558,751.00 to the plaintiff. The plaintiff set off that amount against the sum owed to them by the defendants. This arrangement was as per P3 as contained in section 8.04 under ARTICLE VIII. This left a balance of RM2,821,988.70 as being due to the defendants.

[8] On 1 July 2011, the plaintiff's solicitors sent a letter of demand to the defendants for the balance RM2,821,988.70. However, the defendants refused to pay.

[9] The plaintiff filed this claim on 12 July 2011 to recover the sum of RM2,821,988.70 together with interest.

[10] The defendants, on the other hand, filed an amended counterclaim dated 10 August 2012 for general and exemplary damages, claiming that the plaintiff had unlawfully terminated the loan agreement.

[11] The High court found that the plaintiff had not made out a case that required the defendants to rebut. The defendants had no case to answer, therefore the plaintiff's claim was dismissed with costs of RM10,000.00. Thus, this appeal by the plaintiff.

[12] The High court also dismissed the counterclaim as the defendants did not give any evidence in support of it. There was, however, no appeal filed by the defendants against the dismissal of the counterclaim.

The Appeal

[13] We heard this appeal on 13 May 2015. After perusing the records of appeal and submissions by both parties, we allowed the appeal by the plaintiff.

[14] Before us, the following two issues were ventilated, namely that:

a. the matter on the sufficiency of notice of demand dated 1 July 2011 to recover the sum of RM2,821,988.70 due and owed; and

b. the matter pertaining to the admissibility of the Audit Report ("P2